Inflated AI claims are under fire—and the regulatory reckoning is coming |
Inflated AI claims are under fire—and the regulatory reckoning is coming
Perrie M. Weiner is Head of Baker McKenzie's Securities Litigation Practice Group in North America, and the Partner-in-Charge of Baker McKenzie's Los Angeles office.
In retrospect, artificial intelligence was always going to be as much a capital markets story as a technological one. Once narratives became as important as capabilities, concerns about so-called “AI washing” were inevitable. Just a year after the public release of ChatGPT, regulators began sounding the alarm. In March 2024, the U.S. Securities and Exchange Commission brought charges against two investment advisory firms — Delphia (USA) Inc. and Global Predictions Inc. — over statements about their use of AI in investment advisory services. Regulators alleged that the firms promoted AI-driven investing capabilities they could not substantiate, including one firm’s claim that it was “the first regulated AI financial advisor.”
The AI wash cycle isn’t over. Of the 51 AI-related securities class actions filed in the last five years, a significant majority included allegations that companies overstated or misrepresented their artificial intelligence capabilities, according to securities litigation data compiled by the consulting firm Secretariat.
But the more notable trend today is that many disputes no longer hinge on whether AI exists at all.
Some of the first AI-washing cases resembled traditional fraud allegations, with critics arguing that the technology being marketed simply did not exist. But the disputes also revolve around more nuanced questions: Does the AI meaningfully change the........