How ‘AI Washing’ May Impact UK-Listed Companies – Lessons from Presto Automation
Author: Shaun Johnson.
Key Takeaways
AI Washing can trigger regulatory action, possible civil or regulatory penalties and reputational damage for listed companies, as it did in the investigation into Presto Automation, Inc.
UK-listed companies are potentially exposed to AI Washing risks under the Market Abuse Regulation (Article 12), Financial Services and Markets Act 2000 (sections 90 & 90A) and the Financial Services Act 2012 (section 89).
Robust governance controls, independent verification of statements about AI capabilities, and strong external counsel are crucial for UK-listed companies to mitigate AI Washing risks.
Introduction
Historically, listing on stock exchanges such as the London Stock Exchange or New York Stock Exchange has offered significant opportunities for large corporations to raise financing from investors across the world. However, these opportunities come with risk – particularly when navigating the challenges of ongoing disclosure obligations following an Initial Public Offering.
The development of securities fraud and its enforcement have often come in response to large scandals. For example, the collapse of large corporations such as Enron and WorldCom due to unethical accounting practices led to the introduction of the Sarbanes-Oxley Act of 2002, which introduced a range of measures aimed at protecting investors from inaccurate financial reporting (link).
More recently, the collapse of Wirecard was one of the largest European corporate frauds recorded. The accounting practices uncovered were coupled with public policy scrutiny into the response of the German regulator, BaFin. This was due to the initial enforcement response being restrictions on short selling of the Wirecard stock and scrutiny on journalist reporting on the company amidst concerns of market manipulation so that traders could profit from the stock’s falling value (link).
The stringent regulatory disclosures, coupled with unpredictable and policy-sensitive enforcement, brings significant challenges for listed companies. A recent SEC enforcement case has brought a new type of offence to this ongoing issue – AI Washing. In this article, the KCL Legal Tech Society (“LTS”) will explore the settlement in this case and its implications for UK-listed companies and their reporting obligations on public markets.
What is AI Washing?
AI Washing is a misleading practice which involves promoting a product or service through inaccurate representations about the extent to which that product or service uses Artificial Intelligence.
While AI Washing had emerged as an issue at a more local business level, its relationship with securities fraud has been brought to the forefront in the USA. DLA Piper reported that in the last five years, more than 50 securities class action lawsuits have made allegations pertaining to false or misleading statements about AI capabilities (link).
There have been multiple high profile enforcement actions against a range of American companies by the Securities Exchange Commission (“SEC”) for AI Washing related offences. However, the enforcement action against Presto Automation, Inc. (“Presto”) was one of the first high-profile enforcement actions against a publicly listed company specifically focused on AI Washing.
Background
Presto was founded in 2008 on the idea of making restaurant dining more efficient for customers. The core idea of the company was to put tablets on restaurant tables in dining chains, meaning that customers could order items and pay without needing a waiter to take the order.
Despite initial success, the market in restaurant technology services shifted towards a greater demand for automation, particularly following the COVID pandemic. Presto saw this as a new opportunity – to capitalise on consumer preferences for drive-thrus with innovative technology that replaces human order taking.
Presto developed ‘Presto Voice’ - an AI order-taking system which used speech recognition and natural language processing (link). Presto listed on NASDAQ in September 2022 via a merger with Ventoux CCM Acquisition Corp (“Ventoux”), a Special Purpose Acquisition Company (a shell entity, listed on a stock exchange, which is used to take a private company public via a merger) (link).
Presto shifted its focus towards marketing Presto Voice as its flagship product throughout 2023 and 2024. Presto Voice continued to generate significant success for the company – Presto claimed that shortly after its NASDAQ listing, it had consolidated a market share of over 75% in AI-powered drive-through, a growing niche in restaurant technology services (link).
Investors were drawn to the lucrative, high-margin product which Presto Voice was, reinforced in Presto’s SEC filings whilst it was trading on NASDAQ. Despite this apparent positive trajectory, what was contained in those filings led to the beginning of a damaging investigation. Presto ultimately delisted, with NASDAQ suspending trading of its shares in August 2024 (link).
The Investigation
In both SEC filings and public statements, Presto was investigated for statements made between November 2021 and May 2023. The specific misrepresentations, summarised in a client update by Ropes & Gray (link), included:
Presto failing to disclose that the speech recognition technology in Presto Voice was supplied by a third party from November 2021 to September 2022. Presto, during this time period, had misrepresented that the technology was its own.
Presto misstating that its own speech recognition technology (Presto Voice) did not require human intervention. In fact, Presto had hired and trained human order takers who were located in foreign countries. These employees processed most of the drive-thru orders placed via Presto Voice.
Presto having reported high numbers of orders completed without human intervention. This only referred to restaurant staff intervention, not capturing the off-site intervention of the aforementioned employees who processed orders made via Presto Voice.
When Presto became aware of the SEC probe into its public statements, the company instructed White & Case as defence counsel. This was in part due to the existing relationship which Presto had with White & Case, with the global law firm having advised Presto on its merger with Ventoux, the closing of the transaction and listing of the combined entity on NASDAQ (link).
