SEC Fines Two Investment Advisers for “AI Washing”
On March 18, 2024, the SEC announced settled charges against two investment advisers for making false and misleading statements about their use of artificial intelligence (“AI”), which the SEC refers to as “AI washing.” By analogy, the SEC has pursued “greenwashing” cases in connection with false and misleading statements about ESG, which has been anticipated […]
David Blass, Meaghan Kelly, and Michael Osnato are Partners at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Mr. Blass, Ms. Kelly, Mr. Osnato, and Partner Rajib Chanda.
On March 18, 2024, the SEC announced settled charges against two investment advisers for making false and misleading statements about their use of artificial intelligence (“AI”), which the SEC refers to as “AI washing.” By analogy, the SEC has pursued “greenwashing” cases in connection with false and misleading statements about ESG, which has been anticipated to provide a playbook for the SEC to pursue AI-related perceived disclosure failures.
In yesterday’s settlements, the advisers settled anti-fraud charges (Sections 206(2) and 206(4) of the Advisers Act), violations of the Marketing Rule (Rule 206(4)-1), and policy violations (Rule 206(4)-7). The advisers paid combined civil penalties of $400,000.
One settlement involved a registered investment adviser that provided robo-advisory services to retail accounts and also managed pooled investment vehicles. The Order found that the adviser made false and misleading statements in its Form ADV Part 2A brochures, in a press release, and on its website, a sampling of which is as follows:
