“AI, Finance, Movies, and the Law” Prepared Remarks before the Yale Law School by SEC Chair Gary Gensler

As AI disclosures by SEC registrants increase, the basics of good securities lawyering still apply. Claims about prospects should have a reasonable basis, and investors should be told that basis. When disclosing material risks about AI—and a company may face multiple risks, including operational, legal, and competitive—investors benefit from disclosures particularized to the company, not from boilerplate language.

Companies should ask themselves some basic questions, such as: “If we are discussing AI in earnings calls or having extensive discussions with the board, is it potentially material?”[26]

These disclosure considerations may require companies to define for investors what they mean when referring to AI. For instance, how and where is it being used in the company? Is it being developed by the issuer or supplied by others?

Investment advisers or broker-dealers also should not mislead the public by saying they are using an AI model when they are not, nor say they are using an AI model in a particular way but not do so. Such AI washing, whether it’s by companies raising money or financial intermediaries, such as investment advisers and broker-dealers, may violate the securities laws.

So, if you are AI washing, as “Professor” Hill sang, “Ya Got Trouble.”

Source: “AI, Finance, Movies, and the Law” Prepared Remarks before the Yale Law School by SEC Chair Gary Gensler