What OpenAI Told California's Attorney General

In a previously unreported letter, the AI company defends its restructuring plan while attacking critics and making surprising admissions

This is the full text of a post first published on Obsolete, a Substack that I write about the intersection of capitalism, geopolitics, and artificial intelligence. I’m a freelance journalist and the author of a forthcoming book called Obsolete: Power, Profit, and the Race to Build Machine Superintelligence. Consider subscribing to stay up to date with my work.

OpenAI was founded as a counter to the perils of letting profit shape the development of an unprecedentedly powerful technology — one its founders have said could lead to human extinction. But in a newly obtained letter from OpenAI lawyers to California Attorney General Rob Bonta, the company reveals what it apparently fears more: anything that slows its ability to raise gargantuan amounts of money.

The previously unreported 13-page letter — dated May 15 and obtained by Obsolete — lays out OpenAI’s legal defense of its updated proposal to restructure its for-profit entity, which can still be blocked by the California and Delaware attorneys general (AGs). This letter is OpenAI’s latest attempt to prevent that from happening — and it’s full of surprising admissions, denials, and attacks.

Sam Altman speaking in front of SoftBank CEO Masayoshi Son | Carlos Barria | Reuters

OpenAI has not replied to a request for comment.

Control of OpenAI currently rests with its nonprofit board — an arrangement investors have reportedly balked at following the brief firing of CEO Sam Altman in November 2023. To assuage investor concerns, the company initiated plans last year to remove nonprofit control and restructure as a for-profit public benefit corporation (PBC).

The restructuring effort has drawn fire from former employees, Nobel laureates, and an array of civil society organizations, including a coalition of more than 50 California based nonprofits and community groups. Elon Musk has also sued to block it from moving forward, arguing that the nonprofit he helped found and fund is attempting to abandon its charitable purpose.

On May 5, OpenAI made the shocking announcement that it would ditch its plan to remove control over the company from the nonprofit. The move was hailed by many as a win for public pressure and represented in headlines as a substantial change to the original plan. But as the surprise of the decision wore off and observers dug into the sparse details OpenAI shared, the victory for civic action began to appear hollower.

The revised plan appears designed to placate both external critics and concerned investors by maintaining the appearance of nonprofit control while changing its substance. SoftBank, which recently invested $30 billion in OpenAI with the right to claw back $10 billion if the restructuring didn't move forward, seems unfazed by the company's new proposal — the company's finance chief said on an earnings call that from SoftBank's perspective, "nothing has really changed."

Revelations

The letter from OpenAI's lawyers to AG Bonta contains a number of new details. It says that "many potential investors in OpenAI's recent funding rounds declined to invest" due to its unusual governance structure — directly contradicting Bloomberg's earlier reporting that OpenAI's October round was "oversubscribed."

The letter resolves a question raised in recent Bloomberg reporting: the nonprofit board will have the power to fire PBC directors.

The document also states that "The Nonprofit will exchange its current economic interests in the Capped-Profit Enterprise for a substantial equity stake in the new PBC and will enjoy access to the PBC's intellectual property and technology, personnel, and liquidity…" This suggests the nonprofit would no longer own or control the underlying technology but would merely have a license to it — similar to OpenAI's commercial partners.

The key question

The key question at the heart of OpenAI's restructuring is whether the people practically running the company day-to-day will have a legal duty to prioritize the charitable mission above profit. OpenAI's mission is to ensure that artificial general intelligence (AGI) benefits humanity.

Under the current structure, OpenAI's LLC operating agreement explicitly states that "the Company's duty to this mission and the principles advanced in the OpenAI, Inc. Charter take precedence over any obligation to generate a profit." This creates a legally binding obligation for the company's management.

In contrast, under the proposed structure, PBC directors would be legally required to balance shareholder interests with the public benefit purpose. The ability to fire PBC directors does not change their fundamental legal duties while in office.

