Self-Driving Firm Probed --- FBI, SEC investigate TuSimple's financial ties to Chinese startup Hydron

"TuSimple Holdings Inc., a U.S.-based self-driving trucking company, faces federal investigations into whether it improperly financed and transferred technology to a Chinese startup, according to people with knowledge of the matter.

The people said the concurrent probes by the Federal Bureau of Investigation, Securities and Exchange Commission and Committee on Foreign Investment in the U.S., known as Cfius, are examining TuSimple's relationship with Hydron Inc., a startup that says it is developing autonomous hydrogen-powered trucks and is led by one of TuSimple's co-founders.

Investigators at the FBI and SEC are looking at whether TuSimple and its executives, principally Chief Executive Xiaodi Hou, breached fiduciary duties and securities laws by failing to properly disclose the relationship, the people familiar with the matter said. They are also probing whether TuSimple shared with Hydron intellectual property developed in the U.S. and whether that action defrauded TuSimple investors by sending valuable technology to an overseas adversary, the people said.

Hydron was started in 2021 by Mo Chen, TuSimple's co-founder. He incorporated Hydron in China, Hong Kong and Delaware, according to public filings, with a plan to build hydrogen-powered trucks in North America modeled on a design by a subsidiary of a Chinese state-controlled auto manufacturer. People familiar with the matter said Hydron's operations are mostly in China, where Mr. Chen spends most of his time. The startup was backed by Chinese investors.

TuSimple's board opened its own investigation in July to look into whether TuSimple incubated Hydron in China, including by funding and transferring technology to the startup without informing regulators, the TuSimple board or its shareholders, said other people familiar with the matter.

The TuSimple spokesman said the company isn't aware of any FBI or SEC investigations. He declined to comment on the board investigation or any discussions with Cfius.

The investigations all center on the possibility that TuSimple leadership failed to make disclosures about the company's financial and technical transactions with Hydron that are required under U.S. law, and how such possible undisclosed dealings may have harmed investors and constituted a failure by Mr. Hou to fulfill his fiduciary responsibilities as CEO and chairman.

Securities laws require that related-party transactions, or financially beneficial transactions between companies or people with a relationship, must be disclosed. Investigators are looking in particular at Mr. Hou to determine whether he was involved in setting up and providing technology to Hydron and got paid for it without making the proper disclosures, people familiar with the matter said.

A TuSimple spokesman said Mr. Hou has never been a Hydron employee or received payment from Hydron. Mr. Hou doesn't have a financial interest in the company, the spokesman said.

Cfius, a Treasury Department-led interagency committee that also investigated TuSimple last year, is examining whether TuSimple made material misstatements to the U.S. government about technology transfer, the people said. Questions from the committee, which is charged with reviewing foreign investment in U.S. companies for national- security risks, include whether Mr. Hou and other executives at TuSimple deliberately hid from the government its dealings with Hydron, the people said.

Cfius intervened earlier this year to compel TuSimple to silo much of its U.S. data and tech from its own Chinese subsidiary, according to a regulatory filing and former employees. Most China-based TuSimple employees had access to source code and other proprietary technology created by U.S. employees, said former employees.

TuSimple's spokesman said the company takes seriously its agreement with Cfius and has implemented the security requirements.

He said the company is exploring alternatives for TuSimple's China subsidiary, including a potential sale, because "we believe that's in the best interest of our shareholders."" [1]

1. Business News: Self-Driving Firm Probed --- FBI, SEC investigate TuSimple's financial ties to Chinese startup Hydron
Somerville, Heather; O'Keeffe, Kate; Yang, Jie. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 31 Oct 2022: B.3.