SEC sues Delphia and Global Predictions out of $400,000 for “AI washing”
“As more and more investors consider using AI tools in making their investment decisions or deciding to invest in companies claiming to harness its transformational power, we are committed to protecting them against those engaged in ‘AI washing’.”
The Securities and Exchange Commission has sued Delphia (USA) Inc. and Global Predictions Inc. for making false and misleading statements about their purported use of artificial intelligence (AI).
What Delphia and Global Predictions were accused of doing is what is now known as “AI washing”, a term used to describe the practice where companies falsely or misleadingly claim that their products or services are powered by artificial intelligence (AI), when in fact they may not be using AI technologies or are using them minimally.
This can be a marketing strategy to capitalize on the popularity and perceived value of AI, making the offerings seem more innovative or effective than they actually are. It is similar to “greenwashing,” where companies overstate the environmental friendliness of their products. AI washing can mislead consumers and investors, affecting their decision-making process based on inaccurate representations of technology use.
Delphia to pay $225,000, Global Predictions to pay $175,000
The two investment advisers agreed to settle the SEC’s charges and pay $400,000 in total civil penalties. Delphia agreed to pay a civil penalty of $225,000, and Global Predictions agreed to pay a civil penalty of $175,000.
According to the SEC’s order against Delphia, from 2019 to 2023, the Toronto-based firm made false and misleading statements in its SEC filings, in a press release, and on its website regarding its purported use of AI and machine learning that incorporated client data in its investment process.
Delphia claimed that it “put[s] collective data to work to make our artificial intelligence smarter so it can predict which companies and trends are about to make it big and invest in them before everyone else.” The statements were false and misleading because Delphia did not in fact have the AI and machine learning capabilities that it claimed.
In the SEC’s order against Global Predictions, the SEC found that the San Francisco-based firm made false and misleading claims in 2023 on its website and on social media about its purported use of AI. For example, the firm falsely claimed to be the “first regulated AI financial advisor” and misrepresented that its platform provided “[e]xpert AI-driven forecasts.”
Additionally, both firms violated the Marketing Rule which, among other things, prohibits a registered investment adviser from disseminating any advertisement that includes any untrue statement of material fact.
“You need to ensure that your representations are not false or misleading”
“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. 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,” said SEC Chair Gary Gensler.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, commented: “As more and more investors consider using AI tools in making their investment decisions or deciding to invest in companies claiming to harness its transformational power, we are committed to protecting them against those engaged in ‘AI washing’. As today’s enforcement actions make clear to the investment industry – if you claim to use AI in your investment processes, you need to ensure that your representations are not false or misleading. And public issuers making claims about their AI adoption must also remain vigilant about similar misstatements that may be material to individuals’ investing decisions.”
