Sam Altman Under SEC Probe Amid Transparency Concerns: Did OpenAI Mislead Investors?

Key Takeaways

• The U.S. Securities and Exchange Commission (SEC) is examining internal communications of OpenAI CEO Sam Altman.
• The scrutiny follows the events of November 2023 when the OpenAI board removed Altman.
• This SEC investigation adds to the existing legal challenges OpenAI faces regarding business practices and competition concerns.

The Securities and Exchange Commission (SEC) has initiated an investigation into OpenAI’s CEO Sam Altman, focusing on his internal communications and concerns about the potential deception of the company’s investors.

This regulatory scrutiny – reported  by the Wall Street Journal – follows events from November 2023, when Altman was temporarily ousted from OpenAI’s board of directors. The board accused him of insufficient transparency in communication. Despite his subsequent return to the company shortly after, the SEC’s inquiry into the matter suggests ongoing concerns within the financial regulatory framework.

SEC Launches Probe On Altman

The regulator is requesting internal documents from current and former OpenAI executives and issued a subpoena to the company in December, according to sources . This action comes after the OpenAI board’s November decision to dismiss Altman as CEO and from the board. Executives cited Altman’s lack of consistent transparency in communications without elaborating further.

In cases like this, the SEC upholds laws prohibiting the misleading of investors, irrespective of whether fundraising activities occur in public or private markets. Frequently, the SEC concludes investigations without levying formal allegations of misconduct.

Insiders familiar with the investigation believe it relates to assertions made by the former OpenAI board in their November statement. Notably, the SEC has yet to pinpoint any specific statement or communication by Altman that it deems misleading.

What Happened With OpenAI’s Board?

Less than two weeks after he was ousted, Altman resumed his role as CEO. This was part of a deal that also entailed a restructured board, from which he opted not to participate. The SEC investigation is being led by officials based in New York. The U.S. regulatory body enforces laws prohibiting individuals from deceiving investors, regardless of whether fundraising occurs in public or private markets. It’s worth noting that the SEC frequently concludes investigations without formal allegations of misconduct.

While OpenAI managers discussed the recent tender offer, valuing ChatGPT‘s powerful AI capabilities at over $80 billion, the SEC’s civil investigation continued behind the scenes.

It’s crucial to highlight that OpenAI operates as a non-profit organization. Investors in its for-profit division include employees, venture capitalists, and Microsoft. The latter has pledged $13 billion for a 49% profit share.

OpenAI’s Legal Issues

The SEC investigation compounds a series of governmental and legal challenges confronting OpenAI amid heightened global scrutiny of the company’s business practices and societal impact.

According to the Wall Street Journal’s report in November, OpenAI executives found themselves fielding inquiries from regulators and law enforcement officials during the leadership upheaval prompted by the board’s allegations of Altman’s lack of transparency.

While a criminal investigation is ongoing, specifics regarding its focus remain undisclosed, as per individuals familiar with the matter.

Both U.S. and European government entities have initiated probes into the competition dynamics between OpenAI and Microsoft.

OpenAI welcomed two new board members who have initiated an inquiry into the circumstances surrounding Altman‘s dismissal.

Expected to conclude in a matter of weeks, the WilmerHale review aims to deliver a comprehensive report focusing on the board’s handling of the situation and Altman’s conduct. Some WilmerHale inquiries focus on November events and the board’s actions, rather than a broader assessment of Altman’s management. Yet, others suggest an examination of both aspects.