The U.S. Securities and Exchange Commission has filed charges against two investment advisers over allegations the agency made misleading statements related to the firm's use of artificial intelligence, the SEC said Monday.
The SEC accused the US arm of Canadian company Delphi and US-based Global Forecasts of violating antitrust laws, or “AI wash”. After the agency issued a cease-and-desist order, the two companies agreed to settle the lawsuit and pay a total of $400,000 in civil penalties.
The SEC charged that from 2019 to 2023, Toronto-based Delphia misled investors and regulators about its AI capabilities and falsely claimed that the technology used customer data to make smart investments. In the year In 2023, the SEC said, San Francisco-based Global Forecasts made misleading statements about being a regulated AI advisor and offering AI-driven forecasts.
“We see that Delphi and Global Forecasts were using AI in certain ways for their customers and prospective customers, when in fact, they were not,” SEC Chairman Gary Gensler said in the announcement. We've seen time and time again that when new technologies come along, they can create false claims from investors and people who claim to use those new technologies.
“Investment advisors should not mislead the public by saying they are using an AI model when they are not. Such AI washing will harm investors,” he continued.
Global Forecasts founder and CEO Alexander Harmsen told Decrypt, “Global Forecasts fully cooperated with the request and we're happy to put this behind us. We also highlighted a new Global Forecast blog post explaining the use of AI, explaining exactly how we use AI in our markets.
Delphi did not immediately respond to Decrypt's request for comment.
The SEC hasn't shied away from pursuing what it sees as illegal securities trading in the crypto space—earlier this month, defunct cryptocurrency exchange ShapeShift agreed to pay $275,000 in fines and comply with a cease-and-desist order allowing users to trade cryptocurrencies. Without registering as a broker or exchanging with an agency – but AI is gaining popularity among regulatory functions.
In the year As talk of artificial intelligence continues to grow in 2023, SEC Chairman Gary Gensler cautioned investors against falsely or misleadingly labeling products or services with artificial intelligence capabilities.
“AI laundering, by financial intermediaries such as investment advisers and broker-dealers, or by companies that raise funds from the public, could violate securities laws,” Gensler said in a video posted Monday. “So everyone may be talking about AI, but when it comes to investment advisors, broker-dealers and public companies, they need to make sure what they're telling investors is true.”
Like “greenwashing,” where a person or company advertises a project as more environmentally and socially responsible, AI wash refers to claims that a company is more AI-driven or technologically advanced than it actually is.
Last month, Gensler highlighted the dangers of generative AI in fact and fiction, citing the 2013 film Her, M3GAN (2023) and The Matrix (1999).
“You don't want your broker or advisor to recommend investments that you've picked up while you're in the thick of it,” says Gensler. “Therefore, when using an AI model, the broker or advisor must ensure that any advice or recommendations provided by the model are not based on illusion or false information.”
Edited by Ryan Ozawa.
