SEC Fines Advisors $400K for False Statements Regarding AI Use

The Security and Exchange Commission (SEC) has settled charges with two investment advisors over making false and misleading statements about their alleged use of AI.

Delphia and Global Predictions agreed to pay $400,000 in civil penalties after claiming they had AI and machine learning capabilities which they did not have.

“We find that Delphia and Global Predictions marketed to their clients and prospective clients that they were using AI in certain ways when, in fact, they were not,” said SEC chair Gary Gensler. “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. Investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors.”

Toronto-based Delphia claimed to possess an AI system that enabled companies to predict investment trends, while San Francisco-based Global Predictions falsely claimed to operate the “first regulated AI financial advisor.”

Both were found to have violated the SEC's Marketing Rule, which prohibits a registered investment firm from publishing advertisements that include untrue statements of material fact.

Neither party admitted nor denied the SEC’s findings, but consented to the orders that stated they broke advertising rules. The pair were censured and instructed to stop further violations.

Related:SEC Mulls Regulating the Use of AI by Brokers and Advisers

Delphia agreed to pay a civil penalty of $225,000 and Global Predictions agreed to pay a civil penalty of $175,000.

Gurbir S. Grewal, director of the SEC’s division of enforcement, described the claims made by the firms as “AI washing” – dubiously marketing a product as AI.

“If you claim to use AI in your investment processes, you need to ensure that your representations are not false or misleading,” Grewal said. “And public issuers making claims about their AI adoption must also remain vigilant about similar misstatements that may be material to individuals’ investing decisions.”

The SEC's Office of Investor Education and Advocacy has released an Investor Alert regarding AI and investment fraud, providing guidance on identifying potential scams, such as the absence of a promoter's registration status.