An investment firm is facing charges by the SEC for misrepresenting AI capabilities in automating trades for clients. The Securities and Exchange Commission (SEC) charged Rimar Capital USA, Inc., its owner and a board member, with deceiving investors about the firm's purported AI-driven trading platform.
Falsely Misrepresenting AI
According to the SEC, Rimar Capital raised nearly $4 million from 45 investors under the false pretense of having an advanced AI platform for automated trading. The allegations include misrepresentations regarding the company's assets under management and investment returns.
Speaking about the enforcement action, Andrew Dean, the Co-Chief of the SEC's Asset Management Unit, said: “Through entities he controlled, Liptz lured investors and clients with multiple fabrications, including with buzzwords about the latest AI technology.”
“As AI becomes more popular in the investing space, we will continue to be vigilant and pursue those who lie about their firms' technological capabilities and engage in ‘AI washing.’” The SEC's order found that the charged individuals engaged in a pattern of deception that ultimately harmed investors. The regulator used the phrase “AI washing” to describe the allegations.
Imposed Fines
In response to the SEC's findings, Rimar Capital and its executives agreed to a settlement that totals $310,000 in civil penalties. One of the accused individuals will pay $250,000 and return $213,611 in misappropriated funds, while the other will pay $60,000.
Besides that, Rimar LLC faces censure for its actions, while one of the charged individuals faces an investment company prohibition and an associational bar, though he may reapply in five years.
Last month, the United States, Britain, and European Union member states signed the world's first international treaty on artificial intelligence. This agreement, reportedly developed over years of negotiations, seeks to address the risks posed by AI while promoting innovation.
Dubbed the AI Convention, this treaty brings together 57 nations led by the Council of Europe, a human rights organization. It focuses on protecting the human rights of those affected by AI systems. While the treaty may share similar goals with the European Union's recently enacted AI Act. The treaty is distinct in scope and application from the European Union's AI Act. The latter regulates AI systems in the EU.
