The U.S. Securities and Exchange Commission’s March announcement it had charged two investing firms with making misleading statements about their use of AI was “a marketing stunt,” according to the CEO of one of the sanctioned companies.

Andrew Peek, CEO of Toronto-based fintech Delphia—which makes financial software and operated a platform for retail investors that it called an “algo-advisor,” or algorithmic advisor, as opposed to a “passive robo advisor”—made the comments on the company’s Discord server, a social platform where clients and company representatives can communicate. 

“To be honest… this press release was more of a marketing stunt on the part of the SEC,” he wrote on March 22 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. “Oh… I should add: Consistent with the SEC’s requirements and our agreement in the settlement, Delphia neither admits nor denies the SEC’s allegations and this communication is not intended to deny the allegations or imply that they are without factual basis.” 

Peek declined The Logic’s request for further comment.

The charges, announced March 18, were part of the U.S. securities regulator’s ongoing campaign to crack down on what it calls “AI washing,” in which companies exaggerate their investment products’ use of artificial intelligence to capitalize on the hype surrounding the technology. An investor’s tasks, synthesizing massive amounts of information and spotting patterns among data to gain an edge over competitors, seem particularly well-suited to generative AI—and potentially vulnerable to hyperbole.

Founded in 2018, privately held Delphia has raised a total of roughly US$80 million, according to Crunchbase, from backers including crypto fund Multicoin Capital and the venture arm of fallen crypto giant FTX. Its last public round of investment was a US$60-million Series A announced in June 2022.

Delphia had proposed training its AI investment recommendation software on data collected from its own clients, but the idea never left the planning stage. The SEC alleged the company’s U.S. subsidiary made misleading statements that gave the false impression it was actively using client data-powered AI in its investment algorithms, fining it US$225,000.

Global Predictions, a San Francisco-based firm that offers an investment advisory platform, agreed to pay a US$175,000 fine after falsely claiming its PortfolioPilot software incorporated  “[e]xpert AI-driven forecasts” when in fact it did not, the SEC alleged. Global Predictions also neither admits or denies the charges. 

Delphia had about US$187 million in assets under management in the U.S., including about US$7 million from retail investors, before shutting that business down in December, according to the SEC. Though the firm is based in Toronto, its investing business was not registered in Canada and did not accept Canadian clients.

Late November messages on Delphia’s Discord server show the company notified customers they would have to transfer their accounts. Delphia went on to announce on Discord it was shifting its focus to AI-powered software that allows “investors and analysts to compete with the biggest funds for signals,” among other projects.

Meanwhile, Global Predictions made its PortfolioPilot software available to Canadians through fintechs Questrade and Passiv in 2022. According to a blog post announcing its Canadian launch, “users of Questrade, Wealthsimple, and RBC Direct Invest can seamlessly and securely link their accounts to PortfolioPilot.”

Questrade did not respond to a request for comment. Juanita Leon, a spokesperson for Wealthsimple, and Louise Armstrong, a spokesperson for RBC Direct Investing, both said in an email they do not work with Global Predictions; Leon said Wealthsimple has “no direct integration” with its software and Armstrong said RBC Direct Investing “does not endorse its services.”

Rhys Dowbiggin, a spokesperson for Fredericton-based Passiv, confirmed in an email the company does integrate Global Predictions’ software into its app, saying the software provides users with optional features that provide a portfolio score and forecasted returns. “​​Passiv believes that new investing experiences are changing the global investing landscape. This includes apps that use AI responsibly and in the best interest of their end users,” he said.

Alexander Harmsen, CEO of Global Predictions, said in an email that the company “cooperated fully with the inquiry and is pleased to put this behind us,” saying the firm has clarified its marketing around the company’s use of AI.

Asked if any members of the Canadian Securities Administrators, an umbrella organization for the provincial securities regulators, are preparing enforcement actions or other activities related to AI washing, spokesperson Ilana Kelemen said they are monitoring the phenomenon. Several provincial regulators have issued alerts about the potential of AI to manipulate consumer decisions and spread misinformation, she said.

Joshua Pantony, CEO of Boosted.ai, a Toronto-based startup that makes AI-powered software for investment managers, said “there’s been a ramp-up in interest” among Canadian regulators on the topic of AI in investing. “It’s obvious they’re investing in having more in-house capabilities to evaluate things like this,” he said.

Generative AI for investing may be complicated, but staying on the right side of regulators is not, he said.

“It’s always been really important to do what you advertise and do what you say,” he said. “If you say you’re using cutting edge generative AI technology, make sure you have cutting edge generative AI technology.”