US’s Naughty Chinese Company List – There Ought to be a Risk Factor for That

China-based US-listed Companies Risk Factor Litigation, Lesson Learned  

Recently, in Wong v. Hesai Group, 2026 WL 458135 (S.D. N.Y., Feb. 18, 2026), Judge McMahon of the US District Court for the Southern District of New York ruled that shareholder’s claim that Hesai Group (“Hesai”) made a material misstatement or omission in “the registration statement and prospectus issued in connection with [its initial public offering (“IPO”)] (the “Offering Documents”)” by failing to disclose it could be designated a “Chinese military company” by the then Department of Defense (“DoD”) (now the Department of War) under Section 1260H of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (“Section 1260H”) and placed on the DoD’s “1260H List” was time barred.  

Hesai is a Nasdaq-listed Cayman Islands holding company producing three-dimensional light detection and ranging (LiDAR) equipment targeted at the automotive market (advanced drive assistance systems, self-driving cars, last-mile delivery robots) through its Chinese subsidiaries.  It went public on February 8, 2023.  In its Offering Documents, Hesai did provide some disclosure of risks related to doing business in mainland China, but did not include a risk factor that if designated as a “Chinese military company” Hesai would face the stigma of being an “entity of concern” and would be barred from receiving or working under any US government grant, contract, subcontract, award, loan, program, support, or other activity.   

As the Court noted, “[t]he timeline is straightforward. The original complaint in this action was filed on April 7, 2023. Hesai was designated as a “Chinese military company” under Section 1260H […] on January 31, 2024. Plaintiff first asserted a Section 11 theory predicated on alleged omissions concerning Section 1260H designation risk in the amended complaint filed on November 11, 2025.”  Wong v. Hesai Group, 2026 WL 458135 (S.D. N.Y., Feb. 18, 2026) and that “[t]he only question, therefore, is whether Plaintiff discovered, or should have discovered, the alleged omission more than one year before November 11, 2025.” Id. 

Judge McMahon reasoned that the statute of limitations under Section 13 of the Securities Act of 1933 “does not begin upon designation alone, but only when the underlying, entity-specific facts supporting that designation are sufficiently accessible to permit a reasonably diligent plaintiff to plead the omission-based violation”.  

Wong contended that the clock did not start until the DoD released the underlying memorandum and asserted bases for designation became public in February of 2025.  However, the basis for Hesai’s determination as a “Chinese military company” was a report dated November 2, 2023, which was filed publicly on July 17, 2024, in litigation by Hesai to attempt to overturn the DoD’s designation.  The Court reasoned that upon the public filing of the November 2nd report, that the plaintiff discovered, or through reasonable diligence should have discovered, the facts constituting the alleged omission and dismissed the claim as untimely. 

What lessons are there to learn here?  

For companies that are “dual purpose”, having both military and civilian applications, that operate through Chinese subsidiaries, may need to update their risk factors to include Section 1260H risk. Especially when, as alleged in this case, it is a company-specific, knowable risk tied to the company’s footprint in China and affiliations that exist at the time of the offering of securities, which reflect integration into state-backed programs central to China’s industrial and national defense policy objectives. 

For shareholders, watch and review documents filed in litigation involving your portfolio companies. Because “Section 13 does not require that these facts be widely publicized. It requires only that the plaintiff discover, or through reasonable diligence should have discovered, the facts constituting the alleged omission.” Id.   

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with Rimon, P.C. or its affiliates.