The Securities and Exchange Commission (SEC) has charged Rimar Capital USA, Inc. and its top executives for allegedly misleading investors by exaggerating the firm’s AI capabilities. The SEC claims that the company raised close to $4 million from investors by promoting a non-existent AI-driven trading platform, a practice referred to as “AI washing.”
False Promises of AI-Driven Success
According to the SEC, Rimar Capital lured 45 investors with the promise of an advanced AI-powered system that could automate trades and deliver high returns. However, the regulator found that the firm’s claims about its AI technology and overall assets under management were deceptive. The company’s owner and a board member were also accused of falsifying investment results to attract more clients.
Andrew Dean, Co-Chief of the SEC’s Asset Management Unit, stated, “Through entities he controlled, Liptz lured investors and clients with multiple fabrications, including buzzwords about the latest AI technology. As AI becomes more popular in the investing space, we will continue to be vigilant and pursue those who lie about their firms’ technological capabilities.”
The SEC highlighted that the term “AI washing” is used to describe the practice of falsely promoting AI capabilities to take advantage of the growing interest in AI-based technologies.
Penalties and Restrictions
Rimar Capital and its executives agreed to a settlement with the SEC, amounting to $310,000 in civil penalties. One of the individuals involved will pay $250,000 in fines and return over $213,000 in misappropriated funds, while the other will pay $60,000. The firm itself will face censure, and one executive has been barred from associating with any investment company, though he may reapply for this position after five years.
Broader Context: AI Regulation and Oversight
The SEC’s action against Rimar Capital comes at a time when AI is increasingly becoming a focus for regulators worldwide. Last month, the United States, Britain, and several European Union member states signed the world’s first international treaty on artificial intelligence. Known as the “AI Convention,” this agreement was led by the Council of Europe and aims to address the risks associated with AI while encouraging innovation.
The AI Convention, which brings together 57 nations, is distinct from the European Union’s AI Act. While the EU’s legislation regulates AI systems within Europe, the AI Convention is broader in scope, emphasizing human rights and ethical considerations for AI adoption globally.
This case serves as a reminder of the growing scrutiny on firms claiming to leverage AI technology, and regulators are expected to increase oversight to protect investors from deceptive practices.
