The new SEC lawsuit is one example of an unfortunate trend.
There is nothing new in business that can’t be repurposed into marketing hype, and if you remember the dot-com crisis of the early 2000s, you know there was greenwashing, DEI-washing, and even internet-washing.
There's AI washing going on now: So many software companies in virtually every industry are claiming their capabilities in artificial intelligence that from the outside looking in, it's hard to tell if that's their job, or even if it matters as long as their products work as they claim.
There's a lot of hype, and there are flaws. The SEC recently announced The company accused Irit Raz, CEO and founder of the now-shuttered artificial intelligence recruiting startup Joonko, of defrauding investors of at least $21 million by making false and misleading statements about the quantity and quality of Joonko's clients, the number of candidates on the platform, and the company's revenue.
“According to the SEC's complaint, Joonko claimed to use artificial intelligence to help clients find diverse and underrepresented candidates to help them achieve their diversity, equity, and inclusion hiring goals,” they said. “According to the complaint, to raise capital for Joonko, Raz falsely represented to investors that Joonko had more than 100 clients, including Fortune 500 companies, and provided investors with falsified testimonials from multiple companies thanking Joonko and praising its effectiveness. Raz also allegedly lied to investors that Joonko had more than $1 million in revenue and worked with more than 100,000 active job seekers. When investors became skeptical of Raz's claims, Raz allegedly provided investors with falsified bank statements and false contracts to cover up the fraud. According to the complaint, the scheme came to light in mid-2023, when investors confronted Raz, who admitted to falsifying bank statements and contracts and lying about Joonko's revenue and number of clients.”
These are still allegations and have not been proven in court. But concerns that AI washing could lead to fraud are not new. In February 2023, Michael Attleson, an attorney for the Federal Trade Commission, said: Agency Blog Post “One thing we know at the FTC about hot marketing terms is that we can't stop some advertisers from overusing and abusing them.”
“But the fact is that some AI-claimed products never work as advertised in the first place, and in some cases, this lack of effectiveness may exist regardless of other harm the product may cause,” he wrote. “Marketers should know that for FTC enforcement purposes, false or unsubstantiated claims about their products' effectiveness are our livelihood.”
The concern is that companies may exaggerate the capabilities of their AI products, falsely promise that their AI products have better capabilities than non-AI products, or claim to have AI capabilities that don't actually exist.
