The recent settlement between the United States Securities and Exchange Commission (SEC) and two investment advisers, Delphia and Global Predictions, sheds light on the deceptive practice of artificial intelligence (AI) washing and its impact on corporate governance.
AI washing refers to the deceptive use of AI for marketing or public relations purposes without meaningful substance. This undermines the trust and transparency essential for effective corporate governance. The SEC’s investigation found that Delphia and Global Predictions employed AI washing tactics to misrepresent the use of AI in their companies’ technology.
This created artificial buzz for investors regarding the new use of AI technology, piggybacking off the success of other successful AI firms. The corporations’ inflated revenue figures, a result of AI washing, not only misled investors but also raised questions about the reliability of its financial disclosures.
The SEC charged both companies with a total of $400,000 in civil penalties to underscore that companies have a duty to not lie about AI use. If AI is used, it must be appropriately integrated into the corporation with a meaningful output.
Whilst AI has the potential to revolutionise business operations, its deployment must be accompanied by robust governance frameworks and internal controls. Companies must ensure that AI applications comply with accounting standards, transparency requirements, and risk management protocols to avoid falling into the trap of AI washing.
The SEC’s enforcement action against AI washing serves as a wake-up call for companies to adopt a responsible approach to AI adoption. It emphasises the importance of aligning technological advancements with ethical considerations and governance best practices to maintain investor confidence and regulatory compliance.
For a full reading of the media release, see here.
