Tech firm’s new CTO gets indicted; company then claims he was never CTO
“Quite a lot of confusion”
Corvex named Brian Raymond as CTO days before indictment for illegal chip exports.
Image from Corvex press release.
Credit:
Corvex
When four people were arrested and charged with a conspiracy to illegally export Nvidia chips to China, there was an interesting side note. One of the arrestees, Alabama resident Brian Raymond, was the chief technology officer of an AI company called Corvex.
Or was he? Corvex certainly seemed to think that Raymond was its CTO in the days before his indictment. Corvex named Raymond as its CTO in a press release and filings to the Securities and Exchange Commission, which detailed plans for a merger with Movano Health.
But once Raymond was arrested, Corvex told media outlets that it had never completed the process of hiring him as an employee. While someone could technically be a CTO as a contractor and not a regular employee, a company spokesperson subsequently claimed to Ars that Raymond had never been the CTO.
The company spokesperson asked Ars for a “correction” to our story, which accurately reported that Corvex itself described Raymond as its CTO and as part of its leadership team.
“Raymond was not CTO of Corvex—so the statement above is inaccurate,” Corvex spokesperson Christopher Buscombe, who is apparently with a third-party firm doing media relations for Corvex, told Ars Monday in an email seeking a correction. “The headline is also misleading as a result, as taken together it suggests Ramyond [sic] was CTO of Corvex. Raymond was CEO of Bitworks, a completely different company.”
Our article quoted both Corvex’s press release describing Raymond as the CTO and Corvex’s subsequent statement saying that he had never been hired. Buscombe asked for a correction to our article, saying it “has caused quite a lot of confusion,” though it seems more likely that any confusion was caused by Corvex’s conflicting statements about Raymond’s position at the company.
Meanwhile, the Corvex press release and SEC filings haven’t been changed or corrected. They still say Raymond was already the Corvex CTO and will continue to serve in that role after the merger. The documents make no mention of Bitworks.
Pre-indictment press release
On November 10, Corvex and Movano Health issued their joint press release announcing the merger. Corvex is a private company and Movano a public one, so the transaction requires approval of Movano shareholders. If the merger is completed, the combined company will be public and go by the name Corvex.
The press release says, “Corvex is an AI cloud computing company specializing in GPU-accelerated infrastructure for AI workloads. Corvex is based in Arlington, Virginia, and is led by Seth Demsey and Jay Crystal, Co-Chief Executive Officers and Co-Founders, and Brian Raymond, Chief Technology Officer.” It goes on to say that after the merger, the combined company will be led by Demsey, Crystal, Raymond, “and other members of the Corvex management team.”
The “is led by” phrase in the press release clearly indicates that Raymond was already the CTO, while the additional statement about the post-merger company indicated he would continue as CTO after the merger’s completion. At the same time, Raymond announced on LinkedIn that he had “formally joined Corvex as the CTO, driving AI at scale for customers around the world.”
The Corvex/Movano joint press release naming Raymond as CTO was submitted to the SEC as an exhibit to a Movano filing about the Corvex/Movano merger. A merger agreement submitted to the SEC by Corvex and Movano includes another exhibit listing three “post-closing officers,” specifically Demsey, Crystal, and Raymond.
The timing of Corvex’s statements about Raymond being its CTO could hardly have been worse. Raymond was indicted in a federal court on November 13 and the indictment was unsealed last week. The US Justice Department alleged that Raymond operated an Alabama-based electronics company through which he supplied Nvidia GPUs to his alleged conspirators “for illegal export to the PRC [People’s Republic of China] as part of the conspiracy.”
Raymond, 46, of Huntsville, Alabama, faces two charges for illegal exports, one charge of smuggling, a charge of conspiracy to commit money laundering, and seven counts of money laundering. There are maximum prison sentences of 20 years for each export violation and each money laundering count, and 10 years for the smuggling charge. Raymond was reportedly released on bond after his arrest.
