AI Co-Founder Stability Sues CEO For Stock Fraud

Former founder of AI Stability sued an artificial intelligence startup for stock fraud. (photo: twitter @StabilityAI)

JAKARTA - On Thursday, July 13, a co-founder of Stability AI sued the artificial intelligence startup and its CEO. He claimed that they tricked him into selling his 15% stake for $100 just three months before the company reached a $1 billion market valuation.

In a lawsuit filed in San Francisco federal court, Cyrus Hodes said that CEO and co-founder, Emad Mostaque, assured that AI's stability was "substantively valueless" even as Mostaque was working on what was the popular image generator, Stable Diffusion.

Hodes, who described himself as "the leader of a well-known world of artificial intelligence", said that the AI and Mostaque stabilities had never disclosed their talks with venture capital firms before Mostaque bought their shares in October 2021 and May 2022.

In August last year, AI's stabilities secured funding of 101 million US dollars (Rp1.5 trillion) which assessed the London-based company as US$1 billion, and recently sought funding with a valuation of US$4 billion (Rp60.7 trillion), the lawsuit stated.

Mostaque's behavior "reflects corporate greed at the worst level and has really shaken conscience," the lawsuit reads.

Hodes wants its shares to be returned 15%, plus compensation for alleged fraud by the defendants and the alleged violation of fiduciary obligations by Mostaque.

AI's stability said in an email: "This lawsuit has no solid basis and we will maintain our position aggressively." The company announced its funding in October last year.

Hodes is a former adviser to the United Arab Emirates and director of the artificial intelligence program at John F. Kennedy School of Government, Harvard University.

He said he had been working "hours" since early 2020 on AI Stability, including in a project that ultimately failed to help the government respond to the COVID-19 pandemic more quickly.

AI stability describes itself as "the world's leading open source AI generating company", whose technology is open to the public, in contrast to closed source companies.

In May, stock photo provider Getty Images filed an application to the London court to stop AI's stabilities from selling their image generation systems in the United Kingdom, citing alleged copyright infringement.

Bloomberg News reports that the AI Stability recently raised less than US$25 million (Rp379.7 billion) in a convertable note offer after experiencing difficulties in raising funds with a valuation of US$4 billion.