The Securities and Exchange Commission (SEC) has announced settled charges against two investment advisers, Delphia (USA) Inc. and Global Predictions Inc., for making false and misleading statements regarding their use of artificial intelligence (AI). The firms have agreed to pay a total of $400,000 in civil penalties.
Misleading statements about AI usage
Delphia, based in Toronto, falsely claimed to incorporate AI and machine learning into its investment process, stating it utilized client data to predict market trends. Similarly, San Francisco-based Global Predictions misrepresented its AI capabilities, claiming to be the “first regulated AI financial advisor” and offering expert AI-driven forecasts.
The SEC found both firms in violation of the Marketing Rule, which prohibits the dissemination of false or misleading advertisements. Delphia was charged with making untrue statements in SEC filings, press releases, and on its website. At the same time, Global Predictions falsely claimed to offer tax-loss harvesting services and included impermissible clauses in its advisory contract.
Settlement and penalties
Without admitting or denying the SEC’s findings, Delphia and Global Predictions have consented to desist from violating securities laws. Delphia agreed to pay a civil penalty of $225,000, while Global Predictions agreed to pay $175,000.
SEC Chair Gary Gensler emphasized the importance of transparency in the use of new technologies like AI, warning against misleading claims that could harm investors. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stressed the commitment to protecting investors from ‘AI washing’ and urged the investment industry to ensure their representations about AI usage are accurate.
Investor alert issued
In response to these enforcement actions, the SEC’s Office of Investor Education and Advocacy has issued an Investor Alert highlighting the risks of investment fraud related to artificial intelligence.
The SEC’s investigation, conducted by Anne Hancock, HelenAnne Listerman, and John Mulhern, with supervision from Kimberly Frederick, Brent Wilner, Corey Schuster, and Andrew Dean, underscores the importance of compliance with securities regulations in the rapidly evolving landscape of AI-driven investment strategies. Ragni Walker, Thomas Grignol, and Peter J. Haggerty of the Division of Examinations, along with Roberto Grasso of the Division’s Office of Risk and Strategy, assisted with the investigations.
The settlements reached with Delphia and Global Predictions serve as a reminder to investment advisers to accurately represent their use of AI and adhere to SEC regulations, ensuring investor protection and market integrity.
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