Raymond “was transitioning into an employee role”
With media outlets reporting on the charges, Corvex answered queries from reporters with a statement saying, “Corvex had no part in the activities cited in the Department of Justice’s indictment. The person in question is not an employee of Corvex. Previously a consultant to the company, he was transitioning into an employee role but that offer has been rescinded.”
Law professors with expertise in corporate governance and securities regulations told Ars that someone can legally be an officer of a company without being an employee. But Corvex may still have misled investors with its statements about Raymond’s status.
“It could be the case that this person was the chief technology officer but was not an employee of the company, was an independent contractor instead,” Andrew Jennings, an Emory University law professor, told Ars. But even if one interprets Corvex telling the press that it never hired Raymond in the most charitable way, the distinction is “splitting hairs… because one doesn’t need to be an employee to be an officer of the company,” Jennings said.
Corvex went further in asking at least one news outlet for a correction and claiming that Raymond was never the CTO. “I suspect that what they are saying to the press that this person was never CTO, is probably not correct,” Jennings said. The merging companies are “represented by serious law firms” and aren’t likely to have been lying about Raymond being the CTO, Jennings said.
“I can’t imagine that there would be a press release and a merger agreement that lists him as an officer and specifically as the chief technology officer if it weren’t the case,” he said. “I think they would have some more explaining to do if they really wanted to argue that it’s incorrect to refer to him as the CTO or the former CTO.”
Ars sent an email with several questions yesterday to the listed contact for Corvex, co-CEO Jay Crystal, but received no response. We instead received another email from Buscombe, who offered to provide information on background that “would respond to the questions you have put to Corvex.”
Buscombe said the background information he was offering “cannot be quoted directly” and cannot be “attributable to anyone.” We declined this offer and offered to publish any on-the-record statements that Corvex would provide, but we haven’t received anything further.
A spokesperson for the SEC declined to comment when contacted by Ars. We contacted Movano and Raymond with several questions yesterday and will update this article if we receive any responses.
False statements can lead to litigation or SEC charges
If Raymond really wasn’t the CTO, that probably would be a material misstatement because of the nature of the company, Jennings said. For an AI firm or any kind of tech company, the chief technology officer is an important position. The fact that Raymond was one of just three listed officers adds to the likelihood that it could be a material misstatement, if he really was never the CTO.
“Knowing what sort of technical leadership the company has could be something of import to a reasonable investor” who is voting on a merger, Jennings said.
A false statement about who is the CTO could be used in private litigation brought by investors against the company or in enforcement actions by the SEC. “The SEC could bring an enforcement action under a number of statutes for that sort of false statement, if it were in fact a false statement,” Jennings said.
Robert Miller, a law professor at George Mason University, told Ars “that it’s not absolutely impossible to have someone in a role like CTO or even CEO when the person is not an employee, legally speaking.” But even “if that was the case, it would very likely be misleading for the company to say, without qualification or explanation, that ‘Raymond is the CTO of the company.’ That would reasonably be understood to mean that Raymond was an employee.”
Not explaining a company officer’s employment status could be a “material omission” in violation of Rule 10b-5, an anti-fraud regulation, he said.
“A 10b-5 violation could result in enforcement action by the SEC,” Miller told Ars. “It could also result in private lawsuits from shareholders, but such shareholders would also have to show damages—e.g., a stock drop when the truth came out. In this case, given that Raymond was likely more liability than asset, there may be no damages to the shareholders from the omission.”
Companies can face liability for false statements to investors, even if they’re not made in SEC filings. An SEC filing “creates potential additional avenues for liability,” Jennings said. “Certainly the securities statutes will apply to communications made by a public company in really any channel, including just putting out a press release, and so that could spark private litigation or it could spark SEC enforcement. It’s also illegal to knowingly make a false statement to a government agency, whether that’s the FBI or the SEC or a committee of Congress, etc. And so the act of filing could create additional avenues of liability, but those would be sort of stacked on top of each other.”
Jon is a Senior IT Reporter for Ars Technica. He covers the telecom industry, Federal Communications Commission rulemakings, broadband consumer affairs, court cases, and government regulation of the tech industry.
