AI-Powered Investments: Tyndaris v VWM Case
The Case
In 2017, Tyndaris SAM (an investment manager), contracted with MMWWVWM Limited (VWM) to make investment decisions for VWM using an AI system. VWM wanted a fund which would work without human intervention, eliminating any emotional or biassed decisions. The K1 supercomputer was designed to analyse real-time information across news channels, social media, and other sources to predict market trends, and use this information to make the most financially-sound investments. Despite extensive testing, the system led to significant losses for VWM, amounting to approximately US $22 million. As a result, VWM demanded a suspension of trading. In retaliation, Tyndaris claimed around US $3 million from VWM in unpaid fees, with VWM counterclaiming their loss, alleging misrepresentations by Tyndaris regarding the K1 supercomputer’s capabilities. Whilst this case settled out of court, it exemplifies the ability of AI to disrupt standard contractual agreements, and the potential for increased litigation in the future.
Key Issues
The autonomous nature of AI systems introduces novel questions about risk and liability allocation. The outcome of this case would have hinged on the specific facts and contract terms, as well as the representations made by Tyndaris as to the AI’s capabilities. It also would have centred on the actual actions of the AI system itself, and whether or not the investments which caused the loss were due to an error in the system, or an autonomous decision by the AI. If the former, the lack of transparency and complex structure of AI systems would have made it incredibly difficult to pinpoint which human actor was responsible for the error. If the latter, a novel question is raised as to who is responsible when the system makes an autonomous decision, without obvious errors, which causes loss. Whilst the settlement has postponed judicial comment on these issues, the growing use of AI in contractual agreements will undoubtedly generate similar issues in the near future.