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ARTICLE · 18 SEPTEMBER 2024

SEC Targets Misleading AI Claims: Enforcement Actions And Key Takeaways

Gesmer Updegrove LLP
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In recent years, the use of Artificial Intelligence ("AI") has surged across multiple industries, with many financial services institutions either actively integrating AI into their operations or claiming to do so.

United StatesTechnology
Braeden Anderson
Braeden Anderson

In recent years, the use of Artificial Intelligence ("AI") has surged across multiple industries, with many financial services institutions either actively integrating AI into their operations or claiming to do so. Alongside this growth, regulatory scrutiny around "AI washing"—the practice of overstating or misrepresenting a firm's use of AI to attract investors—has also intensified. Much like "greenwashing," where companies overstate their environmental initiatives, the Securities and Exchange Commission ("SEC") has now honed in on AI washing, as reflected by public warnings and two recent enforcement actions.

The SEC's Recent Focus on "AI Washing"

In late 2023, SEC Chair Gary Gensler underscored the Commission's concerns about AI washing, delivering a stark warning: "[d]on't do it . . . I don't know how else to say it." Shortly thereafter, in January 2024, the SEC issued an investor alert highlighting investment fraud schemes involving the alleged use of AI

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