The US Securities and Exchange Commission is examining artificial intelligence companies’ corporate disclosures as investor worries mount over a potential AI bubble that may have been fueled by circular deals, the agency’s enforcement director told Reuters on Friday.
Big Tech stocks sold off this week as companies disclosed they are burning through cash to fuel their AI expansion at a time when interest rates are rising, raising questions about the sustainability of AI spending.
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David Woodcock, who became SEC enforcement director in May, said the agency does not want to stand in the way of tech innovation, but that it is the agency’s job to ensure issuers are giving investors the full picture on potential risks.
“Our principal concern is that people are making accurate disclosures about material information so that investors know what they’re getting into,” Woodcock said in an interview. “Enforcement is a very necessary piece of making sure people are doing that.”
Where such disclosure does not happen, “then enforcement will be present,” he said.
Woodcock also said that AI and superintelligence have made scams much easier and cheaper to manufacture at scale, raising risks for more and more people. Brokers and other firms need to have processes in place to protect retail investors and “take thoughtful action,” he said.
PRIVATE MARKETS AND PREDICTION MARKETS
Woodcock said the SEC will continue to look at issues in private markets, adding that the enforcement team’s asset management unit is very focused on conflicts of interest and valuations.
“When people don’t make accurate disclosures, whether it’s about valuations or whatever, then there is a role for enforcement,” Woodcock said. “I think you’ll see more activity in this space.”
Reuters previously reported the SEC was probing a type of private equity fund as part of the agency’s broader interest in the opaque markets.
Woodcock said the SEC also has a role in overseeing prediction markets, which allow people to bet on real-world events, including sports, government policy announcements and elections.
The markets, led by Polymarket and Kalshi, have surged in popularity over the past two years and have been pushing into US stocks. Such equity-linked prediction markets would traditionally fall under SEC jurisdiction.
Woodcock said the agency’s enforcement staff are working with policy officials as well as the Commodity Futures Trading Commission, which broadly oversees swap markets, to monitor and regulate the booming new markets.
When asked about the possibility of bringing cases against firms that do not register with the agency, Woodcock said the agency does not want to regulate the new industry through enforcement actions.
“We want to be involved where it makes sense, but not in a way that crushes innovation,” he said.