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Elon Musk, owner of Tesla and the X (formerly Twitter) platform, attends a symposium on fighting antisemitism titled ‘Never Again : Lip Service or Deep Conversation’ in Krakow, Poland on January 22nd, 2024.

Beata Zawrzel | Nurphoto | Getty Images

When it comes to legal disputes, Elon Musk’s definition of victory may not always be winning in court.

Last week, Musk sued OpenAI and co-founders Sam Altman and Greg Brockman for breach of contract and fiduciary duty. Experts say the case is built on a questionable legal foundation, because the contract at the heart of the suit isn’t a formal written agreement that was signed by all parties involved.

Rather, Musk is alleging that the early OpenAI team had set out to develop artificial general intelligence, or AGI, “for the benefit of humanity,” but that the project has been transformed into a for-profit entity that’s largely controlled by principal shareholder Microsoft.

Musk used much of the 35-page complaint (plus attached exhibits) on Friday to tell his side of the story and to remind the world of his central position in the creation of a company that’s since become one of the hottest startups on the planet, (OpenAI ranked first on CNBC’s Disruptor 50 list in 2023) thanks largely to the viral spread of ChatGPT.

“It’s certainly a good advertisement for the benefit of Elon Musk,” Kevin O’Brien, partner at Ford O’Brien Landy LLP and former assistant U.S. attorney, told CNBC. “I’m not sure about the legal part though.”

O’Brien, who isn’t involved in any cases with Musk, added, “One thing that jumped right out at me is there’s no contract.”

In the suit, Musk’s lawyers say they want OpenAI to return to its work as a research lab and no longer exist for the “financial benefit” of Microsoft. Musk, who’s worth over $200 billion, is unconcerned about the legal costs of floating a suit that has no clear personal economic benefit and is of questionable merit.

Shannon Capone Kirk, global head of e-discovery and AI for Ropes & Gray LLP, told CNBC that Musk might just be seeking to force more information into the public realm about how OpenAI has been operating and how its business objectives have morphed in recent years.

Sam Altman, CEO of OpenAI, during an interview at Bloomberg House on the opening day of the World Economic Forum in Davos, Switzerland, on Jan. 16, 2024.

Chris Ratliffe | Bloomberg | Getty Images

It’s a “high-profile case with great public interest, a consequence of which might lead to OpenAI being available to everyone,” said Kirk, who isn’t working on any cases involving Musk. “Is that the real objective?”

In their complaint, Musk’s attorneys allege that OpenAI “has been transformed into a closed-source de facto subsidiary of the largest technology company in the world: Microsoft.” They also say the arrangement goes against a founding agreement and 2015 certification of incorporation that OpenAI established with Musk, who was a pivotal donor to OpenAI in its early years.

Musk’s attorneys said their client contributed over $15 million to OpenAI in 2016, which was “more than any other donor” and helped the startup build a team of “top talent.” The next year, Musk gave nearly $20 million to OpenAI, which the attorneys reiterated was more than other backers. In total, Musk invested over $44 million into OpenAI from 2016 through September 2020, according to the suit.

The lawsuit fits a pattern for Musk, who has frequently posted on X and commented in public forums about his importance to the creation of OpenAI.

In November, Musk told an audience at the The New York Times’ DealBook conference that OpenAI had deviated from its original mission.

“OpenAI should be renamed ‘super closed source for maximum profit AI,’ because this is what it actually is,” Musk said onstage at the event. He noted that it’s transformed from an “open source foundation” to multibillion-dollar “for-profit corporation with closed source.”

Read more CNBC reporting on AI

Is there injury?

In the suit, Musk’s attorneys allege that the inner workings of OpenAI’s GPT-4 AI model are “a complete secret except to OpenAI—and, on information and belief, Microsoft,” and that the secrecy is driven by commercial gain rather than safety. Musk has publicly beefed with Microsoft for a while, and in May 2023, Musk attorneys accused the company of using X (formerly Twitter) data in unauthorized ways.

Even if OpenAI’s mission has changed, that doesn’t mean Musk has a solid legal case.

“If he has any hopes to recover, he’s going to have to prove that there was this agreement – that the company be open and not for profit and all these other things, and that the failure to do so has caused him injury, which is a separate problem,” O’Brien said. “It’s hard to see where the injury is here.”

Musk’s attorneys didn’t respond to a request for comment.

Musk has an AI company of his own, X.AI, which introduced a competing chatbot called Grok in November after two months of training. In December, X.AI filed with the SEC to raise up to $1 billion in an equity offering. And Musk is also developing autonomous vehicle tech and humanoid robotics, which require AI advances, at Tesla.

He’s been known to hire bigwigs from OpenAI, poaching Andrej Karpathy, a former OpenAI software engineer, over to Tesla in 2017. More recently, Musk hired Kyle Kosic from OpenAI to join X.AI.