The Settlement
In January 2025, the SEC reached a settlement with Presto. This included the following acknowledgements by the SEC in its cease-and-desist order (please find the SEC cease-and-desist order in full here – link)
Presto had violated Section 17(a)(2) of the Securities Act of 1933 (prohibiting acquisition of money or property through misrepresentation) and Section 13(a) of the Securities Exchange Act of 1934 (requiring filing of reports to the SEC which are not misleading)
Specific violations under the Securities Exchange Act of 1934 included Rule 13a-11 (requiring issuers to file current reports about material events) and Rule 13a-15(a) (requiring establishment and maintenance of disclosure controls and procedures)
Presto consented to a cease-and-desist order (a legally binding order issued by the SEC for Presto to not make any further breaches of the aforementioned sections). However, Presto did this without admitting or denying the findings of the SEC’s investigation
Due to Presto’s co-operation with the SEC during the investigation, remedial efforts made to correct the relevant disclosures and Presto’s financial condition at the time of the settlement, the SEC decided not to impose a civil penalty
The SEC noted that Presto voluntarily meeting with SEC staff on multiple occasions was material in not imposing a civil penalty, as Presto provided presentations and factual summaries to aid the SEC’s investigation.
Legal Implications
For UK-listed companies, there are specific regulatory disclosure requirements. Market abuse obligations and London Stock Exchange listing rules are enforced by the Financial Conduct Authority (“FCA”), with the London Stock Exchange responsible for enforcing AIM Rules for AIM-listed entities. These include requirements for offering documents to not include misleading information for investors. Issuers also have ongoing reporting obligations post-offering such as an annual report, directors’ report or strategic report, as required by the Companies Act 2006.
Liability for misrepresentations in either offering documents or in post-offering reporting documents is threefold for UK-listed companies:
1. Civil penalties under UK Market Abuse Regulation (“MAR”)
Listed companies are governed by MAR, a regulatory regime retained from EU law after Brexit. A key offence under the scope of MAR is market manipulation, which is defined under Article 12 MAR as including disseminating information which gives or is likely to give false or misleading signals as to the demand for a financial instrument such as the stock price of the issuer (link).
Therefore, if a LSE or AIM-listed company were to disseminate misleading information related to AI capabilities of its products or services within offering or reporting documents, it could be caught under the scope of Article 12 MAR if that information is misleading and is likely to give false signals as to the value of the stock of that company.
Applied to Presto’s published information on Presto Voice, it is plausible that the significant impact of the AI tool on Presto’s overall profitability would fall under the scope of Article 12 MAR regarding a false signal to the value of Presto on the market. Therefore, misstatements such as those found by the SEC would create legal risk under MAR for UK-listed companies.
2. Civil damages claims under the Financial Services and Markets Act 2000 (“FSMA”)
Investors in UK-listed companies also have direct legal recourse through FSMA. Under section 90 FSMA, an untrue or misleading statement (or omission of required information) in documents such as a prospectus or offering circulars can form the basis of a claim for compensation. Liability extends to the issuer itself, alongside directors of the issuer and any other advisors responsible for the offering documents (link).
This would mean that any of the misrepresentations found by the SEC to have been made by Presto, such as the misstatement on Presto Voice not requiring human intervention or the misstatement on Presto Voice being Presto’s own proprietary technology, would have led to section 90 liability if Presto had been an LSE or AIM-listed company.
Furthermore, section 90A FSMA codifies continued liability for issuers in respect of published information relating to securities connected to that issuer (link). This is set out in schedule 10A FSMA – under Part 2, an issuer is liable for damages if an investor acquired securities in reliance on published information and such published information contained misleading statements or omissions of required information (link).
Crucially, the section 90A offence for post-offering reporting has a higher legal test than the section 90 offence. This is since the investor must demonstrate that a person discharging managerial responsibilities in the issuer either knew or was reckless as to the misleading nature of the statement or knew an omission to be a dishonest concealment of material fact.
Applied to Presto’s case, investors in Presto stock would need to demonstrate that they invested in the stock in reliance on the information published by Presto on the capabilities of Presto Voice, and that a person discharging managerial responsibilities (e.g. directors of Presto) knew or was reckless as to the misleading nature of the misstatements about Presto Voice. On the facts, this is plausible but is more difficult to prove – the SEC found breach by Presto under Section 17(a)(2) of the Securities Act of 1933, which only requires negligence.
3. Criminal liability under the Financial Services Act 2012 (“FSA”)
Under section 89 FSA, a person who makes a statement which they know to be materially false, is reckless as to the material falsity of the statement or dishonestly conceal material facts may be criminally liable if this statement or omission induces another person to enter, withdraw or exercise rights related to an investment.
This offence carries a higher evidential threshold than under section 90A FSMA. This is since prosecutors must demonstrate that the person making the statement either intended to induce or was reckless as to the misleading statement inducing another person into investment-related behaviours above. The Fraud Act 2006 carries similar criminal provisions, such as fraud by false representation under section 2.
