AI washing lawsuits that result in charges of securities fraud are proliferating. AI washing lawsuits are being brought by investors claiming that companies are misleading investors by exaggerating their AI capabilities in order to increase stock prices.While companies are generally shielded from liability for making subjective statements or using obvious hyperbole with respect to AI capabilities, statements that mislead investors about verifiable information can result in securities fraud liability.

In the 2023 case, In re Upstart Holdings, Inc. Securities Litigation, a federal court in Ohio ruled that promotional statements describing the company’s AI model as being a “fairly magical thing” was merely an overly optimistic statement that was not actionable. The court held that inactionable statements such as obvious puffery, exaggerated statements, or vague marketing language were not actionable cases of securities fraud. In the other hand, the court ruled that certain statements the company made about the AI model’s “ability to respond very dynamically to macroeconomic changes” were sufficiently precise and verifiable to be actionable.

Other courts have also taken the approach of finding that objectively verifiable and specific statements may rise to the level of securities fraud. In the 2025 case In Genesee County Employees’ Retirement System v. DocGo Inc., the court found a company liable for misleading investors with statements about an executive officer’s “graduate degree in computational learning, which is a subset of artificial intelligence” combined with statements about the company’s “high sophistication with our AI systems in order to need as little people as possible.” The court determined that the executive’s credentials were exaggerated and, by using these misrepresented credentials to promote the advanced nature of the company’s AI products, it was misleading to investors. Both the company and the executive officer were held liable.

In April 2025, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) brought charges against the founder and CEO of an AI startup for making false and misleading statements about the company’s AI products. Alberto Saniger founded the e-commerce company Nate Inc., which used AI to process mobile shopping transactions. Mr. Saniger claimed that the processing of transactions on the shopping app was fully powered by AI, when in fact there were human employees in Romania and the Philippines manually inputting information. The statements about the startup’s fully automated app technology that required no human involvement were relied upon by venture capital investors.

A few months prior to the DOJ and SEC charges in the Saniger case, the DOJ and SEC settled a case with a restaurant technology company called Presto for alleged misleading statements about its AI capabilities. The company provides AI-assisted speech recognition technology to assist restaurants with drive-thru orders. In the Matter of Presto Automation, the government claimed that Presto had made false and misleading statements about the ownership and operation of its automated technology. The government found that, contrary to prior public disclosures that Presto’s AI technology eliminated the need for human intervention, Presto’s AI technology did require some level of human involvement. Additionally, the DOJ and SEC found that the technology was partly owned by a third party, which was inconsistent with prior statements about the company owning the AI technology.

Companies should take extra precautions in their public disclosures to prevent being subject to an AI washing lawsuit. While courts may deem some of these lawsuits as frivolous, in other cases there could be serious consequences for companies