April 11, 2025 • 8 mins
In this week's monologue, Ed Zitron walks you through the precarious nature of OpenAI's non-profit status - and how a petition to the California Attorney general is an existential threat to the company.
Petition: https://aboutblaw.com/bhNa
---
LINKS: https://www.tinyurl.com/betterofflinelinks
Newsletter: https://www.wheresyoured.at/
Reddit: https://www.reddit.com/r/BetterOffline/
Discord: chat.wheresyoured.at
Ed's Socials:
https://www.instagram.com/edzitron
https://bsky.app/profile/edzitron.com
https://www.threads.net/@edzitron
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Zone Media. Hi, I'm Edzetron, and this is your weekly
better offline monologue. Precarious. That's the nature of the GENERATIVAI industry,
and especially open ai. A company that has never made
a profit, has no pathway to profitability and is contingent
(00:25):
upon other companies spending tens of billions of dollars on
new infrastructure to power their models in the future. Throughout
countless podcasts and newsletters, I've argued that all of these
factors mean the open AI and by extension, the greater
GENERATIVEAI industry, will eventually collapse. Open ai is just one
of a long line of dominoes, and it really only
takes one to four before the entire thing collapses. But
(00:47):
by comparison, I haven't really paid nearly as much of
the attention as I should have to the unusual structure
of open ai, which I believe will also contribute to
its downfall. Open ai was initially started as a nonprofit
intended to further the safe development of artificial intelligence, if
you believe them, Over time it morphed into an entirely
different beast, becoming the most valuable startup in history, and
(01:08):
the startup that has now raised the most capital in
history sort of, but for legal reasons, it couldn't quite
walk away from its nonprofit origins, and so we're now
left with this strange hybrid that consists of a nonprofit
that owns much of open AI's intellectual property and assets,
and a for profit business sort of tacked on awkwardly
at the side. In order to satiate its infinite thirst
(01:29):
for capital, open Ai must radically restructure the entire organization,
moving valuable assets and intellectual property from the nonprofit to
the for profit entity. Their ability to raise money is
entirely contingent upon this, as generally investors don't plow tens
of billions of dollars into philanthropic ventures where they will
never see a return. Indeed, many of open AI's previous
(01:50):
funding rounds have had caveats that would radically alter the
terms of their deal if open ai fails to convert
into a for profit business. Last October, they raised six
point six billion dollars from a bevy of investors, but
the deal included a covenant of sorts that should they
fail to convert into a full profit entity in two years.
Of October twenty twenty six, the investment would convert into
(02:12):
a loan. Open Ai would in effect have to return
the capital to investors and potentially pay a punishing interest rate. Similarly,
open AI's latest forty billion dollar with soft Bank is
structured in a way where ten billion of the dollars
are contingent on open ai becoming a for profit business.
The point I'm trying to make is that for open Ai,
this current structure represents an existential threat. In many ways.
(02:33):
It is more dire than any shortage of compute capacity
or the fact that they spend billions of dollars more
than they'll ever make. So they just change structure, right,
what's the big deal? Well, this is a complex and
bureaucratic procedure that typically only happens in sectors like healthcare,
where hospitals are bought out by larger for profit companies.
(02:54):
I struggle to think of any similar examples in tech,
and even if those examples exist, they don't involve entities
of the size in value of open Ai or indeed,
the prominence. The transformation isn't something that Sam Mortman can
do unilaterally either. In essence, he needs that the consent
of regulators and lawmakers in the State of California. We've
already seen open aiy's moves be challenged but the likes
of Elon Musk and Mark Zuckerberg, although these efforts did
(03:16):
not or have yet to amount to much, though there
is an upcoming trial with Elon mask over this. Part
of the complexity comes from the very nature of what
it means to be a nonprofit. Nonprofits enjoy certain tax benefits,
both from their exemption from taxation to the benefits that
come when a person makes a charitable donation to a
non profit. If you give money to the Red Cross
(03:37):
or a church or whatever, you can write that off
against your taxes. As a result, open ai is constrained
by what it can do with the assets that are
held within the nonprofit. Those assets are supposed to be
used for the benefit of society, it to serve some
kind of charitable purpose. Open AI can't just transfer them
to a for profit entity. Doesn't work like that, nor
should it, even though they're very much trying to make it.
