Susquehanna International Group, the Bala Cynwyd trading and investment firm, was an early backer of TikTok’s parent company, Beijing-based ByteDance, which has grown into one of the most valuable tech start-ups in the world.
Last year, Susquehanna’s cofounder Jeff Yass was deemed the wealthiest person in Pennsylvania by Forbes, a ranking that highlighted his firm’s success on Wall Street and its investment in private companies such as TikTok’s owner.
Now, two entrepreneurs who say they advised Susquehanna on early investments in China claim the firm cut them out of their share of ByteDance’s huge success. In a lawsuit filed quietly in Montgomery County in November, the former consultants allege that 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 firm that has cultivated a portfolio of private-equity and venture-capital investments, including about $3.5 billion it has put into more than 300 companies in Asia, according to its website. The lawsuit offers a rare public look at the privately held firm’s origins in China.
The firm’s ByteDance stake, the suit says, is reportedly worth as much as $60 billion. That figure is in line with Susquehanna’s 15% ownership stake as reported by the Wall Street Journal in 2020, and ByteDance’s total valuation of more than $400 billion, reported by Bloomberg News last fall. ByteDance paused plans last year to become a publicly traded company abroad as the social media giant, and other tech companies, faced tighter scrutiny from Chinese officials over data security, the Journal has 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 wealthiest in Pennsylvania. Yass is also one of the biggest political donors in the country, giving about $30 million to conservative groups in the 2020 election cycle, according to the campaign-finance tracker OpenSecrets.
Asked about the allegations in the suit, Susquehanna told The Inquirer that it does not comment on pending litigation.
A lawyer for the plaintiffs did not immediately provide comment. The plaintiffs are represented by the Lansdale law firm Walsh Pancio and lawyers in the New York office of the firm Susman Godfrey.
“This case is about two young professionals who agreed to take significant financial and professional risk to start one of the first U.S.-backed private equity businesses in China,” according to the complaint filed in the Montgomery County Court of Common Pleas. “The business became wildly successful, including securing a significant stake in one of the most valuable ‘unicorns’ in history, ByteDance, the owner of TikTok. Yet plaintiffs were lied to and denied the share of the profits to which they were contractually entitled.”
The complaint doesn’t specify a dollar amount.
The suit is brought by TGC Partners Limited, led by Peter Tan, and Blue Mountain Capital Co. Limited, headed by Zhang Hao. They sued in Montgomery County because that’s one of the few court venues permitted by their consulting agreements with Susquehanna, according to the suit.
In their telling, Tan and Zhang began advising Susquehanna on China ventures in the early 2000s when there was “very little” American investment in the country. Zhang, who started a company to find deals “exclusively” for Susquehanna, the suit claims, and Tan, who was a lawyer with a large firm in Hong Kong, both worked on Susquehanna’s first China private-equity investment — a hotel chain that later went public.
“Tan literally opened the first make-shift SIG [Susquehanna International Group] Asia office out of his living room in Hong Kong in 2005,” according to the suit. He relocated to Shanghai to “help open SIG Asia’s first formal office” about six months later, the complaint says, and over the next two years, “Tan, Zhang, and their colleagues would find, structure, and close dozens of investments for Susquehanna in China.”
The suit claims that Tan and Zhang, through their respective companies, agreed to take a share of profits in certain investments instead of upfront pay: 0.83% for Tan’s firm and 1% for Zhang’s.
If Susquehanna liquidated an investment but kept stock or anything else “of value,” the plaintiffs allege, they were entitled to hang on to their interest in the asset until it was converted to cash.
The fate of one of those investments — in a search-engine company called Kuxun — is at the crux of the lawsuit.
Tan and Zhang say they helped identify and close SIG’s investment in Kuxun in 2006. They say that they each stopped working with Susquehanna in late 2007 or 2008, and that once the search engine was sold to Expedia, in 2009, Susquehanna told the consultants “Kuxun had been ‘fully liquidated’ with modest profits.”
That was false, the suit alleges.
Rather, the consultants claim they “have recently learned that before Kuxun was sold, Susquehanna secretly took its cutting-edge technology and used it to start two successive Susquehanna investments” — first the real-estate-focused website 99fang, and then ByteDance, which was launched in 2012.
Three of ByteDance’s most popular apps, the suit alleges, run on a back-end platform that “contains the powerful search technology that started at Kuxun.”
The lawsuit points to information allegedly from a company insider, who goes unidentified in the complaint: “According to a knowledgeable employee of SIG China One, Kuxun’s search engine was tailored to become the early engine of both 99fang and ByteDance.”
Tan and Zhang weren’t aware of the alleged connection between Kuxun and ByteDance until last year, the suit contends. Their agreement with Susquehanna prohibited them from reviewing the company’s books, according to the suit.
Over the years, they allege, they received financial statements from Susquehanna listing Kuxun as a “fully liquidated” investment, “in contrast to other investments, which were described as ‘non-fully liquidated’ and ‘partially liquidated.’”
The suit claims that in 2018, “as ByteDance’s valuation climbed exponentially,” Susquehanna approached Zhang with an offer to buy out his share in remaining investments. Zhang accepted, the suit says, for a payment of $390,218.59.
A response in the case from Susquehanna is due in court Feb. 10.