AI WASHING
In Re: Delphia (USA) Inc.
In Re: Global Predictions Inc.
Date: March 18, 2024
Issue: Delphia (USA) Inc. and Global Predictions Inc.’s consent orders with the Securities and Exchange Commission (SEC) related to artificial intelligence (AI) washing allegations.
Case Summary: Delphia (USA) Inc. and Global Predictions Inc. agreed to pay a combined $400,000 to resolve SEC allegations that it participated in artificial intelligence washing. AI washing is the use of deceptive and inaccurate claims about a company’s use of AI or machine-learning capabilities to capitalize on the publicity surrounding the technology.
The SEC alleged Delphia made false and misleading statements in its regulatory filings, advertisements, and social media related to its purported use of AI and machine-learning from August 2019 to August 2023. Delphia is an investment adviser formerly registered with the SEC. According to the SEC, Delphia represented it used AI and machine-learning in its Form ADV Part 2A brochures, in a press release, and on its website. Delphia allegedly articulated its advice was “powered by the insights it makes when individuals … connect their social media, banking, and other accounts … or respond to Delphia’s questionnaires,” which make its investment decisions “more robust and accurate.” Additionally, Delphia allegedly declared that client data was used in “predictive algorithmic model” for the selection of investments. The SEC alleged that no such data was used in its investment process.
The SEC’s Division of Examination conducted an examination and found that Delphia did not create an algorithm to use client data, nor did it otherwise use the client data. Additionally, the SEC alleged Delphia failed to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and corresponding rules. As a result, the SEC claimed Delphia willfully violated Sections 206(2) and 206(4) of the Advisers Act and Rules 206(4)-1 and 206(4)-7.
The SEC also alleged Global Predictions Inc. made false and misleading claims about its use of AI, its status as the “first regulated AI financial advisor,” and the services it offered. Global Predictions registered with the SEC as an internet investment adviser on Aug. 14, 2023. The SEC claimed Global Predictions: was unable to substantiate performance claims upon demand by the commission; failed to disclose material conflicts of interest resulting from its relationships with certain individuals giving testimonial; and advertised hypothetical performance on its public website without adopting and implementing the policies and procedures required by Advisers Act Rule 206(4)-1.
To comply with the SEC’s order, Delphia and Global Predictions agreed to pay $225,000 and $175,000 respectively in civil money penalties. The companies also agreed to cease and desist from committing or causing any violation and any future violations of Sections 206(2) and 206(4) of the Advisers Act and Rules 206(4)-1 and 206(4)-7.
Bottom Line: Neither Delphia nor Global Predictions admitted to or denied the SEC’s findings.
Documents: Delphia Consent Order, Global Predictions Consent Order
