Imagine investing in a company that claims to be a pioneer in artificial intelligence (AI) only to discover that its AI capabilities are exaggerated or even non-existent. This is a growing problem in the investment world, leading to a surge in lawsuits against companies that engage in AI misrepresentation or “AI washing.”
Increase in AI misrepresentation lawsuits
In 2024, the number of investor lawsuits related to AI misrepresentation doubled, and legal experts predict that this trend will continue in 2025. These lawsuits often focus on violations of investment laws, including:
- Making false or misleading statements about AI capabilities.
- Failing to disclose the risks associated with AI models.
- Manipulating stock prices through AI-related hype.
Imagine a company calling itself “AI-driven” when it barely uses AI. When the truth comes out and its stock price crashes, investors can sue it.
The consequences of AI washing
Some big AI lawsuits have already hit the news, targeting both new tech companies and older, established ones. The consequences can be serious:
- Executives getting fired after their AI claims turn out to be fake.
- Stock prices plummeting when AI exaggerations are revealed.
- Regulatory investigations into AI-related fraud.
For example, a well-known AI startup faced a class-action lawsuit when investors discovered that they did not even make their proprietary AI technology – they outsourced it to other companies.
Regulatory crackdown on AI misrepresentation
Regulatory agencies, such as the U.S. Securities and Exchange Commission (SEC) and the Federal Trade Commission (FTC), are acting against companies that engage in AI washing. The SEC is considering new disclosure requirements, and industries like finance and healthcare, where AI-related risks can have significant market implications, will face stricter compliance measures.
Protecting yourself from AI washing
So, how can investors protect themselves from AI misrepresentation? Here are some tips:
- Scrutinize AI claims: Be wary of companies using vague marketing buzzwords; look for specific, verifiable details on AI implementation.
- Check SEC filings: Companies making bold AI claims should have corresponding disclosures in 10-K or 10-Q reports.
- Verify patents and partnerships: Legitimate AI firms often hold proprietary patents and collaborate with recognized AI research institutions.
- Look for independent AI audits: Some companies undergo third-party AI audits to validate their claims, ensuring credibility.
Take action against AI misrepresentation
As AI adoption accelerates, so does the risk of AI washing. Investors must stay vigilant, perform rigorous research, and verify AI claims before making investment decisions. If you suspect that a company has engaged in AI misrepresentation, do not hesitate to contact our firm Gherman Legal, PLLC.
Our experienced legal team helps investors protect their rights and recover losses. Contact us online or call 305-390-1945 to schedule a consultation and learn more about how we can help you navigate the complex world of AI investment fraud.