Executives of Chinese AI developer Moonshot AI are in talks with a shareholder demanding compensation for alleged wrongdoing prior to its planned Hong Kong initial public offering (IPO), Reuters has reported.

Citing people familiar with the matter and a letter seen by the newswire, Reuters revealed that fellow Chinese AI developer Recurrent AI and some of its investors have accused Moonshot’s chief executive Yang Zhilin and chief technology officer Zhang Yutao of making false representations to Recurrent investors and enriching themselves at Recurrent’s expense.

Yang and Zhang Yutao co-founded Recurrent in 2016 prior to founding Moonshot in 2023 and remain directors of Recurrent’s holding company.

Recurrent has been in a dispute, currently undergoing arbitration in Hong Kong, with the pair since 2024.

A potential settlement had not been reported prior to Reuters’s news.

The letter sent by Recurrent’s lawyers in March and seen by the newswire alleged that servers containing large-language model data were transferred from Recurrent to a Moonshot subsidiary without authorisation in April 2023, and that in September 2024 separate key data was deleted on Zhang Yutao's instructions. The letter did not provide evidence for these claims.

The accusations have been denied by David Morrison, a senior partner at MinsterEllison, which represents Yang, Zhang Yutao and Moonshot. He told Chinese media in 2024 that the case “lacked both legal and factual basis”.

Moonshot confidentially filed for a Hong Kong IPO in September and while the dispute is not expected to derail the listing, it could raise governance, ownership and disclosure issues for prospective investors and complicate the listing process, a person with knowledge of the dispute told Reuters.

Recurrent and its investors are separately considering legal action in the Cayman Islands against Moonshot president Zhang Yutong, Reuters reported.

Zhang Yutong, who served as a Recurrent director until 2022, received a significant shareholding in Moonshot “for her personal ⁠benefit, a fact which was deliberately concealed from Recurrent's shareholders,” the letter seen by Reuters said.

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