TuSimple Fires Its CEO And Chair Following Internal Investigation, Draws Regulatory Scrutiny

TuSimple Holdings Inc TSP faced federal investigations over alleged improper financing and transferring technology to a Chinese startup.

The concurrent probes by the FBI, SEC, and Cfius probed TuSimple's relationship with Hydron Inc, the Wall Street Journal reports. One of TuSimple's co-founders led Hydron to develop autonomous hydrogen-powered trucks.

Investigators at the FBI and SEC scrutinized whether TuSimple and its executives, principally CEO Xiaodi Hou breached fiduciary duties and securities laws by failing to disclose the relationship adequately. 

They also probed whether TuSimple shared with Hydron intellectual property developed in the U.S. and whether that action cheated TuSimple investors by sending valuable technology to an overseas adversary.

Hydron's operations are primarily in China, where Tu Simple co-founder Mo Chen spends most of his time. Chinese investors backed the startup.

TuSimple's board opened its investigation in July to investigate whether TuSimple incubated Hydron in China. Investigators probed whether Hou was involved in setting up and providing technology to Hydron and got paid for it without making the proper disclosures.

TuSimple spokesperson said Hou has never been a Hydron employee or received payment from Hydron and doesn't have a financial interest in the company.

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

TuSimple spokesperson said it weighed alternatives for TuSimple's China subsidiary, including a potential sale.

When Hydron launched, it recruited TuSimple employees and used TuSimple technology know-how and intellectual property. Some employees worked for Hydron while continuing to work for TuSimple, sometimes getting equity shares in Hydron.

TuSimple's spokesperson said the company has considered an agreement to buy freight trucks from Hydron but isn't a Hydron customer. The spokesman said TuSimple doesn't have equity in Hydron and isn't involved in Hydron's business decisions. 

Cfius early this year required that Chao relinquish his two TuSimple board seats and that the company better secure its data and technology. 

Chen is no longer on TuSimple's payroll. He is TuSimple's largest shareholder, owning about 11.8% of the company. TuSimple board terminated CEO, President, and Chief Technology Officer Dr. Xiaodi Hou from his position. 

It also removed Hou as Chair of the board and as a member of the Government Security Committee, effective October 30, 2022. 

TuSimple named Dr. Ersin Yumer, Executive Vice President of Operations, as interim CEO and President as the company initiated a search for its CEO. TuSimple named Brad Buss, it's lead independent director, as the Chair.

 The board has also actively engaged in the search to add new independent members. These actions were related to an ongoing investigation led by the Audit Committee of the board. 

Price Action: TSP shares traded lower by 17% at $5.24 in the premarket on the last check Monday.

Photo by Okan Caliskan from Pixabay