The Securities and Exchange Commission (SEC) has recently focused on “rooting out” the misuse of artificial intelligence (AI) by publicly traded companies and brokerage firms.
On February 20, 2025, the SEC established the Cyber and Emerging Technologies Unit (CETU) for the purpose of combatting cyber-related misconduct and protecting retail investors from bad actors in the emerging technological space. CETU replaced the Crypto Assets and Cyber Unit and listed interest in the following seven priority areas:
- Fraud committed using emerging technologies, such as artificial intelligence and machine learning
- Use of social media, the dark web, or false websites to perpetrate fraud
- Hacking to obtain material nonpublic information
- Takeovers of retail brokerage accounts
- Fraud involving blockchain technology and crypto assets
- Regulated entities’ compliance with cybersecurity rules and regulations
- Public issuer fraudulent disclosure relating to cybersecurity
Madiha Zuberi, an enforcement attorney with CETU, stressed the SEC’s focus on how companies discuss their use of AI with customers and investors. Zuberi pointed to two SEC settlements with investment advisors accused of “AI Washing” as examples of cases the agency may pursue further. AI Washing refers to marketing practices where companies exaggerate the capabilities or use of their AI models. For instance, Delphia, one of the investment advisors mentioned by Zuberi, falsely claimed its AI incorporated client data in its investment process when, in fact, it did not.
Contrary to expectations of a deregulatory shift and reduced SEC market oversight under the new administration, Kate Zoladz, Deputy Director of the SEC's Enforcement Division for the West, reassured stakeholders that the agency remains active in its enforcement efforts. She emphasized that “the reports of the SEC’s death have been greatly exaggerated.”
AI is a novel technology that continues to evolve by the day, both in its capabilities and restrictions. Please reach out to us if you have questions about your company’s compliance with emerging AI regulations.
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