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Elon Musk’s lawyer has urged the attorneys general of California and Delaware to force OpenAI to sell a large stake in its business, intensifying a bitter battle with the company’s CEO Sam Altman.
In a letter to top government lawyers seen by the Financial Times, Musk’s lawyer Marc Toberoff said he was writing on behalf of major AI investors who want to participate in an open and competitive bidding process for OpenAI stake.
OpenAI had no plans for such an auction, according to a person familiar with the ChatGPT-maker’s thinking. Musk’s camp simply “wants more chaos,” they added.
A very unusual attempt followed the lawsuits he brought Musk in the past year due to attempts by OpenAI, which was founded as a non-profit organization dedicated to ensuring the benefits of artificial intelligence to humanity, to restructure into a for-profit company.
Musk co-founded OpenAI with Altman and nine others in 2015 and was the most significant early funder before leaving the board in 2018 after falling out with Altman.
OpenAI launched a for-profit subsidiary a year later to raise outside capital, including more than $13 billion so far from its biggest backer, Microsoft. However, the non-profit entity, along with employees and investors, currently owns that for-profit subsidiary.
OpenAI is trying to become a public benefit corporation, a type of for-profit entity dedicated to improving society. The company has proposed that the non-profit’s “significant interest” in the existing for-profit company be in the form of shares in PBC at a fair value, which it says will be determined by independent financial advisers.
The PBC would lead and control OpenAI’s operations and business, while the nonprofit would “pursue charitable initiatives in sectors such as health, education and science,” the company wrote in a blog post in December.
In his letter, Musk’s lawyer pushed state attorneys general to allow outside investors to bid for the nonprofit’s stake in OpenAI. If successful, this could allow an outside investor to take a significant position in the start-up and exercise control over it.
The proposed conversion to PBC would also mean that the non-profit entity would relinquish control over OpenAI’s business and operations. One person familiar with the situation said those powers alone could be worth billions of dollars.
In the letter, Toberoff suggested that an auction is the only way to ensure that the nonprofit receives maximum value for its assets and fulfills its fiduciary duties.
The nonprofit’s stake in the public benefit corporation is likely worth tens of billions of dollars, according to a person familiar with the matter.
The Tesla boss and confidant of US President-elect Donald Trump previously accused Altman of “a fraud of Shakespearean proportions”, saying that OpenAI and Microsoft had deviated from the startup’s original mission.
OpenAI said in December that its conversion to a PBC would “result in one of the most well-resourced nonprofits in history” and “multiply” donations from early backers — including Musk.
His complex corporate governance came under scrutiny when Altman was briefly ousted by the nonprofit’s board in November 2023, and the company has since considered more conventional arrangements.
Musk, who founded his own AI start-up xAI in 2023, has recently stepped up efforts to prevent the conversion of OpenAI.
In November, he tried to block the process with a motion for a preliminary injunction filed in California. Meta has also thrown its weight behind the lawsuit, which is the fourth Musk has brought against OpenAI.
In legal filings from November, Musk’s team wrote: “OpenAI and Microsoft jointly exploiting Musk’s donations so they can build a profit-making monopoly, now specifically targeting xAI, is simply too much.”
Kathleen Jennings, the attorney general of Delaware — where OpenAI was founded — has since said her office is responsible for making sure OpenAI’s conversion is in the public interest and determining whether the transaction was at a fair price.
Members of Musk’s camp — wary of Delaware authorities after state judge rejected a proposed $56 billion pay package to the Tesla boss last month — read it as a rebuke to his efforts to block the conversion, and worry that it will be rushed. They also argued that OpenAI’s PBC conversion should take place in California, where the company is headquartered.
In a legal filing last week, Musk’s lawyers said Delaware’s handling of the matter “doesn’t inspire confidence.”
OpenAI committed to becoming a public benefit corporation within two years in a $6.6 billion funding round in October, valuing it at $157 billion. If he doesn’t, investors could get their money back.
There are a number of issues that OpenAI has yet to resolve, including negotiations over the value of Microsoft’s investment in PBC. The conversion was not imminent and would likely take months, according to a person familiar with the company’s thinking.
OpenAI declined to comment. Attorneys general for California and Delaware did not immediately respond to a request for comment.
