Frequently Asked Questions (FAQs): AI-Washing And SEC Defense

1. How does the SEC define “AI-Washing” in 2026?

Under the direction of Chairman Paul Atkins, the SEC has defined AI-washing as a materially false or misleading statement concerning a firm’s use of artificial intelligence to manage financial assets and/or to predict market trends.  If a firm claims its returns are generated by a “proprietary neural network” but is, in fact, actually utilizing standard quantitative models or manual trading, it may be inviting an enforcement action under the antifraud provisions of the Advisers Act under the Federal Securities Laws.

1. How is the SEC Enforcement Director Margaret Ryan changing the nature of AI investigations?

SEC Director Margaret Ryan has shifted the Enforcement Division away from prioritizing a “numbers-driven” volume approach to cases toward “high-impact” fraud, particularly as it impacts retail investors.  In her February 2026 remarks, she stressed that firms using AI to engage in market manipulation or false or unsubstantiated