In a move signaling increased scrutiny over the use of artificial intelligence (AI) in investment practices, the Securities and Exchange Commission (SEC) has taken action against two investment advisers for making false and misleading statements about their AI utilization.

Washington D.C., March 18, 2024 — The SEC announced settled charges against Delphia (USA) Inc. and Global Predictions Inc., alleging they misrepresented their use of AI technology. Both firms agreed to settle the charges and pay a total of $400,000 in civil penalties.

SEC Chair Gary Gensler emphasized the importance of transparency, stating, “Investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors.”

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, underscored the need for accuracy in representations about AI usage, especially as more investors consider AI tools for decision-making. He warned that claims of AI adoption must be substantiated to avoid misleading investors.

Delphia and Global Predictions allegedly touted their AI integration in press releases, filings, and on their websites. Delphia claimed to use AI in its investment process, while Global Predictions boasted being the “first regulated AI financial advisor” with “AI-driven forecasts.”

While neither company admitted nor denied the SEC’s findings, Delphia paid a civil penalty of $225,000, and Global Predictions paid $175,000.

The SEC’s enforcement actions come after an Investor Alert issued in January, cautioning individual investors about the risks of AI-related scams. Despite the relatively small fines and the size of the companies involved, these charges represent a significant step in addressing AI-misrepresentation within the investment industry.

As the regulatory landscape evolves, it’s likely that the SEC will continue to scrutinize claims of AI usage, making it essential for firms to ensure accuracy and transparency in their representations. This warning serves as a reminder to investors to remain vigilant and skeptical of exaggerated claims regarding AI technologies in investment practices.

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