Futures Trading Commission ' s director of its Division of Enforcement , stated , " You can see [ AI washing ] also playing out with more sophisticate firms , where investors want to know what AI capability a firm has . Everyone will want to make sure [ the disclosures ] are entirely accurate ."
Considerations for Covered Entities
Going forward , entities subject to SEC regulation should maintain a keen awareness as to the accuracy of their representations related to AI . Technology generally qualifies as AI only if it exhibits some level of learning , adapting and autonomy .[ 6 ] Technologies providing advanced automation and statistical analysis are not necessarily considered AI .
Companies should be mindful of this distinction when representing their capabilities to current and potential investors , and should always make good faith efforts to describe capabilities accurately .
Entities should especially steer clear of touting their own AI-related advancements when they are instead privately reducing internal spending on research and development in that area , as Innodata is alleged to have done in the instant class action complaint .
As with all reporting , the best defense against future litigation and investigation related to AI disclosures is a robust compliance program with controls for reporting and verification to ensure that all public statements are accurate and not misleading .
David A . Shargel is a partner at Bracewell LLP .
Rachel B . Goldman is a partner and co-head of the environmental , social and governance practice at the firm .
Patrick J . Morley is an associate at the firm .
The opinions expressed are those of the author ( s ) and do not necessarily reflect the views of their employer , its clients , or Portfolio Media Inc ., or any of its or their respective affiliates . This article is for general information purposes and is not intended to be and should not be taken as legal advice .
[ 1 ] https :// www . law360 . com / articles / 1773759 . [ 2 ] https :// www . law360 . com / articles / 1780363 / compliance-risk-after-sec-warning-against-ai-washing- . [ 3 ] D ' Agostino v . Innodata Inc . et al ., 2:24-cv-00971 ( D . N . J . 2024 ). [ 4 ] https :// www . law360 . com / articles / 1805609 / attachments / 0 . [ 5 ] https :// www . law360 . com / articles / 1803438 / understanding-sec-s-focus-amid-lack-of-final-ai-rules . [ 6 ] https :// www . law360 . com / articles / 1780363 / compliance-risk-after-sec-warning-against-ai-washing- .