Techopedia. AI washing fines begin as SEC cracks down on AI hype

Many companies are capitalizing on the AI hype train, which is a little bit reminiscent of the Dotcom bubble of the late 1990s. Brands are using terms like “AI-enabled” and “AI-powered” in their advertising, creating a new cliché. But there’s a new problem – with new hype comes new responsibilities that apparently aren’t being taken seriously. 

As Techopedia writes, this hype has led to misleading claims, pushing the US Securities and Exchange Commission (SEC) to crack down on companies overstating their AI capabilities. Recently, the SEC fined two investment advisory firms, Delphia and Global Predictions, for falsely marketing AI-powered solutions.

Techopedia reached out to several AI experts including Vaclav Vincalek, virtual CTO and founder of 555vCTO.com to ask them why AI washing is so pervasive.

AI washing is easy because ‘AI’ doesn’t have a good definition

Companies have always wanted to jump on the latest tech trends. AI is no different. But as Vincalek points out, the industry has been quick to AI-wash their products, putting no real substance behind their claims. What does Vincalek see AI as?

“A vague term with no exact definition and with mystical properties — replacing humanity is a dream for every marketer,” says Vincalek.

He says companies are “obfuscating mediocre products with new buzzwords” in order to make their offerings seem more innovative and disruptive than they truly are.”

“They’re trying to out-buzzword the competition,” Vincalek said of the aggressive AI marketing by investment brokers and tech firms.

Two companies fined by SEC for ‘AI washing’ their products

Techopedia’s article explains why companies should heed the SEC’s warning. In the article, it explains that from 2019 to 2023, the Toronto-based firm Delphia made false and misleading statements in its SEC filings, a press release, and on its website about its use of AI and machine learning in its investment process. And San Francisco-based firm Global Predictions falsely claimed on its website and social media to be the "first regulated AI financial advisor" and misrepresented its platform's AI capabilities, back in 2023. Techopedia reports that both firms have agreed to SEC orders finding that they violated the Advisers Act. Delphia will pay a $225,000 civil penalty, while Global Predictions will pay $175,000. They have also consented to censure and agreed to cease and desist from further violations.

In short, the SEC found that Delphia and Global Predictions broke the rules when they claimed their products were AI-powered when in fact, they were not. That’s a big no-no, since it misleads investors.

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