SEC Cracks Down on Two Investment Advisers for Misrepresenting artificial intelligence (ai) Capabilities
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style=”font-size: 11pt;font-family: Arial, sans-serif;background-color: transparent;vertical-align: baseline”>The United States Securities and Exchange Commission (SEC) has imposed settled charges against two investment advisory firms, Delphia (USA) Inc. based in Toronto and Global Predictions Inc. from San Francisco, for making false and misleading statements regarding their utilization of artificial intelligence (ai) technology in their investment processes.
Misrepresentation of ai Capabilities by Delphia and Global Predictions
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style=”font-size: 11pt;font-family: Arial, sans-serif;background-color: transparent;vertical-align: baseline”>Delphia falsely declared the integration of ai and machine learning into its investment process, claiming to employ client data to identify market trends. Conversely, Global Predictions erroneously announced itself as the “first regulated ai financial advisor” and advertised expert ai-driven forecasts.
Violation of Marketing Rule
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style=”font-size: 11pt;font-family: Arial, sans-serif;background-color: transparent;vertical-align: baseline”>Both firms were found in violation of the SEC Marketing Rule which forbids the dissemination of false or misleading advertisements. Delphia was accused of making untrue statements in SEC filings, press releases, and on its Website. Meanwhile, Global Predictions misrepresented tax-loss harvesting services and included impermissible clauses in its advisory contract.
Settlement and Penalties
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style=”font-size: 11pt;font-family: Arial, sans-serif;background-color: transparent;vertical-align: baseline”>Delphia and Global Predictions consented to cease violating securities laws without admitting or denying the SEC’s findings. Delphia agreed to pay a civil penalty of $225,000, and Global Predictions agreed to pay $175,000.
SEC Chair Emphasizes Transparency in ai Usage
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style=”font-size: 11pt;font-family: Arial, sans-serif;background-color: transparent;vertical-align: baseline”>SEC Chair Gary Gensler emphasized the significance of transparency concerning new technologies like ai, cautioning against misleading statements that could potentially harm investors. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, reiterated the commitment to protecting investors from “ai washing” and urged the investment industry to ensure their claims regarding ai usage are factually accurate.
Investor Alert Issued by SEC’s Office of Investor Education and Advocacy
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style=”font-size: 11pt;font-family: Arial, sans-serif;background-color: transparent;vertical-align: baseline”>As a response to these enforcement actions, the SEC’s Office of Investor Education and Advocacy issued an Investor Alert pertaining to investment fraud risks related to ai. The investigation by Anne Hancock, HelenAnne Listerman, John Mulhern, Kimberly Frederick, Brent Wilner, Corey Schuster, and Andrew Dean highlights the significance of adhering to securities regulations in the rapidly advancing landscape of ai-driven investment strategies.
Assistance from Division of Examinations
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style=”font-size: 11pt;font-family: Arial, sans-serif;background-color: transparent;vertical-align: baseline”>Ragni Walker, Thomas Grignol, Peter J. Haggerty, and Roberto Grasso of the Division of Examinations provided assistance in these investigations.
Reminder to Advisers: Accurately Represent ai Usage and SEC Regulations
style=”font-size: 11pt;font-family: Arial, sans-serif;background-color: transparent;vertical-align: baseline”>The settlements reached with Delphia and Global Predictions serve as a reminder to investment advisers to accurately represent their use of ai technology and conform to SEC regulations, ensuring investor protection and market integrity.
