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OpenAI Gets Pushy
Many startups think they're above the law. OpenAI is willing to get physical to prove it.

November 22, 2023

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I started writing this for selfish reasons. Specifically, when artificial intelligence is inescapable in our daily lives—so far, only the hype is—I want to be sure that everyone signing onto its governance structures knows some context about a couple of people who have become rather important. At least that way, the algorithms I have to deal with might have a slightly higher chance of working in a beneficial, or at least non-harmful, manner.

The “couple of people” I’m referring to are Sam Altman and Greg Brockman. Oh, and Larry Summers. I have never met Sam, and I have only met Greg a couple of times. Larry Summers was President of Harvard University when I was an undergraduate. We’re acquainted. If you’ve seen The Social Network, the Summers scene was ripped off from the introduction to a book I wrote in 2008 depicting a similar scene. (Ben Mezrich used my book as a source, and Aaron Sorkin wrote his screenplay based on Mezrich’s book. Long story.) Also, when I was a nervous Harvard freshman at a conference on the Internet and Society in 2002, I asked then-President Summers a question he may not have liked.

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Of course, my reasons for writing about OpenAI aren’t purely selfish. ChatGPT and whatever comes after will affect a lot of people, at least to hear Sam tell it. And he’s probably right. That’s why I’ve been curious about the company’s missing California Form RRF-1 for 2022, which should have been filed on or about November 17th, the day Sam was fired (before he was re-hired a week later).

That curiosity led to this series of events today:

[In this video, a few minutes after I arrived at OpenAI and provided this man, who would not let me through the door, with my California driver’s license, I started filming.]

[Here, the OpenAI call box at the front door to their building was apparently set to auto-hang up after I requested to talk to someone from the legal department a few times. It started off functioning just fine.]

[This video depicts my being shoved by OpenAI’s security staff even after he and his colleagues called the police, the police arrived, and there was no need for physical altercation.]

[Here, the San Francisco police officers dispatched to the scene explain that they are uncertain of and generally uninterested in what federal law says and relay OpenAI’s threat of criminal charges against me.]

Let’s backtrack.

Back in 2011, when I was running a payments startup where the main idea was to use barcodes and facial images to conduct secure payments, Greg Brockman was working at Stripe, a credit card processor funded in its early days by Y Combinator, a startup incubator founded by Paul Graham that is now the stuff of Silicon Valley legend. Today, Stripe is widely regarded as one of the most successful private startups there is, and its alumni have gone onto myriad illustrious roles. (Y Combinator also funded my freshman roommate Nathan’s company. It’s called Airbnb. Thanks in large part to Y Combinator, Nathan is now a billionaire.) In 2011, another prominent payments company co-founded by Jack Dorsey, Square (now Block), was just getting started. In June 2011, Larry Summers joined its board.

I didn’t start out having any beef with Stripe or with Greg, or even with Square. But in 2010, financial lobbyists for a group calling itself the The Money Services Roundtable—little brother to the far more influential Financial Services Roundtable—were successful in passing a law called the California Money Transmission Act of 2010, which was, in a word, crazy. The MTA, as people took to calling it, defined money transmission as handling money on behalf of any two people or entities. Payroll. Dining hall cards. Credit card processing. All of that suddenly got swept up in an overly broad and not-at-all-thought-through regulatory framework that previously only regulated international payments, such as remittances to Latin America by Western Union. Needless to say, the risks of dining hall fraud and paying employees in the United States, while perhaps not zero, are different than the risks of sending and receiving money from Mexico. And though debit and credit card transactions have complex risks, they are also much different than international wire transfers.

There were a lot of startups in Silicon Valley working on payments at the time, and I knew a lot of the people running them. My first instinct was to try to work with them to lobby the California legislature for changes to the law, which were obviously needed. So in 2012, I met Greg Brockman and Saikat Chakrabarti, who was also at Stripe, for lunch at Sprout, a salad joint in Palo Alto.

