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December 1, 2025
Insights
The Rise of AI Washing: What Investors Need to Know
December 1, 2025
Insights
The Rise of AI Washing: What Investors Need to Know
December 1, 2025
Insights
As part of the latest edition of Investment & Pensions Europe’s Class Actions and Securities Litigation Investors Guide, Partner Carol C. Villegas and Associate David Saldamando authored the article “The Rise of AI-Washing: What Investors Need to Know,” which offers insight into how companies overexaggerate or falsify their AI features, creating significant risks for investors. Drawing on recent legal and regulatory reactions to curtailing fraudulent AI statements, the article provides investors with actionable insights and key takeaways to better navigate the rise in AI-washing litigation.
Although AI is a powerful tool promising efficiency, scalability, and competitive advantage, Carol and David note that companies’ increased focus on enhancing AI functionality has fueled a wave of “AI-washing” by companies looking to capitalize on increased investor attention. They caution that “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 AI comes to light and performance falls short of expectations,” noting that courts and regulatory agencies have moved swiftly to curtail fraudulent AI claims and to legitimize securities fraud claims tied to AI-washing.
As private securities class actions involving AI-washing claims increase, the authors note that “courts have shown a willingness to permit AI-washing securities claims to proceed past the motion to dismiss stage, giving investors meaningful legal recourse against these fraudulent practices,” confirming that false or exaggerated statements about a company’s AI technology can form the basis of a securities fraud claim, especially when those statements are specific and verifiable. Carol and David cite Jaeger v. Zillow Grp., Inc and In re Upstart Holdings, Inc. Securities Litigation as key examples of where the court has ruled that corporate misstatements relating to AI capabilities are material. In Jaeger v. Zillow Grp., Inc., the court held that plaintiffs plausibly alleged Zillow’s misrepresentation of its use of automated pricing algorithms. In In re Upstart Holdings, Inc. Securities Litigation, the courts held that statements made regarding Upstart’s underwriting platform that utilized AI falsely touted the significant advantage that their AI model provided, legitimizing the plaintiff’s AI-washing claims.
Carol and David further note that former employers are often pivotal in supporting and sustaining AI-washing claims. They point to In re GigaCloud Tech. Inc. Securities Litigation and Helo v. Sema4 Holdings Corporation as relevant cases where former employees served as essential sources. In In re GigaCloud Tech. Inc. Securities Litigation, the authors note that the court evaluated representations that claimed to use AI to provide end-to-end inventory solutions for large parcel merchandise, finding actionable statements by former employees supporting allegations that the company’s software relied on manual labor. In Helo v. Sema4 Holdings Corporation, the court relied primarily on testimony by former employees indicating that their “state-of-the-art AI” data engine was misrepresented.
Additionally, the authors illustrate that AI-washing claims extend beyond the over-exaggeration of companies’ AI abilities, emphasizing that securities fraud claims have proceeded based on statements of company executives professing to be proficient in AI. Such was the case with Genesee Cnty. Employees’ Retirement System v. DocGo Inc., in which the Chief Executive Officer had used his degree to bolster himself as a trustworthy steward of AI, despite not earning a degree in the subject. Carol and David contend that “the court’s finding further establishes that such AI-related assertions are material to investors and that for a reasonable investor such information would ‘significantly alter the total mix of information’ publicly available.”
Apart from private securities actions, Carol and Davis discuss the regulatory response to the rise in AI-washing. They note that the SEC has issued numerous letters since 2021 “demanding that AI related disclosures be accurate, complete, and transparent,” and that “the SEC has initiated several enforcement actions regarding companies’ misleading claims about their AI technology.” Among these enforcement actions include settlements against Delphia Inc. and Global Predictions Inc., resulting in monetary penalties, Presto Automation Inc., resulting in cease and desist orders, and Saniger/Nate Inc., resulting in criminal charges and penalties.
Carol and David conclude that, in the hyper-charged AI environment, “companies risk serious securities liability if they overstate, fabricate, or obscure the truth of their AI capabilities” and that “for investors, the way courts and regulators have responded to the rise in AI-washing practices offers several important lessons.” This active enforcement, they emphasize, highlights that AI-washing is a priority for both regulators and courts.