(04:00):
Linked to this in the episode Notes, but a recent
petition against open AI's restructuring alleges that open ai has
already effectively broken the rules against how nonprofits should operate
and manage their assets, but the first violation coming in
twenty nineteen, right at the start of open AI's metamorphosis
and around the time when it obtained its first billion
dollars worth of investment from Microsoft. Addressed to the Attorney
(04:20):
General of California and signed by innumerable figures in California
and national philanthropy, it articulates a compelling case that open
ai has already broken the law in several meaningful ways
and urges the state to take action to prevent a
further dilution of the open ai charitable mission. It describes
these violations as and I quote, factually complex but legally simple.
(04:41):
It claims that the twenty nineteen restructuring which created the
for profit element involved the wrongful transfer of assets from
the nonprofit. This is bad in and of itself, but
as time dragged on the influence and relevance of the
nonprofit wing over the for profit entity, the effectively ended.
It gives the example of the November twenty twenty three coups,
when Sam Altman was fired from the company over alleged
(05:02):
dishonesty about the safety processes surrounding model development, and also
a bunch of other stuff like not telling the board
that chat GPT was coming out anyway. This firing, the
letter states, came at the behest of the nonprofit directors.
As we all know. It didn't take sam Altman long
to return to the helm of open ai and the
same role that he'd left. Many of the board members
that had approved distermination left, and though they signed a letter,
(05:23):
it was very much a they have me my family
kind of thing, or I should say they have my
stock units, and they were replaced by those who are
more aligned for the for profit goals of open Ai.
The petition also makes the case that open ai is
renunciation of its commitment to open source research within its
purpose clause, the thing that defines what a nonprofit is
for also represented in illegal diversion of assets. Open source
(05:46):
software benefits whoever uses it, whereas proprietary software, even if
it's provided for free, there's comparatively fewer benefits to society.
You can't change your modify or improve a program, and
you're at the best. You're really at whatever the vendor
wants to do as far as accessing or using the
platform or program or whatever it might do. In practice,
there's little open about open ai. They share little source
(06:09):
code and don't even provide specifics about the training data
they use. They're less concerned with public research and now
shrouds their development in the same cloak of secrecy that
you would expect from basically any other tech company. Now
they're claiming they're going to release an open weighted model,
but it's bullshit. I'm sorry, that's not enough. Now, the
letter does make some specific demands. It wants the AG
(06:30):
to investigate what assets were siphoned off from the nonprofit,
block any conversion until the investigation is completed, and make
sure that all charitable assets are returned to the nonprofit,
and indeed to create a truly independent entity separate from
Sam Morltman and the business interests of open ai, to
act as a steward for these assets. If this petition
succeeded in delaying the conversion, open AI's future becomes much
(06:52):
more uncertain and perhaps may not even be possible. It'll
make it harder to raise new funds that would only
increase their cash burners. Open ai will now be to
start making repayments and investments that were automatically converted into loans.
Will it succeed, Maybe First, this petition doesn't come from
arrival with an extra grind against Sam Altman. Like Elon Musk,
the Black Freedom Fund, the Asian Law Caucus in the
(07:14):
California Teamster's Public Affairs COUNTSL aren't exactly the natural adversaries
of Vaultman, unless they, of course, secretly hate people who
wear Patagolia vests, in which case I retract the entire
art sentence and also add that I heartily congratulate them
and agree with them. Moreover, this petition isn't framed about
tech or AI or AI safety, but rather something far
more simple. It's about what a nonprofit is and how
(07:35):
it should be run. And if, as the letters authors argue,
open AI should be allowed to restructure without being challenged
or scrutinized, it will set a dangerous precedent that would
make it harder to protect the charitable mission of nonprofits
and make them easier for them to be plundered. Like
I'd argue open AI has, it's a strong case. While
it's hard to tell if the Attorney General will take
it on, it could lay the groundwork for open AI's demise,
(07:57):
and I'm sure some of you would love them well. No,
I might too.
