SERIES 66 CANDIDATES AND REGISTERED BROKER/DEALERS, BE CAUTIOUS ABOUT MAKING STATEMENTS REGARDING THE USE OF A.I. IN MARKETING ADVISORY SERVICES UNLESS ABLE TO BE SUBSTANTIATED

Under the SEC's Marketing Rule, 17 CFR 275.206(4)-1, an investment adviser may not make any statements or promises that in general are false or misleading, or which cannot be substantiated by the adviser. Here are some general prohibitions which the Marketing Rule prohibits:

1.   statements that are false and misleading or untrue
2.   statements that the adviser cannot substantiate as to the statements'   truthfulness
3.  statements that may cause wrong implications or inferences in a material fashion
4.  statements that fail to include material risks or drawbacks
5.  misleading assertions or give investment advice that is unfair or unbalanced
6.  charts or tables showing investment results that are misleading or unfair

The SEC has recently cited two investment advisory firms that have made unfair and misleading claims about using A.I. in the firms' selection of investments and advisory services.  

Here is what the SEC said:

"According to the SEC’s order against Delphia, from 2019 to 2023, the Toronto-based firm made false and misleading statements in its SEC filings, in a press release, and on its website regarding its purported use of AI and machine learning that incorporated client data in its investment process. For example, according to the order, Delphia claimed that it “put[s] collective data to work to make our artificial intelligence smarter so it can predict which companies and trends are about to make it big and invest in them before everyone else.” The order finds that these statements were false and misleading because Delphia did not in fact have the AI and machine learning capabilities that it claimed. The firm was also charged with violating the Marketing Rule, which, among other things, prohibits a registered investment adviser from disseminating any advertisement that includes any untrue statement of material fact.

"In the SEC’s order against Global Predictions, the SEC found that the San Francisco-based firm made false and misleading claims in 2023 on its website and on social media about its purported use of AI. For example, the firm falsely claimed to be the “first regulated AI financial advisor” and misrepresented that its platform provided “[e]xpert AI-driven forecasts.” Global Predictions also violated the Marketing Rule, falsely claiming that it offered tax-loss harvesting services, and included an impermissible liability hedge clause in its advisory contract, among other securities law violations.

"Without admitting or denying the SEC’s findings, Delphia and Global Predictions consented to the entry of orders finding that they violated the Advisers Act and ordering them to be censured and to cease and desist from violating the charged provisions. Delphia agreed to pay a civil penalty of $225,000, and Global Predictions agreed to pay a civil penalty of $175,000."

(https://www.sec.gov/news/press-release/2024-36).

Bob Eder discusses the SEC's Marketing Rule in his Study for the Series 66 Exam.

Here is the link to NASAA's Test Specifications for the Series 66 Exam. See Section IV (G) (5) (5.1-5.3) covering the SEC Marketing Rule.

Study for the Series 66 Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's Series 66 book on Amazon. 

For questions about Bob Eder's Series 66 Manual, Study for the Series 66 Exam, or questions in general about the Series 66 Exam, or about the SEC Marketing Rule, feel free to email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001. 

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