Investors are increasingly alleging that AI hype constitutes securities fraud, according to recent reports. This trend is driven by claims that companies exaggerate or misrepresent their AI capabilities to boost stock prices. Courts have ruled that hyperbolic statements about AI capabilities won't trigger liability unless they mislead investors about concrete, verifiable information.
A growing number of securities class action lawsuits feature allegations of "AI washing," where companies allegedly exaggerate or misrepresent their AI capabilities or opportunities. Courts have generally held that statements about AI capabilities are not actionable unless they are objectively verifiable and materially misleading. Vague marketing language is typically not considered actionable.
Public companies should scrutinize disclosures about AI products and services to minimize the risk of hindsight claims. Clear definitions and objectively verifiable information supporting claims about AI products can help reduce liability risks.
Recent cases highlight the importance of transparency and accuracy in AI-related disclosures. For example, the SEC found Delphia and Global Predictions guilty of misrepresenting their AI capabilities and fined them $400,000. In another case, a court held that statements about an AI model's capabilities could be actionable if they were sufficiently alleged to be false and material.
