On March 18, 2024, the United States Securities and Exchange Commission (the “SEC“) announced that it settled charges against two investment advisers for making false and misleading statements about their purported use of artificial intelligence (AI). This SEC enforcement action marks the latest efforts by securities regulators to combat the adverse effects of “AI washing” and confirms that AI, and particularly “AI washing”, is at the forefront of securities regulators’ minds.

What is “AI washing”?

“AI washing” occurs when a company misleads investors about its AI capabilities and its use of AI. The term “AI washing” is derived from “greenwashing” where a company makes false or inflated statements about the environmental impact of the company’s products or policies.

The SEC Actions

The SEC brought charges against two investment advisers, Delphia (USA) Inc. (“Delphia“) and Global Predictions Inc. (“Global Predictions“). The SEC alleged that Delphia and Global Predictions made false and misleading statements about their claimed use of AI.

The SEC alleged that, from 2019 to 2023, Toronto-based Delphia made false and misleading statements in SEC filings, in a press release, and on its website about its purported use of AI and machine learning. Delphia claimed to use AI to analyze its client data (e.g., their retail clients’ spending and social media data) to inform its investment advice. According to the SEC’s order, no such data was being used by Delphia for its investment process. Despite taking some corrective action following an SEC examination, Delphia continued to make misleading statements concerning its AI capabilities. According to the SEC, the misleading statements were material because Delphia represented these AI capabilities to current and prospective clients as a key differentiating characteristic from other advisers. The SEC’s order also states that Delphia failed to adopt and implement policies and procedures that were reasonably designed to prevent such violations.

Similarly, the SEC alleged that in 2023 San Francisco-based Global Predictions made false and misleading claims on its website and social media about its purported use of AI. Among other things, Global Predictions claimed to be the “first regulated AI financial adviser” and that its technology provided “[e]xpert AI-driven forecasts.” According to the SEC’s order, these statements were false and misleading. The SEC also took issue with other conduct of Global Predictions, including its failure to disclose material conflicts and its inability to substantiate performance claims.

The SEC alleged that Delphia and Global Predictions violated the antifraud provisions under section 206(2) of the Investment Advisers Act of 1940 (the “Advisers Act“), which only requires a finding of negligence. The SEC further alleged that Delphia and Global Predictions violated the marketing and compliance rules under section 206(4) of the Advisers Act.

While neither company admitted nor denied the SEC’s findings, Delphia agreed to pay a civil penalty of $225,000, and Global Predictions agreed to pay a civil penalty of $175,000, in addition to agreeing to censures and cease and desist orders. On the same day that the settled charges were announced, the SEC also issued videos by SEC Chair Gary Gensler and SEC Enforcement Director Gurbir Grewal on AI washing.

Increasing Regulatory Scrutiny

“AI washing” has received increased regulatory attention in the United States and Canada in recent months. For example:

  • In February 2023, the Federal Trade Commission released a business blog, warning advertisers against making baseless claims that their product is AI-enabled.
  • In December 2023 and February 2024, during remarks at The Messenger AI Summit and Yale Law School, SEC Chair Gary Gensler warned public companies against “AI washing,” stating that “one shouldn’t greenwash, and one shouldn’t AI wash” and that “AI washing, whether it’s by companies raising money or financial intermediaries, such as investment advisers and broker-dealers, may violate the securities laws.”
  • In January 2024, the SEC’s Office of Investor Education and Advocacy, the North American Securities Administrators Association (NASAA) and the Financial Industry Regulatory Authority (FINRA) jointly issued an Investor Alert about AI and investment fraud. At the same time, the Commodity Futures Trading Commission’s Office of Customer Education and Outreach issued a customer advisory raising public awareness about AI scams that promise unreasonably high or guaranteed investment returns.
  • In February , Ontario’s Securities Commission announced that its whistleblower program is seeking more tips about novel and emerging issues in securities regulation, including the “misuse of both algorithms and artificial intelligence.”

Key Takeaways

  • The two settled enforcement actions demonstrate that the SEC and other regulators will investigate companies’ purported use of AI. The Director of the SEC’s Division of Enforcement, Gurbir S. Grewal, confirmed at a conference that the enforcement actions against Delphia and Global Predictions were only the start of the regulator’s action against misuse of AI, including allegations of AI washing.
  • Regulators will monitor AI-related disclosures by public companies, investment advisers, fund managers, broker-dealers, asset managers, financial firms and other registered entities. Regulators will seek to enforce against those making false or misleading statements about their AI use or capabilities.
  • Public companies, investment advisers, and other registered entities should be alert to this increased scrutiny and those tasked with reviewing disclosures should have access to expertise on the specific AI technology that the business provides so that they can adequately review the accuracy of any statements (whether in disclosures, press releases, or on social media) about their AI capabilities and use.

