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SEC's AI Crackdown: Misleading Claims Under Scrutiny

Quiver Editor

The SEC’s crackdown on companies overhyping artificial intelligence to investors is expected to intensify, following recent enforcement actions. Since March, the SEC has accused three companies of AI washing, highlighting misrepresentations about their use of AI technology. This move comes after multiple warnings from SEC Chair Gary Gensler, who has acknowledged AI's transformative potential while cautioning against exaggerated claims. The agency's proposed restrictions for brokerages and advisers using AI further emphasize its focus on this issue.

Brian Daly, a partner at Akin Gump Strauss Hauer & Feld, noted the SEC's heightened focus on AI across all divisions, including enforcement. Similarly, W. Hardy Callcott of Sidley Austin compared these cases to those involving Covid treatments and ESG, where companies made misleading statements. The SEC's recent lawsuit against the founder of Joonko, a recruiting platform, for falsely claiming AI capabilities underscores the agency's commitment to tackling AI-related misrepresentations.

Market Overview:
  • SEC intensifies crackdown on AI-related misrepresentations.
  • Three companies accused of AI washing since March.
  • Proposed restrictions for brokerages and advisers using AI.
Key Points:
  • Joonko's founder accused of falsifying AI claims.
  • Delphia and Global Predictions settled SEC claims for $400,000.
  • Comparisons drawn to early SEC actions against crypto misrepresentations.
Looking Ahead:
  • Increased scrutiny on AI claims expected from the SEC.
  • Potential for more sophisticated AI-related enforcement cases.
  • Continued emphasis on accurate disclosures and transparency.

The SEC’s actions reflect its broader strategy to ensure accurate disclosures in the evolving AI landscape. The agency’s measures aim to prevent misleading claims that could potentially destabilize financial markets. As AI technology continues to grow, companies are urged to maintain transparency and avoid overhyping their AI capabilities.

Legal experts believe that while the initial enforcement cases focus on clear misrepresentations, future cases may address more complex issues as the technology and its applications evolve. The SEC's vigilance serves as a reminder for companies to adhere to regulatory standards and ensure truthful communication with investors.

About the Author

David Love is an editor at Quiver Quantitative, with a focus on global markets and breaking news. Prior to joining Quiver, David was the CEO of Winter Haven Capital.

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