Lawsuit claims two consultants were denied their share of Susquehanna’s investment in TikTok owner ByteDance
Susquehanna International Group, Bala Cynwyd’s trading and investment firm, was an early backer of Beijing-based TikTok parent company ByteDance, which has become one of the tech start-ups most valuable in the world.
Susquehanna co-founder Jeff Yass was named the richest person in Pennsylvania by Forbes last year, a ranking that highlighted his company’s success on Wall Street and his investment in private companies such as the owner of TikTok.
Now two entrepreneurs who say they advised Susquehanna on early investments in China say the company cut them off from their share of ByteDance’s huge success. In a lawsuit quietly filed in Montgomery County in November, the former consultants allege they helped secure a stake in search engine technology that would later power the video-sharing app TikTok and other sites , and that Susquehanna hid the connection from them for years. .
Susquehanna is a high-speed trading company that has cultivated a portfolio of private equity and venture capital investments, including about $3.5 billion it has invested in more than 300 companies in Asia, according to its website. The lawsuit offers a rare public look at the origins of private enterprise in China.
ByteDance’s stake in the company, according to the lawsuit, is said to be worth $60 billion. This figure is in line with Susquehanna’s 15% stake as reported by The Wall Street Journal in 2020, and ByteDance’s total valuation of over $400 billion, reported by Bloomberg News last fall. Last year, ByteDance suspended plans to become an overseas listed company as the social media giant and other tech companies came under closer scrutiny from authorities. China’s data security policies, the Journal reported.
Yass himself has a net worth of $12 billion, according to Forbes. He ranked 58th on the publication’s list of the 400 richest Americans and as the richest in Pennsylvania. Yass is also one of the nation’s largest political donors, giving about $30 million to conservative groups in the 2020 election cycle, according to campaign finance tracker OpenSecrets.
Asked about the lawsuit’s allegations, Susquehanna told The Inquirer that she does not comment on ongoing litigation.
A plaintiffs attorney did not immediately provide comment. The plaintiffs are represented by the law firm Lansdale Walsh Pancio and attorneys from the New York office of the law firm Susman Godfrey.
“This case involves two young professionals who agreed to take significant financial and professional risks to start one of the first US-backed private equity firms in China,” according to the complaint filed in the Court of Common Pleas. of Montgomery County. “The company has had tremendous success, including securing a significant stake in one of the most valuable ‘unicorns’ in history, ByteDance, the owner of TikTok. Yet the plaintiffs were lied to and denied the share of profits to which they were contractually entitled.
The complaint does not specify a dollar amount.
The lawsuit is brought by TGC Partners Limited, led by Peter Tan, and Blue Mountain Capital Co. Limited, led by Zhang Hao. They sued in Montgomery County because it is one of the few courts permitted by their consulting agreements with Susquehanna, according to the suit.
In their account, Tan and Zhang began advising Susquehanna on Chinese companies in the early 2000s, when there was “very little” US investment in the country. Zhang, who set up a company to find deals “exclusively” for Susquehanna, according to the lawsuit, and Tan, who was a lawyer at a major law firm in Hong Kong, both worked on Susquehanna’s first private equity investment in China – a hotel chain that later went public.
“Tan literally opened the first makeshift GIS [Susquehanna International Group] Asia office outside its living room in Hong Kong in 2005,” according to the suit. He moved to Shanghai to “help open SIG Asia’s first official office” about six months later, the complaint states, and over the next two years, “Tan, Zhang and their colleagues would find, structure and close dozens investments for Susquehanna in China.”
The lawsuit claims that Tan and Zhang, through their respective companies, agreed to take a share of the profits in certain investments instead of an upfront payment: 0.83% for Tan’s business and 1% for that of Zhang.
If Susquehanna liquidated an investment but kept shares or anything else “of value”, the plaintiffs allege, they were entitled to retain their interest in the asset until it was converted into cash.
The fate of one of those investments – in a search engine company called Kuxun – is at the heart of the lawsuit.
Tan and Zhang say they helped identify and close SIG’s investment in Kuxun in 2006. They say they each stopped working with Susquehanna in late 2007 or 2008, and once the search engine sold to Expedia, in 2009, Susquehanna told consultants “Kuxun had been ‘completely liquidated’ with modest profits.
This was untrue, according to the prosecution.
On the contrary, the consultants claim that they “recently learned that prior to the sale of Kuxun, Susquehanna secretly took its cutting-edge technology and used it to start two successive Susquehanna investments” – first the website focused on 99fang real estate, then ByteDance, which launched in 2012.
Three of ByteDance’s most popular apps, according to the suit, run on a core platform that “contains the powerful search technology that began in Kuxun.”
The lawsuit points to information allegedly from a company insider, who is not identified in the complaint: “According to a knowledgeable employee of SIG China One, Kuxun’s search engine was designed to become the first engine from 99fang and ByteDance.”
Tan and Zhang were unaware of the alleged connection between Kuxun and ByteDance until last year, according to the lawsuit. Their agreement with Susquehanna prohibited them from reviewing the company’s books, according to the lawsuit.
Over the years, they claim, they have received financial statements from Susquehanna listing Kuxun as a “fully liquidated” investment, “unlike other investments, which have been described as ‘not fully liquidated’ and ‘partially liquidated’. “.
The lawsuit claims that in 2018, “as ByteDance’s valuation soared exponentially,” Susquehanna approached Zhang with an offer to buy his share of the remaining investments. Zhang agreed, according to the suit, for a payment of $390,218.59.
A response in Susquehanna’s case is due in court Feb. 10.