The
U.S.
Securities
and
Exchange
Commission
(SEC)
has
trained
its
sights
on
“AI
washing:”
when
companies
lie
about
using
artificial
intelligence.
Last
week,
SEC
Chair
Gary
Gensler
posted
a
video
to
X
warning
that
investment
advisors
might
falsely
claim
to
use
AI
models
to
get
their
clients
a
better
return,
and
that
public
companies
might
falsely
tout
their
AI
technology
to
boost
stock
prices.
Daren
Firestone
is
a
lawyer
who
helps
whistleblowers
earn
rewards
for
exposing
fraud.
He
is
a
partner
at
Levy
Firestone
Muse
and
created
cryptowhistleblower.com.
“Well,
here
at
the
SEC,”
Gensler
warned,
“we
want
to
make
sure
that
these
folks
are
telling
the
truth.”
The
same
day,
the
SEC
announced
it
had
settled
charges
with
two
investment
advisors:
Delphia
and
Global
Predictions.
The
SEC’s
order
sanctioned
the
“robo
advisor
business”
Delphia,
which
held
$187
million
in
assets
under
management,
for
allegedly
making
claims
it
used
“machine
learning
to
analyze
the
collective
data
shared
by
its
members
to
make
intelligent
investment
decisions.”
That
wasn’t
true
when
Delphia
first
made
those
claims
in
a
December
2019
press
release,
and
it
wouldn’t
become
true
as
it
continued
to
make
similar
claims
well
into
2023,
according
to
the
SEC.
The
second
company
settling
with
the
SEC,
Global
Predictions,
claimed
to
use
“[e]xpert
AI
driven
forecasts,”
when,
according
to
the
agency’s
blunt
assessment,
“in
fact
it
did
not.”
Asked
by
the
SEC
to
substantiate
its
claim
to
be
the
“first
regulated
AI
financial
advisor,”
Global
Predictions
“could
not
produce
documents”
to
do
so.
Collectively,
the
two
companies
paid
fines
totaling
$400,000,
not
a
lot
by
SEC
standards,
but
this
is
a
shot
across
the
bow,
a
warning
that
the
SEC
won’t
tolerate
AI
washing.
The
SEC
is
right
to
be
aggressive.
As
of
Jan.
18,
there
were
353,928
.ai
domain
names
registered.
How
many
of
those
353,928
domains
belong
to
a
company
that
actually
uses
AI?
Admittedly,
AI
is
a
broad
category.
IBM,
for
example,
defines
AI
as
“technology
that
enables
computers
and
machines
to
simulate
human
intelligence
and
problem-solving
capabilities.”
When,
as
one
commentator
has
asked,
“does
something
go
from
being
a
Fax
machine
to
being
Samantha
from
Her
or
HAL
from
2001:
A
Space
Odyssey?
Where
do
we
draw
the
line?”
See
also:
Daren
Firestone
—
AI+Crypto:
Trouble
|
Opinion
The
SEC
will
aim
to
avoid
such
esoterica
by
targeting
lies
that
it
can
prove
in
court.
Another
example:
in
February,
the
SEC
filed
a
complaint
against
Brian
Sewell
and
his
company
Rockwell
Capital
Management
LLC.
Sewell
allegedly
raised
$1.2
million
for
a
fund
to
invest
in
cryptocurrency
trading
that
he
claimed
would
employ
“machine
algorithms,”
“artificial
intelligence”
and
a
“machine
learning
model.”
“In
reality,”
the
SEC
alleged,
“Sewell
and
the
Fund
had
none
of
these
things.”
AI
is
the
next
big
thing.
Investors
know
that.
So
do
fraudsters
seeking
to
take
advantage
of
investor
enthusiasm.
The
SEC
is
right
to
send
a
warning
to
those
fraudsters.
