SEC AI-Washing Orders: Rule 206(4)-1 Substantiation & Form ADV Integrity

STATUTORY BRIEFING · 17 CFR § 275.206(4)-1 · RELEASES IA-6573 & IA-6574PRIMARY RELEASE DATE: 18 MARCH 2024

Under the U.S. Securities and Exchange Commission's amended Investment Adviser Marketing Rule (17 CFR § 275.206(4)-1), registered advisers are prohibited from disseminating any advertisement containing an untrue statement of a substantive fact, or any statement of fact that the adviser cannot substantiate upon Commission demand. On 18 March 2024 (SEC Press Release 2024-36), the Commission announced its first two settled AI-washing administrative proceedings against registered investment advisers.

For Chief Compliance Officers, FinTech general counsel, and private-fund advisers, these companion releases establish that technical architecture descriptions in Form ADV brochures, investor decks, and retail web pages are audited directly against live production model pipelines and Rule 204-2 evidentiary books.

How Advisers Act Sections 206(2), 206(4) & Rule 206(4)-1 Govern AI Claims

On-Demand Evidentiary Burden Under Rule 206(4)-1(a)(2)

17 CFR § 275.206(4)-1(a)(2) · Books and Records Rule 204-2(a)(11)

Unlike general commercial puffery standards, Rule 206(4)-1(a)(2) bars an investment adviser from disseminating any advertisement that includes a statement of a consequential fact for which the adviser lacks a reasonable basis to believe it will be able to substantiate upon demand by the SEC. Advisers must preserve contemporaneous records supporting technical AI claims inside their Rule 204-2 books-and-records archive.

Negligence Standard Under Section 206(2) & Written Policies Under Rule 206(4)-7

15 U.S.C. § 80b-6(2) · 17 CFR § 275.206(4)-7

Establishing a violation of Advisers Act Section 206(2) or Section 206(4) does not require proof of scienter; simple negligence in allowing inaccurate technical statements to persist across Form ADV brochures, press releases, or client emails is sufficient. Furthermore, Rule 206(4)-7 requires advisers to adopt and actually implement written policies reasonably designed to verify the accuracy of technical capability statements prior to publication.

Examination of Settled Administrative Releases IA-6573 & IA-6574

In the Matter of Delphia (USA) Inc.

SEC Release No. IA-6573 · 18 March 2024 · Civil Penalty: $225,000

Settled Without Admitting or Denying Findings

Per SEC Press Release 2024-36 (Release No. IA-6573), the Commission found that from 2019 to 2023, Toronto-based registered investment adviser Delphia (USA) Inc. stated in Form ADV Part 2A brochures, press releases, and on its website that it pooled collective client social-media, banking, and purchasing data to power predictive machine-learning algorithms in its investment process. According to the SEC's order, Delphia did not actually deploy client data in its investment algorithms during that period, even after acknowledging inaccuracies during a prior 2021 SEC examination. Without admitting or denying the findings, Delphia consented to a censure, a cease-and-desist order, and a $225,000 civil penalty.

Governance lesson: Propagate post-examination disclosure corrections across every social, press, and investor channel.SEC Release 2024-36 (sec.gov)

In the Matter of Global Predictions Inc.

SEC Release No. IA-6574 · 18 March 2024 · Civil Penalty: $175,000

Settled Without Admitting or Denying Findings

In companion Release No. IA-6574 (announced 18 March 2024 in SEC Press Release 2024-36), the SEC found that San Francisco-based adviser Global Predictions Inc. made unsubstantiated public statements in 2023 claiming to be the “first regulated AI financial advisor” and representing that its platform incorporated “expert AI-driven forecasts,” alongside Marketing Rule hypothetical-performance and advisory-contract hedge-clause violations. Without admitting or denying the Commission's findings, Global Predictions agreed to a censure, a cease-and-desist order, retention of an independent compliance consultant, and a $175,000 civil penalty.

