Delphia, Global Predictions fined by SEC in ‘AI washing’ cases – Compliance Week

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Delphia USA and Global Predictions were fined $225,000 and $175,000, respectively, the SEC announced in a press release Monday. The firms each agreed to a censure and to cease and desist from further violations in reaching settlement.

The penalties follow months of warnings by senior leaders at the SEC regarding the concept of “AI washing,” which includes firms marketing applications of the technology in ways they aren’t using it.

The details: From 2019-23, Toronto-based Delphia made false claims about its AI and machine learning capabilities in the investment process in press releases, on its website, and in regulatory filings, the SEC said in its order.

Delphia claimed it tapped client data to make its AI “‘smarter so it can predict which companies and trends are about to make it big and invest in them before anyone else,’” the SEC alleged. The agency said the firm had not developed those represented capabilities.

In 2023, San Francisco-based Global Predictions made false and misleading claims about AI on its website and social media, the agency said in a separate order.

The company claimed to be the “‘first regulated AI financial adviser;’” that it made “‘[e]xpert, AI-driven forecasts;’” and that it offered tax-loss harvesting services, the SEC alleged, all without being able to substantiate those claims.

Compliance considerations: The SEC said Global Predictions failed to implement certain compliance policies and procedures relating to its marketing activities, including:

  • Reviewing and approving all marketing materials in writing prior to dissemination and maintaining a log of approvals;
  • Prohibiting the use of employees’ personal social media for promoting Global Predictions; and
  • Reviewing and approving any posting, liking, or sharing of third-party content by its social media accounts.

The agency found both firms violated its marketing rule, which prohibits investment advisers from spreading advertisements that include untrue statements of material fact.

In a YouTube video, SEC Chair Gary Gensler said, “[E]veryone may be talking about AI, but when it comes to investment advisers, broker-dealers, and public companies, they should make sure that what they say to investors is true.”

“[I]f you claim to use AI in your investment processes, you need to ensure that your representations are not false or misleading,” said Gurbir Grewal, director of the SEC’s Division of Enforcement, in the agency’s release. “And public issuers making claims about their AI adoption must also remain vigilant about similar misstatements that may be material to individuals’ investing decisions.”

Firm response: “Global Predictions cooperated fully with the inquiry and is pleased to put this behind us,” a company spokesperson said in an emailed statement. “Additionally, we have clarified across our marketing how exactly we use AI.”

Delphia did not immediately respond to a request for comment. Both firms agreed to settle without admitting or denying the SEC’s findings.

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