‘AI Washing’: Regulatory and Legal Measures to Curb Exaggerated Claims
Artificial intelligence (AI) is increasingly central to corporate growth narratives. Public companies often highlight their AI initiatives during investor calls, sometimes triggering sharp stock price increases fueled by growth expectations. This surge in AI-related claims has attracted heightened scrutiny from regulators and the courts, particularly concerning the accuracy and transparency of these statements.
Much like the dot-com era, the market’s sensitivity to AI claims creates incentives for companies to amplify their AI involvement. The term "AI washing" describes the practice of overstating AI usage or capabilities. Regulators and courts are actively responding to prevent misleading disclosures and ensure investors receive factual information.
Regulatory Focus on AI Disclosures
The Securities and Exchange Commission (SEC) began issuing comment letters in 2021, challenging companies to justify their AI-related claims in public filings. The SEC insists that these statements be accurate, complete, and compliant with securities laws. Companies are required to assess how AI impacts their financial performance and business relevance.
For fiscal year 2025, the SEC has reaffirmed AI as a key examination priority. An attorney from the SEC’s cybersecurity and emerging technologies unit highlighted the agency’s commitment to "rooting out" AI misuse by brokerage firms and public companies. This unit, established after scaling back crypto oversight, focuses on ensuring companies communicate AI usage transparently and responsibly.
According to Madiha Zuberi, an enforcement attorney in this unit, the SEC scrutinizes whether companies provide clear, accurate descriptions of their AI technology and communicate responsibly with customers and investors. This proactive stance signals the SEC’s determination to address AI washing beyond typical corporate puffery.
Private Actions as a Deterrent
Beyond regulatory oversight, securities laws empower investors to take private legal action against misleading AI claims. The rise in securities class actions targeting AI misstatements reflects growing investor vigilance. In fact, filings related to AI misstatements doubled in 2024 compared to 2023, with further growth expected in 2025.
Courts recognize AI-related misstatements as material to investment decisions. A notable case is the 2025 ruling against DocGo Inc., where the court found that false claims about the CEO’s educational background—specifically regarding computational learning theory—were material because the CEO linked his credentials to DocGo’s AI capabilities.
This case highlights how certain misrepresentations, which might generally be considered immaterial, become significant when tied to AI-related claims. Courts have increasingly validated that investors view AI disclosures as critical to company valuation.
Looking Ahead
As AI integrates deeper into business strategies, legal scrutiny over AI-related disclosures will intensify. Investors will continue to rely on securities laws to challenge misleading statements and protect their investments.
For legal professionals, staying informed about regulatory developments and relevant case law is essential. Understanding the evolving standards for AI disclosures can help counsel clients to avoid pitfalls related to AI washing and ensure compliance with securities regulations.
For more on AI and legal compliance, explore courses and resources at Complete AI Training.
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