They, in my estimation, represent the eighth and ninth filings of this kind brought before U.S. courts.
Although they are closely related, these suits differ from earlier lawsuits accusing AI-produced material of defamatory content, by at least some degree. Instead of alleging pervasive, outright hallucinations or, as in Battle v. Microsoft, the cross-mixing of two unrelated documents about people with similar names, the plaintiffs argue that summaries generated by AI—which restate publicly available sources—magnify or extend the claims found in those sources. In short, it is a form of complaint that regularly appears in ordinary libel actions against the press, albeit applied to AI outputs.
1. The SEC brought charges against Sergii Grybniak, accusing him of securities-law violations, including
[1] the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and
[2] the registration provisions of Sections 5(a) and (c) of the Securities Act ….
A federal court granted summary judgment to the SEC on the registration-violation claims, while denying summary judgment on the fraud allegations, on the ground that “genuine disputes of material facts exist as to each category of [alleged] misrepresentations.” Thereafter, the parties reached a consent judgment. The SEC’s press release framed the settlement as follows:
In its complaint, the SEC alleged that … Grybniak and Opporty conducted an unregistered and fraudulent securities offering of crypto assets called OPP Tokens via an initial coin offering (“ICO”), raising approximately $600,000 from nearly 200 investors. The complaint also alleged Grybniak and Opporty marketed the ICO by making material misrepresentations and omissions and engaging in other deceptive conduct, including exaggerating the number of users and growth of its online blockchain-based marketplace for small businesses, misrepresenting the nature of Opporty’s purported partnership with a major software company, and claiming the ICO was “SEC regulated” and “100% SEC compliant” when it was not….
[T]he Court granted the Commission’s motion for partial summary judgment, finding Grybniak and Opporty had conducted an unregistered securities offering without a valid registration exemption in violation of Section 5 of the Securities Act. In addition, the Court rejected Grybniak and Opporty’s defenses asserting reliance on counsel and that they lacked fair notice of the application of the federal securities laws to the ICO.
Without admitting or denying the SEC’s allegations, Grybniak and Opporty consented to entry of the final judgment, which provides for permanent injunctive relief under Sections 5, 17(a)(2), and 17(a)(3) of the Securities Act. The final judgment also ordered Grybniak to pay a civil money penalty of $100,000, imposed a conduct-based injunction against him, and ordered both Grybniak and Opporty to comply with various undertakings.
In essence, it appears the SEC viewed Grybniak as having engaged in fraud, though the court did not make a finding or admission of fraud itself—only a finding related to failure to register.
2. Grybniak subsequently filed suit against Google and X, challenging AI outputs that, according to federal courts’ findings, left Grybniak “legally responsible for making material misrepresentations and engaging in deceptive conduct” and that, per those rulings, Grybniak “committed securities fraud and related violations.” Grybniak maintains that
Plaintiff has never been found liable for fraud, never admitted fraud, and has no criminal record. The single civil regulatory matter on which the statements are loosely based was resolved, on a no-admission basis, exclusively under non-fraud/negligence provisions of the federal securities laws—a registration provision and two negligence-based provisions that, as a matter of law, do not require and do not establish fraudulent intent.
The contested statements appeared in output from Google’s AI service and X.AI (and are said to have persisted even after Grybniak notified Google and X about inaccuracies in the results). A representative sample of the alleged output from Grok is shown below (Google AI’s output is described as different but materially similar):
It’s true that the statement “Yes, according to the … SEC” is largely accurate, but the addition “and a federal court ruling” appears to be incorrect.