By that point, my startup was toast. I had been ordered to shut down everything I’d built and lay off my employees by Robert (Bob) Venchiarutti, Deputy Commission of Money Transmission for the State of California. He threatened to put me in prison if I didn’t. Stripe and the various other startups doing exactly what my company was doing, or worse—facilitating payments via cryptocurrency—hadn’t heard from Bob and weren’t eager to reach out. For one thing, they were backed by venture capital. In contrast, I was contractually forbidden from discussing how my company was backed, and the universally worshipped-at-the-time counter-parties to the contract I couldn’t talk about were generally the reason why no venture capitalist would agree to back me in the first place. Whether they were guided by their investors or lawyers or both, for whatever reason, Stripe and its funded brethren did not seem eager to speak to regulators.

Over salad, Greg seemed sympathetic to my predicament—which was really, technically, our predicament—but declined to work together to try to fix the law. It was easier to simply break it. As I recall, he told me that Stripe was “just going to talk with our contacts at the AG’s office” to work things out. We went our separate ways, but as I left Sprout, I remember thinking that his answer seemed strange because there wasn’t much the California Attorney General could do about any of this. There was a process, and it required registering for a license with the then-Department of Financial Institutions (later the Department of Business Oversight and even later the Department of Financial Protection and Innovation, with that last word tacked on by the venture capitalists who ultimately took over the whole place1). Greg was basically saying that Stripe had decided to pass on the mandatory legal process.

In short, Stripe chose to hew to the old maxim that it’s better to ask forgiveness than permission. I get the logic. It’s often true. But in this case, Stripe and a host of other startups, which unlike mine, actually did have money for lawyers and surety bonds, were all asking forgiveness for violations of 18 U.S.C. § 1960, which makes unlawful money transmission a crime, not only for the company illegally transmitting the money, but for “whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part” of the company. To me, that seemed pretty bad, perhaps a tad more than your average “I’m really sorry” could wave away.

My efforts were focused on fixing the law back then, so I did everything I could. My company sued the State of California. I personally lobbied in Sacramento. I even confronted Kamala Harris over her office’s robotic defense of the law at an event at Stanford. (We live in exciting times, she said.) These efforts ended up being part of a wobbly feedback loop where legislators were made nervous by the lawsuit over the constitutionality of the MTA, so they amended the law repeatedly, causing the judge to get nervous about issuing a ruling while the law was in flux, so the whole affair dragged on for about four years. It wasn’t a great way to run a business.

In the meantime, Stripe’s star rose, as did those of its founders and employees. Y Combinator got a new CEO: Sam Altman. Under Sam’s leadership, Y Combinator began doing what all of the venture capitalists were doing, funding more and more exciting “fintech,” and especially cryptocurrency, companies. All of them knew they had to register with Department of the Treasury’s FinCEN division and apply for state money transmission licenses. FinCEN registration was and is free, so that was no problem. The licenses, however… No one really did that.

I did. My company started the process and obtained licenses in two states (the easiest ones). Then, realizing that these laws seemed to somehow apply only to my company—which is not how laws are supposed to work—I sued my competitors and their investors, including Y Combinator when it was run by Sam Altman, in an attempt to force them to come to the negotiating table so that we could work to fix the law at least in California, the true startup incubator. Instead, they lied in court, lied to customers—Stripe even put in its terms of service that it was not a money services business, which is not what it had told the Treasury—created at least one shell company to obscure their true activities, and had their lawyer file a petition with an obscure California office, the Office of Administrative Law, that cited my legal research without naming me while they simultaneously denied all of those same allegations and attempted to bankrupt me through sanctions (which didn’t work). Most of this was the fault of lawyers. But Sam was okay with it.

As it turns out, the first named defendant in that lawsuit’s caption, a long-forgotten Iowa-based payments startup called Dwolla, was effectively an on-ramp for Americans to shuttle money (illegally) to a cryptocurrency exchange called Mt. Gox. It didn’t take long before Mt. Gox imploded in spectacular fashion and declared bankruptcy: the first of many predictable, and predicted, cryptocurrency exchange catastrophes.

If only the payments company sending money its way had been properly regulated. Or if only Bob Venchiarutti had expressed half as much interest in regulating companies handling bitcoin as he had at putting me in prison. Alas.

