SEC Charges Two Investment Advisers with False Claims on AI Usage

The Securities and Exchange Commission (SEC) has brought forth charges against two investment advisers, Delphia (USA) Inc. and Global Predictions Inc., for allegedly making false and misleading statements regarding their use of artificial intelligence (AI). The regulatory authority revealed that both firms have agreed to settle the charges, collectively agreeing to pay $400,000 in total civil penalties.

SEC Chair Gary Gensler emphasized the importance of transparency and accuracy in investment practices, stating, “We find that Delphia and Global Predictions marketed to their clients and prospective clients that they were using AI in certain ways when, in fact, they were not. Investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors.”

The Director of the SEC’s Division of Enforcement, Gurbir S. Grewal, echoed these sentiments, underscoring the need to protect investors from misleading claims about AI adoption in investment processes. “As today’s enforcement actions make clear to the investment industry – if you claim to use AI in your investment processes, you need to ensure that your representations are not false or misleading,” stated Grewal.

According to the SEC’s findings, Delphia, headquartered in Toronto, allegedly made false and misleading statements between 2019 and 2023 in its SEC filings, press releases, and website content regarding its purported utilization of AI and machine learning in its investment strategies. The firm claimed to incorporate client data into its AI-driven investment process, asserting capabilities that it did not possess. Delphia was charged with violating the Marketing Rule by disseminating advertisements containing untrue statements of material fact.

Similarly, the SEC's order against San Francisco-based Global Predictions found the firm guilty of making false and misleading claims in 2023 about its use of AI. The company falsely touted itself as the "first regulated AI financial advisor" and misrepresented its platform's capabilities in providing expert AI-driven forecasts. Furthermore, Global Predictions falsely claimed to offer tax-loss harvesting services and included an impermissible liability hedge clause in its advisory contract, among other violations of securities laws.

Both Delphia and Global Predictions have consented to the SEC's orders without admitting or denying the findings. As part of the settlements, Delphia agreed to pay a civil penalty of $225,000, while Global Predictions agreed to pay $175,000. Additionally, both firms are subject to censure and have been ordered to cease and desist from violating the charged provisions.

The SEC’s actions underscore its commitment to maintaining integrity and transparency in the investment industry, particularly concerning the burgeoning field of AI utilization in investment processes. As investors increasingly consider AI-driven tools in their decision-making, regulatory vigilance remains paramount to safeguard against deceptive practices that could potentially harm investors' interests.

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