Explore Legal.io

For Clients
Legal.io company logo
Hire Talent
Find the best fit for any legal role
For Members
Jobs
The best legal jobs, updated daily
Salaries
Benchmark compensation for any legal role
Learn
Learn and grow with our community
Events
Connect with peers at exclusive events
Apps
Tools to streamline legal work
Advertise on Legal.io
Post a job for free
Reach more qualified applicants quickly
Advertise with Us
Reach a targeted audience

For Clients

Hire Talent
Legal.io company logo
Solutions
Find the best fit for any legal role
New Hire
Get highly qualified candidates in days
Popular Roles
Data & Tools
Budget Calculator
Plan and manage your legal budget
Salary Insights
Compensation data for legal roles
Vendor Directory
The ultimate list of legal tech tools

SEC vs AI Hype Machine

A spate of recent US enforcement actions is likely just the beginning of a crackdown on companies that overhype AI to investors.

SEC vs AI Hype Machine

Since March, the Securities and Exchange Commission has accused three companies of so-called AI washing, or misrepresenting how they use machine learning and other tools. The moves follow multiple warnings from Gary Gensler, the agency’s chair, and the regulator’s top enforcement attorney over misstatements around the technology.

Although Gensler has referred to AI as “most transformative technology of this generation,” he has also said it could spark a financial meltdown and cautioned firms against overblown claims. Even before the recent SEC cases, the agency had proposed new restrictions for brokerages and advisers using AI.

“We’re at the point where this is a huge focus of every part of the SEC, including enforcement,” said Brian Daly, a partner at Akin Gump Strauss Hauer & Feld.

A representative for the SEC declined to comment beyond previous warnings from the agency.

Meanwhile, W. Hardy Callcott, a partner at Sidley Austin, said the enforcement cases that the SEC has brought so far around AI washing are similar to those involving statements some companies made about Covid treatments and ESG. US securities rules make it illegal for firms to make misrepresentations to investors.

This June, the SEC pressed charges against the founder and former head of Joonko, a now-shuttered recruiting platform that claimed to use AI to connect companies with candidates from underrepresented backgrounds. Among the accusations, the agency said Joonko didn’t use AI capacities it claimed to employ. The company’s board of directors allegedly became aware in June 2023 that its founder, Ilit Raz, had forged contracts, falsified bank statements, and over-reported the number of paying customers at the company, according to the SEC. A lawyer listed by the SEC as representing Ilit Raz didn’t respond to multiple requests for comment. Raz didn’t immediately respond to a message on LinkedIn.

In March, Delphia (USA) Inc. and Global Predictions Inc. agreed to pay a combined $400,000 to settle SEC claims that they made “false and misleading statements” about their purported use of artificial intelligence. A lawyer for Global Predictions declined to comment, while an attorney for Delphia didn’t respond to requests for comment. Neither firm admitted to or denied the SEC’s allegations in settling their cases.

Attorneys are seeing some parallels to how the SEC acted in the early stages of its push to rein in the crypto industry. Still, they emphasize that digital assets trip up the regulator’s rules in ways that AI doesn’t. Hilary Allen, a law professor at American University focused on finance and securities, said that AI and crypto are very different, but that the recent actions are “the kind of case you see every time something new and hot happens.” She added that the SEC had gone after “crypto-washing” and fraudulent initial coin offerings several years ago.

“Ultimately there will always be people who try to exploit technologies to their gain,” she said. “It’s happening in the low-hanging fruit way. As time goes on, I’m sure there will be more sophisticated attempts.”

Legal.io Logo
Welcome to Legal.io

Connect with peers, level up skills, and find jobs at the world's best in-house legal departments

More from Legal.io

April 28, 2023 Edition #156

Published weekly on Friday, the Legal.io Newsletter covers the latest in legal, talent & tech

April 28, 2023 Edition #156
Newsletter
5 Tips for Writing a Great Cover Letter

Cover letters are key tools for showing a potential employer who you are and why you’d be a good fit for the firm where you want to work. But how can you make yours stand out and give firms an outstanding first impression? Let’s look at a couple of key elements of a great cover letter.

5 Tips for Writing a Great Cover Letter
Law FirmsCareer
The Sharing Economy Just Got A Whole Lot Messier

High-profile Uber and FedEx cases demonstrate how misclassifying workers as independent contractors instead of employees can threaten your company. Here’s everything you need to know.

The Sharing Economy Just Got A Whole Lot Messier
Business and CorporateLabor and Employment
Big Law’s Lateral Hiring Costs Cause Friction Among Nonequity Partners

As the price for high-profile laterals in Big Law increases, some nonequity partners are growing increasingly frustrated, feeling that they are subsidizing the compensation package of laterals

Law Firms Raising the Bar on Earning Expectations for Partners

A growing number of top law firms have set minimum earnings expectations for their equity partners, with top firms setting targets at $5 million to $7 million in business each year

California State Bar Sets Precedent with New Ethics Guidelines for AI Use in Legal Practice

The five pages of ethics guidelines will help attorneys with implementing AI practices into their legal careers.

California State Bar Sets Precedent with New Ethics Guidelines for AI Use in Legal Practice
Legal OperationsTechnologyGovernment
Community Discussion: Can you share your experiences and best practices for negotiating high-stakes deals?

Commercial Counsel discuss their best practices for negotiating high-stakes deals in their practice.

Community Discussion: Can you share your experiences and best practices for negotiating high-stakes deals?
In-House CounselCareerCommercial
Legal.io Logo
Welcome to Legal.io

Connect with peers, level up your skills, and find jobs at the world's best in-house legal departments