Cbus lost shot at bigger xAI payday as Elon Musk’s project tripled in value: Brookfield suit

The venture capital deal Cbus was short-changed on following alleged infighting at Brookfield was an investment in Elon Musk’s xAI.

Cbus was allegedly short-changed on an investment in Elon Musk’s xAI. Picture: AFP

A venture capital bet that superannuation fund Cbus was allegedly short-changed $US25m in foregone investment returns detailed in a whistleblower’s lawsuit against Brookfield, is Elon Musk’s artificial intelligence company, xAI.

Cbus, which manages $94.6bn in member funds, was allegedly dudded when Brookfield’s head of private equity investments overruled a proposed $US25m portfolio investment in “company B” and reduced it to $US5m, according to Josh Raffaelli’s claim for wrongful dismissal filed in California.

Brookfield intends to defend the suit, which it says is “absolutely without merit”, counter to how it does business, and brought by a “disgruntled” former employee.

“Company B” is not identified by Mr Raffaelli’s claim but it is revealed in a report on the dispute by The New York Times.

Musk’s xAI is worth about $US80bn up from a $US24bn valuation struck last May, according to the anonymised pleading.

Mr Raffaelli alleged Cbus – referred to only as “Superannuation Fund A” – was deprived of a chance to enhance its returns because the proposed investment in “Company B” was downgraded and allocated to a different strategy on his watch, Fund 3 versus Fund 2. Cbus participated in both funds.

A Cbus spokesman told The Australian the industry fund “is not identified in these court filings and is not a party to these proceedings”.

“As has been disclosed publicly, we have invested alongside Brookfield as part of our private equity portfolio,” he said.

“Brookfield has never refused capital from Cbus.”

Mr Raffaelli has alleged he was wrongfully sacked by Brookfield in December after blowing the whistle to the US Securities and Exchange Commission citing alleged “material misrepresentations” at Brookfield-backed entity Pinegrove.

Josh Raffaelli, former Brookfield employee turned whistleblower.

Cbus nominates Brookfield Asset Management as one if its external investment managers in its annual report, and as a private equity manager overseeing $396.9m of its member funds.

Cbus did not respond to questions about whether it is seeking clarity about its venture capital investment and specifically, its diminished opportunity to invest in xAI.

The Musk-owned artificial intelligence company, which was merged with X late last month, has developed a chat bot called Grok.

According to Mr Raffaelli’s lawsuit, it was “indefensible” for the listed Canadian asset manager to reduce the proposed investment into xAI. He claimed Brookfield did so with the alleged intent of limiting its further capital obligation.

“That is like walking away from the chance to buy Facebook or Apple stock at the pre-IPO discounts,” he pleaded. “Instead, both BAM VC Funds lost out on a golden opportunity to invest in Company B, which has already tripled from its original value in less than one year, and conservatively stands to gain another 10 times its original value, thus robbing pension funds and retail investors of significant gains.”

He said reducing the size of the investment from $US25m to $US5m led to a “material impact” on “Superannuation Fund A”, meaning Cbus.

“Had the Brookfield defendants not overridden Raffaelli’s investment decision … Superannuation Fund A would have realised nearly $US15m of gains in Fund 2, versus $US2.65m that has been marked in Fund 3 based on present valuation.

“And if Company B achieves a 7x return, which is entirely likely, Superannuation Fund A alone stands to lose more than $US25m from the Brookfield defendants’ decision on this matter had they allowed the investment to proceed as approved as $US25m in Fund 2 versus $US5m in Fund 3.”

Brookfield is yet to lodge its defence.