In a recent crackdown on fraudulent practices within the investment sector, the Securities and Exchange Commission (SEC) has imposed fines totaling $400,000 on two investment advisors for misleading investors with false claims about their utilization of artificial intelligence (AI). The fines warn investors to remain vigilant against AI washing scams, where companies exaggerate or misrepresent their use of AI technology to attract investments.
Misleading claims and false advertising
Delphia USA and Global Predictions, the two investment advisors in question, were found guilty of making untrue claims about their AI capabilities, leading investors to believe that sophisticated machine learning algorithms drove their stock picks. The SEC’s investigation revealed that both companies engaged in deceptive practices, misrepresenting their use of AI technology to attract investors.
According to the SEC’s press release, Delphia marketed itself as utilizing AI and machine learning in its investment process, incorporating client data to inform its stock picks. However, the SEC’s order uncovered Delphia’s marketing, which contained false and misleading statements, as the company did not possess the AI capabilities it claimed.
Similarly, Global Predictions falsely advertised its use of AI on its website and social media platforms in 2023, claiming to be the “first regulated AI financial advisor.” The SEC found that the company made misleading claims about its AI capabilities, deceiving investors into believing that advanced AI algorithms drove its investment strategies.
Regulatory action and investor protection
In addition to imposing fines on the two investment advisors, the SEC ordered both firms to “desist” from further violations. The regulatory action reminds investors to carefully scrutinize disclosures made by companies promoting AI products or services. The SEC advises investors to be cautious of companies prioritizing attracting investors through promotional tactics over genuine technological development.
As the “public company watchdog,” the SEC urges investors to enhance their awareness by utilizing resources such as Edgar filings and seeking input from top-ranked analysts. By conducting thorough research and analysis, investors can make informed investment decisions and mitigate the risk of falling victim to AI-washing scams.
Enhancing investor awareness and due diligence
Investors are encouraged to leverage platforms like TipRanks, which provide insights from top stock analysts to aid investment decisions. By accessing expert opinions and ratings, investors can gain valuable company perspectives and avoid falling prey to fraudulent schemes.
In light of the SEC’s enforcement actions, investors must remain vigilant and exercise due diligence when evaluating investment opportunities. By scrutinizing claims made by companies regarding their use of AI technology and conducting thorough research, investors can protect themselves from falling victim to deceptive practices.
Source: https://www.cryptopolitan.com/sec-fines-investment-advisors-for-ai/