SEC Charges Two Investment Advisers With Making False, Misleading AI Claims

A pair of investment advisers have been charged by the Securities and Exchange Commission (SEC) with making “false and misleading statements” about the use of artificial intelligence (AI) and machine learning in their operations.

The companies, Delphia (USA) Inc. and Global Predictions Inc., advertised on their websites and social media, among other places, that they used AI and machine learning algorithms to improve their investment strategies. However, they either didn’t actually have technology as advanced as they claimed, or didn’t use it to the extent they advertised, the SEC found.

“As more and more investors consider using AI tools in making their investment decisions or deciding to invest in companies claiming to harness its transformational power, we are committed to protecting them against those engaged in ‘AI washing,’ ” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said. “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.”

A Global Predictions spokesperson told Investopedia the company “cooperated fully with the inquiry and is pleased to put this behind us. Additionally, we have clarified across our marketing how exactly we use AI.”

The company published a blog post Monday to clarify how it uses AI in its products.

Between 2019 and 2023, Toronto-based Delphia made a variety of claims about its use of AI in SEC filings, press releases, and on its website, including statements claiming it “turns your data into an unfair investing advantage,” among others. Delphia managed about $187 million in assets as of September 2023, according to an SEC filing.

The SEC found that statements like that were misleading or false, as Delphia didn’t have the AI capabilities it advertised, and the company admitted in 2021 that it had made false statements. Some of those statements were altered or removed, but the SEC found again in 2023 that Delphia had made more false statements since first telling the SEC in July and October 2021 that it had done so.

As of Monday morning, a “How it Works” page on Delphia’s website now says the company “wants to turn your data into an unfair investing advantage,” an indication of potential future activity instead of stating current capabilities.

San Francisco-based Global Predictions also was found to have made false or misleading statements, including advertising itself as the “first regulated AI financial advisor,” while not being able to provide evidence of that claim to the SEC. Global Predictions also inaccurately stated in marketing materials that it used “[e]xpert AI-driven forecasts,” the SEC found.

Global Predictions also appeared to inflate the amount of assets in its portfolio, as well as the effectiveness of its models at outperforming other economic benchmarks , the SEC said.

The companies didn’t admit or deny the SEC’s findings, and will settle the charges by paying a total of $400,000 in penalties, $225,000 from Delphia and $175,000 from Global Predictions. Delphia didn’t immediately respond to requests for comment.