This shift in legal duties is likely one reason why investors who demanded the right to claw back tens of billions if OpenAI failed to restructure by aggressive deadlines are reportedly more comfortable with the new arrangement. It transforms the nonprofit from an active manager with direct control to a shareholder with hiring and firing powers — a much more familiar and investor-friendly governance model.

So far, no Delaware PBC has ever been held liable for failing to pursue its mission — legal scholars can’t find a single benefit‑enforcement case on the books.

Competitors and critics

While ostensibly addressed to the California coalition, the document reads more like a rebuttal to Elon Musk's lawsuit against the company — Musk's name appears nearly twenty times throughout. This repetition appears to be an attempt to delegitimize criticism by tying it to Musk and the commercial interests represented by his rival startup, xAI. "Despite (and likely because) of OpenAI's achievements, its most powerful detractors—many of whom, including Elon Musk, stand to massively profit if OpenAI falters—have sponsored a false narrative about OpenAI to advance their own commercial interests," the company writes.

This framing tries to cast all critics, including the nonprofit coalition, as either aligned with or manipulated by Musk's agenda. The letter claims that Musk has leveraged "a campaign of harassment and misinformation for more than a year" and suggests that legal arguments against OpenAI's restructuring "echo those of OpenAI's competitors who stand to gain from its downfall." (Meta joined Musk's suit in December.)

Musk has indeed waged a bitter campaign against OpenAI and Altman since losing a struggle for the organization's helm in 2018. But by conflating legitimate concerns from civil society organizations with Musk's more self-serving grievances, OpenAI appears to be creating a false binary: either you support the company's restructuring or you're aligned with Musk's interests. This rhetorical strategy deflects attention from the substantive governance concerns raised by independent groups.

The formal letter's confrontational attitude contrasts sharply with the conciliatory tone OpenAI has taken in direct communications with the nonprofit coalition. In an email to individual members, OpenAI representatives wrote that they:

understand this moment as an opportunity not just for dialogue—it's a chance to lay the groundwork for a different kind of partnership, one built on trust, transparency, and shared goals. We would welcome the chance to work with you.

This two-faced approach — offering partnership in private communications while suggesting coalition members are acting in bad faith in formal documents — highlights the increasingly adversarial tactics OpenAI is employing against critics of its restructuring plans. (The company countersued Musk last month.)

And, at least for some critics, it does not appear to be working. Orson Aguilar, a leader of the California nonprofit coalition, forwarded OpenAI's letter and the above email to Obsolete with this note:

For your information, they are sending emails directly to our coalition members and are now implying that we are working with Musk and that we are doing this for commercial interests!

Employee motivations

OpenAI's letter directly challenges the coalition's characterization of employee motivations during the November 2023 board crisis, when Altman was briefly ousted. It claims the coalition "denigrate[s] the outpouring of support for Altman" by suggesting it was a "cash grab motivated solely by the employees' 'financial stakes.'" The company insists there is "zero support for that outrageous claim."

However, a former OpenAI employee who signed the letter supporting Altman strongly disputes this characterization. "That's bullshit and a blatant lie," they wrote to Obsolete. "We were in the middle of a tender offer at the time. People had millions of dollars on the line, myself included." The former employee described numerous conversations on Slack and offline about "how does this affect the tender" and added that many employees "didn't really trust Sam even back then, they just thought the option was signing the letter or the company dying, and they really didn't want the latter."

And in response to a claim in the letter that the nonprofit board is stronger than ever, they wrote, "Also bullshit. The current board is packed with a supermajority of Sam loyalists. Pretending that they're able to act as an independent check on him is a joke."

The letter reassures AG Bonta that, "This plan for the future is the product of careful consideration by the Board of the Nonprofit." However, the authors — legal representatives of the board — then proceed to misspell the names of two of the directors ("Ogunles" instead of "Ogunlesi" and "Hellman" instead of "Hellmann").

