Public companies have strong incentive to portray themselves as AI leaders, but when the promised AI-driven benefits fail to materialize, stock prices fall and investors bring securities fraud claims. James Christie and Nick Manningham of Labaton Keller Sucharow examine recent cases where companies exaggerated the role AI played in solving problems and detail what transparent AI reporting should look like.

Over the past few years, the market has been inundated by a wave of claims — some real, some not — by public companies asserting that AI is transforming their industry and that they are uniquely positioned to capitalize on that transformation.

Although AI has enormous potential, it also presents a host of challenges for investors. Investors often seek out companies that are using AI to improve their operations. But it is often unclear to investors which companies are genuinely using AI to improve their business and which are simply riding a hype wave in an attempt to get rich quick on false promises of AI transformation.

These exaggerated claims of a company’s AI capabilities have come to be known as AI-washing. What exactly is AI-washing, how can investors tell the difference between it and legitimate AI use and what are some ways in which the SEC and private securities litigation have sought to hold companies accountable for it?

What is AI-washing

Derived from the term “greenwashing,” which is used to describe a public company’s false claims about their supposedly...

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