Elon Musk calls on California and Delaware to force auction of OpenAI stake

A highly unusual effort follows lawsuits Musk Last year, due to the attempt of OpenAI, which was founded as a non-profit organization dedicated to the benefits of AI for humanity, to reorganize as a for-profit company.

Musk co-founded OpenAI with Altman and another nine in 2015, and was a key early funder before leaving the board in 2018 after clashing with Altman.

OpenAI launched a for-profit subsidiary a year later to raise outside capital, including more than $13 billion from its biggest backer to date.However, the nonprofit, along with employees and investors, currently owns that for-profit subsidiary to the enterprise.

OpenAI is trying to become a public interest corporation, a type of for-profit organization committed to the betterment of society. The company suggested that the nonprofit’s “significant benefit” over existing profits would take the form of PBC shares at a fair valuation. , will be determined by independent financial advisors.

PBC will manage and oversee OpenAI’s operations and business, while the nonprofit will “pursue philanthropic initiatives in areas such as healthcare, education and science,” the company wrote in a December blog post.

In his letter, Musk’s attorney urged the attorneys general to allow outside investors to offer the nonprofit a stake in OpenAI that, if successful, could allow the outside investor to take a significant position and control the startup.

The proposed conversion to PBC would also mean the nonprofit would relinquish control of OpenAI’s business and operations, a person familiar with the situation said, which could be worth billions of dollars.

In the letter, Toberoff suggested the auction is the only way to ensure the nonprofit gets the most value for its assets and upholds its fiduciary responsibilities.

The nonprofit’s stake in the public for-profit corporation was likely worth tens of billions of dollars, according to a person with knowledge of the matter.

The Tesla boss and confidant of US President-elect Donald Trump has previously accused Altman of a “fraud of Shakespearean proportions”, claiming that OpenAI and Microsoft have strayed from the startup’s original mission.

OpenAI said in December that its transformation into a PBC would “result in one of the best-resourced nonprofits in history” and “multiply” donations from early backers, including Musk.

Its complex corporate governance came under scrutiny when Altman was briefly ousted by the nonprofit’s board in November 2023, and the company has since been weighing more conventional arrangements.

Musk, who founded his own AI startup xAI in 2023, has recently stepped up efforts to derail the OpenAI transformation.

In November, he tried to block the process with a request for a preliminary injunction filed in California.Meta also threw its weight behind the suit, which is Musk’s fourth launch against OpenAI.

In legal documents from November, Musk’s team wrote: “OpenAI and Microsoft together exploiting Musk’s donations so they can build a for-profit monopoly now specifically targeting xAI is simply too big.”

Kathleen Jennings, the attorney general of the state of Delaware, where OpenAI is incorporated, has since said her office is responsible for ensuring that OpenAI’s conversion is in the public interest and determining whether the deal is a fair price.

Members of Musk’s camp are wary of Delaware authorities after a state judge rejected the proposed $56 billion payment package Read that as a rebuke to Tesla’s chief executive last month for his efforts to block the conversion, and worry that it will be rushed. They also insist that OpenAI’s PBC conversion must take place in California, where the company is headquartered. :

Musk’s lawyers said last week that Delaware’s handling of the matter “doesn’t inspire confidence.”

OpenAI committed to becoming a public interest corporation within two years as part of a $6.6 billion funding round that valued it at $157 billion.If it doesn’t, investors will be able to withdraw their money.

There are a number of issues that OpenAI still needs to resolve, including negotiating the value of Microsoft’s investment in PBC.The transition was inevitable and would likely take months, according to a person with knowledge of the company’s thinking.

OpenAI declined to comment. The attorneys general of California and Delaware did not immediately respond to a request for comment.