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4:44Now PlayingAlisa Rusanoff, Chief Executive Officer at Eltech.ai, discusses the growing stressors in private credit structures and how AI tools might reveal hidden risks.
This year saw numerous AI securities litigation claims filed (though not yet resolved) against companies that allegedly failed to adequately disclose risks associated with both their AI systems and AI systems that potentially impact their businesses. Issues may arise when companies struggle to communicate the potential limitations and risks of such AI capabilities.
In re Sprinklr, Inc. Securities Litigation illustrates this challenge. Investors claim the enterprise software company failed to disclose the risks from expanding its AI offerings, including the need to divert “needed resources and manpower” from its core suite business—diversions that posed known risks to the company’s primary revenue driver. The subsequent stock selloff following a Dec. 6, 2023, conference call underscores the complex challenges organizations face when implementing new technologies while managing existing operations.
Similarly, in Tamraz, Jr. v. Reddit, Inc. et al., plaintiffs allege the company failed to disclose that changes in Google Search’s algorithm and AI Overviews features were altering user behavior. Specifically, the complaint alleges that Google Search’s changes in algorithm caused “zero-click search,” searches in which users stopped their query on Google Search’s AI Overviews, rather than clicking through to the Reddit website.
The complaint alleges that defendants knew that AI Overviews was reducing traffic to the Reddit website dramatically in a manner the company couldn’t quickly mitigate, yet failed to disclose that material fact.
Companies seeking to capitalize on the AI revolution face a delicate balancing act. The commercial imperative to demonstrate AI capabilities to attract investment and customers must be weighed against the legal risks of overpromising results or understating challenges. Combined with an evolving regulatory framework and breakneck technological advancement, AI-related securities litigation will likely continue its upward trajectory.
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