Yahoo has been accused of mismanaging millions that were earmarked to aid Chinese political dissidents. Justin Sullivan/Getty Images

Yahoo has been slapped with a lawsuit alleging it mismanaged millions of dollars in trust funds that were earmarked to aid jailed Chinese political dissidents.

Filed in a federal court in Washington D.C. on behalf of eight Chinese dissidents on Tuesday (11 April), the lawsuit accuses Yahoo of "willfully turning a blind eye" as the fund's manager and high-profile political activist, Harry Wu, illegally used the funds for personal gain.

Back in 2007, Yahoo agreed to set up a $17.3m (£14m) human rights fund to help Chinese democracy advocates, human rights lawyers and writers as part of a lawsuit settlement with the families of dissidents.

Yahoo was accused of revealing the identities of email users whose political views were objected to by the Chinese government. In some cases, the disclosures led to their arrest and lengthy prison sentences.

To administer the funds, Yahoo appointed Shanghai-born Wu, a political rights activist who spent 19 years in Chinese labour camps before eventually seeking asylum in the US. The US citizen and director of the Washington-based human rights organisation Laogai Research Foundation (LRF) died in April 2016.

Wu's estate has been named a defendant in the lawsuit along with the Laogai Human Rights Organization and the Laogai Research Foundation.

Yahoo reportedly had a legal duty to ensure that the funds were properly managed and used. However, the lawsuit accused the company of using the Yahoo Trust as a "window-dressing" and had "no interest in fulfilling its actual mission or complying with its terms."

"Yahoo relied on the Yahoo Trust to stem the immense criticism over Yahoo's complicity in egregious human rights violations," the suit reads.

Approximately $700,000 of the $17.3m were actually used to help the jailed dissidents, the suit claims. The complaint claims that Wu used the money for real estate, salaries for Wu and his wife, and legal funds to defend himself against other lawsuits accusing him of sexual harassment, misusing federal grant money.

The lawsuit says Wu and his foundation bought two Washington properties for $1.45m and $2.55m using the Yahoo Trust assets.

The dissidents said Yahoo ignored "numerous red flags" including repeated direct warnings from former LRF board member and employee Liao Tienchi and concerns from a shareholder, the lawsuit notes.

"Throughout this entire time, the Yahoo Defendants — whose authorization was needed to make disbursements from the Yahoo Trust — stood idly by, willfully ignoring the mountain of evidence that these expenditures were improper, doing nothing to prevent the systematic unlawful depletion of Yahoo Trust assets, all the while advertising the Yahoo Trust as evidence of its commitment to human rights," the plaintiffs alleged in the lawsuit," the suit reads.

Reuters reports that there was no listed telephone number for the LRF. The Foundation's website is currently not in service. The last post on its Facebook page was shared in November, 2016.

Yahoo spokesman Mike Sefanov denied Reuters' request for comment.

The lawsuit demands that Yahoo replenish the full amount of the fund and modify the settlement to make sure the Chinese dissidents are the sole beneficiaries.

"We hope Yahoo will seize this opportunity and do the right thing," He Depu, one of the plaintiffs in the lawsuit told the New York Times. "Actually for them, either morally or financially, this is not a difficult thing to do."

The lawsuit comes as Yahoo is set to be acquired by US telecom giant Verizon later this year. The price tag for buying Yahoo's core Internet assets was renegotiated to $4.48bn, a $350m cut from the initial agreement in July 2016, following the disclosure of two massive security breaches affecting over one billion users.