Both “greenwashing” and “AI washing” have been a focus of regulators as of late as companies continue to make marketing claims that cater to consumers and/or other businesses that run afoul of reality. Recent actions by the United Kingdom’s Competition and Markets Authority, which is tasked with strengthening business competition and preventing and reducing anti-competitive activities, and the U.S. Securities and Exchange Commission shed light on how these entities (and presumably other related bodies) are addressing false and/or misleading advertising when it comes to overstating the “eco-friendly” nature of their wares or the impact that the use of artificial intelligence has on their operations.
On the AI washing font, which refers to the practice of companies of misstating or exaggerating the amount of AI technology they use (or the impact of the tech) in connection with their products/services, the Securities and Exchange Commission (“SEC”) took action of its own recently, announcing on March 18 that it had settled charges against two investment advisers, Delphia (USA) Inc. and Global Predictions Inc., for making “false and misleading statements about their purported use of artificial intelligence.” The firms agreed to settle the SEC’s charges and pay $400,000 in total civil penalties.
> According to the SEC’s order against Delphia, from 2019 to 2023, the Toronto-based firm made false and misleading statements in its SEC filings, in a press release, and on its website regarding its purported use of AI and machine learning that incorporated client data in its investment process. For example, according to the order, Delphia claimed that it “put[s] collective data to work to make our artificial intelligence smarter so it can predict which companies and trends are about to make it big and invest in them before everyone else.”
> In the SEC’s order against Global Predictions, the SEC found that the San Francisco-based firm made false and misleading claims in 2023 on its website and on social media about its purported use of AI. For example, the firm falsely claimed to be the “first regulated AI financial advisor” and misrepresented that its platform provided “[e]xpert AI-driven forecasts.”
“We find that Delphia and Global Predictions marketed to their clients and prospective clients that they were using AI in certain ways when, in fact, they were not,” SEC Chair Gary Gensler said. “We’ve seen time and again that when new technologies come along, they can create buzz from investors as well as false claims by those purporting to use those new technologies. Investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors.”
While the SEC focused its attention on financial firms in the recent action, the cases provide takeaways for various market segments, as companies in retail and beyond continue to make use of AI and generative AI, in particular. At the same time, it is worth noting that a growing number of companies are busy touting their adoption of AI by way of voluntary statements, such as press releases. (A rising amount of retail industry occupants, for example, have shed light how they are using AI and the benefits that the tech is providing for their own operations, such as cutting down on apparel manufacturing waste.)
The SEC’s sentiments about the need for companies to avoid overstating their adoption/use of AI and/or the impact of AI on their operations seem to closely mirror that of the Federal Trade Commission. The agency issued some guidance in February 2023, in which it warned marketers to avoid making unsupported claims about “new tools and devices that supposedly reflect the abilities and benefits of AI.” Among other things, the FTC urged companies looking to put AI at the center of their marketing efforts to consider whether they are exaggerating what their AI products can do, promising that their AI products does something better than non-AI products, and actually making use of AI at all to avoid engaging in false and/or misleading marketing or what is commonly being known as “AI washing.”
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