The U.S. Securities and Exchange Commission (SEC) is taking a strong stance against “AI washing,” the deceptive practice of companies making false claims about using artificial intelligence. In an effort to protect investors, the SEC is cracking down on investment advisors and public companies that falsely tout their AI technology to boost stock prices and attract clients.
SEC Chair Gary Gensler recently posted a video emphasizing the importance of truthfulness in this matter. He warned that investment advisors may falsely claim to use AI models to provide better returns for their clients, and public companies might exaggerate their AI capabilities to manipulate stock prices.
This vigilant approach from the SEC comes after the settlement of charges against two investment advisors: Delphia and Global Predictions. Delphia, a “robo advisor business” with $187 million in assets under management, was sanctioned by the SEC for making false claims about using machine learning to make intelligent investment decisions. These claims were made in a press release back in 2019 and continued until 2023, despite lacking any substance or truthfulness.
Global Predictions, on the other hand, claimed to use expert AI-driven forecasts but failed to provide any evidence to support this claim when asked by the SEC. The agency found that Global Predictions did not actually utilize AI technology as it had advertised. As a result, both companies faced fines totaling $400,000 as a stern warning that the SEC will not tolerate AI washing.
The SEC’s assertion of authority is well-founded. The number of registered .ai domain names has reached 353,928 as of January 18th. However, it remains uncertain how many of these domains actually belong to companies that genuinely utilize AI technology. Defining AI is a complex task, with various interpretations and degrees of sophistication. While IBM defines AI as technology that allows computers and machines to simulate human intelligence, differentiating between simple automation and advanced AI capabilities can be challenging.
To avoid getting tangled in philosophical debates, the SEC focuses on tackling provable lies in court. An example of such an enforcement action is the case against Brian Sewell and his company Rockwell Capital Management LLC. Sewell allegedly raised $1.2 million for a fund that would use “machine algorithms,” “artificial intelligence,” and “machine learning models” for cryptocurrency trading. However, the SEC discovered that Sewell and his fund had none of these technological features, exposing their false claims.
The rise of AI has attracted the attention of both investors and fraudsters. Investors recognize the potential of AI to revolutionize various industries, making them susceptible to false claims. In response, the SEC is determined to send a clear warning to fraudsters who seek to exploit this growing enthusiasm. By cracking down on AI washing, the SEC aims to protect investors from misleading information and ensure a more transparent and trustworthy investment landscape.
Frequently Asked Questions
Q: What is AI washing?
A: AI washing refers to the deceptive practice of companies making false claims about utilizing artificial intelligence to gain credibility or manipulate stock prices.
Q: How is the SEC addressing AI washing?
A: The SEC is actively pursuing legal actions against investment advisors and public companies that make false claims about using AI technology. They aim to expose and penalize those engaging in AI washing to protect investors from misleading information.
Q: What are some recent examples of AI washing?
A: The SEC recently settled charges with Delphia and Global Predictions, two companies accused of falsely claiming to leverage AI technology for investment decisions. Both companies faced fines for their deceptive practices.
Q: How does the SEC determine if AI claims are false?
A: The SEC focuses on investigating and substantiating claims made by companies. If they can prove that the claims are false and misleading, they take legal action against the offending parties.
Q: What is the purpose of cracking down on AI washing?
A: The SEC’s crackdown aims to safeguard investors from misinformation and ensure trust in the investment landscape. By holding companies accountable for false claims, they protect investor interests and promote transparency.
The deceptive practice of AI washing has caught the attention of the U.S. Securities and Exchange Commission (SEC), which is taking a strong stance against companies that make false claims about using artificial intelligence. This crackdown is driven by the SEC’s commitment to protecting investors and maintaining integrity in the market.
As the popularity of AI continues to skyrocket, the SEC is keeping a close eye on investment advisors and public companies that exaggerate their AI capabilities to manipulate stock prices and attract clients. SEC Chair Gary Gensler has emphasized the importance of truthfulness in this matter and warns against investment advisors falsely claiming to use AI models to provide better returns for their clients.
Recent enforcement actions by the SEC have resulted in charges against companies engaged in AI washing. One such example is Delphia, a “robo advisor business” that was sanctioned by the SEC for making false claims about using machine learning to make investment decisions. This deceptive practice was carried out through press releases and continued for several years, even though there was no substance or truth behind the claims. Delphia faced fines as a result.
Another case involved Global Predictions, which claimed to use expert AI-driven forecasts but failed to provide evidence to support this claim when questioned by the SEC. The company was found to have not actually utilized AI as advertised. For their deceptive practices, Global Predictions also faced fines and penalties.
The SEC’s crackdown on AI washing is essential given the rapidly increasing number of registered .ai domain names, which has reached 353,928 as of January 18th. However, it remains uncertain how many of these domains genuinely belong to companies that utilize AI technology. Defining AI itself is a complex task, with various interpretations and degrees of sophistication. This challenge makes it difficult to differentiate between simple automation and advanced AI capabilities, further emphasizing the need for the SEC’s intervention.
To avoid engaging in philosophical debates about the nature of AI, the SEC focuses on tackling provable lies in court. An example of such an enforcement action is the case against Brian Sewell and his company Rockwell Capital Management LLC. Sewell allegedly raised funds for a cryptocurrency trading fund by making false claims about the utilization of AI technology. The SEC uncovered the lack of technological features and exposed the deception.
The rise of AI has not only attracted the attention of investors but also of fraudsters. Investors recognize the potential of AI to revolutionize various industries, making them susceptible to false claims. In response, the SEC is determined to send a clear warning to those seeking to exploit the growing enthusiasm around AI. By cracking down on AI washing, the SEC aims to protect investors from misleading information and ensure a more transparent and trustworthy investment landscape.
For more information on the SEC’s efforts to combat AI washing, visit the SEC website.
The source of the article is from the blog krama.net