While investors’ optimism in Al’s growth potential is far from unfounded, it has also given rise to a new form of misrepresentation known as Al-washing. Al-washing is much like greenwashing in the ESG space. Just as greenwashing involves companies misleading the market about the environmental impact of their products, Al-washing refers to companies’ over-exaggeration or falsification of their Al features. Tech executives invoke terms like “Al-powered,” “machine learning,” and “neural networks” to give the false and misleading impression that Al is deeply embedded in their products, when in fact its role is minimal or ineffective. Investors in these companies who fail to scrutinize these inflated claims may ultimately bear the financial consequences when the truth about a company’s actual use of Al comes to light and performance falls short of expectations. Fortunately, courts and regulatory agencies have reacted quickly to curtail fraudulent Al statements and legitimize securities fraud claims based on Al-washing.

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