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๐”๐’ ๐’๐„๐‚ ๐ญ๐š๐ซ๐ ๐ž๐ญ๐ฌ ‘๐€๐ˆ ๐–๐š๐ฌ๐ก๐ข๐ง๐ ’

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The U.S. Securities and Exchange Commission (US SEC) has settled charges against two investment advisers, for making false and misleading statements about their purported use of artificial intelligence (AI) making it one of the first cases of ‘AI Washing’.

 ๐ƒ๐ž๐ฅ๐ฉ๐ก๐ข๐š (๐”๐’๐€) ๐ˆ๐ง๐œ

According to US SEC, Delphia since 2019 to 2023 in its regulatory filings, advertisements, and social media made false and misleading statements with respect to use of AI and machine learning to analyze its retail clientsโ€™ spending and social media data to provide investment advice when in fact the same was not being done by them. 

Further, Delphia claimed that โ€œDelphia uses machine learning to analyze the collective data shared by its members to make intelligent investment decisionsโ€. As per US SEC Delphia, failed to adopt and implement policies necessary to ensure that advertisements that Delphia published, circulated, or distributed were accurate and did not contain misleading or untrue statements.

๐†๐ฅ๐จ๐›๐š๐ฅ ๐๐ซ๐ž๐๐ข๐œ๐ญ๐ข๐จ๐ง๐ฌ ๐ˆ๐ง๐œ

Similarly, Global Predictions claimed to be โ€œfirst regulated AI financial advisorโ€ without any documents to substantiate such a claim. Global Predictions claimed on its public website that its technology incorporated โ€œexpert AI- driven forecasts,โ€ when in fact it did not. It was also alleged that they disseminated hypothetical performance in an advertisement to a mass audience rather than presenting hypothetical performance relevant to the likely financial situation and investment objectives of an intended audience

Without admitting or denying the SECโ€™s findings, Delphia and Global Predictions consented to be censured and to cease and desist from violating the charged provisions. Delphia agreed to pay a civil penalty of $225,000, and Global Predictions agreed to pay a civil penalty of $175,000.  

The US SEC in January, 2024 had already issued an alert for the investors to beware of such investment frauds involving the purported use of the AI and it claimed that there were various unregistered platform / websites which made unrealistic claim like, โ€œOur proprietary AI trading system canโ€™t lose!โ€ or โ€œUse AI to Pick Guaranteed Stock Winners!โ€. 

Similarly in India, if an registered Investment advisor furnishes to SEBI any information which is false or misleading in any material particular, Regulation 28 of the IA Regulations permits SEBI to take actions in accordance with SEBI(Intermediaries) Regulations, 2008. Further, even the Guidelines for IA specified under the Master Circular for Investment Advisers bars any advertisement which contains statements which are false, misleading, biased or deceptive, based on assumptions or projections.

A copy of the SEC orders and is enclosed herewith.

Readers are welcome to send their views to Regstreet Law Advisors at info@regstreetlaw.com

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