There is nothing new in business that can’t be turned to marketing hype. There’s been greenwashing, DEIwashing, and even Internetwashing for those who remember the dot com disaster of the early 2000s.
Now there’s AI washing. Many software companies in virtually every industry have claimed their prowess in artificial intelligence. It can be hard to tell from the outside whether that it what they do, or even whether it matters so long as their products do as they claim.
There’s hype and then there are cons. The SEC recently announced that it had “charged Ilit Raz, CEO and founder of the now-shuttered artificial intelligence recruitment startup Joonko, with defrauding investors of at least $21 million by making false and misleading statements about the quantity and quality of Joonko’s customers, the number of candidates on its platform, and the company’s revenue.
“According to the SEC’s complaint, Joonko claimed to use artificial intelligence to help clients find diverse and underrepresented candidates to fulfill their diversity, equity, and inclusion hiring goals,” they said. “To raise money for Joonko, the complaint alleges that Raz falsely told investors that Joonko had more than 100 customers, including Fortune 500 companies, and provided investors with fabricated testimonials from several companies expressing their appreciation for Joonko and praising its effectiveness. Raz also allegedly lied to investors that Joonko had earned more than $1 million in revenue and was working with more than 100,000 active job candidates. When an investor grew suspicious of Raz’s claims, Raz allegedly provided the investor with falsified bank statements and forged contracts in an effort to conceal the fraud. According to the complaint, the scheme unraveled in mid-2023 when the investor confronted Raz, who admitted to forging bank statements and contracts and lying about Joonko’s revenue and number of customers.”
These are still allegations and yet to be proven in court. But concerns about AI-washing spilling over into fraud aren’t new. In February 2023, Federal Trade Commission attorney Michael Atleson wrote in an agency blog post that “at the FTC, one thing we know about hot marketing terms is that some advertisers won’t be able to stop themselves from overusing and abusing them.”
“But the fact is that some products with AI claims might not even work as advertised in the first place. In some cases, this lack of efficacy may exist regardless of what other harm the products might cause,” he wrote. “Marketers should know that — for FTC enforcement purposes — false or unsubstantiated claims about a product’s efficacy are our bread and butter.”
Some of the concerns are that a company might exaggerate what an AI product can do, unreasonably promise that an AI product could do something better than a non-AI product, or that it will claim AI capabilities that don’t actually exist.