AI Misuse Case — Investment Firms Slapped with $400k Fine by SEC

The U.S. Securities and Exchange Commission (SEC) has announced penalties against two investment advisors, Delphia (USA) Inc. and Global Predictions Inc., for deceiving investors with false claims about their use of AI.

Both firms agreed to pay a total of $400,000 in penalties to settle the charges.

The guilty

The SEC found that Toronto-based Delphia made false statements between 2019 and 2023, claiming to use AI and machine learning in its investment process. However, it lacked the claimed capabilities, violating the Marketing Rule by disseminating false statements.

On the other hand, San Francisco-based Global Predictions similarly misled investors in 2023 by falsely claiming to be the first regulated AI financial advisor and providing AI-driven forecasts. It also falsely advertised tax-loss harvesting services and included improper liability hedge clauses in its contracts.

Both firms agreed to cease further violations. Delphia will pay a civil penalty of US$ 225,000, and Global Predictions will pay US$ 175,000. The SEC's Office of Investor Education and Advocacy has issued an alert warning about AI-related investment fraud.

The Office of Investor Education and Advocacy's alert underscores the need for investors to exercise caution and due diligence when considering investments purportedly leveraging AI. While AI can offer valuable insights, investors must verify the authenticity of claims and scrutinize the capabilities of firms offering AI-driven services.

The SEC's enforcement actions serve as a deterrent to other investment advisors tempted to mislead investors with exaggerated or false claims about AI usage.

“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,” says Gurbir S Grewal, Director of the SEC’s Division of Enforcement.