Contestable claims

The letter makes some contestable claims, including that "Microsoft has never 'control[led]' OpenAI—either as a matter of corporate governance or as a matter of antitrust law." However, Altman's threat to reconstitute OpenAI at Microsoft, backed by signatures from 90 percent of the company, likely played a pivotal role in the board's decision to reinstate him last November. OpenAI also asserts that "all arrangements with Microsoft have been negotiated at arm's length," — a claim that strains credulity given how instrumental Altman has been to forging the relationship. Altman's "bromance" with Microsoft CEO Satya Nadella has been covered extensively, and Altman reportedly asked Nadella for billions of dollars while serving on the nonprofit board.

OpenAI's criticism of the coalition's April 9 letter is particularly puzzling. The company faults the coalition for claiming that "OpenAI proposes to eliminate any and all control by [the Nonprofit] over OpenAI's core work." This criticism is perplexing because, as OpenAI itself later demonstrated with its May 5 reversal, that was precisely OpenAI's publicly understood plan at the time the coalition made its statement. The company appears to be retroactively criticizing the coalition for accurately describing OpenAI's proposal as it stood.

What's left unsaid

Perhaps most notable is what the letter doesn't say. While OpenAI claims its PBC will operate "consistent with the Nonprofit's mission and subject to the Nonprofit's control, just as the Capped-Profit Enterprise does today," it concedes in the next breath that under Delaware law, PBC directors must balance shareholder interests with public benefit. As highlighted earlier, this represents a fundamental shift from the current structure, where the nonprofit board isn't required to consider shareholder profits at all.

A separate group of advocates organized under the label "Not for Private Gain" sent its own legal letter in April, asking the California and Delaware AGs to investigate and block OpenAI's restructuring plans. The group laid out six existing governance safeguards that were threatened by the company's proposal — like the subordination of profit motives to OpenAI's charitable purpose and caps on how much profit can go to investors.

Earlier this week, the Not for Private Gain project published a follow-up analyzing OpenAI's new proposal, finding that five of the six safeguards were still at risk of being eliminated by the restructuring. The sixth safeguard — the profit caps — would go away under the new plan.

The Not for Private Gain update offers specific ideas on how OpenAI could legally enshrine some of the safeguards that would not exist by default if the new proposal moves forward — for instance, through legal guarantees to prioritize mission above profit in the PBC's certificate of incorporation.

OpenAI's letter to AG Bonta does include one recommendation made in the group's follow-up — the nonprofit board will have the ability to fire the PBC board members.

Tyler Whitmer of the Not for Private Gain coalition wrote to Obsolete:

I’m glad to learn the nonprofit board will have the power to hire and fire directors of the proposed PBC, but this is a far cry from the direct control of the LLC the nonprofit has today. The new proposal is being pitched as the nonprofit staying in control, but in reality it undermines the nonprofit’s charitable mission by diluting its ability to directly manage development and deployment of AGI and shifts enforcement of the mission from public servants in the AGs' offices to self interested shareholders.

Responding to the letter's insinuation of impropriety, the group shared this statement with Obsolete:

We are independent of other groups voicing concerns about OpenAI’s restructuring. None of our letters’ signatories work for an OpenAI competitor, and we have received no funding from OpenAI competitors, including Elon Musk

The Not for Private Gain update acknowledges that it "does not discuss the proposed abandonment of OpenAI’s profit caps or its current commitment that artificial general intelligence—when OpenAI creates it—will belong exclusively to the nonprofit for the benefit of humanity." This, the authors write, is not meant "to minimize the significance of these proposed changes, but rather to underscore the singular importance of ensuring that OpenAI continues to have a legally enforceable obligation to advance the charitable mission above all else."

OpenAI has been marked by a long history of assurances, beginning with a simple one: public interest over private gain. As the organization now tries to undo the legal restraints that accompanied these foundational promises, it becomes harder to ignore what’s being constructed in their stead: not a firewall between mission and profit, but a bridge that only goes in one direction.

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