SEC, FINRA, NASAA Release AI, Emerging Technologies Investor Alert

On January 25, the SEC’s Office of Investor Education and Advocacy, along with FINRA and the North American Securities Administrators Association (NASAA) jointly issued an Investor Alert regarding the risk of investment fraud associated with AI and other emerging technologies. Boards can derive several helpful takeaways from the Investor Alert as AI increasingly permeates the financial services industry, including the registered fund space.  As a threshold matter, the Investor Alert highlights the registration requirements applicable to firms utilizing AI investment platforms, and managers using such platforms should be able to confirm that they are registered in compliance with applicable federal, provincial and state securities laws. The Investor Alert also highlights the increase in investments in AI-focused companies, and managers evaluating these investments in their funds should conduct thorough due diligence regarding the use of AI and associated compliance controls and oversight.  In addition, as the Investor Alert notes that fraudsters can utilize AI technology to falsify voices, images and videos in order to spread false or misleading information, Boards may seek to inquire about ongoing compliance oversight relating to firms that use service providers with AI components.

Click here to read the joint SEC, FINRA and NASAA “Artificial Intelligence and Investment Fraud Investor Alert.”