AI is the new buzzword in business and the Securities and Exchange Commission is putting companies on notice for how it’s used. On Monday, March 18, the SEC fined two investing firms a collective $400,000 for “AI washing,” named after greenwashing.

“One shouldn’t greenwash and one shouldn’t AI-wash, I don’t know how else to say it,” SEC Chair Gary Gensler warned in December.

Months later, the SEC said two investment firms, Delphia Inc. and Global Predictions Inc., lied to clients and prospective clients about how they were using AI, aka AI washing.

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“When new technologies come along, we’ve also seen time and again false claims to investors by those purporting to use those new technologies,” Gensler said after announcing the latest civil penalties.

The government found that Global Predictions falsely claimed to be the “first regulated AI financial advisor” and said its platform provided “expert AI-driven forecasts.”

The SEC said Delphia claimed it fed client data to AI so it could “predict which companies and trends are about to make it big and invest in them before everyone else.” The SEC said that claim was false because the firm did not have those AI capabilities. 

Without admitting to or denying the SEC’s charges, the two firms agreed to pay a total of $400,000 in civil penalties. Delphia agreed to pay $225,000 and Global Predictions agreed to pay $175,000.

SEC’s enforcement director said these penalties should serve as a warning to the investment industry. If companies make claims about AI capabilities, they need to be able to back it up.

“As more and more investors consider using AI tools in making their investment decisions or deciding to invest in companies claiming to harness its transformational power, we are committed to protecting them against those engaged in ‘AI washing,'” SEC Enforcement Director Gurbir Grewal said.