The investors submitted the proposal shortly after short seller Ningi Research published a report in May alleging that Oddity Tech had overstated the role of artificial intelligence in its sales success. Class action lawsuit The lawsuit was filed in federal court in New York alleging that the company violated securities laws.
Depends heavily on Ningi ReportThe lawsuit alleges that Oddity's use of AI to match consumers with the best type and shade of makeup for their skin was essentially a sham, because what the company called AI was basically an algorithm that made recommendations based on surveys consumers filled out.
“Oddity's quizzes are simply rules-based, not artificially intelligent like Microsoft's Copilot, which is what consumers have come to expect from AI claims. [it] “By combining millions of data points with your personal profile, it determines exactly what products you need,” the complaint says, citing the Ningi report.
Oddity did not immediately respond to a request for comment on the allegations.
The Securities and Exchange Commission in January Investor Alert The government said it was vigorously reviewing these AI-related claims. Since then, about six civil lawsuits have been filed, including one each against the government. On one countlawsuits have been filed against the companies, and the SEC has also taken legal action of its own.
in Two representative actionsThe SEC settled charges that the investment firm made unsubstantiated claims that it was using AI to match investors with products.
“Those claiming to be using these new technologies should not mislead the public by saying they are using AI models when in fact they are not,” SEC Chairman Gary Gensler said in March. When making a presentation The agency's contracts with Delphia and Global Predictions.
It is unclear what the outcome of Oddity's lawsuit will be. The company said Ningi's report was based on factual inaccuracies. “Oddity is a strong advocate of leveraging technology to deliver personalized beauty experiences to consumers and drive conversion, customer loyalty, repeat purchase rates and business outcomes,” the company said. It said in a statement“Any other allegations are completely false.”
The company's stock price took a hit at the time, falling about 4 percent in a few days, according to the lawsuit, but so far the company appears to have largely weathered the storm. In late July, the stock price was down about $40 per shareThis is higher than the roughly $37 it was trading at when Ningi released its report.
Kevin LaCroix, attorney and vice president of RT ProExec, said the case indicates the SEC's focus on AI washing means more lawsuits like this one are likely.
“All the investment market fuss about AI has seen stock prices soar for companies with great AI stories,” Lacroix said. As stated in the analysis As a result of the Oddity lawsuit, “companies whose stock prices have fallen as the reliability of their AI has come into question are likely to be sued for securities litigation.”
RT ProExec is a corporate intermediary operating in the directors and officers liability insurance sector.
Nearly six AI-washing lawsuits have been filed so far this year, including: Power company You may be promoting your role in another company's AI platform or promoting something related to a robotics company. Changed the brand nameMr. F, who works for an AI company.
The role of in-house legal affairs
Lena Kempe of LK Law said there is a role for in-house counsel to work with technology colleagues to protect their companies from becoming embroiled in such AI-washing disputes.
The goal is to ensure that what companies are calling AI is truly AI, and not just an algorithm that uses statistical analysis and pre-determined rules without incorporating machine learning techniques. “Is this technology basically automation, rules-based systems that lack the ability to truly learn and adapt?” Kemp said in an April interview. Legal Dive Column“If the answer is yes, then the product does not have AI.”
That’s the first question D&O underwriters should ask themselves when considering underwriting a company touting the role of AI in its business, LaCroix recommends.
“Underwriters may want to develop questions designed to determine the extent to which an applicant's claimed AI credentials are based on actual technology investments, and the extent to which AI-based claims are merely marketing ploys,” Lacroix says.
Lacroix said he expects more lawsuits like Oddity's to be filed this year.
“The number of AI-related securities lawsuits filed will be a significant factor in the total number of securities class action lawsuits filed this year,” he said.
That’s why it’s important for in-house counsel to avoid over-promising about the type of technology a company has and the role it will play in the business.