One of Musk’s goals with this case, lawyers said, may be to shed light on details of OpenAI’s GPT-4 in the discovery process, should it get that far. O’Brien said it can be tough to keep intellectual property and other internal details private when a lawsuit is brought.

Elon Musk could face an uphill battle regarding his standing in the case: UCLA Law's Rose Chan Loui

Kirk agreed, saying that in the discovery stage, there may be “lots of document requests for all kinds of communication,” such as internal conversations, text messages and more. Some of the documents produced may come with protective orders that keep them out of the public.

A portion of Musk’s lawsuit rests on the idea that OpenAI has already reached AGI, typically defined as AI that can operate on the same level — or higher — than humans when completing a wide array of cognitive tasks. The suit claims that since GPT-4 is “better at reasoning than average humans” based on test scores on the Uniform Bar Exam, GRE Verbal Assessment and even the Advanced Sommelier exam.

As part of its contract with OpenAI, Microsoft only has rights to OpenAI’s “pre-AGI” technology, and it’s up to OpenAI’s board to determine whether the company has reached that milestone.

In a memo to employees on Friday following the lawsuit, OpenAI said that “GPT-4 is not an AGI.”

“Importantly, an AGI will be a highly autonomous system capable enough to devise novel solutions to longstanding challenges,” Chief Strategy Officer Jason Kwon wrote. “GPT-4 can’t do that.”

Much of the AI community is in agreement with Kwon.

Kirk said “part of what they’re going to be litigating” is the question of what is AGI.

Read the full complaint here:

Elon Musk wants OpenAI to break the Microsoft contract and be a nonprofit again: Walter Isaacson

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OpenAI dissolves team focused on long-term AI risks, less than one year after announcing it

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OpenAI dissolves team focused on long-term AI risks, less than one year after announcing it

OpenAI has disbanded its team focused on the long-term risks of artificial intelligence just one year after the company announced the group, a source familiar with the situation confirmed to CNBC on Friday.

The person, who spoke on condition of anonymity, said that some of the team members are being re-assigned to multiple other teams within the company.

The news comes days after both team leaders, OpenAI co-founder Ilya Sutskever and Jan Leike, announced their departures from the Microsoft-backed startup. Leike on Friday wrote that OpenAI’s “safety culture and processes have taken a backseat to shiny products.”

The news was first reported by Wired.

OpenAI’s Superalignment team, announced last year, has focused on “scientific and technical breakthroughs to steer and control AI systems much smarter than us.” At the time, OpenAI said it would commit 20% of its computing power to the initiative over four years.

Sutskever and Leike on Tuesday announced their departures on X, hours apart, but on Friday, Leike shared more details about why he left the startup.

“I joined because I thought OpenAI would be the best place in the world to do this research,” Leike wrote on X. “However, I have been disagreeing with OpenAI leadership about the company’s core priorities for quite some time, until we finally reached a breaking point.”

Leike wrote that he believes much more of the company’s bandwidth should be focused on security, monitoring, preparedness, safety and societal impact.

“These problems are quite hard to get right, and I am concerned we aren’t on a trajectory to get there,” he wrote. “Over the past few months my team has been sailing against the wind. Sometimes we were struggling for compute and it was getting harder and harder to get this crucial research done.”

Leike added that OpenAI must become a “safety-first AGI company.”

“Building smarter-than-human machines is an inherently dangerous endeavor,” he wrote. “OpenAI is shouldering an enormous responsibility on behalf of all of humanity. But over the past years, safety culture and processes have taken a backseat to shiny products.”

Leike did not immediately respond to a request for comment, and OpenAI did not immediately provide a comment.

The high-profile departures come months after OpenAI went through a leadership crisis involving co-founder and CEO Sam Altman.

In November, OpenAI’s board ousted Altman, claiming in a statement that Altman had not been “consistently candid in his communications with the board.”

The issue seemed to grow more complex each following day, with The Wall Street Journal and other media outlets reporting that Sutskever trained his focus on ensuring that artificial intelligence would not harm humans, while others, including Altman, were instead more eager to push ahead with delivering new technology.

Altman’s ouster prompted resignations – or threats of resignations – including an open letter signed by virtually all of OpenAI’s employees, and uproar from investors, including Microsoft. Within a week, Altman was back at the company, and board members Helen Toner, Tasha McCauley and Ilya Sutskever, who had voted to oust Altman, were out. Sutskever stayed on staff at the time but no longer in his capacity as a board member. Adam D’Angelo, who had also voted to oust Altman, remained on the board.

When Altman was asked about Sutskever’s status on a Zoom call with reporters in March, he said there were no updates to share. “I love Ilya… I hope we work together for the rest of our careers, my career, whatever,” Altman said. “Nothing to announce today.”

On Tuesday, Altman shared his thoughts on Sutskever’s departure.