Usman Sheikh is Chair of the Blockchain & Fintech Practice. He is a Transactional Partner in Baker McKenzie's Toronto office and is also a member of the Firm's Litigation and Government Enforcement Practice Group. A highly regarded thought leader on blockchain and distributed ledger technology, Usman has briefed the offices of several prime ministers, as well as ministers, on blockchain's disruptive power, and is regularly invited to speak to business leaders and at global blockchain conferences throughout the world. Usman was named as one of the "Top 25 Most Influential Lawyers" by Canadian Lawyer (2018) and as one of the top FinTech lawyers in Canada (Band 1) by Chambers for four consecutive years (2020 - 2023). Most recently, he was recognized in Toronto Life's The Influentials 2021 list, an annual feature that highlights Toronto's most influential people over the last 12 months. Author of over 25 legal and academic publications, Usman is set to publish The Law of Blockchain Technology (Thomson Reuters) in 2023. As a global thought leader on blockchain's disruptive power, Usman has lectured at the International Monetary Fund (IMF), the Bank for International Settlements (BIS), the Financial Stability Board (FSB) and the Monetary Authority of Singapore (MAS). He has also co-lectured with the heads of blockchain for Nasdaq and the TMX, and has also presented to the Investment Industry Regulatory Organization of Canada (IIROC), the Mutual Fund Dealers Association (MFDA), the Law Society of Ontario (LSO), the Royal Canadian Mounted Police (RCMP), the Chartered Professional Accountants of Canada (CPA), and several other regulatory organizations. Since 2019, Usman has also been serving as an Adjunct Professor with the University of Toronto (Faculty of Law), teaching a course entitled "Blockchain, Digital Assets, and the Law". Usman regularly advises clients on FinTech, blockchain and digital asset matters, both on corporate and litigation cases. He has provided legal counsel on cutting-edge token sales, NFTs, crypto asset trading platforms (aka currency exchanges), blockchain / FinTech mergers & acquisitions and cybersecurity breaches. He has also served as counsel on many of the most prominent and novel crypto litigation matters in Canada. Over the years, Usman's clients have included Canada's largest banks and stock exchanges, co-founders of Ethereum, supranational organizations, 12 of the largest crypto assets in the world, DeFi protocols, metaverse projects, as well as several fintech pioneers.


Jerome Tomas is Chair of the Firm's SEC and Financial Institutions Enforcement Group and co-chair of the North America Government Enforcement practice group. He has been recognized by Chambers for White Collar Crime & Government Investigations. He represents multinational companies faced with government investigations and conducts internal investigations to assess and remediate legal and compliance concerns in domestic and global operations. With his experience as a former member of the SEC Division of Enforcement’s Cyberforce, the agency’s internet and cyber fraud unit, Jerome regularly advises companies involved in data security breaches and incident response. Jerome now leads teams of lawyers to address government law enforcement perspectives and where necessary, meet and refute government legal theories of corporate and individual liability head-on, while also being pragmatic and business-oriented for management and boards to compete internationally.


Peter brings two decades of experience at the US Securities and Exchange Commission (SEC) to his litigation and counseling work. His tenure at the SEC, as well as a stint as Special Assistant US Attorney in the Northern District of Illinois, have given Peter experience with civil and criminal matters. At the SEC, Peter served as assistant regional director in the Chicago regional office, where he led investigations and litigations of high-profile enforcement cases. In the course of his SEC career, he handled corporate issuer disclosure and reporting violations, financial fraud, auditor independence violations, insider trading, broker-dealer misconduct and failure to supervise cases, hedge fund and investment company fraud, and Dodd-Frank and Sarbanes-Oxley violations. As the head of the Municipal Securities and Public Pensions Unit at the SEC's Chicago office, he oversaw cases involving municipalities and public pensions throughout the Midwest, including disclosure failures by states, cities, and underwriters in municipal bond offerings; pay-to-play and public corruption; and securities fraud victimizing municipalities and public pensions. Peter also served in national leadership roles within the SEC's Enforcement Division. Peter acted as national leader of the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative. He also served as co-chair of the Priorities and Resources Subcommittee of the Division of Enforcement Advisory Committee and was one of the original architects of the SEC Financial Reporting and Audit Task Force. Peter's experience in criminal securities fraud cases includes serving as Special Assistant US Attorney in the Northern District of Illinois in a criminal investigation into market abuse by a Chicago broker-dealer, resulting in guilty pleas by several senior executives at the firm. Peter represents public companies, financial services firms, and other organizations in litigation, investigations, and regulatory actions by federal agencies. Former head of the SEC Chicago office's Municipal Securities and Public Pensions Unit, Peter also advises clients on compliance and regulatory matters impacting the municipal securities markets and investments by public pensions and other institutions. He is also a leading expert in advising companies and outside auditors in connection with SEC and other regulatory inquiries regarding financial restatements and disclosures.


David Gadsden represents global clients in complex commercial disputes. He is the Chair of Baker McKenzie's Canadian Class Actions Group and is known for his sound advice on commercial class actions, competition and antitrust matters, arbitration, fraud cases and product liability matters. Clients value David's pragmatic and determined approach to disputes and have described him as "absolutely terrific at bringing across the finish line the most complex and multidimensional issues". David has been recognized by Benchmark Litigation, Legal 500, Best Lawyers Canada, and Lexpert’s annual Guide to the Leading US/Canada Cross-border Litigation Lawyers. He has previously been recognized by Lexpert as a Rising Star. As Chair of Baker McKenzie's Canadian Class Actions Group, David draws on his extensive class action experience, having acted as counsel for defendants and plaintiffs in numerous national and global class action lawsuits involving allegations of anti-competitive conduct, professional service negligence, product liability and securities fraud. David's practice also comprises international and domestic business disputes of all manner, including competition and antitrust litigation, commercial arbitration, business tort and trade secrets claims and product liability matters. David also has deep experience in fraud and financial crime matters. He is trusted counsel on multijurisdictional fraud investigations, including related civil disputes and regulatory proceedings. David has appeared as counsel at all levels of court in Ontario and in international and domestic arbitrations. He has completed the Osgoode Intensive Trial Advocacy Program, as well as the Intensive Advocacy Training Program conducted by the National Institute of Trial Advocacy. David has also lectured in the Osgoode Hall Graduate (LL.M.) Programme.


Anton Rizor is an associate in Baker McKenzie's Ligitation & Government Enforcement Practice Group in Toronto. Anton joined the Firm as a summer student in 2021 and completed his articles in 2023. Anton is fluent in English and German. Anton focuses his practice on a wide range of commercial litigation, class action, and arbitration matters, assisting clients in navigating complex commercial and contracts disputes.