AI AND SHAREHOLDER LITIGATION RISK
Over the last decade, corporate attention to artificial intelligence (AI) has skyrocketed. Globally, corporate investment has increased 13-fold from approximately $14.57bn in 2013 to approximately $189bn in 2023. Reflecting these trends, in the US, over 40 percent of S&P 500 companies referenced AI in their 2023 annual reports.
While AI promises many benefits and exciting opportunities, it also introduces a host of new risks.
This article considers the additional US shareholder litigation risks that come with the rise of greater AI adoption: risks arising from inaccurate disclosures about AI and risks for directors and officers for the failure to adequately oversee AI adoption, implementation and risk management.
This litigation is already being filed, and there is likely to be much, much more. Anticipating and mitigating it is thus key.
Trends in government enforcement and private litigation of AI-related disclosures
US regulators and government enforcement agencies have been among the first to scrutinise AI-related corporate disclosures. Within the last year, the Securities and Exchange Commission (SEC) has pursued several ‘AI washing’ claims against companies for allegedly overstating their use and reliance on AI and machine learning (ML).
After repeatedly warning companies to avoid ‘AI washing’, the SEC announced in March 2024 that it had settled charges against two investment advisers, Delphia and Global Predictions, for false and misleading statements about their AI capabilities in violation of the Advisors Act. According to the SEC orders, Delphia falsely claimed to be using ML capabilities in its investment selections, while Global Predictions falsely claimed to be the “first regulated AI financial adviser” and exaggerated its use of “expert AI-driven forecasts”.
Oct-Dec 2024 issue
Cleary Gottlieb Steen & Hamilton LLP