NEW YORK (Reuters) -A Stability AI co-founder on Thursday sued the artificial- intelligence startup and its chief executive, claiming they defrauded him in to selling his 15% stake for $100 just three months before the company reached a $1 billion market valuation.
In a complaint filed in San Francisco federal court, Cyrus Hodes said CEO and co-founder Emad Mostaque convinced him Stability AI was "essentially worthless" even as Mostaque worked on what would become a popular image generator, Stable Diffusion.
Hodes, a self-described "world-renowned thought leader" in artificial intelligence, said Stability AI and Mostaque also never revealed their talks with venture capital firms before Mostaque bought his stake in October 2021 and May 2022.
Stability AI last August lined up $101 million in financing that valued the London-based company at $1 billion, and has more recently sought funding at a $4 billion valuation, the complaint said.
Mostaque's conduct "epitomizes corporate greed at its worst and simply shocks the conscience," the complaint said.