SEC investigating whether OpenAI investors were misled

Sam Altman, chief executive officer of OpenAI. (Photo: Bloomberg News)
Sam Altman, chief executive officer of OpenAI. (Photo: Bloomberg News)

Summary

The regulator is examining the internal communications of CEO Sam Altman, after the board last year temporarily ousted him for alleged lack of candor.

The Securities and Exchange Commission is scrutinizing internal communications by OpenAI Chief Executive Sam Altman as part of an investigation into whether the company’s investors were misled.

The regulator, whose probe hasn’t previously been reported, has been seeking internal records from current and former OpenAI officials and directors, and sent a subpoena to OpenAI in December, according to people familiar with the matter. That followed the OpenAI board’s decision in November to fire Altman as CEO and oust him from the board. At the time, directors said Altman hadn’t been “consistently candid in his communications," but didn’t elaborate.

Altman returned as CEO less than two weeks later as part of a deal that also entailed a reconstituted board, which he hasn’t joined.

SEC officials based in New York are conducting the investigation and have asked that some senior OpenAI officials preserve internal documents.

The SEC enforces laws that forbid people from misleading investors, regardless of whether fundraisers seek capital in public or private markets. The SEC often closes investigations without making formal accusations of wrongdoing.

Some of the people familiar with the investigation described it as a predictable response to the former OpenAI board’s claim in its November statement. One of the people said that the SEC hasn’t pointed to any specific statement or communication by Altman that it has deemed misleading.

The SEC’s civil investigation has been percolating in the background as OpenAI officials pitched investors as part of its recently closed tender offer, which valued the AI juggernaut behind viral chatbot ChatGPT at more than $80 billion.

OpenAI is governed by a nonprofit. Investors in its for-profit arm include employees, venture capitalists, and Microsoft, which has committed $13 billion to the company in exchange for what is essentially a 49% stake in the earnings of its for-profit arm.

The SEC probe adds to a growing list of government and legal challenges confronting OpenAI, reflecting intense global scrutiny of the company’s business practices and impact on the world. It also shows how the company is still dealing with the fallout from the failed ouster of Altman last year.

At that time of the leadership turmoil, OpenAI executives started getting questions from regulators and law-enforcement entities such as the Manhattan U.S. Attorney’s Office about the board’s accusation of Altman’s lack of candor, The Wall Street Journal reported in November.

That criminal investigation is ongoing, people familiar with the matter said. Its focus couldn’t be learned.

Government officials in the U.S. and Europe also have launched competition inquiries into the relationship between OpenAI and Microsoft, which also has a commercial partnership with the company.

As part of Altman’s return, OpenAI appointed two new board members, who commissioned a review of the events around Altman’s firing from the law firm WilmerHale.

The WilmerHale review is expected to wrap up in a few weeks and produce a report on the events, people familiar with that review said. The review focuses on the board’s handling of his ouster as well as Altman’s conduct.

In some cases, WilmerHale lawyers’ line of questioning has appeared to be more focused on what happened in November and the board’s role, rather than a broader look at Altman’s conduct and managerial style over the years, some of those people said. Another person familiar with the review said the lawyers asked questions about both topics.

Dave Michaels, Berber Jin and Tom Dotan contributed to this article.

Write to Deepa Seetharaman at deepa.seetharaman@wsj.com

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