Senior executives of Chinese artificial intelligence startup Moonshot AI are in talks to settle a legal dispute with a shareholder seeking compensation of more than $700 million ahead of the company’s planned Hong Kong initial public offering (IPO), according to people familiar with the matter.
The dispute, which has been in arbitration in Hong Kong since 2024, centres on allegations that Moonshot chief executive Yang Zhilin and chief technology officer Zhang Yutao made false representations to investors and enriched themselves at the expense of Recurrent.ai, an AI software developer they co-founded in 2016.
Recurrent and some of its investors are seeking compensation equivalent to 10.5% of Moonshot’s original shares, which one person familiar with the matter said could be worth more than $700 million based on the startup’s $30 billion valuation during a fundraising exercise in June.
Reuters could not independently verify the allegations contained in a March 11 letter sent by Recurrent’s lawyers to Moonshot’s investors. The people familiar with the dispute said they did not know whether a settlement was imminent.
Although the dispute is not expected to jeopardise Moonshot’s IPO plans, an unresolved legal battle could raise questions about the company’s governance, ownership structure and disclosures to prospective investors, one of the people said.
Yang and Zhang co-founded Recurrent before establishing Moonshot in 2023. Corporate records show that both remain directors of Recurrent’s holding company.
According to the letter, Recurrent accused the executives of establishing Moonshot without authorisation from Recurrent’s board, making false representations to investors and enriching themselves at Recurrent’s expense.
The letter also alleged that servers containing vital large-language-model data were transferred from Recurrent to a Moonshot subsidiary without authorisation in April 2023. It further claimed that other key data was deleted in September 2024 at Zhang Yutao’s instructions, but provided no evidence to substantiate the allegations.
Recurrent and its investors are also considering separate legal action in the Cayman Islands against Moonshot president Zhang Yutong, who resigned as a Recurrent director in 2022.
The letter alleged that Zhang Yutong received a significant shareholding in Moonshot for her personal benefit, which was deliberately concealed from Recurrent’s shareholders. Reuters said it could not independently confirm the claim.
Yang and Zhang Yutao did not respond to emailed requests for comment, while Moonshot and Recurrent declined to comment. Zhang Yutong also did not respond to several requests sent through Moonshot.
Yang has previously denied the allegations. Chinese media outlets, including The Paper, LatePost and Tencent News, reported that he rejected accusations of illegal enrichment and other wrongdoing in a 2024 post on his personal WeChat account.
According to those reports, Yang said he had reached an agreement with Recurrent board members on establishing Moonshot and maintained that Zhang Yutong’s compensation reflected her professional capabilities. Reuters said it could not access the original post.
In November 2024, David Morrison, senior partner at MinterEllison, the law firm representing Yang, Zhang Yutao and Moonshot, told Chinese media that the case lacked both legal and factual basis and that the firm would mount a defence.
Moonshot, based in Beijing, is among a group of Chinese AI developers challenging the dominance of US companies such as OpenAI and Anthropic. Reuters reported in September that the company had confidentially filed for a Hong Kong IPO as it seeks to capitalise on demand for its Kimi AI models.
Recurrent received 9.5% of Moonshot’s original shares when the startup was established. The compensation sought by Recurrent and its investors represents a claim for an additional share equivalent to 10.5% of those original shares.
Moonshot initially gained traction with Kimi, an AI chatbot known for processing long documents. Backing from Alibaba 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 described as the world’s largest open-weight AI system, with performance approaching that of Anthropic’s models.
Its other backers include Tencent Holdings, Meituan and China Mobile.
The Hong Kong Stock Exchange and the Securities and Futures Commission declined to comment on the dispute. The China Securities Regulatory Commission and the Cyberspace Administration of China did not respond to requests for comment.
