OpenAI is under investigation by the California Attorney General

As part of what it describes as an ongoing investigation, the California attorney general’s office has sought answers from OpenAI about its reported plan to convert to a for-profit corporation and how it intends to transfer assets from its existing nonprofit organization.

In a letter sent to the creator of ChatGPT On Dec. 6, Deputy Attorney General Christopher Lamerdine cited clauses in OpenAI’s articles of incorporation that “openAI’s assets are irrevocably dedicated to its charitable purpose,” as Lamerdine put it, as well as the office’s “responsibility to protect assets held in charitable trust’. ” In addition to the question of the transfer of assets, he sought information about OpenAI’s restructuring plan and the value of its assets.

The attorney general’s office told CalMatters in an email, “The Department of Justice is committed to protecting charitable assets for their intended purpose and takes that responsibility seriously.”

The letter requests a response from OpenAI by January 8. Asked if the attorney general had received such a response, a spokesperson wrote: “To protect his integrity, we cannot comment on an ongoing investigation.”

The Department of Justice is committed to protecting charitable assets for their intended purpose and takes this responsibility seriously.

Attorney General Rob Bonta’s office

OpenAI did not respond to questions about the letter or its structure as an organization.

Allowing nonprofit OpenAI to divert its assets to earn a profit and attract investors could set a dangerous precedent, critics say, by allowing startups to enjoy nonprofit tax write-offs even when they intend to eventually account to become extremely profitable, capitalist enterprises.

The debate over the restructuring of OpenAI’s business comes at a time when the company is trying to increase its influence. OpenAI increased the cost of lobbying Congress seven times last year and for first time lobbyists hired to oppose bills to regulate AI in Sacramento.

In September Reuters announced that OpenAI will shift control of its core business from a non-profit to a non-profit public benefit corporation. In November, Bloomberg reported that OpenAI is in talks with the California Attorney General during the shift.

The company confirmed at the end of December that it is considering a new structure and plans to create a nonprofit public benefit corporation, though it did not say it plans to transfer control to the nonprofit.

OpenAI was founded in late 2015. with the support of “PayPal mafia” members like LinkedIn co-founder Reid Hoffman and Tesla CEO Elon Musk. Originally a non-profit organization focused on benefiting humanity through research on artificial general intelligenceit created four years later a for-profit part to make it look more attractive to investors and pour billions of dollars into computing resources to train powerful AI systems. The profits that flow to that part of the company and its investors are understood as limited, creating a barrier to raise funds. A dispute between the for-profit and for-profit divisions of OpenAI came to light in late 2023. after efforts by the non-profit board to oust co-founder and CEO Sam Altman, prompting an ultimatum from the majority of employees who threatened to quit if Altman was not reinstated.

OpenAI has since closed a $6.6 billion funding round and earlier this week, along with President Trump at the White House, announced Project Stargatea $500 billion joint venture to build data centers and power infrastructure that companies like OpenAI say are needed to train large AI models.

The Attorney General of California, Rob Bonta, on December 12 was urged in a letter from Meta to stop OpenAI from becoming a for-profit companyaccording to the Wall Street Journal, with Meta arguing that such a precedent could have “seismic implications for Silicon Valley” by allowing startups to enjoy privileged nonprofit tax status until they start making money. Musk has tried to block the conversion as part of a lawsuit against OpenAI filed last summer.

After the nonprofit OpenAI’s board fired Altman in 2023, the nonprofit consumer advocacy group Public Citizen repeatedly argued in letters to the attorneys general in California, where OpenAI is based, and Delaware, where OpenAI filed the statute. that they should investigate the organization. Public Citizen co-president Robert Weissman wrote that OpenAI does not operate as a non-profit organization, should lose its non-profit status and be forced to operate as a for-profit business, and that any for-profit entity that takes control of OpenAI , must pay a premium for those they control to a non-profit organization completely separate from OpenAI.

The precedent for this approach comes from Blue Cross of California, which after transferring assets to a for-profit subsidiary in 1990. gave more than $3 billion in equity to two foundations.

It’s hard to say exactly how much such a premium is worth when it comes to OpenAI, but a day before OpenAI’s $6 billion funding round last October, Weissman estimated it was worth it at least $30 billion.

The Stargate project, Wiseman told CalMatters, “is further evidence that the OpenAI nonprofit does not really exist as an independent body, that the OpenAI nonprofit board does not exercise any meaningful authority over the for-profit organization, and does not even take it seriously its non-profit mission.”

Weissman wants to see the attorney general examine what premium OpenAI would have to pay at a profit and how that valuation relates to the intellectual property owned by OpenAI and OpenAI-related companies and subsidiaries.

“The California Attorney General’s Office is a serious regulator of nonprofits, and there’s no way this scale can be separated from a nonprofit without careful review by the California Attorney General,” Weissman told CalMatters. “We hope they will come to conclusions that follow (with) what we have been arguing for the last year and a half.”

Levi Sumagasai contributed to this story.