What is AI washing? All you need to know

This week, the SEC fined two investment firms $400K for "AI washing," a term for misleadingly presenting AI use. It's a notable case, signaling potential future actions. But why were they fined, and what is AI washing? We delve into the legal case and advise caution regarding businesses touting AI.

Understanding AI washing

AI washing occurs when companies misrepresent their use or development of artificial intelligence systems through false, misleading, or exaggerated claims. Similarly, "greenwashing" involves businesses investing in eco-friendly initiatives while also supporting environmentally unfriendly activities like fossil fuel production. Just as Russia and Qatar have faced accusations of "sports washing" through hosting FIFA World Cups to divert attention from human rights abuses, companies engage in AI washing to bolster their reputation and stock value by emphasizing AI use without genuine commitment to developing effective AI tools.

Exercise caution with AI investment prospects

Cryptocurrency, NFTs, and artificial intelligence have all experienced periods of hype in the past two years. However, their genuine success has attracted scammers and legitimate companies alike, seeking investment in ventures that may lack true innovation. While AI-using companies are seen as innovative, caution is advised when investing in emergent technologies. Conduct thorough research to avoid being misled by companies making false claims about their AI capabilities.

SEC penalizes investment firms for misleading AI claims

The SEC has accused two firms of issuing deceptive statements regarding their utilization of artificial intelligence. Gary Gensler, the Chair, stated that Delphia and Global Predictions misrepresented their AI usage to clients. Delphia, the first fined entity, falsely asserted its capacity to predict lucrative market trends. Meanwhile, Global Predictions claimed to be the inaugural regulated AI financial advisor, making AI-driven forecasts. Both companies opted to settle their cases rather than prolonging legal proceedings, agreeing to pay penalties of up to $400,000.