Securities Attorney for AI Companies
SEC Disclosure Requirements for Artificial Intelligence Companies
AI companies face unique SEC disclosure challenges around intellectual property valuation, algorithm transparency, data privacy, and the gap between marketing claims and regulatory reality. Securities counsel with enforcement experience identifies these risks before they become enforcement targets.
The AI Disclosure Gap
The rapid growth of artificial intelligence has created a disclosure environment where marketing language frequently outpaces regulatory reality. Companies describe themselves as "AI-powered" or "AI-driven" without disclosing what the technology actually does, whether it is proprietary or built on open-source frameworks, or how it generates measurable value. The SEC has signaled increasing attention to these claims, particularly where companies raise capital on the strength of AI narratives that lack substantive technical disclosure.
Intellectual Property Valuation Risks
AI companies often carry significant intangible asset valuations tied to proprietary algorithms, trained models, and data sets. The SEC expects clear disclosure about the nature and defensibility of these assets. Questions that enforcement attorneys ask include: Is the technology truly proprietary? What happens if key personnel leave? Are there licensing dependencies on third-party frameworks? How is the company protecting its data assets? Inadequate disclosure of these risks creates material misrepresentation exposure under Rule 10b-5.
Capital-Raising Considerations
AI companies raising capital through registered offerings or private placements must ensure that their disclosure documents accurately represent the state of their technology, the regulatory landscape affecting their operations, and the competitive risks they face. Overstating technology capabilities in offering documents creates securities fraud exposure that persists long after the capital raise is complete. Securities counsel ensures that the narrative in the offering document matches the operational reality of the business.
Frequently Asked Questions
What SEC disclosure risks do AI companies face?
AI companies face disclosure risks around intellectual property valuation, algorithm performance claims, data privacy compliance, competitive moat assertions, revenue recognition for AI-as-a-service models, and the distinction between proprietary technology and licensed frameworks.
Does the SEC scrutinize AI company filings differently?
The SEC has increased scrutiny of AI-related claims in public company filings. The Division of Corporation Finance has issued comment letters challenging companies that use AI terminology without substantive disclosure about what the technology actually does, how it generates revenue, and what risks are specific to AI operations.
What should AI companies disclose about their technology?
AI companies should disclose the nature of their technology (proprietary vs. licensed), data sources and privacy compliance, model accuracy and validation methods, dependency on third-party cloud infrastructure, customer concentration, and the regulatory landscape affecting AI deployment in their target markets.
Questions about your specific situation?
Frederick M. Lehrer is a former SEC Enforcement Attorney with over 30 years of issuer-side securities law experience. All consultations are confidential. Flat-fee engagements.