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SEC Action Against Global Predictions for Misleading AI Claims and Compliance Failures

In March 2024, the Securities and Exchange Commission (SEC) imposed sanctions on Global Predictions, Inc., an investment adviser, for making false and misleading claims regarding its use of artificial intelligence (AI) and failing to comply with several regulatory requirements under the Investment Advisers Act of 1940. The SEC’s action resulted in a cease-and-desist order, civil penalties, and other remedial sanctions for Global Predictions.

False and Misleading Claims on Artificial Intelligence

Key Provisions of the SEC Action

  1. Misleading AI and Performance Claims: Global Predictions falsely advertised itself as the “first regulated AI financial advisor,” and claimed its technology used “expert AI-driven forecasts.” In reality, it lacked the AI capabilities it promoted. The firm also made unsubstantiated performance claims, such as outperforming International Monetary Fund (IMF) forecasts by 34%, without providing the necessary documentation to verify these claims. Furthermore, Global Predictions falsely advertised having over $6 billion in assets on its platform, despite not reporting any assets under management in its regulatory filings.
  2. Inaccurate Advertisements and Hypothetical Performance: The company misled clients and potential investors by displaying hypothetical performance results on its website without proper disclosures. For example, it claimed a “3-6% boost in returns” and presented performance data from periods predating its existence. Additionally, the company failed to implement required policies and procedures for advertising hypothetical performance, violating the SEC’s Amended Marketing Rule.
  3. Failure to Disclose Conflicts of Interest: Global Predictions disseminated testimonials without disclosing material conflicts of interest. Some individuals providing testimonials had personal or professional relationships with the firm’s CEO, while others had been hired as independent contractors. These conflicts were not clearly stated, violating the SEC’s advertising rules.
  4. Fiduciary Duty Violations in Client Contracts: The SEC found that Global Predictions’ client agreements contained problematic clauses. These included provisions allowing the company to unilaterally change contract terms without prior notice to clients, violating its fiduciary duty. The contracts also contained misleading liability disclaimers, known as hedge clauses, which could mislead clients into believing they had waived their legal rights.
  5. Compliance and Marketing Failures: Global Predictions failed to implement key compliance procedures, such as ensuring marketing materials were reviewed and approved before dissemination and properly managing its social media activity. These compliance failures exposed the company to further regulatory risk.

SEC Sanctions and Penalties:

As part of the settlement, Global Predictions agreed to:

  • Cease and desist from further violations of the Advisers Act.
  • Pay a civil penalty of $175,000 in four installments.
  • Remove misleading advertisements and revise its client agreements.
  • Implement remedial actions, including hiring a compliance consultant and reimbursing advisory fees to clients.

Takeaway:

This case serves as a reminder to investment advisers about the importance of truthful advertising, robust compliance procedures, and transparency with clients. The SEC’s action against Global Predictions highlights the need for firms to accurately represent their capabilities, disclose conflicts of interest, and adhere to their fiduciary duties to maintain investor trust and regulatory compliance.

About Michael Rasmussen

Michael Rasmussen is the founder of United Atlantic Legal Services. He is a licensed attorney in Florida and registered solicitor in the United Kingdom. Michael has acted as General Counsel and Chief Compliance Officer to several investment advisers, including private fund managers, responsible for the management of billions of dollars in client assets.  

Michael is also the founder of FinProLaw, an online learning platform where Michael has created courses designed for investment adviser compliance professionals. These courses include: 

  • Investment Adviser Compliance Essential for Chief Compliance Officers 
  • Foundations of Investment Adviser Compliance 
  • What is a “Security”? 
  • Investment Adviser Marketing Rule 
  • Regulation A – Exemption from Registration 
  • Regulation Crowdfunding – Exemption from Registration 
  • Regulation D – Exemption from Registration 

Michael can also be found on LinkedIn.

Investment adviser firms who are also clients of United Atlantic Legal Services can receive many of these courses at a significantly reduced fee or, in some cases, at no expense. Contact us today or visit the FinProLaw to learn more.