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SEC officials have for months been signaling their concerns about companies overstating their AI credentials, a phenomenon that the officials and others have called “AI washing.” As set out and partially transcribed in a September 5, 2024, TheCorporateCounsel.net post (here), SEC Chair Gary Gensler recently recorded a video in which he reiterated concerns about public company AI-related disclosures and the need for companies to match AI-related claims to their actual capabilities. Nor are concerns about companies’ AI-related disclosures limited to the SEC; the tech community is also concerned about companies that overhype their AI qualifications, as illustrated in a September 4, 2024 TechBrew post (here).  

Another audience is also monitoring public companies’ AI-related disclosures – the class action plaintiffs’ lawyers. The number of securities class action lawsuits based on allegedly misleading statements concerning AI continues to grow. In the latest example, on September 4, 2024, a plaintiff shareholder filed a securities suit against software development platform GitLab alleging that the company misled investors by overstating the company’s ability to develop AI software features that would increase market demand for the company’s software development platform. A copy of the complaint can be found here.Continue Reading Software Development Platform Hit with AI-Related Securities Suit

The SEC has already made it clear that it intends to pursue enforcement actions against firms that misrepresent their Artificial Intelligence (AI) capabilities. In the latest example of the SEC’s commitment in that regard, earlier this week the SEC filed an enforcement action against an investment advisory firm, its holding company, and the two firms’ CEO, in part based on allegations that the advisory firm claimed it would provide exceptional returns for investors through its use of artificial intelligence. The firm also sought to attract investors by claims about the firm’s plans to go public and about the firm’s relationships to well-known banks and law firms. The SEC’s August 27, 2024, complaint against the firm and its CEO can be found here. The SEC’s August 27, 2024, press release can be found here.Continue Reading SEC Files Enforcement Action Alleging AI-Related and Pre-IPO Misrepresentations

At this point, there is nearly universal agreement that artificial intelligence (AI) is (or at least will be) transformative. It is also clear that as companies struggle to adapt to the new technology, they also face a host of challenges, including disclosure and regulatory risks, and the related risk of litigation. As a result, AI poses an exceptionally difficult set of circumstances for corporate directors, as discussed in an August 14, 2024, Wall Street Journal article entitled “Why AI Risks Are Keeping Board Members Up at Night” (here). As the article makes clear, while many directors recognize the importance of getting a handle on AI and how it might affect their companies, they are struggling to find the right approach even as AI-related questions become more pervasive.Continue Reading Boards of Directors and AI-Related Concerns

The number of federal court securities class action filings in the year’s first half project to a year-end total roughly level with year-end total number of suit filings last year, while case resolutions (dismissals and settlements) are on track to exceed 2023 levels, according to a recent report from NERA. The August 6, 2024, report, entitled “Recent Trends in Securities Class Action Litigation: 2024 H1 Update,” can be found here.Continue Reading NERA: First Half Securities Suit Filings Roughly Level with Last Year’s Pace

The rise of artificial intelligence (AI) presents just about every enterprise with both opportunities and risks. AI also represents a challenge for companies and their boards as the companies seek to incorporate AI Into operations, functions, and processes. Because of AI’s potentially disruptive impact in many industries and for individual companies, many boards may find themselves under scrutiny for the way they address the risks associated with AI. All of which raises the question of the appropriate ways for boards to address and manage the AI-associated risks, a topic discussed in a July 22, 2024, Harvard Law School Forum on Corporate Governance post by attorneys from Debevoise & Plimpton law firm entitled “AI: Are Boards Paying Attention?” (here).  Continue Reading Artificial Intelligence and Corporate Boards

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

In a speech last December, as well as in several subsequent statements, SEC Chair Gary Gensler has emphasized the agency’s concerns with companies that are over-hyping their artificial intelligence (AI) capabilities in ways that mislead investors. In March, the agency filed enforcement actions against two investment advisors that allegedly misled investors about the firms’ AI-enabled services.

In the latest example of the agency’s AI-related campaign, earlier this week the agency filed an enforcement action against the CEO and Founder of Joonko Diversity, Inc., an Artificial Intelligence-based employee recruitment startup, alleging among other things that the individual made false AI-related claims about the company’s services. In bringing the action, the agency emphasized the significance of the action’s AI-related allegations. A copy of the agency’s June 11, 2024, press release about the action can be found here. The agency’s complaint in the action can be found here.Continue Reading SEC Files “AI-Washing” Enforcement Action Against AI-Based Start-Up Founder

Brent Stevens

In the following guest post, Brent Stevens analyzes and summarizes the findings from the 2024 Claims Litigation Management Defense Counsel Study. Brent is a Senior Director at Consilio and leads Consilio’s Insurance Vertical, serving Consilio’s Insurance Industry clients, including carriers, brokers, and their law firms. I would like to thank Brent for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to the site’s readers. Please contact me directly if you would like to submit a guest post. Here is Brent’s article.Continue Reading Guest Post: Navigating Key Insights from the 2024 CLM Study

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