What Is AI Washing, and Why Are Companies Being Fined For It?

Two firms have just been fined for making false and misleading statements about using AI. Here's everything you need to know.

This week, two investment firms were ordered to pay $400K in fines by the US Securities and Exchanges Commission (SEC) for engaging in a practice dubbed “AI washing”. It’s one of the first known cases of its kind, but judging by the way some businesses advertise their use of AI, it might not be the last.

But why were the companies fined, and what exactly is AI washing in the first place? We’ve got the latest on the legal case and why you should be very careful about investing in businesses that claim they’re using AI.

What Is AI Washing? The New PR Tactic Explained

AI washing refers to the practice of companies making false, misleading, or exaggerated statements about how they’re using or developing artificial intelligence systems.

You may have heard the term “washing” used in other contexts. Businesses pumping money into and then heavily publicizing eco-friendly initiatives while still investing in fossil fuels and other environmentally unfriendly activities is often referred to as “greenwashing”.

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Russia and Qatar have both been accused in recent years of “sports washing” by hosting the 2018 and 2022 FIFA World Cups – effectively using the competition to normalize their presence on the international stage and shift the spotlight away from the human rights abuses regularly taking place on their government’s watch.

Similarly, with AI washing, companies try to focus all publicity around their purported use of AI and enhance their reputation, perceived value, and stock price in the process, rather than actually committing to actually developing the kind of AI tools or systems that would make traders invest.

SEC Fines Investment Firms for AI Washing

Two companies have been charged by the SEC for making “false and misleading” claims about their use of artificial intelligence.

“We find that Delphia and Global Predictions marketed to their clients and prospective clients that they were using AI in certain ways when, in fact, they were not,” Chair Gary Gensler explained in a statement on the SEC’s website.

Delphia, the first company fined, falsely claimed to “predict which companies and trends are about to make it big and invest in them before everyone else” the SEC says.

Global Predictions, on the other hand, called itself the “first regulated AI financial advisor” and said its platform made “AI-drive forecasts”. It also made a litany of other misleading claims about its practices relating to AI, the SEC says.

Rather than being dragged through court any longer, both the above companies have settled their respective cases, and will pay up to $400,000 in penalties as a result.

Be Wary of AI Investment Opportunities

Crypto. NFTs. Artificial intelligence. What do they all have in common? They’re all buzzwords that have taken their turn being the flavor of the month over the past two years.

But the legitimate success of these products means they’ve become popular with scammers – as well as “genuine” companies – trying to persuade people to invest in things that aren’t all that revolutionary or innovative.

Right now, companies actually using AI are treated as progressive, forward-thinking, and innovative – all great signals for investors looking for companies on the verge of making it big. But that also makes it highly useful for companies looking to portray themselves as the next big thing in tech – even if they can’t come up with the goods when required.

If you’re getting into investing, it’s important to do your own research, and treat companies trading in emergent technology – like AI – with some caution. There are loads of legitimate AI investment opportunities out there – just make sure you don’t get sold down the river by a company claiming something that they’re not.

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Written by:
Aaron Drapkin is a Lead Writer at Tech.co. He has been researching and writing about technology, politics, and society in print and online publications since graduating with a Philosophy degree from the University of Bristol five years ago. As a writer, Aaron takes a special interest in VPNs, cybersecurity, and project management software. He has been quoted in the Daily Mirror, Daily Express, The Daily Mail, Computer Weekly, Cybernews, and the Silicon Republic speaking on various privacy and cybersecurity issues, and has articles published in Wired, Vice, Metro, ProPrivacy, The Week, and Politics.co.uk covering a wide range of topics.
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