Applying the FSA offence to the facts of the Presto case, it is possible (depending on further evidence examination) that executives who authorised SEC filings could have been found criminally liable. For example, paragraph 33 of the cease-and-desist order records that:
“In January 2023, another Presto executive raised concerns that Presto was “telling investors Presto AI is running 95%+ accuracy without disclosing AI is doing NONE of the work and all orders are processed by humans.” Similar concerns were voiced internally by several other senior executives at Presto”
Commercial Implications
Given the breadth of risks which a UK-listed company could face if it were to make the same mistakes which Presto made whilst NASDAQ-listed, there are some key commercial observations about this enforcement case for public companies to consider when protecting against such risks.
1. AI Washing is an emerging risk category for FTSE 100 boards
The growth of AI has been a fast-paced challenge for FTSE 100 companies seeking to maximise the efficiency of their operations. Investors are increasingly demanding AI-driven improvements to profitability, meaning that the race to maintain high stock valuations on the London Stock Exchange is incorporating AI adjustments.
Deloitte’s Corporate Reporting Insights 2025 found that in their annual reports for 2025, 93 out of 100 FTSE 100 companies made public statements which included AI, compared to just 50 out of 100 in 2023. Furthermore, 68 companies mentioned AI in the context of risk reporting in 2025, a significant increase from just 11 in 2023 (link).
Therefore, it is becoming clear that corporate boards should treat the use of AI at all levels of corporate governance as a key area for stress-testing. Specific actions that can be taken include:
Formal board meetings at quarterly intervals where AI risk is reviewed. This can include confirmation of regulatory compliance with updating legislation, any litigation exposure (such as under section 90A FSMA) and general risk related to loss of investor confidence
Formal training for employees focusing on company use of AI. This can be specifically designed to emphasise that AI misstatements carry potentially significant liability for listed companies, alongside providing clear guidance as to how to discuss AI capabilities to prospective investors
Independent verification of statements in company reporting to the market. This can specifically involve FCA-approved bodies which can verify statements made about AI capabilities for their accuracy before reporting documents are made public by issuers
These measures will help FTSE 100 companies to synthesise integration of AI with avoiding any FCA related enforcement action for AI Washing – a key performance indicator in the coming decade.
2. AI Washing is a new battleground for corporate law firms to win work
When Presto was faced with the SEC probe, its executives were dealing with new legal ground. Selecting the right law firm to advise on steps to take to cooperate with the SEC was a crucial decision during the enforcement process.
Presto selected White & Case to advise on the matter. The firm has a tier 1 ranking in the Legal 500 for worldwide white-collar crime (link), alongside a wealth of experience in dealing with enforcement matters by the SEC and other bodies such as the Department of Justice and the Commodity Futures Trading Commission. Therefore, it was certainly well-placed to navigate the lifecycle of an investigation by the SEC.
However, what was key for White & Case in winning this work ahead of other firms with stellar reputations for US white-collar matters (e.g. Gibson Dunn, Covington & Burling, Debevoise & Plimpton etc.) was that Presto had previously worked with White & Case on its merger with Ventoux and NASDAQ listing.
This is a familiar outcome for firms seeking to win white-collar enforcement mandates from companies and is key for insight into any enforcement action which could be taken against a FTSE 100 company on allegations of AI Washing.
For example, Rolls-Royce, one of the largest FTSE 100 companies, instructed both Slaughter and May and Debevoise & Plimpton to advise on its high-profile enforcement case taken by the Serious Fraud Office for allegations of bribery by intermediary companies (link). The reasons for these choices were clear:
Rolls-Royce had a longstanding relationship with Slaughter and May, a firm with a prestigious reputation for handling complex UK corporate governance matters, and so instructed the firm to advise on broader corporate governance implications when the matter became broader
Debevoise & Plimpton had a market reputation for handling enforcement actions spanning across multiple enforcement bodies. This meant that the firm had the resources and know-how to sensitively handle a multi-jurisdictional internal investigation for Rolls-Royce following the initial regulatory probe
The new battleground is clear – law firms must combine their expertise in understanding the enforcement patterns of regulators with rapidly developing their work in AI-related litigation. The result of the investigation was that the SEC never imposed any civil penalty, partially due to Presto’s cooperation with the regulator – a key sign of credibility for White & Case as external counsel when advising on AI Washing investigations.
Concluding Note
What is evident from this case is that AI Washing is no longer a theoretical risk but an emerging enforcement priority for listed companies. Whilst there has not yet been a high-profile investigation against a UK-listed company for AI Washing by the FCA, public policy has focused on increasing scope of corporate liability for white-collar offences, such as under the Economic Crime and Corporate Transparency Act 2023.
For law firms, AI Washing presents a new area of legal practice to be incorporated into AI practice groups, whose introduction has been aimed at providing a full-service offering for clients who need advice on the entire AI value chain. Developing a market reputation for AI advisory work may prove a key part of a competitive advantage in London as a financial hub.
For students, the LTS message is clear: forming an understanding of how AI interacts with securities fraud for large corporations is a key part of developing a sophisticated approach to risk. This is relevant for not only listed companies, but for large private companies which the most prestigious corporate law firms serve as well.