“This is very sad to me; Ilya is easily one of the greatest minds of our generation, a guiding light of our field, and a dear friend,” Altman wrote on X. “His brilliance and vision are well known; his warmth and compassion are less well known but no less important.” Altman said research director Jakub Pachocki, who has been at OpenAI since 2017, will replace Sutskever as chief scientist.

News of Sutskever’s and Leike’s departures, and the dissolution of the superalignment team, come days after OpenAI launched a new AI model and desktop version of ChatGPT, along with an updated user interface, the company’s latest effort to expand the use of its popular chatbot.

The update brings the GPT-4 model to everyone, including OpenAI’s free users, technology chief Mira Murati said Monday in a livestreamed event. She added that the new model, GPT-4o, is “much faster,” with improved capabilities in text, video and audio.

OpenAI said it eventually plans to allow users to video chat with ChatGPT. “This is the first time that we are really making a huge step forward when it comes to the ease of use,” Murati said.

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BlackRock funds are ‘crushing shareholder rights,’ says activist Boaz Weinstein

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BlackRock funds are ‘crushing shareholder rights,' says activist Boaz Weinstein

Boaz Weinstein, founder and chief investment officer of Saba Capital Management, during the Bloomberg Invest event in New York, US, on Wednesday, June 7, 2023. 

Jeenah Moon | Bloomberg | Getty Images

Boaz Weinstein, the hedge fund investor on the winning side of JPMorgan Chase’s $6.2 billion, “London Whale” trading loss in 2011, is now taking on index fund giant BlackRock

On Friday, Weinstein‘s Saba Capital detailed in a presentation seen by CNBC its plans to push for change at 10 closed-end BlackRock funds that trade at a significant discount to the value of their underlying assets compared to their peers. Saba says the underperformance is a direct result of BlackRock’s management.

The hedge fund wants board control at three BlackRock funds and a minority slate at seven others. It also seeks to oust BlackRock as the manager of six of those ten funds.

“In the last three years, nine of the ten funds that we’re even talking about have lost money for investors,” Weinstein said on CNBC’s “Squawk Box” earlier this week.

At the heart of Saba’s “Hey BlackRock” campaign is an argument around governance. Saba says in its presentation that BlackRock runs those closed-end funds the “exact opposite” way it expects companies to run themselves.

BlackRock “is talking out of both sides of its mouth” by doing this, Saba says. That’s cost retail investors $1.4 billion in discounts, by Saba’s math, on top of the management fees it charges.

BlackRock, Saba says in the deck, “considers itself a leader in governance, but is crushing shareholder rights.” At certain BlackRock funds, for example, if an investor doesn’t submit their vote in a shareholder meeting, their shares will automatically go to support BlackRock. Saba is suing to change that.

A BlackRock spokesperson called that assertion “very misleading” and said those funds “simply require that most shareholders vote affirmatively in favor.”

The index fund manager’s rebuttal, “Defend Your Fund,” describes Saba as an activist hedge fund seeking to “enrich itself.”

The problem and the solution

Closed-end funds have a finite number of shares. Investors who want to sell their positions have to find an interested buyer, which means they may not be able to sell at a price that reflects the value of a fund’s holdings.

In open-ended funds, by contrast, an investor can redeem its shares with the manager in exchange for cash. That’s how many index funds are structured, like those that track the S&P 500.

Saba says it has a solution. BlackRock should buy back shares from investors at the price they’re worth, not where they currently trade.

“Investors who want to come out come out, and those who want to stay will stay for a hundred years, if they want,” Weinstein told CNBC earlier this week.

Weinstein, who founded Saba in 2009, made a fortune two years later, when he noticed that a relatively obscure credit derivatives index was behaving abnormally. Saba began buying up the underlying derivatives that, unbeknownst to him, were being sold by JPMorgan’s Bruno Iksil. For a time, Saba took tremendous losses on the position, until Iksil’s bet turned sour on him, costing JPMorgan billions and netting Saba huge profits.

Saba said in its investor deck that the changes at BlackRock could take the form of a tender offer or a restructuring. The presentation noted that BlackRock previously cast its shares in support of a tender at another closed-end fund where an activist was pushing for similar change.

At the worst-performing funds relative to their peer group, Saba is seeking shareholder approval to fire the manager. In total, BlackRock wants new management at six funds, including the BlackRock California Municipal Income Trust (BFZ), the BlackRock Innovation and Growth Term Trust (BIGZ) and the BlackRock Health Sciences Term Trust (BMEZ).

“BlackRock is failing as a manager by delivering subpar performance compared to relevant benchmarks and worst-in-class corporate governance,” the deck says.

If Saba were to win shareholder approval to fire BlackRock as manager at the six funds, the newly constituted boards would then run a review process over at least six months. Saba says that in addition to offering liquidity to investors, its board nominees would push for reduced fees and for other unspecified governance fixes.

