TheSecurities and Exchange Commission (SEC) has taken enforcement action againsttwo investment advisory firms for making false and misleading claims aboutusing artificial intelligence (AI) in their investment processes. Bothcompanies agreed to pay a total settlement of $400,000.
SEC Cracks Down on "AIWashing" by Investment Advisers
In separateorders announced today (Monday), the SEC charged Toronto-based Delphia (USA)Inc. and San Francisco-based Global Predictions Inc. with violating securitieslaws by misrepresenting their AI capabilities to clients and potentialinvestors.
Accordingto the SEC's order, from 2019 to 2023, Delphia made false statements aboutusing AI and machine learning that incorporated client data to predictsuccessful investments in its filings, press releases, and website. However,the SEC found Delphia did not possess the claimed AI capabilities.
Similarly,the SEC order stated that in 2023, Global Predictions falsely claimed on itswebsite and social media as the "first regulated AI financialadvisor" and touted providing "Expert AI-driven forecasts,"despite not utilizing AI as advertised.
"We'veseen time and again that when new technologies come along, they can create buzzfrom investors as well as false claims by those purporting to use those newtechnologies," said SEC's Chair, Gary Gensler. "Investment advisersshould not mislead the public by saying they are using an AI model when theyare not."
— U.S. Securities and Exchange Commission (@SECGov) March 18, 2024We announced settled charges against 2 investment advisers, Delphia (USA) Inc & Global Predictions Inc, for making false & misleading statements about their purported use of AI.
Enforcement Director Gurbir Grewal talks more about the cases:https://t.co/T8NcPKfnM9 pic.twitter.com/kuiX6ji*zK0
The SEC's actions came two months after another US regulatory agency, the CFTC, issued a warning to investors about AI investment schemes. According to the regulator, scammers exploit AI by claiming high returns through the use of trading bots, signals, and crypto-asset arbitrage.
CFTC Customer Advisory Cautions the Public to Beware of Artificial Intelligence Scams: https://t.co/4SI2hwOPWq
— CFTC (@CFTC) January 25, 2024
Violations of MarketingRules and Other Charges
Both firmswere charged with violating the SEC's Marketing Rule, which prohibitsinvestment advisers from disseminating advertisem*nts containing untruestatements of material fact.
The SECorder also found that Global Predictions falsely claimed to offer tax-lossharvesting services and included an impermissible liability hedge clause in itsadvisory contracts, among other violations.
Delphia andGlobal Predictions agreed to cease-and-desist orders, censures, and civilpenalties totaling $400,000 without admitting or denying the findings.
Recently, investors faced challenges, including the SEC, whose website disappeared from the internet for several hours. As Finance Magnates reported last Friday, the SEC.gov address was unresponsive from 3 AM GMT for the next six hours. Interestingly, this coincided with sharper declines in the price of Bitcoin, which fell below $70,000.
TheSecurities and Exchange Commission (SEC) has taken enforcement action againsttwo investment advisory firms for making false and misleading claims aboutusing artificial intelligence (AI) in their investment processes. Bothcompanies agreed to pay a total settlement of $400,000.
SEC Cracks Down on "AIWashing" by Investment Advisers
In separateorders announced today (Monday), the SEC charged Toronto-based Delphia (USA)Inc. and San Francisco-based Global Predictions Inc. with violating securitieslaws by misrepresenting their AI capabilities to clients and potentialinvestors.
Accordingto the SEC's order, from 2019 to 2023, Delphia made false statements aboutusing AI and machine learning that incorporated client data to predictsuccessful investments in its filings, press releases, and website. However,the SEC found Delphia did not possess the claimed AI capabilities.
Similarly,the SEC order stated that in 2023, Global Predictions falsely claimed on itswebsite and social media as the "first regulated AI financialadvisor" and touted providing "Expert AI-driven forecasts,"despite not utilizing AI as advertised.
"We'veseen time and again that when new technologies come along, they can create buzzfrom investors as well as false claims by those purporting to use those newtechnologies," said SEC's Chair, Gary Gensler. "Investment advisersshould not mislead the public by saying they are using an AI model when theyare not."
— U.S. Securities and Exchange Commission (@SECGov) March 18, 2024We announced settled charges against 2 investment advisers, Delphia (USA) Inc & Global Predictions Inc, for making false & misleading statements about their purported use of AI.
Enforcement Director Gurbir Grewal talks more about the cases:https://t.co/T8NcPKfnM9 pic.twitter.com/kuiX6ji*zK0
The SEC's actions came two months after another US regulatory agency, the CFTC, issued a warning to investors about AI investment schemes. According to the regulator, scammers exploit AI by claiming high returns through the use of trading bots, signals, and crypto-asset arbitrage.
CFTC Customer Advisory Cautions the Public to Beware of Artificial Intelligence Scams: https://t.co/4SI2hwOPWq
— CFTC (@CFTC) January 25, 2024
Violations of MarketingRules and Other Charges
Both firmswere charged with violating the SEC's Marketing Rule, which prohibitsinvestment advisers from disseminating advertisem*nts containing untruestatements of material fact.
The SECorder also found that Global Predictions falsely claimed to offer tax-lossharvesting services and included an impermissible liability hedge clause in itsadvisory contracts, among other violations.
Delphia andGlobal Predictions agreed to cease-and-desist orders, censures, and civilpenalties totaling $400,000 without admitting or denying the findings.
ADVERTIsem*nT
Recently, investors faced challenges, including the SEC, whose website disappeared from the internet for several hours. As Finance Magnates reported last Friday, the SEC.gov address was unresponsive from 3 AM GMT for the next six hours. Interestingly, this coincided with sharper declines in the price of Bitcoin, which fell below $70,000.
