Grindr's U.S. security review disclosures contradicted statements made to others

Life Concepts Holdings

29/03/2021 11:00

By Echo Wang
    NEW YORK, March 29 (Reuters) - When Grindr Inc's Chinese
owner sold the popular dating app to an investor consortium last
year to comply with a U.S. national security panel order, the
parties to the deal gave information to authorities that
contradicted disclosures to potential investors and Chinese
regulators, Reuters has learned.
    They told the Committee on Foreign Investment in the United
States (CFIUS) that James Lu, a Chinese-American businessman who
is now Grindr’s chairman, had no previous business relationship
with a key adviser to the seller, a man named Ding'an Fei,
according to a Reuters review of the parties’ written
submissions to CFIUS.
    Fei, a former private equity executive, was acting as an
adviser to Beijing Kunlun Tech Co Ltd  300418.SZ , Grindr's
owner at the time, on the deal, the documents show. 
    "The investors and Ding'an Fei have at no time conducted
business together in their personal capacities prior to the
proposed transaction," Kunlun and the investor group, called San
Vicente Holdings LLC, wrote to CFIUS in a response dated March
27, 2020. 
    However, when Lu was raising funds to buy Grindr in the
second half of 2019 and early 2020, potential investors were
told by firms helping him raise the money that Fei was involved
in the effort with him in various capacities, a review of four
different fundraising documents shows.
    The duo had also done business together in other ventures:
Fei was a member of the board of a Chinese restaurant operator
in which Lu served as chief executive officer, according to that
restaurant company's 2018-2019 annual report.  urn:newsml:reuters.com:*:nL1N2LO037
    The discrepancies and omissions in the parties’ response to
U.S. authorities, reported by Reuters for the first time, could
prompt a new review from CFIUS, according to six former U.S.
officials and lawyers familiar with the panel's rules. If CFIUS
were to find the statements were not true, it can also lead to
civil penalties and criminal charges under the false statement
provisions of the U.S. penal code, they said.
    "If a transaction was approved based on misrepresentations,
that could well invalidate the approval of the transaction,"
said Brent McIntosh, who served as the Treasury Under Secretary
responsible for CFIUS when the Grindr deal was cleared. McIntosh
declined to comment on the specifics of Reuters’ findings.
    San Vicente spokesman Taylor Ingraham said that "a complete
and accurate account of James Lu's relationship with Ding'an
Fei, as well as his investments and business activities in
China, was provided to CFIUS prior to the agency's approval of
San Vicente Holdings' acquisition of Grindr." 
    Ingraham declined to make Lu, who owns a 17% stake in the
buyer's group, available for an interview. Lu, Fei, Kunlun and
Grindr did not respond to emailed requests for comment. 
    CFIUS and the U.S. Treasury Department, which chairs CFIUS,
did not respond to requests for comment. 
    
    CHINA DEALINGS
    The documents reviewed by Reuters include a resume for Lu
that was put together by the parties in support of the CFIUS
application. While the resume lists positions going back to
2002, it does not mention some of his business dealings in
China. In particular, Chinese regulatory filings show Lu is
chairman of a Chinese investment firm, where a local government
is the majority shareholder.
    Scott Flicker, a regulatory partner at law firm Paul
Hastings LLP who was not involved in the Grindr case and
reviewed Reuters' findings, said CFIUS would want to know about
Lu's business dealings in China when assessing whether his past
could be used by Beijing to compromise him. 
    "It is potentially relevant information for the CFIUS
review. The integrity of the acquiring party is relevant to the
question of threat of exploitation," Flicker said.  
    However, some lawyers played down the possibility that CFIUS
would reopen its review. They noted that there is no publicly
known precedent of the panel ever having done so. Were CFIUS to
identify misstatements in a review, it would likely take action
only if they significantly raised the risk of a transaction
harming national security, said Alexis Early, a regulatory
partner at law firm King & Spalding LLP who was not involved in
the Grindr deal.
    Reuters could not determine whether San Vicente and Kunlun
disclosed those activities to CFIUS subsequently.  
    Reuters first reported about the ties between Lu and Fei in
June of last year, after CFIUS had already approved the sale of
Grindr to San Vicente for $620 million. Reuters could not
determine whether CFIUS had taken any action following that
Reuters report.  urn:newsml:reuters.com:*:nL1N2DF01X
    Since then, Reuters has reviewed three sets of confidential
written questions that CFIUS sent to the parties, their
responses to them and several supporting documents. Reuters
could not determine whether CFIUS knew of the specific
discrepancies reported in this article when it approved the deal
last year. 
    Ingraham did not comment on whether there were any
additional communications with CFIUS beyond the set of questions
and answers seen by Reuters.
    
