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When SEC Chair Gary Gensler expressed concerns last December about the possibility of reporting companies engaging in “AI-washing,” he was referring company disclosures that overstate or mislead investors as to their true AI capabilities or the extent to which the company has incorporated AI into their operations or products. Since the time of those remarks, there have in fact been several AI-washing based SEC enforcement actions (as discussed, for example, here), and even several securities class action lawsuits based on AI washing allegations (for example, here). Late last week, In the latest example of an AI- washing-based securities class action lawsuit, a plaintiff shareholder filed a securities class action lawsuit against Israeli-based cosmetics internet platform Oddity Tech Ltd., based on allegations that the company overstated the extent to which AI processes and tools enhanced its delivery of consumer services. A copy of the July 19, 2024, complaint can be found here.Continue Reading Cosmetics Platform Hit with AI-Washing-Related Securities Suit

Artificial Intelligence (AI) has for months been the hot story in the securities marketplace, with share prices of companies with AI connections soaring. In a new lawsuit with several unusual twists, short sellers have filed a securities class action lawsuit company against electronic component power company Vicor Corporation, alleging that the company misleadingly suggested that it had entered a substantial contract with an existing customer for delivery in an AI power platform. The company’s share price surged, and the short sellers were forced to cover their positions at a significant loss. When the company allegedly later tried to walk back the story about the supposed significant customer contract, its share price plunged. The claimants seek to recover damages on behalf of similarly situated short sellers. A copy of the plaintiffs’ July 11, 2024, complaint can be found here.Continue Reading Short Sellers File AI-Related Securities Suit Against Electronic Power Company

As AI becomes an ever-more present component of many companies’ strategies and operations, one concern is the extent to which this technological shift could affect companies’ litigation risk exposures. One risk companies may face is that in seeking to promote their adoption of AI strategies, companies may be susceptible to allegations that they overstated their AI capabilities or the extent to which the strategies will actually improve results.Continue Reading Robotic Automation Company Hit With AI-Related Securities Suit

As I have noted on this site in discussing artificial intelligence, among the risks and opportunities that the recent rapid emergence of AI represents for organizations of all kinds are the risks associated with AI-related regulatory oversight and supervision. Until now, references to AI-related regulatory concerns have mostly pertained to the EU’s Artificial Intelligence Act, which the European Parliament approved in March of this year. It is now clear that AI-related regulatory concerns likely will also extend to supervisory efforts of U.S. states as well, as reflected in the Colorado legislature’s May 8, 2024 passage of the Colorado Artificial Intelligence Act. This legislation, if signed into law by Colorado governor Jared Polis, would make Colorado the first U.S. state to enact comprehensive AI-related regulation.

As discussed below, the Act may or may not become law, but whether or not it does become law, it contains key signposts concerning the likely course of future AI-related regulation, as well as key AI risk management measures that well-advised companies will take to try to address their AI-related regulatory risk.Continue Reading Colorado Legislature Passes U.S.’s First State AI Regulatory Bill

Since OpenAI launched ChatGPT in November 2022, the race to capitalize on emerging artificial intelligence (AI) technologies has super-charged the financial markets. The stock prices of AI-associated companies, such as Nvidia and Super Micro Computer, have soared. Several AI-related companies  — such as, for example, Astera Labs and Rubrik — have recently successfully completed IPOs, so much so that that the long-moribund market for IPOs is showing definite signs of life. Other AI companies – including for example, Zapata and MultiplAI Health Ltd. — recently became public through mergers with SPACs.

With the consuming interest in AI in the financial markets, many companies want to try to catch some of the lightning for themselves. However, what the companies say about AI, their AI prospects, and their AI risks could have significant consequences for the companies’ corporate and securities litigation risks, as well as their risks of regulatory scrutiny.Continue Reading AI, Risk, and Public Company Disclosures

Some readers may recall that at the end of last year, the New York Times very publicly sued OpenAI and Microsoft for copyright infringement, in connection with the defendants’ alleged use of the newspaper’s content for purposes of training chatbots and other AI tools. Although this kind of lawsuit is pretty far outside the blog’s usual bailiwick, the litigation is still of interest as the landscape of AI-related litigation continues to develop. Now it appears that other media organizations are joining the bandwagon, as two different groups have now filed lawsuits against OpenAI, and, in one case, also against Microsoft. These latest cases are described in an interesting March 5, 2024 post on the SDNY Blog (here).Continue Reading More AI-Related IP Lawsuits Filed Against OpenAI and Microsoft

The SEC wants everyone to know that it is watching what the companies and firms it regulates are saying about their use of Artificial Intelligence (AI). SEC Chair Gary Gensler set the stage in a speech he made last December in which he warned companies about “AI Washing” – that is, making unfounded AI claims to the public. Now the agency has brought settled enforcement actions against two investment advisers for making allegedly false statements about their use of AI technology. As if the enforcement actions themselves were not enough to send the message that the SEC is on the AI beat, the agency also released a video statement from Gensler emphasizing the agency’s AI-related concerns.

The SEC’s March 18, 2024, press release about the enforcement actions can be found here. The SEC’s March 18, 2024, Administrative Order against Delphi (USA) Inc. can be found here. The SEC’s March 18, 2024, Administrative Order against Global Predictions, Inc. can be found here. The link to Gensler’s March 18, 2024, video can be found here.Continue Reading SEC Hits Two Investment Advisers With “AI Washing” Enforcement Actions

On March 13, 2024, the European Parliament approved the adoption of the EU Artificial Intelligence Act, legislation that the Wall Street Journal, in a front-page article, called the “World’s First Comprehensive AI Law.” The sweeping law, the effectiveness of which will be staged-in over the next several years, will affect all companies deploying or using Artificial Intelligence (AI) in the EU. As discussed below, the passage of the Act, which has been several years in the making, could have significant implications for the adopting and deployment of AI worldwide, and could also have significant liability risk implications as well. A copy of the EU’s March 13, 2024, press release about the Act’s adoption can be found here. The Act’s text as adopted can be found here.Continue Reading EU Adopts Sweeping AI Law: What Does it Mean?

Whenever the discussion turns to the question of emerging risks, among the first topics to come up these days is artificial intelligence (AI). But just as AI technology itself is still taking shape, the legal risks that the emergence of AI may present are still forming as well. On October 30, 2023, in what is unquestionably a key step in the development of a regulatory and legal framework for the administration of AI, the White House issued an Executive Order on the development and use of AI. The Order, which is entitled “Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence,” can be found here. At a minimum, the Executive Order has important implications for AI-related corporate risk management. The order may also point toward the future development of regulatory and legal standards pertaining to AI, as well as the litigation risks that AI may present.Continue Reading Thinking About Emerging AI Risks