September 5, 2024
SEC Chair Addresses AI Washing by Public Companies
SEC Chair Gary Gensler addresses the topic of AI washing by public companies in his latest “Office Hours” video, picking up again on a topic that he discussed in a video back in March. He specifies the ways in which public companies should be addressing AI developments in a manner that provides full, fair and truthful disclosure. He notes:
Well, as we’ve seen an increase in the disclosures around artificial intelligence by SEC registrants, public companies as you know them, it’s important that companies making these disclosures remember that the basics of the securities laws still apply.
You see, any claims about prospects should have a reasonable basis and investors should be told that basis. And when disclosing material risk about artificial intelligence and a company may face multiple risks, including operational, legal, competitive, investors benefit from disclosures that are particular to the company, not just boilerplate language.
Companies should ask themselves some basic questions, such as if we’re discussing artificial intelligence in our earnings calls or having extensive discussions with our board of directors, maybe this information is potentially material to our business and to investors. If so, disclosure may be required under the securities laws.
Further, companies may be required to define for investors what they mean when referring to AI. How and where is it being used at the company? Is it being developed by the company or supplied by others?
Investment advisers, broker dealers also should not mislead the public by saying they’re using AI when they’re not, nor say that they’re using it in a particular way and not do so.
Such AI washing, whether it’s by companies raising money or by financial intermediaries like investment advisers and broker dealers, may violate the securities laws.
Chair Gensler and the SEC Staff have clearly been focused this year on how public companies are addressing AI developments in their public disclosures, and we do not foresee that focus shifting anytime soon.
– Dave Lynn