SEC fines 2 companies for false claims about use of AI – 03/18/2024 – Market

The SEC (the body that regulates capital markets in the US) has penalized two financial managers for what it considers to be false claims about the use of artificial intelligence, marking the beginning of a new tightening by Wall Street’s main regulator.

The SEC said on Monday (18) that Delphia (USA) and Global Predictions made “false and misleading statements” about the alleged use of the technology.

Global Predictions said it has clarified how it uses AI in its marketing materials and that it “fully cooperated with the investigation and is pleased to move past this.” When contacted, a Delphia lawyer did not respond until the publication of this report.

SEC enforcement chief Gurbir Grewal said at a conference in Orlando, Florida, that the cases were just the beginning of the regulator’s action against the misuse of AI.

“We’re looking for misrepresentations, breaches of fiduciary duties by consultants,” Grewal said.

In addition to allegations of so-called “AI washing” —washing with AI, in the sense of taking advantage of enthusiasm for technology to improve public image—, the SEC is looking for cases in which technology is used in market manipulation.

The SEC is also aware of conflicts of interest and has a team of people spread across its oversight and examination units investigating the use of AI.

SEC Chairman Gary Gensler has been warning companies about exaggerated claims related to AI.

The agency has specific authorities to oversee the statements that fund managers make to investors. In February, Gensler also warned publicly traded companies to avoid “AI washing” when speaking to investors about using the technology.

According to the SEC, Toronto-based Delphia made false statements about how it was using machine learning in its investment process from 2019 to 2023.

San Francisco-based Global Predictions also made misleading claims, such as that it was the first regulated financial advisor using AI, among other statements, according to the regulator.

Neither company admitted or denied the SEC’s allegations in reaching settlements in their cases. Delphia agreed to pay US$225,000 and Global Predictions agreed to pay US$175,000.

Companies across industries have announced how they are using AI to improve their operations. More than 40% of S&P 500 companies discussed the technology in their annual reports to the SEC, according to a recent Bloomberg Law analysis.

Financial companies are also leveraging technology in everything from lending to trade recommendations.