Zone Media. Hi, I'm Edzetron, and this is your weekly
better offline monologue. Precarious. That's the nature of the GENERATIVAI industry,
and especially open ai. A company that has never made
a profit, has no pathway to profitability and is contingent
(00:25):
upon other companies spending tens of billions of dollars on
new infrastructure to power their models in the future. Throughout
countless podcasts and newsletters, I've argued that all of these
factors mean the open AI and by extension, the greater
GENERATIVEAI industry, will eventually collapse. Open ai is just one
of a long line of dominoes, and it really only
takes one to four before the entire thing collapses. But
(00:47):
by comparison, I haven't really paid nearly as much of
the attention as I should have to the unusual structure
of open ai, which I believe will also contribute to
its downfall. Open ai was initially started as a nonprofit
intended to further the safe development of artificial intelligence, if
you believe them, Over time it morphed into an entirely
different beast, becoming the most valuable startup in history, and
(01:08):
the startup that has now raised the most capital in
history sort of, but for legal reasons, it couldn't quite
walk away from its nonprofit origins, and so we're now
left with this strange hybrid that consists of a nonprofit
that owns much of open AI's intellectual property and assets,
and a for profit business sort of tacked on awkwardly
at the side. In order to satiate its infinite thirst
(01:29):
for capital, open Ai must radically restructure the entire organization,
moving valuable assets and intellectual property from the nonprofit to
the for profit entity. Their ability to raise money is
entirely contingent upon this, as generally investors don't plow tens
of billions of dollars into philanthropic ventures where they will
never see a return. Indeed, many of open AI's previous
(01:50):
funding rounds have had caveats that would radically alter the
terms of their deal if open ai fails to convert
into a for profit business. Last October, they raised six
point six billion dollars from a bevy of investors, but
the deal included a covenant of sorts that should they
fail to convert into a full profit entity in two years.
Of October twenty twenty six, the investment would convert into
(02:12):
a loan. Open Ai would in effect have to return
the capital to investors and potentially pay a punishing interest rate. Similarly,
open AI's latest forty billion dollar with soft Bank is
structured in a way where ten billion of the dollars
are contingent on open ai becoming a for profit business.
The point I'm trying to make is that for open Ai,
this current structure represents an existential threat. In many ways.
(02:33):
It is more dire than any shortage of compute capacity
or the fact that they spend billions of dollars more
than they'll ever make. So they just change structure, right,
what's the big deal? Well, this is a complex and
bureaucratic procedure that typically only happens in sectors like healthcare,
where hospitals are bought out by larger for profit companies.
(02:54):
I struggle to think of any similar examples in tech,
and even if those examples exist, they don't involve entities
of the size in value of open Ai or indeed,
the prominence. The transformation isn't something that Sam Mortman can
do unilaterally either. In essence, he needs that the consent
of regulators and lawmakers in the State of California. We've
already seen open aiy's moves be challenged but the likes
of Elon Musk and Mark Zuckerberg, although these efforts did
(03:16):
not or have yet to amount to much, though there
is an upcoming trial with Elon mask over this. Part
of the complexity comes from the very nature of what
it means to be a nonprofit. Nonprofits enjoy certain tax benefits,
both from their exemption from taxation to the benefits that
come when a person makes a charitable donation to a
non profit. If you give money to the Red Cross
(03:37):
or a church or whatever, you can write that off
against your taxes. As a result, open ai is constrained
by what it can do with the assets that are
held within the nonprofit. Those assets are supposed to be
used for the benefit of society, it to serve some
kind of charitable purpose. Open AI can't just transfer them
to a for profit entity. Doesn't work like that, nor
should it, even though they're very much trying to make it.
(04:00):
Linked to this in the episode Notes, but a recent
petition against open AI's restructuring alleges that open ai has
already effectively broken the rules against how nonprofits should operate
and manage their assets, but the first violation coming in
twenty nineteen, right at the start of open AI's metamorphosis
and around the time when it obtained its first billion
dollars worth of investment from Microsoft. Addressed to the Attorney
(04:20):
General of California and signed by innumerable figures in California
and national philanthropy, it articulates a compelling case that open
ai has already broken the law in several meaningful ways
and urges the state to take action to prevent a
further dilution of the open ai charitable mission. It describes
these violations as and I quote, factually complex but legally simple.
