A Delaware court has granted limited relief to an investor seeking access to documents from a feeder fund formed to invest in a private artificial intelligence company, highlighting the governance risks in closely held investment structures.
In Michael B. Garner v. Authenticity.AI Investors, LLC, the Court of Chancery allowed the plaintiff, Michael B. Garner, to inspect a subset of financial and corporate records from Authenticity.AI Investors, LLC. The entity was formed in 2019 as a feeder fund to raise capital for purchasing stock in Authenticity.AI Corporation, a company that provides artificial intelligence tools for language translation and speech-to-text processing, serving the legal, compliance, and regulatory sectors.
Mr. Garner, who invested $125,000 in the fund and holds a 9.8 percent stake, alleged that he had not received meaningful updates or financial reporting since his initial investment. The fund had no operations of its own and held only stock in the operating company, which had also failed to maintain board minutes, financial policies, or regular corporate records.
In a written demand and later in court, Mr. Garner cited two main reasons for seeking thirty categories of books and records: valuing his interest in the feeder fund, and investigating potential mismanagement, waste, or wrongdoing. He pointed to multiple issues, including a lack of transparency around share issuances, compensation arrangements, and a 2024 transaction in which the fund acquired over 63,000 shares of common stock from the company’s founder for $15,000.
The court found Mr. Garner’s valuation purpose proper and supported a limited investigative purpose focused on a specific discrepancy: the apparent mismatch between the number of Series A Preferred Shares Authenticity.AI Corporation was authorized to issue—17,500 shares—and a higher number reflected in various capitalization tables and documents. Deposition testimony failed to explain the discrepancy, and no amended certificate of incorporation was produced to support the increased issuance.
Senior Magistrate Selena E. Molina ruled that Mr. Garner had a credible basis to investigate that inconsistency and ordered the production of related documents, along with records necessary to support valuation, including financial performance data such as QuickBooks files not already produced.
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However, the court rejected the majority of the document requests. It found Mr. Garner’s remaining allegations vague and unsupported by evidence and described his broader demand as overreaching.
“This pairing represents a fishing expedition ill-suited for a summary books and records proceeding,” Magistrate Molina wrote, noting that while the plaintiff had the right to seek specific records for valuation or investigation, he had not met the threshold for broader categories.
The court declined to award attorney’s fees, rejecting Mr. Garner’s argument that the company had acted in bad faith. Instead, it found Authenticity.AI Investors, LLC to be the prevailing party overall and shifted court costs in its favor, citing its earlier voluntary productions and the limited scope of the court-ordered disclosures.
The case offers a reminder to investors in private LLCs that while Delaware law protects the right to inspect records for defined purposes, courts will enforce those rights narrowly. For fund managers and financial professionals, the ruling emphasizes the importance of maintaining accurate corporate documentation and responding to investor inquiries with transparency and accountability.
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