SEC Charges Two Investment Advisers for False Statements on AI Use

SEC Charges Two Investment Advisers for False Statements on AI Use: On March 18, 2024, a Securities and Exchange Commission-registered investment adviser settled charges for making false and misleading statements about using artificial intelligence (“AI”). To settle the SEC charges, the firms had to pay $400,000 in civil penalties.

SEC Charges Two Investment Advisers for False Statements on AI Use

“We find that Delphia and Global Predictions marketed to their clients and prospective clients that they were using AI in certain ways when, in fact, they were not,” said SEC Chair Gary Gensler. “We’ve seen time and again that when new technologies come along, they can create buzz from investors as well as false claims by those purporting to use those new technologies. Investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors.”

In its SEC filings, press releases, and website for the past four years, it’s been accused of making misleading statements about artificial intelligence. They didn’t have such resources. A claim that they used artificial intelligence for an advantage in their investment process was deemed a violation of the marketing rule. Moreover, they violated the marketing rule by using the term “expert AI-driven forecasts.”

SEC proposed rules in July 2023 for investment advisers to use artificial intelligence. Investing advisers can’t use artificial intelligence in a way that leads to a conflict of interest between them and their clients based on July’s rules. An investment adviser would have to have a policy and procedure on how to use artificial intelligence. Additionally, advisers would have to keep track of when the technology was implemented.

Consult a lawyer before using or marketing artificial intelligence.

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