Chinese language Funding in U.S. Airplane Maker Attracts FBI, Nationwide-Safety Evaluations

The Committee on International Funding within the U.S., an interagency panel that may advocate that the president block or unwind offers on national-security grounds, started its evaluate in late November after the American shareholders urged it to intervene, in keeping with paperwork and the folks conversant in the matter.

The Federal Bureau of Investigation has additionally initiated a separate probe into potential prison violations associated to the deal and the alleged switch of expertise, in keeping with the folks and one of many paperwork.

The evaluate by Cfius underscores its heightened scrutiny on funding from China amid hostile U.S.-China relations and the 2 governments’ battle to dominate applied sciences they see as essential to future financial and army competitiveness.

Shanghai Pudong Science and Expertise Funding Co., or PDSTI, stated in authorized filings that its funding in Icon saved it from collapse and that licensing its expertise to a Chinese language firm will herald wanted capital. An individual near PDSTI stated the American shareholders’ name for a Cfius evaluate is “an instance of how the Cfius course of may be improperly weaponized towards a good-faith investor.”

A lawyer for Icon stated its plane don’t have army functions and the corporate doesn’t see PDSTI’s funding as a national-security concern. The corporate is totally cooperating with Cfius and expects the panel to conclude its evaluate on the finish of February, the lawyer stated.

A spokeswoman for the Treasury Division, which leads Cfius, declined to remark as did the FBI. The lawyer for Icon and representatives for PDSTI stated they haven’t been contacted by the FBI.

Icon, based in 2006 by a former Air Drive pilot and a former product-design lecturer at Stanford College, produces a carbon-fiber aircraft with foldable wings able to land and water takeoffs and landings, in keeping with the American shareholders. The aircraft is designed for leisure use, stated Icon’s web site. The American shareholders, in a memo to Cfius reviewed by the Journal, stated the plane could possibly be modified to perform as a militarized drone.

Icon attracted board members influential in aviation. One was

Linden Blue,

vice chairman of Common Atomics, which makes the Predator drones utilized by the U.S. army.

Phil Condit,

a former CEO of Boeing Co., additionally joined the board and is an investor.

The group of American shareholders that appealed to Cfius consists of Mr. Condit, Icon’s co-founders

Kirk Hawkins

and

Steen Strand,

and a number of funding companies. Mr. Hawkins stays a board member.

Of their memo to Cfius, the group stated Icon initially didn’t search the panel’s blessing as a result of PDSTI’s funding began out small in 2015. The memo cited Cfius’s approval of a 2011 deal by China’s state-owned aviation big China Aviation Trade Corp, often known as AVIC, to purchase Minnesota-based private-aircraft maker Cirrus Industries Inc.

By 2017, PDSTI had amassed its dominant stake in Icon, in keeping with the group of American shareholders. Then, they stated within the memo and in court docket filings, the Chinese language firm started putting in board members and executives, pressuring others and laying plans to switch Icon’s expertise to China.

The People filed go well with towards PDSTI in Delaware in June looking for to cease its alleged expropriation of Icon’s expertise; PDSTI stated the lawsuit’s claims are meritless. Two months later the American shareholders filed their memo to Cfius, urging the panel to unwind the deal.

Messrs. Condit and Blue resigned from Icon’s board in 2018 and 2019, respectively, to protest PDSTI’s administration, in keeping with the June lawsuit. In his resignation letter, cited within the go well with, Mr. Condit stated he was stepping down, given “the entire disregard for my recommendation and counsel.”

In Could 2020, then-senior Icon government

David Criminal

declined PDSTI’s provide to be the plane firm’s president. He wrote, “It’s apparent that PDSTI’s plan for ICON is to cut back its operations to a minimal and destroy any potential for the US enterprise till they will transfer it to China to serve their very own curiosity,” in keeping with a submitting by the plaintiffs within the Delaware go well with. Mr. Criminal, who isn’t a part of the American shareholders group suing PDSTI, stated he stands by that remark.

Practically a 12 months later, in March 2021, PDSTI shipped an Icon aircraft to China, and in April the agency started a course of to license Icon’s mental property, which can give it “rights to siphon ICON expertise again to China with no restrictions,” the shareholders allege of their memo to Cfius.

In that memo, dated Aug. 1, the minority shareholders stated that the scenario had developed into “particularly the form of nationwide safety scenario” for which the Cfius course of is meant.

“ICON’s plane expertise and superior supplies and aerospace manufacturing capabilities shouldn’t be allowed to fall into the arms” of China, stated the memo. “With out expeditious CFIUS intervention, this will happen inside months.”

Icon’s lawyer stated the corporate’s sole aircraft mannequin, referred to as the A5, is constructed from industrial, off-the-shelf merchandise and is “wholly unsuited for any army functions.” The A5 “doesn’t have any autonomous piloting, synthetic intelligence or machine studying capabilities,” the lawyer stated, including that Icon doesn’t manufacture, design, develop, or check navigation expertise or superior supplies.

PDSTI has stated in filings within the Delaware lawsuit that, whereas it has the power to nominate nearly all of Icon’s board, it too is a minority stockholder with a 46.7% stake and doesn’t train company management over Icon. PDSTI has invested “a whole bunch of hundreds of thousands of {dollars}” in Icon since 2015 and secured extra funding from outdoors traders, thereby saving Icon from collapse below prior “disastrous management,” in keeping with the filings.

—Jim Oberman and Elisa Cho contributed to this text.

Write to Kate O’Keeffe at kathryn.okeeffe@wsj.com