Decoding the SEC’s First “AI-Washing” Enforcement Actions
Two recent SEC enforcement actions offer a first look at how the agency is approaching the use of artificial intelligence (“AI”) tools by registered firms. Against the backdrop of its pending proposed rules regarding predictive data analytics (“PDA”) and artificial intelligence, the SEC on March 18, 2024 announced settled charges against two investment advisers—Delphia (USA) Inc. (“Delphia”) and […]
Amy Jane Longo is a Partner, Shannon Capone Kirk is Managing Principal & Global Head of Advanced E-Discovery and A.I. Strategy, and Isaac Sommers is an Associate at Ropes & Gray LLP. This post is based on their Ropes & Gray memorandum.
Two recent SEC enforcement actions offer a first look at how the agency is approaching the use of artificial intelligence (“AI”) tools by registered firms. Against the backdrop of its pending proposed rules regarding predictive data analytics (“PDA”) and artificial intelligence, the SEC on March 18, 2024 announced settled charges against two investment advisers—Delphia (USA) Inc. (“Delphia”) and Global Predictions, Inc. (“Global Predictions”)—involving allegations that the firms’ promotional materials exaggerated their use of AI or machine learning in their investment services, a practice the SEC has described as “AI-washing.” Finding violations of the Investment Advisers Act rules governing marketing and compliance policies and procedures (Sections 206(2) and 206(4) and Rules 206(4)-1 and 206(4)-7 thereunder), the settled orders imposed civil penalties against Delphia and Global Predictions of $225,000 and $175,000, respectively.
