The SEC’s Intensified Focus on AI Washing Practices


13-minute listen

Andrew Balthazor discusses the SEC’s growing focus on the problem of ‘AI washing’ and the threat it poses to investors. Andrew is an attorney in Holland & Knight’s Miami office practicing in the firm’s Litigation and Dispute Resolution Section. His practice focuses on solving problems born of digital-era innovations and other high-stakes complex commercial litigation. Here is a link to a recent blog Andrew and his colleagues published on ‘AI Washing’ as well as a link to his bio.

What Is AI Washing?

AI washing refers to companies that exaggerate or lie about the capabilities or extent to which they artificially utilize artificial intelligence to inflate investor interest in their business. AI washing comes from “greenwashing,” which refers to falsely portraying your company as environmentally friendly. 

SEC Investigation 

Recently, the SEC brought its first AI-washing enforcement actions against investment advisers for making false or misleading statements regarding their use of AI. As AI becomes defined and the SEC issues more explicit rules regarding AI-washing, it’s likely that more enforcement actions will be taken against less obviously fraudulent schemes, accompanied by steeper penalties. 

Take Action Against AI Washing 

AI investing, like crypto, is a growing and exciting field, bearing considerable risk. Investors and corporate acquirers should not get swept away by the fear of missing out and diving head-first into an endeavor, potentially overlooking AI-washing risks. AI-washing risk should be front and center when initiating background diligence on potential portfolio companies or M&A opportunities. Mitigating AI-washing exposure warrants deeper-dive diligence, including discreet interviews, that can cut through the buzzwords and help you fully understand a company’s capabilities. Investment banks taking an AI company public should also initiate similar levels of diligence to ensure that all information regarding the company’s AI capabilities is presented accurately to the public

Vcheck provides thorough pre-investment due diligence designed to help mitigate reputational, legal, and regulatory risks for investors and corporate M&A teams. Contact Vcheck to learn how we can help your team.  

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