Oct 12 (Reuters) - Top executives of Chinese AI startup Moonshot are in talks ahead of its planned Hong Kong listing to settle a legal dispute with a shareholder demanding compensation for their alleged wrongdoing, people familiar with the matter said.
Recurrent.ai, a developer of AI software, and some of its investors have accused Moonshot CEO Yang Zhilin and Chief Technology Officer Zhang Yutao of making false representations to Recurrent investors and enriching themselves at Recurrent's expense,
according to a March 11 letter Recurrent's lawyers sent to Moonshot's investors, which was seen by Reuters.
Yang and Zhang Yutao co-founded Recurrent.ai in 2016, before they established Moonshot in 2023, and continue to be directors of Recurrent's holding company, according to corporate records. The settlement talks have not been previously reported.
Reuters could not independently determine the accuracy of the letter's claims. The letter did not name the Recurrent investors.
Yang and Zhang Yutao did not respond to emailed requests for comment. Yang has previously denied the allegations. Moonshot declined to comment.
David Morrison, senior partner at MinterEllison, which represents Yang, Zhang Yutao and Moonshot, told Chinese media in November 2024 the case "lacked both legal and factual basis" and that the law firm would mount a defence.
Reuters could not ascertain if Zhang Yutao has commented publicly on the allegations.
Recurrent did not respond to an emailed request for comment.
Beijing-based Moonshot is among a group of Chinese AI developers, including DeepSeek, that is challenging the dominance of US companies such as OpenAI and Anthropic. Moonshot confidentially filed for a Hong Kong IPO, Reuters reported in September, as it seeks to capitalise on the popularity of its Kimi AI models.
While the dispute is not expected to jeopardise Moonshot's IPO plans, an unresolved fight with Recurrent could raise governance, ownership and disclosure issues for prospective investors, and complicate the listing process, said one of the people with knowledge of the dispute.
The people familiar with the dispute said they did not know whether a settlement was imminent.
The Hong Kong Stock Exchange and the Securities and Futures Commission, which regulates the city's financial industry, declined to comment. The China Securities Regulatory Commission and the Cyberspace Administration of China, one of the country's main AI regulators, did not respond to requests for comment.
RECURRENT'S CASE AGAINST MOONSHOT EXECUTIVES
The dispute, which is in arbitration in Hong Kong, has been going on since 2024. Recurrent has accused Yang and Zhang Yutao of setting up Moonshot without authorisation from the Recurrent board, making false representations to investors and enriching themselves at Recurrent's expense, according to the March letter from its lawyers.
The letter alleged, without providing evidence, that servers containing vital large-language-model data were transferred without authorisation from Recurrent to a Moonshot subsidiary in April 2023, and that some other key data was deleted in September 2024 at Zhang Yutao's instructions.
Recurrent and its investors are also considering a separate Cayman Islands legal action against Moonshot President Zhang Yutong, according to the letter.
Zhang Yutong, who resigned as a Recurrent director in 2022, received a significant shareholding in Moonshot "for her personal benefit, a fact which was deliberately concealed from Recurrent's shareholders," it said. Reuters could not confirm this claim.
Zhang Yutong also did not respond to several emailed requests for comment sent via Moonshot.
Reuters could not ascertain if Zhang Yutong has commented publicly on the allegations.
Chinese media, including state-backed online news publication The Paper, tech-focused LatePost and Tencent News, have reported that Yang, in a post in 2024 on his personal WeChat social media account, rejected the accusations of illegal enrichment and other wrongdoing, saying he had cut a deal with the Recurrent board members on setting up Moonshot and that Zhang Yutong's compensation was based on her professional capabilities. Reuters could not access the original post.
Recurrent received 9.5% of Moonshot's original shares when the startup was established. Recurrent and its investors are seeking compensation equal to 10.5% of Moonshot's original shares, which could be worth more than $700 million based on Moonshot's $30 billion valuation in a June fundraising, one person said.
Moonshot initially gained traction with its Kimi chatbot, known for processing long documents. Alibaba's backing helped raise its profile, and the company has since expanded into coding, reasoning and agent-based AI products.
In July Moonshot unveiled Kimi K3, a 2.8 trillion-parameter model that it said is the world's largest open-weight AI system and delivers performance approaching that of Anthropic's models. Its other backers include Tencent Holdings, Meituan and China Mobile.
(Reporting by Reuters Staff; Editing by Eduardo Baptista and Muralikumar Anantharaman)
