Amazon accused of ‘funnelling’ contracts to Jeff Bezos-owned Blue Origin

An Amazon shareholder is questioning the relationship between Amazon’s satellite broadband venture, Project Kuiper, and Jeff Bezos’ space company, Blue Origin.

The Cleveland Bakers and Teamsters Pension Fund, an Amazon stockholder, sued the company in Delaware earlier this week. The lawsuit alleged Amazon’s directors and officers “consciously and intentionally breached their most basic fiduciary responsibilities” by signing off on what could be billions of dollars of contracts between Project Kuiper and Blue Origin.

Amazon’s board of directors did not scrutinize the contracts, seek outside analysis or protect the negotiation process from Bezos’ “glaring conflict of interest,” the shareholders allege. Instead, the board acted “ostrich-like,” sticking their head in the sand and approving the contracts in less than 40 minutes.

“Amazon’s directors likely devoted barely an hour [over the course of two meetings] before blindly signing off on funneling … Amazon’s money to Bezos’ unproven, struggling rocket company,” the lawsuit reads.

A spokesperson for Amazon said Friday “the claims in this lawsuit are completely without merit and we look forward to showing that through the legal process.”

Amazon launched Project Kuiper in 2019, hoping to use satellites in low Earth orbit to increase access to high-speed, low-latency broadband to areas that don’t currently have reliable internet connectivity. Amazon operates a research and development center for the project in Redmond and announced plans last year for a production facility in Kirkland to manufacture the satellites.

The Federal Communications Commission approved Amazon’s bid in 2020 to deploy its constellation of satellites into space. But the FCC set a tight timetable. It required Amazon to launch half of its satellites by 2026 and all of them – 3,236 satellites – by 2029.

That meant Project Kuiper faced a “Herculean task” to negotiate contracts with third-party providers to launch the satellites “on time and on budget,” the lawsuit read.

The same month it got FCC approval, Amazon management informed the company’s audit committee it was in discussions with Blue Origin and three other companies for those contracts. The board then left “Bezos and his loyal management team to commandeer the process,” the lawsuit alleges.

In January 2022, Amazon’s management team returned to the audit committee with two fully negotiated contracts. Those contracts awarded 27 launches to Blue Origin and 38 to United Launch Services, a Boeing-backed space launch company. ULS uses Blue Origin’s engines.

In March 2022, Amazon added a third contract, awarding 18 launches to European firm Arianespace.

The exact amount of money negotiated in the contracts is redacted from the public record of the lawsuit, which was filed in the court of chancery in Delaware on Aug. 28. But, the lawsuit says, the contracts represent the second-largest capital expenditure in Amazon’s history, following Amazon’s $13.7 billion acquisition of Whole Foods.

Bezos and Amazon did not consider Elon Musk’s rocket company, SpaceX, for the contracts, according to the lawsuit. The shareholders said SpaceX was “inexplicably” not among the group of companies Amazon presented to the board, and suggested that was due to an ongoing rivalry between the two tech founders.

Instead, Amazon made Project Kuiper’s success “critically dependent” on Blue Origin, putting Bezos – Amazon’s founder and Blue Origin’s owner – in a position to benefit from both.

In total, Amazon would rely on Blue Origin for 78% of its planned launches, the lawsuit alleges.

The audit committee “rubberstamped” sending funds to Blue Origin “after only a few minutes of discussion,” rather than engaging outside experts, seeking information about the contract negotiations, asking questions about how the team handled Bezos’ conflict of interest and, overall, exercising “heightened diligence” over major contracts.

“The board knowingly adopted a posture of indifference and instead reduced its role to almost nothing … leaving Bezos-led management entirely free to negotiate with Bezos-owned Blue Origin,” the lawsuit read.

The pension fund is asking the court to declare that Amazon and its board of directors breached their fiduciary duty and demand repayment of any profits or benefits as a result. Amazon has not yet responded to the lawsuit. – The Seattle Times/Tribune News Service