SEC Settles First Public Company AI-Washing Action Against Presto Automation
On January 14, 2025, the Securities and Exchange Commission (SEC) issued a cease-and-desist order against restaurant technology company Presto Automation Inc. This action represents the SEC’s first-ever AI-washing enforcement action brought against a public, reporting company1.
Presto Automation, which became publicly traded in September 2022 via a SPAC merger and was listed on Nasdaq until September 2024, marketed a flagship drive-thru order-taking product called "Presto Voice." The SEC's complaint alleged that between November 2021 and May 2023, Presto made material misrepresentations in its public filings and statements regarding the capabilities and ownership of this AI technology.
Specifically, the SEC alleged that Presto:
- Concealed Third-Party Ownership: Failed to disclose that, for a period of time, the AI speech-recognition technology in all deployed units of Presto Voice was actually owned and operated by an undisclosed third party.
- Exaggerated Automation Capabilities: Falsely claimed that its proprietary AI product eliminated the need for human order-taking2. In fact, the vast majority of drive-thru orders placed through Presto Voice required human intervention from offsite workers3.
- Lacked Internal Controls: Had no established process, disclosure controls, or policies and procedures for drafting, reviewing, or approving periodic and current reports filed with the Commission.
To resolve the proceeding, Presto Automation consented to a cease-and-desist order without admitting or denying the findings. No civil penalties were imposed, reflecting the company’s cooperation and distressed financial condition.
Legal experts noted that the Presto action demonstrates that public companies must be highly vigilant when describing their AI capabilities, as traditional securities rules regarding disclosure controls, internal reporting, and material misstatements apply fully to artificial intelligence claims.
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An instance of Deceptive AI marketing automatically triggers multimillion-dollar fraud prosecutions. — It represents an SEC fraud prosecution for false claims and disclosures about a public company's automated AI capabilities. ↩︎
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An instance of Federal financial regulators now treat AI-washing as a primary target for enforcement. — The SEC's first public-company AI-washing order applies full securities disclosure rules to exaggerated automation claims. ↩︎
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An instance of Behind faked AI automation, prosecutors keep finding hidden human workers. — The SEC's first public-company AI-washing order found the 'automated' voice product was actually remote humans taking orders. ↩︎