Ever since OpenAI filed its initial paperwork to become a publicly traded company, the headlines about the historic nature of this IPO, and the billions OpenAI could raise have continued pouring in. While there is no shortage of news coverage, it\u2019s missing key details any savvy investor would want to know.\u00a0<\/p>\n
In OpenAI, investors aren\u2019t investing in a typical corporation\u2014they\u2019re putting money into a company that\u2019s ultimately controlled by a 501(c)(3) charitable nonprofit. With this unconventional and unprecedented structure\u2014OpenAI will be the first 501(c)(3) charity to take a controlled entity public\u2014comes a growing mountain of unresolved legal questions, undisclosed conflicts, and governance risks that could backfire on shareholders at any moment.<\/p>\n
That\u2019s why EyesOnOpenAI\u2013our coalition of over 50 nonprofit, labor and philanthropic organizations\u2013submitted a\u00a0letter to the SEC<\/a>\u00a0urging it to ensure OpenAI fully disclose each of its governance risks and their potential financial consequences for investors.\u00a0Recently, the SEC has opted to embrace a \u201cMake IPOs Great Again<\/a>,\u201d proposing rules that would require less disclosure for higher-valued IPOs. With a valuation that could be as high as $1 trillion, holding OpenAI to a lower bar would be perilous for investors and our economy at large. As regulators charged with protecting investors and maintaining fair and orderly markets, the SEC has a duty to pause or condition the dicey OpenAI IPO pending full disclosure of governance risk scenarios.<\/p>\n Many investors will be surprised to learn that OpenAI\u2019s nonprofit\u2014the OpenAI Foundation\u2014still controls the company. Its control derives from a special share of Class N stock through which the nonprofit has almost complete control over the composition of the company\u2019s board, as well as sole authority over all \u201csafety and security decisions\u201d which are undefined in the company\u2019s articles of incorporation. What\u2019s more, this governance stock exists in addition to the nonprofit\u2019s common stock ownership, through which it claims its 26% equity stake in the company. This means the nonprofit governing entity\u2014which is legally bound to prioritize the nonprofit mission over share price\u2014can divest its equity stake at any time and still control the board.\u00a0<\/p>\n California Attorney General Bonta approved OpenAI\u2019s restructuring\u2014but his sign-off was\u00a0explicitly conditional<\/a>\u00a0on binding commitments that the Foundation would continue operating as a genuine nonprofit under California charitable trust law. The California Attorney General has confirmed to us, in response to a\u00a0public records request<\/a>, that it is conducting an ongoing investigation into OpenAI.\u00a0\u00a0<\/p>\n There\u2019s also a\u00a0valuation problem<\/a>\u00a0that could result in court interference. When OpenAI\u2019s for-profit arm went from being a subsidiary to a separate Public Benefit Corporation (PBC), no independent appraiser confirmed the Foundation received fair value for the charitable assets it surrendered. While the Foundation received roughly 26% equity in exchange, without independent confirmation that this was a fair deal, a court or other regulator could require additional equity transfers.<\/p>\n Even in the best-case scenario\u2014OpenAI\u2019s full legal compliance, no violations, a fair exchange\u2014investors are still putting money into a company beholden to public interest obligations its competitors don\u2019t face, governed solely by a nonprofit. OpenAI wants to be valued like a technology company while it operates under constraints no technology company faces. Microsoft<\/a>, Google, and Anthropic compete for the same customers, the same talent, and the same regulatory goodwill, but without a charitable equity-holder controlling their boards and a court-enforceable mission to benefit humanity over shareholders. OpenAI\u2019s lawyers and comms shop have dressed up that structural liability as a heartwarming origin story. But when the inevitable tension between maximizing shareholder returns and honoring charitable trust obligations finally forces a legal reckoning, it will be ordinary investors\u2013not Sam Altman, not the Foundation\u2019s board\u2013who will bear the brunt.<\/p>\n The SEC has a clear responsibility to ensure investors are aware of the unprecedented nature of OpenAI\u2019s governance structure, the conflicts of interest, and the risks involved.\u00a0 Investors should be demanding transparency from the SEC before making that bet. The stakes extend far beyond investor returns. If OpenAI\u2019s IPO fails, it could shake an economy that\u2019s increasingly dependent on the AI boom. If it succeeds without accountability, we end up underwriting a company that broke the law and the promise it made to us, the public.<\/p>\n The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.<\/p>\n Orson Aguilar is the founding president and CEO of LatinoProsperity. Catherine Bracy is the founder and CEO of TechEquity and author of \u201cWorld Eaters.\u201d Aguilar and Bracy are members of the EyesOnOpenAI coalition.<\/p>\n","protected":false},"excerpt":{"rendered":"Ever since OpenAI filed its initial paperwork to become a publicly traded company, the headlines about the historic…\n","protected":false},"author":2,"featured_media":407906,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[7,9,8,3408,36566],"class_list":["post-407905","post","type-post","status-publish","format-standard","has-post-thumbnail","category-california","tag-california","tag-california-headlines","tag-california-news","tag-openai","tag-securities-and-exchange-commission"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/posts\/407905","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/comments?post=407905"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/posts\/407905\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/media\/407906"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/media?parent=407905"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/categories?post=407905"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/tags?post=407905"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}