TheCorporateCounsel.net

As Dave noted last week, the SEC continues to pay attention to “AI washing” by public companies. Over on “The D&O Diary,” Kevin LaCroix points out that the plaintiffs’ bar has also been watching. A recent complaint shows how they are scrutinizing statements about AI opportunities. If those opportunities are delayed or fail to materialize, they are alleging that the statements were materially misleading. Here’s an excerpt from Kevin’s summary:

The complaint alleges that these statements about the company’s AI-related initiatives “created the false impression that” the company “possessed reliable information pertaining to the Company’s ability to develop and incorporate AI throughout the software development cycle in order to optimize code generation thereby increasing market demand.” In truth, the complaint alleges, there was “weak market demand for the Company’s touted AI features,” and the company was incurring increased expenses involving its China joint venture.

The complaint alleges that “the truth emerged” on March 4, 2024, when the company released its first fiscal quarter 2024 earnings report. Among other things, the company announced that it needed more time to build its pipeline and close deals on new products. The company also lower its 2025 guidance. The complaint alleges that the company’s share price declined 21% on this news.

This is far from the first AI-related securities lawsuit. Kevin shared another example just a few months ago. He notes that the rise in AI-related litigation – including newer claims based on “AI washing” – is one of the top D&O trends for 2024. Companies should be aware of this risk when making any public statements about their AI opportunities.

– Liz Dunshee