On May 11, two of the world’s most valuable private companies all but admitted that the AI private market boom has been built on shaky legal ground.

OpenAI announced that unauthorized transfers of its equity, which were made through special purpose vehicles or “SPVs” —  shell companies set up for a single purpose – tokenized interests, forward contracts, and similar arrangements may be invalid under its corporate rules. Anthropic went even further, declaring that transactions that its board of directors has not approved are “void” and will not be recognized on the company’s books.

This was a pivotal moment for the shadow-equity structures and the companies that helped fuel the AI boom. Among the firms dragged into the controversy are Open Door Partners, Unicorns Exchange, Pachamama, Lionheart Ventures, Hiive, Forge Global, Sydecar, and Upmarket,  all of which have been mentioned as not authorized to sell their shares.

Don’t be fooled. This is not a matter of a minor corporate compliance update. It is a clear signal that Silicon Valley’s AI financing machine is entering its pre-IPO cleanup phase.

For years, unicorn tech firms like OpenAI and Anthropic, benefited enormously from the SPV market. SPVs helped them channel billions of dollars into private companies while allowing them to avoid the disclosure obligations normally required of public companies. Investors who could not access shares directly were pushed into increasingly convoluted structures designed to mimic ownership of stock without necessarily delivering shareholder rights.

It was widely known that this was happening. The venture funds knew. The secondary platforms knew. The corporate and securities lawyers knew. The regulators knew. The unicorn companies certainly knew. But for a very long time, nobody objected because the system was extraordinarily useful.

SPVs allowed companies to aggregate thousands of beneficial owners behind a much smaller number of formal “holders of record,” helping firms remain outside the practical reach of our securities laws, which were designed to force widely held private companies into public disclosure regimes. That was not an accidental byproduct. It became one of the defining features of modern private markets.

The AI boom merely amplified this phenomenon. Silicon Valley discovered it could enjoy the benefits of public capital markets , which included  enormous liquidity, global investor demand, secondary trading, and sky-high valuations, without accepting the legal obligations imposed on actual public companies. SPVs became the bridge that allowed firms to scale economically like public corporations while remaining legally “private.”

In recent years, economic exposure to private AI companies became a global speculative asset class. Investors around the world wanted a way to profit from the explosive rise of firms like OpenAI and Anthropic. Crypto platforms began offering digital tokens and synthetic financial products tied to the value of these companies, while secondary-market platforms marketed indirect access to pre-IPO AI equity through SPVs and other layered structures. Investors continued pouring money into these shadow-ownership arrangements because direct access to the underlying shares was effectively unavailable.

Now, just as the companies are talking about going public, they the companies are trying to slam the brakes. The reason is that the incentives of AI unicorn founders have changed.

What Silicon Valley once celebrated as “financial innovation” has become a serious governance and securities-law problem. During the fundraising boom, companies benefited enormously from SPVs and layered ownership structures that allowed capital to flood in while keeping official shareholder counts relatively low. But as potential IPOs move closer, the incentives change dramatically. Companies suddenly become concerned with transfer restrictions, uncertainty over who actually holds enforceable rights, litigation risk, regulatory scrutiny, and maintaining tighter control over their capitalization tables and shareholder base.

The fragmented web of indirect investors that once helped fuel soaring valuations is no longer attractive once companies begin preparing for public-market discipline and disclosure obligations. Structures that were tolerated and in many ways even encouraged during the private fundraising frenzy are now being recast as unauthorized, invalid, or legally ineffective.

That creates a serious problem for investors. Retail-investor demand for financial interests in AI companies skyrocketed,  but direct access to those companies remained tightly controlled. As a result, investors were offered interests in intermediate entities, often without fully understanding whether those interests included enforceable ownership rights. Now they are discovering that the answer may be no.

The uncomfortable truth is that Silicon Valley spent years using opacity as a growth strategy. Private companies raised public-company scale money while avoiding public-company accountability. Disclosure obligations lagged behind economic reality. Capital flooded in while transparency remained optional. But now, right before a potential liquidity event, the legal cleanup process begins.

This does not merely create a potential legal dispute over transfer restrictions. It marks the beginning of a reckoning over our modern private markets. It raises questions like, who actually owns what? Who bears the risk when shadow ownership structures collapse? Should trillion-dollar private companies continue to operate outside the disclosure framework that governs other big companies?

For years, regulators treated Section 12(g) of the Securities Exchange Act as an obscure relic. In reality, it sat directly at the center of this problem. The law was designed to ensure that, once enough investors had interests in a company, transparency obligations kicked in. It was designed to force widely held companies into public disclosure once ownership became sufficiently dispersed. But SPVs, feeder structures, and synthetic ownership mechanisms helped companies separate beneficial ownership from formal record ownership, all while preserving the appearance of private status while capital poured in.

Monday’s announcements were an acknowledgment that the system has gone too far.

Anat Alon-Beck is a professor of law at Case Western Reserve Law School and a visiting scholar at Harvard Law School. This post is based on her article, written with John Livingstone, “Mythical Unicorns and How to Find Them: The Disclosure Revolution,” published in the Columbia Business Law Review and available here.