On July 26, 2023, the Securities and Exchange Commission (“SEC”) proposed new rules targeting the use of predictive data analytics and artificial intelligence (“AI”) by registered investment advisers (“RIAs”) and broker-dealers.[1] The new proposed rules focus on the potential for conflicts of interest and the possibility that newer, more complex analytics models (including those using AI) might optimize decision making for RIAs and broker-dealers by placing those firms’ interests above the interests of their clients.[2] The proposed rules would require RIAs and broker-dealers to: (i) evaluate whether their use of technologies “that optimize for, predict, forecast or direct investment-related behaviors or outcomes” create such a conflict of interest, and (ii) either stop using or address the effects of tools that place a firm’s interests before the interests of clients. RIAs and broker-dealers will also will be required to adopt policies to ensure compliance with the new proposed rules.[3]
Recent Developments Shed Light on the Justice Departments Civil Cyber-Fraud Initiative
In October 2021, the U.S. Department of Justice announced the launch of its new Civil Cyber-Fraud Initiative, which aims to hold government contractors and grant recipients accountable for cyber-related fraud under the False Claims Act.
Two recent developments provide insight into how the Justice Department will pursue cases under this new initiative, and reveal the