Administration Targets Companies Undermining Trust in AI

AI washing cases are on the rise, and federal prosecutors are looking to root out offenders who may undermine the AI market. This strategy is reflected in the recent indictment against the CEO and CFO of iLearningEngines, Inc. A recent Debevoise & Plimpton memo explores how this indictment fits into the administration’s broader AI strategy:

“The iLearning matter reflects this policy intent to prosecute crimes that jeopardize investor trust in AI (and by extension, this Administration’s AI innovation agenda).  Although the underlying facts in the indictment allege a conventional accounting and securities fraud, the press release announcing the charges framed the case around AI, stating that ‘the defendants exploited investor excitement over the AI boom’ and ‘pitched iLearning as a way to revolutionize training and education through AI,’ when ‘the truly artificial part of the defendants’ story was iLearning’s customers and revenues.'”

The administration has bet heavily on AI. The recent National Policy Framework, as well as multiple executive orders over the past two years, highlight the level of priority placed on developing the technology. Observers often brand these initiatives as “deregulatory.” To a large extent, this is true. The federal government’s position is that regulating the AI industry will hurt American competitiveness. However, that doesn’t mean there are no regulations and no enforcement of anything pertaining to AI. We can expect prosecutors to prioritize cases against actors that may shake the public’s faith in the AI market. For AI investment to grow, investors need to feel a sense of security. Federal cases like the one against iLearning bolster that feeling. Companies making claims about the value of AI should tread carefully. Trendy language may be popular with investors, but without substance, it poses significant litigation risk.