Since the emergence of Artificial Intelligence into the mainstream, many companies have wasted no time in “jumping on the bandwagon.” Some of these companies are legitimate leaders in the space, and they have every right to advertise their AI capabilities to the general public. On the other hand, some companies have more peripheral connections to AI. Some companies have made dubious claims about their use of AI in business operations. Some companies have virtually no association with artificial intelligence, despite their claims. The consequences of these exaggerated claims may be far worse than mere reputational damage. Recent cases have shown that companies and startups could face legal action for exaggerating their AI capabilities.

The SEC is Taking Action Against Companies for Making False AI Statements

When it comes to exaggerating AI capabilities, legal action often stems from investment issues. The Securities and Exchange Commission is responsible for regulating these markets, and it may take action to protect investors from what it sees as fraudulent or unethical behavior.

Recently, the SEC took action against companies for making false or misleading claims about AI. The first action occurred in March of 2024 when the SEC officially accused two investment advisers of this offense. After investigating these firms, the SEC discovered that they were not actually using AI in any notable way. Despite this, they told their investors that they were using artificial intelligence to improve their investment strategies.

One of these companies claimed that their technology allowed them to “predict” which companies would become successful and invest before anyone else. The SEC determined that this statement was false and misleading since the company did not possess any machine-learning technology at the time.

The other company claimed to be the first-ever “regulated AI financial advisor” with “AI-driven forecasts.” Again, the SEC determined that these statements were false. Both of these companies were forced to pay settlements of approximately $200,000. By paying these settlements, the companies did not deny or admit to any wrongdoing.

In early 2025, the SEC accused a restaurant technology startup of similar offenses. This startup is known for its flagship product, which features AI-assisted speech recognition. The company claims that this technology could soon replace human drive-thru workers, as their product can allegedly take orders through an intercom in the same way as a human.

After an investigation, the SEC accused this company of making false and misleading claims about its AI-powered product. Even though the technology was, in fact, a legitimate form of artificial intelligence, the SEC claims that the company did not own this technology. Instead, the AI-assisted speech recognition technology was owned and operated by a third party at the time these statements were made.

Even though the company subsequently developed its own in-house AI software to replace this third-party solution, the SEC still maintained that its statements were false and misleading. This is notable because it shows that even if an AI startup does not exaggerate its technological capabilities, it could still face SEC charges for inaccurate statements.

That said, the SEC also accused this company of exaggerating its AI capabilities. Investigators determined that the product did not, in fact, “replace” human employees at drive-thrus. Instead, this technology merely augmented existing drive-thru staff – and human “intervention” was still required for this product to function.

In this specific case, the company managed to avoid financial penalties. The SEC noted that a civil penalty was not necessary because the company and its staff cooperated fully with the investigation. In the end, the company consented to a cease-and-desist order. The company’s current website is careful to describe the technology as something that “improves” staff productivity instead of “replacing” staff members altogether. It also advertises “non-intervention rates” of up to 95%.

Telecommunications Company Faces Class-Action Lawsuit for Overstating AI

Also in January of 2025, a North American telecommunications company faced a class-action lawsuit for allegedly overstating its AI capabilities. According to plaintiffs, the company overstated its adoption of AI technology, prompting investors to lose money based on false information.

The plaintiffs allege that the company made several statements about the strength of its AI strategies. However, these goals always seemed to be one step away from reality – and the plaintiffs claim that the company failed to ever show any real evidence of AI development. The company allegedly boasted about its AI capabilities in earnings calls, documents filed with regulators, and other public communications.

Some investors say that the company should have disclosed the alleged truth: That this company was nowhere close to generating profits with its AI activities and that these forays into AI tech were, in fact, degrading profits from mainstream sources. These investors say that the company should have revealed how these AI activities were reducing profit margins instead of improving them.

Is AI Hype Overblown?

Stories such as these may make some wonder whether AI hype is overblown. It is all too easy to see the similarities between this era and the “dot com bubble” of the early 2000s. The internet transformed the way we live forever, and AI could have a similar impact. But that doesn’t necessarily mean that all AI hype is real. Companies that overstate their AI capabilities only exacerbate these anxieties.

Can a Tech Lawyer Help With AI-Related Legal Issues?

If your startup is being accused of exaggerating its AI capabilities, you may need to speak with an experienced tech lawyer. In the past, companies that made dubious claims about AI faced virtually no consequences. However, recent statements from the SEC and other agencies show that regulators are taking this issue seriously. Recent lawsuits have also shown that even major companies in North America may be sued for lying about AI capabilities to investors. To address these issues with confidence and efficiency, consider a consultation with John P. O’Brien, Technology Attorney. We offer professional consulting services, and we may be able to help you determine what kind of legal issues your startup may face due to past statements about AI capabilities. Contact us today to learn more.