(04:41):
It claims that the twenty nineteen restructuring which created the
for profit element involved the wrongful transfer of assets from
the nonprofit. This is bad in and of itself, but
as time dragged on the influence and relevance of the
nonprofit wing over the for profit entity, the effectively ended.
It gives the example of the November twenty twenty three coups,
when Sam Altman was fired from the company over alleged
(05:02):
dishonesty about the safety processes surrounding model development, and also
a bunch of other stuff like not telling the board
that chat GPT was coming out anyway. This firing, the
letter states, came at the behest of the nonprofit directors.
As we all know. It didn't take sam Altman long
to return to the helm of open ai and the
same role that he'd left. Many of the board members
that had approved distermination left, and though they signed a letter,
(05:23):
it was very much a they have me my family
kind of thing, or I should say they have my
stock units, and they were replaced by those who are
more aligned for the for profit goals of open Ai.
The petition also makes the case that open ai is
renunciation of its commitment to open source research within its
purpose clause, the thing that defines what a nonprofit is
for also represented in illegal diversion of assets. Open source
(05:46):
software benefits whoever uses it, whereas proprietary software, even if
it's provided for free, there's comparatively fewer benefits to society.
You can't change your modify or improve a program, and
you're at the best. You're really at whatever the vendor
wants to do as far as accessing or using the
platform or program or whatever it might do. In practice,
there's little open about open ai. They share little source
(06:09):
code and don't even provide specifics about the training data
they use. They're less concerned with public research and now
shrouds their development in the same cloak of secrecy that
you would expect from basically any other tech company. Now
they're claiming they're going to release an open weighted model,
but it's bullshit. I'm sorry, that's not enough. Now, the
letter does make some specific demands. It wants the AG
(06:30):
to investigate what assets were siphoned off from the nonprofit,
block any conversion until the investigation is completed, and make
sure that all charitable assets are returned to the nonprofit,
and indeed to create a truly independent entity separate from
Sam Morltman and the business interests of open ai, to
act as a steward for these assets. If this petition
succeeded in delaying the conversion, open AI's future becomes much
(06:52):
more uncertain and perhaps may not even be possible. It'll
make it harder to raise new funds that would only
increase their cash burners. Open ai will now be to
start making repayments and investments that were automatically converted into loans.
Will it succeed, Maybe First, this petition doesn't come from
arrival with an extra grind against Sam Altman. Like Elon Musk,
the Black Freedom Fund, the Asian Law Caucus in the
(07:14):
California Teamster's Public Affairs COUNTSL aren't exactly the natural adversaries
of Vaultman, unless they, of course, secretly hate people who
wear Patagolia vests, in which case I retract the entire
art sentence and also add that I heartily congratulate them
and agree with them. Moreover, this petition isn't framed about
tech or AI or AI safety, but rather something far
more simple. It's about what a nonprofit is and how
(07:35):
it should be run. And if, as the letters authors argue,
open AI should be allowed to restructure without being challenged
or scrutinized, it will set a dangerous precedent that would
make it harder to protect the charitable mission of nonprofits
and make them easier for them to be plundered. Like
I'd argue open AI has, it's a strong case. While
it's hard to tell if the Attorney General will take
it on, it could lay the groundwork for open AI's demise,
(07:57):
and I'm sure some of you would love them well. No,
I might too.
Host
Ed Zitron
Popular Podcasts
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy And Charlamagne Tha God!
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
Decisions, Decisions
Welcome to "Decisions, Decisions," the podcast where boundaries are pushed, and conversations get candid! Join your favorite hosts, Mandii B and WeezyWTF, as they dive deep into the world of non-traditional relationships and explore the often-taboo topics surrounding dating, sex, and love. Every Monday, Mandii and Weezy invite you to unlearn the outdated narratives dictated by traditional patriarchal norms. With a blend of humor, vulnerability, and authenticity, they share their personal journeys navigating their 30s, tackling the complexities of modern relationships, and engaging in thought-provoking discussions that challenge societal expectations. From groundbreaking interviews with diverse guests to relatable stories that resonate with your experiences, "Decisions, Decisions" is your go-to source for open dialogue about what it truly means to love and connect in today's world. Get ready to reshape your understanding of relationships and embrace the freedom of authentic connections—tune in and join the conversation!