US SEC chair Gary Gensler condemned “AI washing” or the abuse of artificial intelligence (AI) and said such activities “may violate the securities laws.”

Gensler made the statements on March 18 in tandem with lawsuits and regulatory action by the SEC against AI washing, which occurs when members of the financial sector make false claims about AI use.

AI washing

Gensler warned that investment advisers and broker-dealers might say that they use AI to provide higher returns on investment. He also suggested that executives at publicly traded companies may try to improve stock prices by discussing their use of AI.

Gensler emphasized that all claims must be accurate, stating:

“Here at the SEC, we want to make sure that these folks are telling the truth. In essence, they should say what they’re doing.”

Gensler noted that AI technology has unprecedented transformative potential in a way that is comparable with the internet and said it is already being used to improve “inclusion, efficiency, and user experience” within the financial system.

Two AI settlements

Gensler’s statements come alongside new AI-related lawsuits and settlements from the SEC.

The SEC charged and settled with Delphia (USA) Inc. and Global Predictions Inc., two investment advisers that made false and misleading statements about their use of AI.

Delphia claimed that it used AI in conjunction with its data to predict which companies are about to “make it big” and invest early. Meanwhile, Global Predictions falsely claimed to be the “first regulated AI advisor” and claimed to provide “expert AI-driven forecasts.”

In a statement, SEC Enforcement Director Gurbir Grewal said:

“Neither of the firms had the AI capabilities that they claim they had … simply put, that’s called AI washing, and it hurts investors.”

Delphia and Global Predictions paid $225,000 and $175,000 in civil penalties, respectively, as part of the settlement. The settlement charges each company with violating the existing Marketing Rule of the Advisers Act and certain other securities regulations.

The SEC previously proposed rules to regulate AI-use in financial markets in 2023. However, the proposal has yet to make any substantial progress after receiving opposition in the Senate.