The
Securities and Exchange Commission (SEC) has taken enforcement action against
two investment advisory firms for making false and misleading claims about
using artificial intelligence (AI) in their investment processes. Both
companies agreed to pay a total settlement of $400,000.
SEC Cracks Down on “AI
Washing” by Investment Advisers
In separate
orders announced today (Monday), the SEC charged Toronto-based Delphia (USA)
Inc. and San Francisco-based Global Predictions Inc. with violating securities
laws by misrepresenting their AI capabilities to clients and potential
investors.
According
to the SEC’s order, from 2019 to 2023, Delphia made false statements about
using AI and machine learning that incorporated client data to predict
successful 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 its
website and social media as the “first regulated AI financial
advisor” and touted providing “Expert AI-driven forecasts,”
despite not utilizing AI as advertised.
“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,” said SEC’s Chair, Gary Gensler. “Investment advisers
should not mislead the public by saying they are using an AI model when they
are not.”
We 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/kuiX6JIZK0
— U.S. Securities and Exchange Commission (@SECGov) March 18, 2024
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 Marketing
Rules and Other Charges
Both firms
were charged with violating the SEC’s Marketing Rule, which prohibits
investment advisers from disseminating advertisements containing untrue
statements of material fact.
The SEC
order also found that Global Predictions falsely claimed to offer tax-loss
harvesting services and included an impermissible liability hedge clause in its
advisory contracts, among other violations.
Delphia and
Global Predictions agreed to cease-and-desist orders, censures, and civil
penalties 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.
The
Securities and Exchange Commission (SEC) has taken enforcement action against
two investment advisory firms for making false and misleading claims about
using artificial intelligence (AI) in their investment processes. Both
companies agreed to pay a total settlement of $400,000.
SEC Cracks Down on “AI
Washing” by Investment Advisers
In separate
orders announced today (Monday), the SEC charged Toronto-based Delphia (USA)
Inc. and San Francisco-based Global Predictions Inc. with violating securities
laws by misrepresenting their AI capabilities to clients and potential
investors.
According
to the SEC’s order, from 2019 to 2023, Delphia made false statements about
using AI and machine learning that incorporated client data to predict
successful 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 its
website and social media as the “first regulated AI financial
advisor” and touted providing “Expert AI-driven forecasts,”
despite not utilizing AI as advertised.
“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,” said SEC’s Chair, Gary Gensler. “Investment advisers
should not mislead the public by saying they are using an AI model when they
are not.”
We 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/kuiX6JIZK0
— U.S. Securities and Exchange Commission (@SECGov) March 18, 2024
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 Marketing
Rules and Other Charges
Both firms
were charged with violating the SEC’s Marketing Rule, which prohibits
investment advisers from disseminating advertisements containing untrue
statements of material fact.
The SEC
order also found that Global Predictions falsely claimed to offer tax-loss
harvesting services and included an impermissible liability hedge clause in its
advisory contracts, among other violations.
Delphia and
Global Predictions agreed to cease-and-desist orders, censures, and civil
penalties 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.
