A company raised $42 million on an AI-powered shopping app. The real automation rate was essentially zero — hundreds of contractors were completing the orders by hand. In April 2025 the SEC and DOJ charged the founder. The criminal counts carry up to 20 years. We've studied every AI-washing case on record. They follow one logic: regulators compare what you said about your AI against what it actually does, then measure the gap. Delphia claimed machine-learning investment decisions it had never built. Presto said its voice AI eliminated human order-takers — yet 70%+ of orders still needed a person, 100% at some locations. The failure was never bad AI. It was the gap between marketing and technical reality, with no documentation to close it. What most teams miss: governance is not substantiation. Governance says you should document your systems; substantiation is the evidence itself — every public AI claim mapped to the specific model and decision point that delivers it, tested and ready to hand an examiner on demand. The trap most teams walk into: if your AI runs on a vendor's model, the SEC treats the vendor's claims as your claims. You own the substantiation either way. The SEC's 2026 exam priorities say plainly they'll review whether AI representations are accurate. 53 AI-related securities class actions are already filed; median settlement, $11.5M. If a regulator asked tomorrow, could your team produce that evidence — or only the policy? #AIGovernance #AIWashing