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SEC: Investment Advisers Made Phony AI Claims

SEC

Federal regulators have charged two investment advisers with making fraudulent claims about their AI usage.

Delphia and Global Predictions have agreed to settle charges by the Securities and Exchange Commission (SEC) and pay a total of $400,000 in civil penalties, the regulator announced Monday (March 18).

“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,” SEC Chair Gary Gensler said in a news release.

“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.”

According to the SEC, Toronto-based Delphia made a series of false or misleading claims between 2019 and 2023 about its use of artificial intelligence (AI) and machine learning to predict which companies and trends would be ripe investment targets.

In the case of Global Predictions, the SEC said the San Francisco-based firm falsely claimed to be the “first regulated AI financial advisor” and that its platform offered “expert” AI-driven forecasts. Neither company has admitted to any wrongdoing, but consented to the SEC’s findings that they violated the Advisers Act.

PYMNTS has contacted  Delphia for comment but has not yet received a reply.

“Global Predictions cooperated fully with the inquiry and is pleased to put this behind us,” a spokesperson for the company told PYMBNTS. “Additionally, we have clarified across our marketing how exactly we use AI.”

The company also posted a blog entry clarifying our its of AI and how it has repositioned its PortfolioPilot as “Your Personal AI Financial

“When we received regulatory approval as a Registered Investment Advice in August 2023, we launched our paid subscription program for PortfolioPilot.com,” the blog post said.

“In 2023, we announced our offering as the ‘First regulated AI financial adviser’ to differentiate ourselves from Robo-Advisers and human financial advisers.”

The SEC last year warned companies against making false artificial intelligence claims, with Gensler referring to the practice as “AI washing” during a conference. The term is a play on “greenwashing,” the term for when businesses inflate their environmental records.

“Don’t do it,” said Gensler. “One shouldn’t greenwash, and one shouldn’t AI wash.”

A week later, The Wall Street Journal reported that the agency had sent queries to several investment advisers seeking more information about their AI use.