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AI washing is a new danger zone for companies

On Behalf of | Apr 4, 2024 | FINRA And SEC Investigations

Artificial intelligence (AI) is the “latest and greatest” when it comes to technological advancements – and consumers are increasingly intrigued by the way that AI can be harnessed to their benefit.

That has a lot of companies jumping on the AI bandwagon – but not all of the companies that advertise their predictive algorithms and use of AI are being honest. Just recently, the Securities and Exchange Commission announced that it settled fraud charges against Delphia (USA) Inc. and Global Predictions, Inc. for overstating its use of AI and misleading investors. In essence, these companies have been accused of “AI washing” their services.

What does “AI washing” mean?

AI washing refers to the practice of companies exaggerating or misrepresenting the extent to which artificial intelligence (AI) is used in their products, services or operations to generate more interest from consumers. The term is a play on “greenwashing,” where companies falsely claim to be environmentally friendly for the same reason.

Companies engage in AI washing by:

  • Overstating AI capabilities: Companies may claim that their products or services are powered by “advanced AI algorithms” when AI only plays a minor or non-existent role in what they do. 
  • Using AI as a buzzword: Some companies may add the term “AI” to their marketing materials or product descriptions without providing clear details about how AI is actually used. This can be a way to capitalize on the hype surrounding AI without delivering any meaningful technological advancements.
  • Masking traditional algorithms as AI: Companies may rebrand existing software or algorithms as AI to make them seem more cutting-edge. While these algorithms may be sophisticated, they may not meet the criteria for true AI and rebranding is deceptive.

AI washing can be detrimental in several ways. It can erode consumers’ trust in AI technologies and, ultimately, make the term “AI” meaningless in marketing. It can also lead to significant penalties and fines when the SEC gets involved.