News
The cryptocurrency wunderkind’s $200 million fund had backing from investors including Bill Ackman and Galaxy. Then everything went south
Hi, I’m Leo Schwartz filling in for Allie.
Stop me if you’ve heard this story before. A cryptocurrency wunderkind rises through the ranks of blue-chip institutions, with credentials from MIT, Morgan Stanley and Forbes’ 30 under 30 list. He gains the trust and support of major investors in the field of finance and cryptocurrencies, from Bill Ackman to the Galaxy company. But just beneath the surface are problems and serious legal implications.
No, this isn’t Sam Bankman-Fried, or Do Kwon, or Kyle Davies and Su Zhu, although I recognize that this beat is starting to sound like a broken record. Instead, I have a new investigation into Yida Gao, who just a couple of years ago was a rising blockchain star. His firm, Shima Capital, has raised $200 million in its debut fund, backed by some of the biggest names in the industry. Gao quickly became one of the most active investors in the space and even taught a course on cryptocurrencies at MIT’s business school, filling a position vacated by SEC Chairman Gary Gensler.
Behind the scenes, however, Gao appears to have cut some crucial corners while running his fund, alienating his investors and perhaps running afoul of key SEC rules. In the starkest example, Fortune’s investigation revealed that Gao funneled investments into a secretive offshore entity that he wholly owned without disclosing the deal to investors — a potential violation of the Investment Advisers Act, according to experts with whom I spoke. “It doesn’t make any sense,” Eric Hess, a venture and blockchain lawyer, told me. “I don’t think that’s a defensible strategy.”
Gao doesn’t just have the SEC to worry about. Shima has also alienated supporters, with cryptocurrency firm Galaxy redeeming his investment and others raising alarm bells. According to a source, Shima has struggled to raise additional capital due to concerns about its performance and his behavior, and a representative confirmed that the company is not currently raising funds, despite the red-hot cryptocurrency market.
It should come as no surprise that compliance is still a struggle for crypto companies. In the US the industry still lacks clear regulation, and most major venture funds that want to participate in blockchain deals have to set up a network of offshore entities. But this should not mean violating the law or fundamental investor protection principles.
While there is no evidence that Gao and Shima set out to misappropriate funds, their actions are at best reckless and at worst could result in serious legal penalties. It’s an all-too-common story in the cryptocurrency industry, which seems to replicate the same missteps with every cycle.
“There’s a lot of softness around the edges, sometimes a lot of ‘Trust me, brother,’” Hess told me. “We need to start paying attention to these standards and not pretend that we are not just the abandoned children of the financial system.”
You can read the full story Here.
Leo Schwartz
Twitter: @leomschwartz
E-mail: leo.schwartz@fortune.com
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Joe Abrams edited the offers section of today’s newsletter.
BUSINESS BUSINESS
– Cubea San Francisco-based developer of a universal semantic layer designed to help companies manage and optimize their analytics workflow has raised $25 million in funding. Databricks Ventures led the lap and was joined by Decibels, Bain Capital Ventures, Eniac VenturesAND 645 companies.
– Effervescenta New York-based student credit card company has raised $14.4 million in seed funding. Kleiner Perkins led the lap and was joined by SV Angelo, Y combinator, New Era Initiativesand other.
– Qargoa workload management platform for the trucking industry based in London, UK and Ghent, Belgium, has raised £11 million ($14 million) in Series A funding from Balderton Capital.
– Torpagoa San Francisco-based company that helps banks launch business credit cards has raised $10 million in Series B funding. Priority technology initiatives AND EJF Ventures led the lap and was joined by BankTech Initiatives and existing investors.
– Eyebota Boston, Massachusetts-based developer of automated self-service vision testing terminals has raised $6 million in seed funding. AlleyCorp AND Ubiquity Initiatives they led the tour and were joined by Humba Initiatives, Rivellino, Space cadetand existing investors.
– I sweara Boston, Massachusetts-based provider of software validation solutions for life sciences companies has raised $6 million in Series B funding. First analysis led the round and was joined by existing investors LRVHealth, New stack InitiativesAND Partner of intuition.
– OneScreen.aia Boston, Massachusetts-based platform designed to connect startups with out-of-home advertising opportunities like billboards or subway ads, raised $4.7 million from Asymmetric Capital Partner, TechstarAND Urgent tasks.
– Greptilea San Francisco-based platform designed to let engineers use natural language to index and search large code bases, has raised $4.1 million in seed funding. Initialized capital led the round and was joined by angel investors.
PRIVATE HORSE RIDING
– Aterian investment partner acquired Pharmaceuticals Limited Canada Contract, a Mississauga, Canada-based contract development and manufacturing organization of non-sterile liquid and semi-solid pharmaceutical products. Financial terms were not disclosed.
– B&R Autoa portfolio company of High view Capitalacquired Reno Autodemolizione, a Reno, Nevada-based supplier of recycled automotive parts for collision and repair centers. Financial terms were not disclosed.
– Charlesbank Capital Partners acquired a majority stake IT quorum, a cybersecurity company based in Edinburgh, Scotland. Financial terms were not disclosed.
– Hop Mona portfolio company of Platinum Equityacquired PH garment, a Hong Kong-based manufacturer of bras, shapewear and activewear. Financial terms were not disclosed.
– Right Time Group of Companiessupported by Griffin Investorsacquired Belyea brothers, a provider of heating, cooling, electrical and other home services based in Toronto, Canada. Financial terms were not disclosed
– JSIa portfolio company of Partner Stone-Goffacquired Intergreenhouse, an Alpharetta, Georgia-based compliance and consulting firm for the telecommunications industry. Financial terms were not disclosed.
– Silvestrea portfolio company of Partner of Blue Point Capitalacquired Anchor conveyor products, a conveyor component manufacturer based in Dearborn, Michigan. Financial terms were not disclosed.
– Partner of Turnspire Capital acquired Swanson Industriesa Morgantown, WV-based provider of manufacturing, repair and other services for mining equipment and related industrial equipment, and Tiefenbach North America, a plumbing products supplier and servicer based in Morgantown, WV. Financial terms were not disclosed.
– Yellow wooden partner acquired Elida beautya portfolio of consumer brands based in London, UK, including Q-tips, Caress and Ponds, by Unilever (NYSE:UL). Financial terms were not disclosed.
EXITS
– nVent Electric (NYSE: NVT) decided to acquire a majority share Trachtean Oregon, Wisconsin-based manufacturer of steel substation control buildings and electrical equipment enclosures, from Palladium Equity Partnersfor 695 million dollars.
– Tenex capital management acquired behavioral Innovationsa Dallas, Texas-based behavioral analysis therapy provider for children with developmental disabilities, from Partner of Shore Capital. Financial terms were not disclosed.
– The access group acquired Hospitality Resources Sceptera Houston, Texas-based provider of AI-based tools and software designed to improve hotel revenue and efficiency, from Serenti Capital. Financial terms were not disclosed.
OTHER
– Dolby Laboratories (NYSE: DLB) agreed to acquire GE Licenseda Boston, Massachusetts-based intellectual property firm focused on the consumer digital media and electronics industries, for $429 million in cash.
FUNDS + FUNDS OF FUNDS
– Aquiline Capital Partnersa private equity firm based in New York, London, United Kingdom, Philadelphia, Pennsylvania, and Greenwich, Connecticut, raised $2.3 billion for its fifth private equity fund and $1.1 billion for its continuous fund, both focused on financial services and related financial services. technologies.