As part of the latest edition of Investment & Pensions Europe’s Class Actions and Securities Litigation Investors Guide, Partner Carol C. Villegas and Associate David Saldamando authored the article “The Rise of AI-Washing: What Investors Need to Know,” which offers insight into how companies overexaggerate or falsify their AI features, creating significant risks for investors. Drawing on recent legal and regulatory reactions to curtailing fraudulent AI statements, the article provides investors with actionable insights and key takeaways to better navigate the rise in AI-washing litigation.
Although AI is a powerful tool promising efficiency, scalability, and competitive advantage, Carol and David note that companies’ increased focus on enhancing AI functionality has fueled a wave of “AI-washing” by companies looking to capitalize on increased investor attention. They caution that “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 AI comes to light and performance falls short of expectations,” noting that courts and regulatory agencies have moved swiftly to curtail fraudulent AI claims and to legitimize securities fraud claims tied to AI-washing.
As private securities class actions involving AI-washing claims increase, the authors note that “courts have shown a willingness to permit AI-washing securities claims to proceed past the motion to dismiss stage, giving investors meaningful legal recourse against these fraudulent practices,” confirming that false or exaggerated statements about a company’s AI technology can form the basis of a securities fraud claim, especially when those statements are specific and verifiable. Carol and David cite Jaeger v. Zillow Grp., Inc and In re Upstart Holdings, Inc. Securities Litigation as key examples of where the court has ruled that corporate misstatements relating to AI capabilities are material. In Jaeger v. Zillow Grp., Inc., the court held that plaintiffs plausibly alleged Zillow’s misrepresentation of its use of automated pricing algorithms. In In re Upstart Holdings, Inc. Securities Litigation, the courts held that statements made regarding Upstart’s underwriting platform that utilized AI falsely touted the significant advantage that their AI model provided, legitimizing the plaintiff’s AI-washing claims.
Carol and David further note that former employers are often pivotal in supporting and sustaining AI-washing claims. They point to In re GigaCloud Tech. Inc. Securities Litigation and Helo v. Sema4 Holdings Corporation as relevant cases where former employees served as essential sources. In In re GigaCloud Tech. Inc. Securities Litigation, the authors note that the court evaluated representations that claimed to use AI to provide end-to-end inventory solutions for large parcel merchandise, finding actionable statements by former employees supporting allegations that the company’s software relied on manual labor. In Helo v. Sema4 Holdings Corporation, the court relied primarily on testimony by former employees indicating that their “state-of-the-art AI” data engine was misrepresented.
Additionally, the authors illustrate that AI-washing claims extend beyond the over-exaggeration of companies’ AI abilities, emphasizing that securities fraud claims have proceeded based on statements of company executives professing to be proficient in AI. Such was the case with Genesee Cnty. Employees’ Retirement System v. DocGo Inc., in which the Chief Executive Officer had used his degree to bolster himself as a trustworthy steward of AI, despite not earning a degree in the subject. Carol and David contend that “the court’s finding further establishes that such AI-related assertions are material to investors and that for a reasonable investor such information would ‘significantly alter the total mix of information’ publicly available.”
Apart from private securities actions, Carol and Davis discuss the regulatory response to the rise in AI-washing. They note that the SEC has issued numerous letters since 2021 “demanding that AI related disclosures be accurate, complete, and transparent,” and that “the SEC has initiated several enforcement actions regarding companies’ misleading claims about their AI technology.” Among these enforcement actions include settlements against Delphia Inc. and Global Predictions Inc., resulting in monetary penalties, Presto Automation Inc., resulting in cease and desist orders, and Saniger/Nate Inc., resulting in criminal charges and penalties.
Carol and David conclude that, in the hyper-charged AI environment, “companies risk serious securities liability if they overstate, fabricate, or obscure the truth of their AI capabilities” and that “for investors, the way courts and regulators have responded to the rise in AI-washing practices offers several important lessons.” This active enforcement, they emphasize, highlights that AI-washing is a priority for both regulators and courts.
