The United States (US) Securities and Exchange Commission (SEC) has ordered the US division of Toronto-based FinTech startup Delphia to pay a $225,000 USD penalty for statements it made about its use of artificial intelligence (AI).
According to a March 18 statement from the SEC, the regulator alleged that Delphia made “false and misleading” statements in its SEC filings, in a press release, and on its website regarding its use of AI and machine learning (ML) that incorporated client data into its investment process.
The US securities regulator found that “Delphia did not in fact have the AI and [ML] capabilities that it claimed.”
Specifically, Delphia said it “put[s] collective data to work to make our artificial intelligence smarter so it can predict which companies and trends are about to make it big and invest in them before everyone else.”
The SEC said it found this statement to be inaccurate, noting that “Delphia did not in fact have the AI and [ML] capabilities that it claimed.” The SEC referred to this practice as “AI washing.”
According to the SEC’s order, Delphia intended to use AI and ML to collect data from its clients as inputs into its algorithms. “Delphia, however, never accomplished this goal,” the SEC order reads.
Per the order, after an examination conducted by the SEC, Delphia agreed to correct the false and misleading statements in 2021. The order states while certain efforts were made, the company continued to make false statements concerning the use of its retail clients’ data in the investment process through August 2023.
Delphia was also charged with violating the SEC’s marketing rule, which prohibits a registered investment adviser from disseminating false information through advertisements.
“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,’” Gurbir S. Grewal, director of the SEC’s division of enforcement, said in the statement.
Delphia was one of two investment advisers ordered to pay fines by the SEC for alleged “AI washing.” The regulator also found that San Francisco-based Global Predictions made false claims about being the first regulated AI financial advisor and ordered that company to pay a $175,000 civil penalty.
According to the SEC’s statement Monday, both companies have agreed to pay their fines, but neither have admitted to or denied the SEC’s findings.
“We’ve seen time and again that when new technologies come along, they can create buzz from investors as well as false claims by those purporting to use those new technologies,” SEC chair Gary Gensler said in a statement. “Investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors.”
Spun out of public opinion research company Vox Pop Labs in 2018, Delphia offers a robo-advisor platform that it has described as a way to forecast the growth and profitability of publicly-traded companies.
This is not Delphia’s first brush with controversy. In January 2023, six months after closing $60-million in venture funding, the startup placed co-founder and CTO Cameron Westland on leave over allegations that he sexually assaulted and harassed a former employee.
On April 4, The Logic reported that Delphia CEO Andrew Peek called the SEC’s announcement a “marketing stunt” on Delphia’s Discord server in response to a user’s question about media coverage of the announcement.
“Yes, we mistakenly had some marketing sentences that suggested we were using first-party customer data in our algorithms (we weren’t), but we were absolutely running state-of-the-art machine learning models to forecast the fundamentals of hundreds of equities and were researching how to improve those models using consumer data we purchased commercially,” Peek wrote, according to The Logic.
BetaKit reviewed the aforementioned conversation on Delphia’s Discord, which began when a user shared this BetaKit story. Peek’s initial Discord post, the one quoted above by The Logic, now appears to have been deleted. However, Peek’s addition that Delphia “neither admits or denies the SEC’s allegations and this communication is not intended to deny the allegations or imply that they are without factual basis” remains visible.
UPDATE (04/05/24): This story has been updated to include additional commentary from Delphia co-founder and CEO Andrew Peek viewed by The Logic and BetaKit.
