AI Washing Lawsuits Expand the Boundaries of Securities Fraud Risk

Carpenter Wellington writes that “AI washing” lawsuits have emerged as a significant category of securities litigation. The claims are that companies inflate or distort descriptions of their artificial intelligence capabilities to influence investor perception, i.e., In re Upstart Holdings, Inc. Securities Litigation, an Ohio case.

The resulting enforcement and private actions indicate growing legal exposure for companies that frame their technology in ways that imply measurable, verifiable performance characteristics without substantiating those claims.

As regulators intensify scrutiny, the accuracy of public statements regarding AI systems has become a central issue for organizations operating in technology-focused markets.

Courts have so far distinguished between non-actionable promotional language and statements that convey specific, testable assertions about AI functionality. In one matter, a court evaluated general optimism about an AI model separately from precise claims about its responsiveness to macroeconomic variables.

In another case, liability was associated with misrepresented academic credentials combined with statements about a company’s advanced automation systems. Agencies have also pursued charges against executives who allegedly mischaracterized situations in which human labor performed tasks portrayed as AI-driven.

The article recounts regulatory settlements involving companies that allegedly misstated whether their AI systems operated without human involvement, and whether they held ownership rights in the technology they promoted.

These matters reflect the range of conduct being challenged, from embellishing automation levels to presenting incomplete descriptions of ownership structures. The enforcement authorities pursued these actions based on claims that the challenged statements were false or misleading when compared to actual system operation or ownership arrangements.

Legal teams should become familiar with a new reality in securities litigation. Precision, documentation, and internal verification of AI-related claims are increasingly important.

Review of public disclosures, promotional materials, and executive statements can ensure that descriptions of technological capabilities are accurate. Strengthening internal controls around disclosure review will reduce the risk of lawsuits premised on AI washing allegations.