A BlackRock spokesperson told CNBC that the firm has historically taken steps to improve returns at closed-end funds when necessary.

“BlackRock’s closed-end funds welcome constructive engagement with thoughtful shareholders who act in good faith with the shared goal of enhancing long-term value for all,” the spokesperson said.

Weinstein said Saba has run similar campaigns at roughly 60 closed-end funds in the past decade but has only taken over a fund’s management twice. The hedge fund sued BlackRock last year to remove that so-called “vote-stripping provision” at certain funds and filed another lawsuit earlier this year.

BlackRock has pitched shareholders via mailings and advertisements. “Your dependable, income-paying investment,” BlackRock has told investors, is under threat from Saba.

Saba plans to host a webinar for shareholders on Monday but says BlackRock has refused to provide the shareholder list for several of the funds. The BlackRock spokesperson said that it has “always acted in accordance with all applicable laws” when providing shareholder information, and that it “never blocked Saba’s access to shareholders.”

“What we want is for shareholders, which we are the largest of but not in any way the majority, to make that $1.4 billion, which can be done at the press of a button,” Weinstein told CNBC earlier this week.

WATCH: CNBC’s full interview with Saba Capital’s Boaz Weinstein

Watch CNBC's full interview with Saba Capital's Boaz Weinstein

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As Tesla layoffs continue, here are 600 jobs the company cut in California

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As Tesla layoffs continue, here are 600 jobs the company cut in California

As part of Tesla’s massive restructuring, the electric-vehicle maker notified the California Employment Development Department this week that it’s cutting approximately 600 more employees at its manufacturing facilities and engineering offices between Fremont and Palo Alto.

The latest round of layoffs eliminated roles across the board — from entry-level positions to directors — and hit an array of departments, impacting factory workers, software developers and robotics engineers.

The cuts were reported in a Worker Adjustment and Retraining Notification, or WARN, Act filing that CNBC obtained through a public records request.

Facing both weakening demand for Tesla electric vehicles and increased competition, the company has been slashing its headcount since at least January. CEO Elon Musk told employees in a memo in April that the company would cut more than 10% of its global workforce, which totaled 140,473 employees at the end of 2023.

Previous filings revealed that Tesla would cut more than 6,300 jobs across California; Austin, Texas; and Buffalo, New York.

Musk said on Tesla’s quarterly earnings call on April 23 that the company had built up a 25% to 30% “inefficiency” over the past several years, implying the layoffs underway could impact tens of thousands more employees than the 10% number would suggest.

According to the WARN filing, the 378 job cuts in Fremont, home to Tesla’s first U.S. manufacturing plant, included people involved in staffing and running vehicle assembly. There were 65 cuts at the company’s Kato Rd. battery development center.

Tesla didn’t respond to a request for comment.

Among the highest-level roles eliminated in Fremont were an environmental health and safety director and a user experience design director.

In Palo Alto, home to the company’s engineering headquarters, 233 more employees, including two directors of technical programs, lost their jobs.

Tesla has also terminated a majority of employees involved in designing and improving apps made for customers and employees, according to two former employees directly familiar with the matter. The WARN filing shows that to be the case, with many cut from the team at Tesla’s Hanover Street location in Palo Alto.

Tesla faces reduced demand for cars it makes in Fremont, including its older Model S and X vehicles and Model 3 sedan. Total deliveries dropped in the first quarter from a year earlier, and Tesla reported its steepest year-over-year revenue decline since 2012.

An onslaught of competition, especially in China, has continued to pressure Tesla’s sales in the second quarter. Xiaomi and Nio have each launched new EV models, which undercut the price of Tesla’s most popular vehicles.

Tesla’s stock price has tumbled about 30% so far this year, while the S&P 500 is up 11%.

Musk has been trying to convince investors not to focus on vehicle sales and instead to back Tesla’s potential to finally deliver self-driving software, a robotaxi, and a “sentient” humanoid robot. Musk and Tesla have long promised customers self-driving software that would turn their existing EVs into robotaxis, but the company’s systems still require constant human supervision.

Other recent job cuts at Tesla included the team responsible for building out the Supercharger, or electric-vehicle fast-charging network, in the U.S.

Tesla disclosed plans in its annual filing for 2023 to grow and optimize its charging infrastructure “to ensure cost effectiveness and customer satisfaction.” Tesla said in the filing that it needed to expand its “network in order to ensure adequate availability to meet customer demands,” after other auto companies announced plans to adopt the North American Charging Standard.

Since cutting most of its Supercharger team, Tesla has reportedly started to rehire at least some members, a move reminiscent of the job cuts Musk made at Twitter after he bought the company and later rebranded it as X. Musk told CNBC’s David Faber last year that he wanted to rehire some of those he let go.

Read the latest WARN filing in California here:

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