SEC Charges Rimar Capital and Execs With ‘AI Washing’ in Fraudulent Investment Scheme
The U.S. Securities and Exchange Commission announced charges against the holding company Rimar Capital USA Inc., the state-registered investment adviser Rimar Capital LLC, Itai Liptz, and Clifford Boro for making false and misleading statements about Rimar LLC’s purported use of artificial intelligence to perform automated trading for client accounts and numerous other material misrepresentations. The parties agreed to settle the SEC’s charges and pay $310,000 in total civil penalties.
According to the SEC, between May 2022 and April 2023, Liptz and Rimar USA board member Boro raised nearly $4 million from 45 investors for the development of Rimar LLC, an adviser that purported to use AI to perform automated trading for advisory client accounts in a range of products including equities, futures, and crypto assets. The order found that the Rimar entities, along with Liptz and Boro, made misrepresentations about the platform’s features, Rimar LLC’s assets under management, and its investment returns. In addition, the order found that Rimar LLC and Liptz obtained advisory clients using misleading statements and that Liptz misappropriated company funds for personal expenses.
“Through entities he controlled, Liptz lured investors and clients with multiple fabrications, including with buzzwords about the latest AI technology,” said Andrew Dean, co-chief of the SEC’s Asset Management Unit. “As AI becomes more popular in the investing space, we will continue to be vigilant and pursue those who lie about their firms’ technological capabilities and engage in ‘AI washing.’”
AI washing is a deceptive marketing tactic used to capitalize on the heightened interest in AI. It may include the misrepresentation of a product or service as AI-powered when it is not or exaggerating the role AI actually plays.
Without admitting or denying the SEC’s findings, Rimar USA, Rimar LLC, Liptz, and Boro consented to the entry of an order finding antifraud violations and to cease and desist from violating the charged provisions. Liptz consented to pay disgorgement and prejudgment interest totaling $213,611, to pay a $250,000 civil penalty, and to be subject to an investment company prohibition and associational bar with the right to reapply in five years. Boro agreed to pay a $60,000 civil penalty. Rimar LLC consented to be censured.
The charges against Liptz and his various entities are just the latest for the SEC in regard to AI. In April, the SEC charged the founder of an AI startup with defrauding investors for nearly $3 million, and in March, the SEC fined a pair of advisers for lying about their use of AI. Additionally, as previously reported by The DI Wire, the FINRA Investor Education Foundation stated that consumers were leery of artificial intelligence for financial advice, despite its growing popularity.
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