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Regulators caution investors on fraud involving purported use of AI

On Behalf of | Feb 16, 2024 | Financial News

Federal and state regulators are warning investors about a rise in cases of fraud involving the purported use of artificial intelligence and other emerging technologies.

The threat was the topic of last month’s edition of ‘Investor Insights’ published by the Financial Industry Regulatory Authority.   The article was issued jointly by FINRA, the Securities and Exchange Commission Office of Investor Education and Advocacy, and the North American Securities Administrators Association.

The organizations pointed out that fraudsters are using the growing popularity and complexity of AI to lure individual investors into scams.  “Numerous unregistered and unlicensed online investment platforms, as well as unlicensed and unregistered individuals and firms, are promoting AI trading systems that make unrealistic claims like, ‘Our proprietary AI trading system can’t lose!’ or ‘Use AI to Pick Guaranteed Stock Winners!’” the article states. “In reality, these scammers are running investment schemes that seek to leverage the popularity of AI.  Be wary of claims—even from registered firms and professionals—that AI can guarantee amazing investment returns.”

In the alert, the regulators advised investors of various steps they can take to prevent becoming victims of fraud.  First, it was noted that securities firms, professionals, exchanges and other investment platforms are generally required to be registered.  Those who are not registered should be investigated thoroughly before any money is invested.  The free Check Out Your Investment Professional search tool on is one way to check the status of investment professionals.

As always, investment claims that sound too good to be true usually are. “Fraudsters typically deploy multiple, sophisticated persuasion techniques to make their pitches seem real,” the article states. “Claims of high guaranteed investment returns with little or no risk are classic warning signs of fraud.”

Experts say bad actors are trying to capitalize on the hype surrounding AI and other new technology to promote schemes, by using AI-related buzzwords or making claims that their companies or business strategies guarantee huge gains. Red flags to beware of include high-pressure sales tactics by unregistered individuals, promises of quick profits, or claims of guaranteed returns with little or no risk.

According to the SEC, FINRA, and NASAA, “Investors should carefully review the disclosures that companies are making and assess their promotional campaigns. If the company appears focused more on attracting investors through promotions than on developing its business, you might want to compare it to other companies working on similar AI products or services to assess the risks.”

There is also the threat of scams involving AI technology, including so-called ‘Deepfake’ video and audio, which can alter images and voices and create fake videos to spread false information.  According to the article, AI can also be used to impersonate a family member or friend to try to convince an investor to transfer money or securities out of an account.

Investors are advised to always verify any communication from an agency or regulatory body by contacting them directly or using the information on their website.  Check the identity of any investment professional by comparing the phone number or website for the firm as disclosed in the firm’s Client Relationship Summary (Form CRS).  And to avoid being scammed by fraudsters pretending to be family or friends, take time to independently verify the situation before agreeing to transfer any money from an account.

The attorneys at Lewitas Hyman understand the complexities that come with being the subject of a regulatory inquiry by the SEC, FINRA, and other self-regulatory organizations, and we have the experience to guide and advise you through any type of regulatory investigation. If you are the subject of a regulatory proceeding, contact us at (888) 655-6002 or through our online contact form for a free consultation.