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SEC Chair Gensler warns companies about making false claims regarding AI

On Behalf of | Mar 4, 2024 | Securities and Compliance

Companies should be avoiding false or misleading claims about their use of artificial intelligence technologies in their operations, Securities and Exchange Commission Chair Gary Gensler said.

According to The Global Treasurer, Gensler discussed the topic during a recent address at Yale Law School and warned about the practice of ‘AI’ washing, in which companies make unsubstantiated marketing statements about the benefits of AI in order to attract investors.  The term is derived from ‘greenwashing’, involving companies that make misleading claims regarding their environmental sustainability.

Gensler said such false claims are prohibited by securities laws and that companies are required to make full, fair and truthful disclosures about their products or else be subject to enforcement action for SEC rule violations.

“Companies should ask themselves some basic questions, such as: ‘If we are discussing AI in earnings calls or having extensive discussions with the board, is it potentially material?'” he said.

He added that the growth of AI has led to an increase in SEC registered companies trying to capitalize on the trend by marketing their AI capabilities.

The Federal Trade Commission has put companies on notice that the agency will be scrutinizing their advertising practices for any false or unsubstantiated claims about their AI products.

The SEC has also taken separate action on the AI matter by proposing rules that would require broker-dealers and investment advisers to take certain steps to address conflicts of interest associated with their use of artificial intelligence in order to prevent firms from placing their interests ahead of investors’ interests.

in his Yale address, Gensler warned companies of potential rule violations if they misrepresent their use of AI or claim they are utilizing it when in fact they are not. “We’ve seen time and again that when new technologies come along, they can create buzz from investors as well as false claims,” Gensler he said. “If a company is raising money from the public, though, it needs to be truthful about its use of AI and associated risk.”

He also expressed concern about the potential impact of AI on financial stability, with so many financial institutions all using the same underlying AI models.

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