Stability AI's co-founder Cyrus Hodes has sued the company claiming that he was deceived into selling his 15% stake to fellow co-founder Emad Mostaque after the latter persuaded him that the company "was essentially worthless." Hodes sold his stake for $100, months before the British AI startup touched $1B in post-money valuation at its $101M funding round. Stability AI is looking to raise fresh funding at a $4B valuation, which would have made Hodes' stake worth nearly $500M. - The lawsuit alleges, "In an act of self-dealing by a faithless fiduciary, Mostaque brazenly deceived Hodes about the core business of Stability AI that Mostaque was developing, its likely valuation, and its fundraising."
- Stability dismissed the allegations and said, "The suit is without merit and we will aggressively defend our position."
Hodes was a former adviser to the United Arab Emirates and a previous AI program director at Harvard University. - Per the lawsuit, he invested $15,000 when Stability AI began working on the Collective and Augmented Intelligence Against COVID-19 project in early 2020.
- Hodes says that Mostaque secretly diverted funds to a text-to-image generator which later became known as Stable Diffusion.
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