Expert SEO and Elite Copywriter Asserts: Stability AI Cofounder Deceived, Duped Into Selling Stake for a Measly $100

**Second Cofounder Files Lawsuit Against Stability AI and CEO Emad Mostaque**

A second individual claiming to be a cofounder of the generative AI startup Stability AI has filed a lawsuit against the company and its CEO Emad Mostaque. The lawsuit, which alleges fraud and embezzlement, was filed by Cyrus Hodes, an artificial intelligence entrepreneur. Hodes claims that he was misled by Mostaque into believing his 15% stake in the company was worthless just months before Stability AI raised over $100 million at a $1 billion valuation. The lawsuit also accuses Mostaque of destroying evidence and misappropriating funds for personal use.

**Allegations of Fraud and Embezzlement**

Hodes sold his stake to Mostaque for $100 in two transactions in October 2021 and May 2022. He claims that he was fraudulently cheated out of equity that would have been worth $150 million on an undiluted basis within months. Hodes alleges that Mostaque withheld information about active fundraising attempts and a planned business pivot into AI text-to-image generation. The suit further accuses Mostaque of intentionally destroying evidence after being notified of potential legal action.

**Serious Accusations of Swindling and Misappropriation**

Avi Weitzman, a partner at law firm Paul Hastings representing Hodes, describes the maneuver as a “shocking swindling.” He emphasizes that the defendants’ wrongdoing will be fully addressed in court. Stability AI was unable to provide comment at the time of publication.

**Embezzlement and Bamboozling of Investors**

The lawsuit claims that Mostaque embezzled funds from external investors to pay for personal expenses, such as rent for his family’s London apartment and his children’s schooling. The suit also alleges that Mostaque has a pattern of bamboozling investors and misappropriating investor and company assets for personal use. Mostaque himself acknowledged to Hodes in 2021 that he had improperly used company funds obtained from the Trinity Challenge, an organization that provides grants to health-related projects, for personal use.

**Concerns Raised by Stability AI Employees**

Previous reports have indicated that several Stability AI employees raised concerns about funds being transferred from the company’s accounts to Mostaque’s wife’s personal bank account. Motez Bishara, a spokesperson for the company, stated that the couple had made loans to the business and the sums owed to or by the couple were settled by the end of 2022.

**Failed Collaborative Project and Secret Diversion of Resources**

Hodes was an early collaborator with Mostaque on a project aimed at using artificial intelligence to address the Covid-19 pandemic. However, the business idea failed to take off and was abandoned. Hodes’ lawsuit suggests that the project’s failure was due to Mostaque secretly diverting his attention and company resources to Stability AI’s image generation efforts.

**Similar Lawsuit and Dismissal**

This lawsuit bears similarities to another lawsuit against Stability AI. In May, Tayab Waseem claimed that Mostaque reneged on an agreement to grant him a 10% cofounder stake in the company. Waseem’s suit was voluntarily dismissed on the same day it was filed. The complaint by Waseem also portrays Hodes as a cofounder of Stability AI, citing a slide from a company investment pitch deck.


The lawsuit filed by Cyrus Hodes against Stability AI and Emad Mostaque alleges fraud, embezzlement, and the intentional withholding of information. It also accuses Mostaque of destroying evidence and misappropriating funds for personal use. These serious allegations will be addressed in court, and the outcome will determine the validity of Hodes’ claims.

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