OpenAI is facing growing political pressure in California as state regulators and advocacy groups question its high-stakes restructuring plan, raising concerns that the company's future as a for-profit enterprise could be in jeopardy.
"We continue to work constructively with the offices of the Attorneys General of California and Delaware," an OpenAI spokesman said, adding that the company intends to create "one of the best-resourced nonprofits in history," reports The Wall Street Journal on Tuesday.
He emphasized that OpenAI has no plans to leave California, though executives have discussed relocation as a last-resort option if the restructuring is blocked.
The company, led by Chief Executive Sam Altman, is currently controlled by a nonprofit parent and operates as a subsidiary that does not issue traditional equity. That model has frustrated investors, who want more conventional ownership rights.
OpenAI's financial backers have conditioned about $19 billion, or nearly half of its funding over the past year, on receiving shares in the new for-profit company. Without the conversion, investors could pull funding, jeopardizing OpenAI's ability to finance large data centers, design custom chips, and keep pace in the global AI race.
California and Delaware attorneys general are investigating the proposal and have the authority to sue the company for potentially violating nonprofit law or require settlements as a condition of approval.
In a strongly worded letter last Friday, which could have major implications for the restructuring, California Attorney General Rob Bonta and Delaware Attorney General Kathleen Jennings accused the company of failing to protect young people who use the chatbot.
They said that recent reports of suicides linked to prolonged interactions with OpenAI's ChatGPT raise questions about whether the company has prioritized growth over its charitable mission, Politico reported.
"The recent deaths are unacceptable. They have rightly shaken the American public's confidence in OpenAI and this industry," they wrote. "OpenAI and the AI industry must proactively and transparently ensure AI's safe deployment. Doing so is mandated by OpenAI's charitable mission, and will be required and enforced by our respective offices."
Bret Taylor, chair of OpenAI's board, said the company is "fully committed to addressing" their concerns.
OpenAI has pledged to add parental controls and address programming issues that can make chatbots overly agreeable to users.
The scrutiny has also galvanized opposition from philanthropies, nonprofits, and labor groups. The San Francisco Foundation and more than 60 other organizations asked the California attorney general to investigate whether OpenAI's nonprofit status was being misused.
Lorena Gonzalez, president of the California Federation of Labor Unions, said her group has been clear with regulators.
"They benefited from being a nonprofit," she said. "They're now going to make massive profits, and that money should come back to the people who it would have gone to in the first place," she said.
OpenAI has also tried to ease criticism by pledging $50 million to nonprofit and community groups and hiring advisers with close ties to Gov. Gavin Newsom. In May, it conceded to opponents by keeping the nonprofit in control of the proposed new company, abandoning an earlier plan to separate the entities.
Still, the backlash has deepened. Rival Meta has urged California regulators to block the conversion, while Elon Musk's xAI has sued to stop the restructuring, arguing OpenAI has violated its founding mission. The case is expected to go to trial next year.
Sandy Fitzgerald ✉
Sandy Fitzgerald has more than three decades in journalism and serves as a general assignment writer for Newsmax covering news, media, and politics.