A Chinese asset management group has asked a US court to enforce a US$145 million HKIAC award against the co-founder of a mobile internet services company in which it invested.
A Cayman affiliate of Zhongzhi Enterprise Group (ZEG) filed the action against Vincent Wenyong Shi yesterday in the Southern District of New York.
Sole arbitrator Benny Lo of Des Voeux Chambers in Hong Kong issued the award in 2019, finding Shi had reneged on commitments made to the ZEG entity when it invested in NQ Mobile, of which he was the co-founder and CEO.
Shi did not appear in the arbitration, which was seated in Hong Kong under the HKIAC rules for expedited procedures.
The ZEG entity is represented in the enforcement bid by Pillsbury Winthrop Shaw Pittman in New York, having used Beijing firm DaHui Lawyers in the arbitration. Shi is yet to appear in the enforcement action.
NQ launched in China in 2005 as a provider of mobile internet services focusing on security and privacy. It was listed on the New York Stock Exchange in 2011, but suffered a stock price crash two years later in the wake of allegations by short-seller Muddy Waters that its major revenue streams were “fictitious” and that its antivirus software was likely spyware. NQ denied the allegations.
ZEG says it was approached by Shi in 2016 to make an investment in NQ. Its Cayman investment vehicle entered into two related agreements soon after. In one, it agreed to buy a US$220 million note from NQ that could be converted into shares in NQ. In the other, Shi personally agreed to pay the interest owed on that note before it matured.
The ZEG entity ultimately chose not to convert the note into shares and alleged Shi owed it US$243 million under an amended version of their agreement. It filed its HKIAC claim in 2018 under a restated governing law and arbitration agreement it said it had entered with Shi that same year. The agreement called for the appointment of Lo as sole arbitrator should any dispute arise.
A merits hearing went ahead in Hong Kong without Shi in 2019.
In his award, Lo found he was empowered under Hong Kong’s Arbitration Ordinance to issue an award as Shi had been made aware of the proceedings.
On the merits, Lo ruled that Shi was liable under the amended agreement but declined to grant the full amount sought – instead awarding US$145 million plus interest and costs.
In its enforcement bid, the ZEG entity says the New York court has jurisdiction as Shi maintains a business address in the city.
In 2019, NQ was delisted from the New York stock exchange and changed its name to Link Motion, reflecting a shift in focus to smart ride services. A US court-appointed receiver also removed Shi as CEO in that year.
Unrelated to the ZEG dispute, Shi and Link Motion are respondents in a New York Southern District litigation filed in 2019 by a purported shareholder in the company, Wayne Baliga. He is seeking to recover losses from a “multi-year fraud” he alleges was carried out at the company.
Another shareholder in Link Motion, China AI Capital, is pursuing a derivative suit against DLA Piper in the same New York court for alleged malpractice in its representation of NQ in the Baliga action. The claimant contends the firm failed to spot that Baliga was not a shareholder as he had claimed. DLA has said the complaint suffers from “myriad procedural, factual and legal defects”.
Filings in those proceedings also mention a US$390 million HKIAC award issued against NQ in 2020 in favour of another Cayman company called Tongfang Investment Fund Series. Further details of that case are scarce.
Zhongzhi Hi-Tech Overseas v Vincent Wenyong Shi
In the US District Court for the Southern District of New York
Counsel to Hi-Tech
- Pillsbury Winthrop Shaw Pittman
Partners James Catterson and Geoffrey Sant and counsel Carol Lee in New York
Counsel to Shi
Yet to appear
In the arbitration (Case No. HKIAC/A18222)
Tribunal
- Benny Lo (UK/Hong Kong) (sole arbitrator)
Counsel to Hi-Tech
Arthur Ma Zhihua, Xing Wan, Mark Young and Sharon Yang Sijie in Beijing
Counsel to Shi
Did not appear in the arbitration