    GRINDR SALE
    Based in West Hollywood, California, Grindr is especially
popular among gay men and has millions of users. CFIUS ordered
Kunlun, a Chinese mobile gaming company, in May 2019 to sell
Grindr, giving it about a year to complete the deal. The move
was among a series of actions the United States took in recent
years against Chinese companies. 
    Reuters previously reported that Kunlun was ordered to
divest Grindr because U.S. authorities worried personal
information about Americans could fall into Beijing’s hands. https://www.reuters.com/article/idUSKCN1R809L
    Lu started raising money from outside investors for the
Grindr acquisition in the months after the CFIUS order,
according to the fundraising documents and the responses to
CFIUS. Lu first sought money for the acquisition through a fund
called Duo Capital, and later an entity called TGL Capital. 
    In the fundraising documents, Fei is named as associated
with the funds in various ways, including as a contact person
for Duo Capital, a member of the external advisory team of Duo
Capital and as a co-leader of TGL Capital. Reuters could not
learn more about his role or independently verify the
information.
    The ties between Fei and Lu came to CFIUS' attention during
the review. In the third set of questions, CFIUS asked, "Is Mr.
Ding An Fei of TGL Capital (formerly known as Duo Capital) the
same Dingan Fei" who is listed as "an individual who should
receive notices on behalf of Beijing Kunlun Tech Co Ltd?"
    In their March 27, 2020 response, the parties denied any
ties. "Neither Ding'an Fei nor anyone else employed by or
representing Kunlun has ever held a position with TGL Capital,
Duo Capital, or San Vicente," they wrote. 
    Lu did not respond to questions about Duo and TGL.
    San Vicente and Kunlun also told CFIUS in their March 27,
2020 response to questions about the relationship between Fei
and the San Vicente investors that Lu knew Fei "because they
have each held positions in the investment community working on
Asia-U.S. transactions."
    However, Fei sat on the board of restaurant operator Life
Concepts Holding  8056.HK , in which Lu served as CEO, according
to the company's annual report. Fei stood down from Life
Concepts' board in April 2020, amid the CFIUS review, without
disclosing a reason, according to a Life Concepts filing with
the Hong Kong stock exchange. 
    Life Concept, based in Hong Kong, did not respond to a
request for comment.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
EXCLUSIVE-Winning bidder for Grindr has ties to Chinese owner   
 urn:newsml:reuters.com:*:nL1N2DF01X
China's Kunlun says U.S approves sale of Grindr to investor
group     urn:newsml:reuters.com:*:nL8N2DB6CN
FACTBOX-The protagonists in the Grindr story     urn:newsml:reuters.com:*:nL1N2LO037
Exclusive: Told U.S. security at risk, Chinese firm seeks to
sell Grindr dating app    https://www.reuters.com/article/idUSKCN1R809L
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Greg Roumeliotis, Paritosh Bansal and Edward Tobin)
 ((Greg.Roumeliotis@thomsonreuters.com; +1 646 223 6022; Reuters
Messaging: greg.roumeliotis.thomsonreuters.com@reuters.net))