Governance lesson: Require pre-clearance substantiation files before publishing superlative status or AI forecast claims.SEC Release 2024-36 (sec.gov)

Tabular Evidence Summary: Companion SEC AI-Washing Orders

Release & Respondent

Verbatim Procedural Posture

Statutory Provisions & Remedies

Primary Source

In the Matter of Delphia (USA) Inc.

Release No. IA-6573 (18 Mar 2024)

Settled Administrative Order · Without Admitting or Denying Findings

Advisers Act §§ 206(2), 206(4); Rules 206(4)-1 & 206(4)-7

$225,000 civil penalty, censure & cease-and-desist order

sec.gov Release

In the Matter of Global Predictions Inc.

Release No. IA-6574 (18 Mar 2024)

Settled Administrative Order · Without Admitting or Denying Findings

Advisers Act §§ 206(2), 206(4); Rule 206(4)-1 (Marketing Rule)

$175,000 civil penalty, censure & compliance consultant undertakings

sec.gov Release

Rule 206(4)-1 AI Claim Substantiation Checklist for Compliance Officers

Interactive six-point evidentiary review before approving investment-adviser or FinTech AI promotional copy.

0 / 6 checkpoints verified

Verify Production Pipeline Parity Before Filing Form ADV DisclosuresForm ADV Part 2A & Section 206(2)Obtain signed engineering architecture diagrams confirming that every data source or machine-learning model described in Form ADV is active in live client portfolio workflows rather than confined to sandbox research.Maintain Contemporaneous Documentary Proof on Demand17 CFR § 275.206(4)-1(a)(2)Confirm the compliance archive holds dated benchmark logs, model weights/version hashes, and backtest assumptions substantiating every factual AI statement at the moment an advertisement is disseminated.Strip Unverified Superlatives ("First Regulated AI", "Guaranteed Alpha")17 CFR § 275.206(4)-1(a)(1) & (4)Reject promotional collateral claiming "first regulated AI advisor" or "expert AI-driven forecasts" unless backed by objective regulatory findings and balanced, prominent risk disclosures.Audit Proprietary & Aggregated Client Data RepresentationsSEC Release No. IA-6573 LessonIf pitch decks state that client behavioral or financial data trains proprietary investment algorithms, verify data-ingestion logs and client privacy authorizations continuously across each reporting quarter.Restrict Hypothetical Model Outputs to Intended Sophisticated Audiences17 CFR § 275.206(4)-1(d)Ensure simulated or backtested AI model returns are never broadcast to mass retail website visitors without adopted written policies assessing relevance to the intended audience's financial sophistication.Require Third-Party AI Vendor Evidentiary PacketsRule 206(4)-7 Annual ReviewBefore repeating a software vendor's autonomous-agent or predictive-scoring claims in client communications, inspect independent validation reports rather than relying on vendor sales sheets.

Reviewed by Eleanor Vance-Kerr, Senior Regulatory Filings & Enforcement Editor

Verifies primary U.S. FTC, SEC, FinCEN, and Federal Reserve public enforcement releases and procedural posture citations prior to manual publication.

Last reviewed: 2026-11-01

Reviewed every 6 months (updated promptly upon verified .gov docket changes)

AI-assistance & editorial check: Research outlining and formatting are assisted by AI tools in an offline draft workflow. Nothing on this site publishes automatically without verification. A named human editor opens and verifies every primary source link, command snippet, and factual statement prior to publication. See our Editorial Policy and Corrections Policy.

Verified Primary Sources

SEC Charges Two Investment Advisers with Making False and Misleading Statements About Their Use of Artificial Intelligence (Press Release 2024-36) (U.S. Securities and Exchange Commission, 18 March 2024)
Investment Adviser Marketing Rule (17 CFR § 275.206(4)-1) (Electronic Code of Federal Regulations (eCFR), 17 CFR § 275.206(4)-1)
SEC Investor Alert: Artificial Intelligence (AI) and Investment Fraud (SEC Office of Investor Education and Advocacy, January 2024)

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