Fast forward to 2023. Earlier this week, on November 21, 2023, it was front-page news that Binance founder and CEO Changpeng Zhao pled guilty before a federal court in Seattle. Zhao’s crime? Violation of 18 U.S.C. § 1960: operating an unlicensed money transmission business. This is exactly what I accused Sam Altman’s Y Combinator and Greg Brockman’s employer, Stripe, of deliberately investing in and doing in 2014 in federal court, backed by written evidence. Did their companies do as much damage as Binance? It’s hard to say. Y Combinator has been awfully influential in Silicon Valley, and as Bloomberg author Zeke Faux has documented in his recent book Number Go Up, the hotels full of slave workers in Cambodia trying to hype cryptocurrency didn’t get there by chance. It has taken a massive effort by influential venture capitalists, like Sam Altman and Marc Andreessen, to pump up hype around bitcoin and its even more worthless copycat coins and tokens. For investors like Altman and Andreessen, cryptocurrency has been a bonanza—which they like to measure in dollars, of course.

This is not to say that I really want Sam or Greg to go to prison like Changpeng Zhao. It’s just that now they want to be in charge of bringing an ethical artificial intelligence—based on an infinitely complex set of programmed rules—to humanity, and a lot of people seem to agree that because they’re smart people, that’s a good idea.

They are smart people. About that I have no doubt. But I’ve seen how they treat rules. I know what they think of ethics.

Good idea?

Enter Larry Summers, who was just added to OpenAI’s Board of Directors—now that all the women are gone—to be Sam’s babysitter, so far as I can tell. Why? Because with Sam at the helm, OpenAI clearly violated its non-profit charter, repeatedly. The company is likely looking at an impending investigation by the California Attorney General, which has authority over tax-exempt organizations in the state, and perhaps an uncomfortable audit by the Internal Revenue Service as well. By having Larry on the Board, the company can plead that there’s now an “adult” in the house—side-note: Sam is an adult—and that, once again, it should be forgiven for its trespasses.2

That’s funny, because today, I was accused of “trespassing” by OpenAI’s contracted security for politely stopping by OpenAI headquarters and invoking a federal statute: 26 U.S.C. § 6104(d)(1)(B). This law states that the public has the right to inspect the past three years of any non-profit’s tax return upon request. If the request is made in writing, it has to be granted in 30 days. If it is made in person, it must be granted immediately. When I asked to see the Musk Foundation’s tax return pursuant to this law, there was no problem. And Elon hates me.

In contrast, OpenAI’s response was to physically shove me out of the building as soon as I set foot in it. The company called the San Francisco Police Department and threatened to file criminal charges against me because I asked to see a public record.

Generally, federal law supersedes state law. 26 U.S.C. § 6104 is a federal statute that permits a request to be made of a non-profit organization at a “principal office,” such as the office I went to. Trespassing is a state statute. OpenAI’s argument is nonsense, and its actions violated federal law. New OpenAI Director Larry Summers would be familiar with this type of legal issue, because he used to run the Treasury Department, which encompasses the Internal Revenue Service, which enforces that law. “Immediately” does not mean “physically shoving and calling the police.”

Meanwhile, OpenAI’s state filing of Form RRF-1 for 2022—which would include the Form 990 I requested, but never got, as an attachment—is still missing. It’s definitely late.

So is it a good idea for Sam and Greg to have come back to OpenAI to decide the fate of computing and maybe humanity? With Larry to save them from the big bad regulators?

I’m not so sure.

For now, I’d really like it if the company stopped pushing me around. And I’d also really like to see those public records.

Immediately.

1

The DFPI would eventually name as its Commissioner Manny Alvarez, a former General Counsel for Affirm, an Andreessen Horowitz-backed company. Alvarez didn’t last long. He left his role in government to work for Binance. Where he also didn’t last long. Because it was a criminal enterprise violating the very laws he formerly regulated.

2

Side-side note: the media whiz-kid treatment was also given to Mark Zuckerberg and Sam Bankman-Fried. Both are criminals. One is in prison.

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