As part of the latest edition of Investment & Pensions Europe’s Class Actions and Securities Litigation Investors Guide, Partner Carol C. Villegas and Associate David Saldamando authored the article “The Rise of AI-Washing: What Investors Need to Know,” which offers insight into how companies overexaggerate or falsify their AI features, creating significant risks for investors. Drawing on recent legal and regulatory reactions to curtailing fraudulent AI statements, the article provides investors with actionable insights and key takeaways to better navigate the rise in AI-washing litigation.
Although AI is a powerful tool promising efficiency, scalability, and competitive advantage, Carol and David note that companies’ increased focus on enhancing AI functionality has fueled a wave of “AI-washing” by companies looking to capitalize on increased investor attention. They caution that “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 AI comes to light and performance falls short of expectations,” noting that courts and regulatory agencies have moved swiftly to curtail fraudulent AI claims and to legitimize securities fraud claims tied to AI-washing.
As private securities class actions involving AI-washing claims increase, the authors note that “courts have shown a willingness to permit AI-washing securities claims to proceed past the motion to dismiss stage, giving investors meaningful legal recourse against these fraudulent practices,” confirming that false or exaggerated statements about a company’s AI technology can form the basis of a securities fraud claim, especially when those statements are specific and verifiable. Carol and David cite Jaeger v. Zillow Grp., Inc and In re Upstart Holdings, Inc. Securities Litigation as key examples of where the court has ruled that corporate misstatements relating to AI capabilities are material. In Jaeger v. Zillow Grp., Inc., the court held that plaintiffs plausibly alleged Zillow’s misrepresentation of its use of automated pricing algorithms. In In re Upstart Holdings, Inc. Securities Litigation, the courts held that statements made regarding Upstart’s underwriting platform that utilized AI falsely touted the significant advantage that their AI model provided, legitimizing the plaintiff’s AI-washing claims.
Carol and David further note that former employers are often pivotal in supporting and sustaining AI-washing claims. They point to In re GigaCloud Tech. Inc. Securities Litigation and Helo v. Sema4 Holdings Corporation as relevant cases where former employees served as essential sources. In In re GigaCloud Tech. Inc. Securities Litigation, the authors note that the court evaluated representations that claimed to use AI to provide end-to-end inventory solutions for large parcel merchandise, finding actionable statements by former employees supporting allegations that the company’s software relied on manual labor. In Helo v. Sema4 Holdings Corporation, the court relied primarily on testimony by former employees indicating that their “state-of-the-art AI” data engine was misrepresented.
Additionally, the authors illustrate that AI-washing claims extend beyond the over-exaggeration of companies’ AI abilities, emphasizing that securities fraud claims have proceeded based on statements of company executives professing to be proficient in AI. Such was the case with Genesee Cnty. Employees’ Retirement System v. DocGo Inc., in which the Chief Executive Officer had used his degree to bolster himself as a trustworthy steward of AI, despite not earning a degree in the subject. Carol and David contend that “the court’s finding further establishes that such AI-related assertions are material to investors and that for a reasonable investor such information would ‘significantly alter the total mix of information’ publicly available.”
Apart from private securities actions, Carol and Davis discuss the regulatory response to the rise in AI-washing. They note that the SEC has issued numerous letters since 2021 “demanding that AI related disclosures be accurate, complete, and transparent,” and that “the SEC has initiated several enforcement actions regarding companies’ misleading claims about their AI technology.” Among these enforcement actions include settlements against Delphia Inc. and Global Predictions Inc., resulting in monetary penalties, Presto Automation Inc., resulting in cease and desist orders, and Saniger/Nate Inc., resulting in criminal charges and penalties.
Carol and David conclude that, in the hyper-charged AI environment, “companies risk serious securities liability if they overstate, fabricate, or obscure the truth of their AI capabilities” and that “for investors, the way courts and regulators have responded to the rise in AI-washing practices offers several important lessons.” This active enforcement, they emphasize, highlights that AI-washing is a priority for both regulators and courts.
