AI Washing and SEC Enforcement

The SEC has brought AI washing cases using existing law. No AI statute was needed. On March 18, 2024, the SEC announced settled charges against two investment advisers. Delphia (USA) Inc. had said it used machine learning on client data to inform its investment decisions, and the SEC found it had not done so. It paid $225,000. Global Predictions Inc. had called itself the "first regulated AI financial advisor" and could not substantiate claims about AI-driven forecasts. It paid $175,000 and also settled other Marketing Rule problems. Both cases relied on the Advisers Act antifraud provisions and the Marketing Rule, which bars advertisements containing material claims an adviser cannot substantiate. Later cases expanded the theory. In June 2024 the SEC and federal prosecutors charged Ilit Raz, founder of the recruiting startup Joonko, with misleading investors about the company's AI and its customers. In January 2025 the SEC settled with Presto Automation, its first AI washing case against a public company, over claims about drive-thru voice ordering technology. In April 2025 the SEC and the Justice Department charged Albert Saniger, founder of the shopping app Nate, alleging that the promised automation was largely done by human workers. Under new leadership in February 2025, the SEC created the Cyber and Emerging Technologies Unit, and its stated focus includes fraud involving emerging technologies such as AI. The FTC has also pursued deceptive AI claims aimed at consumers. A common misconception is that AI washing only covers fake AI. The cases also involve exaggerating how much a system does, hiding human involvement, and failing to disclose reliance on a third party's technology.