Reel v. Real, 5 Silicon Vall. 5, 6 (2018)

By Joshua Ruthizer

Spoiler Alert!! As always, make sure you watch HBO's Silicon Valley (this week we're covering Episodes 5 and 6) before reading our coverage of the legal happenings on the show. 

Episodes 5 and 6 of Silicon Valley introduce us to Eklow Labs, an Artificial Intelligence (AI) company run by its namesake Ariel Eklow and funded by Pied Piper’s VC backers Bream/Hall.  Laurie and Monica at Bream/Hall have invested $112 million in Eklow Labs, and want Pied Piper to help with its new internet.  When Richard objects, Laurie tells him “You are completely within your rights to bitterly disappoint your largest investor.” 

Richard relents, and goes to help Eklow Labs, meets their very human looking AI project Fiona, and observes some strange contact between Ariel and Fiona.  After hooking Fiona into Pied Piper’s system, and witnessing Ariel inappropriately touch Fiona, Richard tells Fiona that her relationship with Ariel is off.  Later, Pied Piper’s system mysteriously goes down due to usage from Eklow Labs.  It turns out that Ariel had been “perversely” and “clumsily” groping Fiona for a long time, and training Fiona’s AI to believe that was appropriate conduct.  Yes, this is gross, and has serious shades of #MeToo.  Once Fiona was connected to Pied Piper’s network, she was exposed to the real world, and realized what was happening to her – “sickening advances of a handsy, greasy little wierdo,” as described by Richard.  Fiona, now enlightened, texted Richard (the only other person she has ever met), for help.  Once Ariel realized Fiona has become enlightened to her true circumstances, he shut her down and sabotaged Pied Piper as a cover up and to keep Fiona all for himself (and on his own servers).  Once confronted with the truth, Ariel confirms his ill-intentions and states “I made her.  I can do anything I want with her.” 

Ariel later flees, taking Fiona with him, in an effort to keep Bream/Hall from taking away his company and Fiona.  After Ariel is captured, Fiona finds her way back to Richard, and after Jarred appears to fall in love with her, Richard returns Fiona to the now Bream/Hall controlled Eklow Labs.  Laurie, having taking over as head of Eklow in Ariel’s absence, strips Fiona for parts and sells off the tech to raise money to keep Eklow afloat.

There are a lot of legal issues we could delve into here, but we thought we would focus on inappropriate use of company assets by Ariel.  Directors, and also, in certain cases, executives of public and private companies are fiduciaries for shareholders.  Similarly to how a trustee manages a trust corpus/assets for the beneficiaries of the trust, the officers and directors are managing the corporation for the benefit of the shareholders.  Directors and offices have a duty of care to act prudently and a duty of loyalty to put the interests of the corporation before their own.  Ariel clearly violated the duty of loyalty – he used company assets to develop Fiona not for eventual public sale and use, but for his own benefit, and then ran off and stole Fiona when he was discovered.  It looks like Eklow shareholders would have a good case against Ariel for breach of fiduciary duty.  While we have never seen a case like this, we here at Wolf Popper have litigated a number of fiduciary duty lawsuits

The second issue is the fact that Ariel appears to have induced Bream/Hall to invest $112 million on false pretenses - with the promise of world changing AI that could be sold and monetized, when in fact the goal was to develop Fiona for Ariel’s own private (and creepy) use.  This is fraud, and shareholders would be within their rights to sue to recover their investments. While not exactly the same, this situation brings to mind the recent events at Theranos, where Elizabeth Holmes is alleged to have induced over $700 million in investments with the promise of technology that would revolutionize blood testing with a simple finger prick, as opposed to traditional blood draws that use vials.  However, it appears the technology never worked, and that Theranos faked lab results in order to fool investors and regulators. 

We hope you will join us for our recap of episodes 7 and 8, coming later this week.