This article is from "He taught at MIT, worked at Morgan Stanley, and convinced Bill Ackman and Galaxy to back his $200 million crypto fund by his early 30s. His future is now in jeopardy"
Original author: LEO SCHWARTZ, Fortune Magazine
Translation: Odaily Planet Daily, Fu Ruhe
In 2022, when Yida Gao returned to the Massachusetts Institute of Technology (MIT), the former pole vaulting team member and "Phi Beta Kappa" honor recipient faced a huge challenge. MIT invited him to teach a graduate course on "Cryptocurrency and Finance" at the business school, a position previously held by current SEC Chairman Gary Gensler.
Just ten years after his undergraduate studies at MIT, Gao was undaunted. The Chinese immigrant, who had made it onto the Forbes 30 Under 30 list, had made rapid strides in the crypto world, with his own blockchain-focused venture capital firm, Shima Capital. In a short period of time, Gao raised $200 million from financial heavyweights like Bill Ackman and prominent cryptocurrency companies like Dragonfly and Galaxy, quickly becoming one of the most active investors in the cryptocurrency field through over 300 transactions.
Gao's rise was rapid, but he also took some "shortcuts." An investigation by Fortune magazine found that Gao had created a secret offshore entity without the knowledge of his investor Ackman and others, and transferred the assets of his venture capital fund to a company set up in his own name. Eric Hess, a lawyer specializing in digital assets and venture capital, stated, "Gao's actions directly violate the provisions of the Investment Advisers Act."
Gao has not been charged with any wrongdoing, a representative of Shima Capital told Fortune magazine that the company does not comment on "such regulatory matters." However, according to an anonymous source, Gao's poor performance and behavior seem to have violated the investor protection rules of the U.S. Securities and Exchange Commission, leading to difficulties for the once rising star in the cryptocurrency world in raising more capital. Despite a booming market, a representative of Shima told Fortune magazine that the company is currently not fundraising.
In recent months, several senior executives of Shima Capital have resigned, including Chief Technology Officer Carl Hua, who left at the beginning of this year to start a venture capital firm, and Research Director Alexander Lin, as well as Chief Operating Officer and Platform Director Hazel Chen. The departing executives did not respond to requests for comment.
Meanwhile, despite the current bull market in the cryptocurrency market, Shima seems to be in trouble. Its latest U.S. Securities and Exchange Commission filing shows that it manages assets of approximately $158 million, lower than the $200 million raised by Shima in 2022, although this figure does not directly reflect the fund's performance.
Although misconduct in the cryptocurrency industry is as common as a confiscated Lamborghini, Gao still managed to persuade a group of elite investors to support him and continue to be active in this field. His mistakes may provide material for critics of the industry.
Empty Shell Game
As the latest member of a series of emerging cryptocurrency geniuses, Yida Gao took a more traditional path—a clean-shaven face, a fit physique, and an impressive resume at blue-chip institutions. His financial career began at Morgan Stanley, focusing on mergers and acquisitions. In his spare time, he invested in startups, often collaborating with a well-connected entrepreneur, Adam Struck. Gao had worked at the venture capital giant New Enterprise Associates and briefly attended Stanford Business School before dropping out to join Struck's venture capital firm in Santa Monica.
Although in the public eye, Gao's partnership with Struck seemed to be thriving, by 2019, the relationship had become tense behind the scenes. Struck filed a lawsuit, accusing Gao of secretly stealing proprietary information and setting up a competitive venture capital firm, Shima Capital, registered in Puerto Rico. Gao denied these allegations, claiming that Struck "diminished" his contributions and refused to acknowledge their 50/50 partnership, prompting him to start his own business.
Struck did not comment on the legal dispute, which was settled in October 2023. Although the terms of the settlement remain sealed, Struck's lawyer accused Gao of setting up a "shell game" company, including a wholly-owned British Virgin Islands entity, ShimaB.
Despite the quarrel with Struck, Gao managed to persuade top cryptocurrency and financial figures, including Bill Ackman and former presidential candidate Andrew Yang, to invest in him based on his impressive resume and confident attitude. According to an investment schedule reviewed by Fortune magazine, Shima began trading in May 2021, with around $100 million invested in approximately 200 projects by September 2022. However, not everyone was impressed by Gao's youthful charm.
Some investors, potential supporters, and individuals interested in joining his portfolio company described to Fortune magazine that Gao and his team were young and inexperienced, not entirely clear about what they were doing, but still riding the wave of cryptocurrency. An anonymous source stated that Gao belonged to the more casual type of blockchain investor, which might be an attractive bet for supporters.
The problems with Gao's bets soon became apparent. Most notably, investors began to worry about how his company valued investments, according to sources familiar with the matter who spoke to Fortune magazine. Gao would mark Shima's holdings based on his own estimates—a practice that was flagged in a 2023 Financial Times article. Gao responded that Shima would soon have professional fund administrators overseeing the accounting work.
Another example is Shima's valuation of its investment in the cryptocurrency exchange Chatex at $250,000 in a document reviewed by Fortune magazine, while the U.S. Treasury Department had imposed sanctions on Chatex nearly a year earlier for aiding illegal activities such as ransomware and dark web markets. A representative of Shima told Fortune magazine that the company ultimately wrote off this investment in the fourth quarter of 2022, although the funds remained frozen pending the resolution of the company's sanctions issues.
Despite Gao's promise to find an auditor, The Block reported in July 2023 that Shima had difficulty recruiting auditors, as two well-known accounting firms rejected it for exceeding their risk parameters.
A U.S. Securities and Exchange Commission filing in April 2024 listed a Cayman Islands company named MHA Cayman as Shima's auditor, and a representative of Shima confirmed that MHA completed Shima's 2023 audit in May 2024. MHA did not respond to multiple requests for comment from Fortune magazine.
'None of this makes sense' On paper, Gao sold investors a standard product. He would invest their money in early-stage blockchain companies, providing exposure and tremendous upside potential in this hot industry.
However, the difficulty Shima faced in finding an auditor is unusual for a U.S. venture capital firm. The existence of Gao's overseas company ShimaB is also unusual. While many U.S. cryptocurrency venture capital firms have set up offshore entities due to the uncertain domestic regulatory environment, these entities are owned by the companies, not by individuals operating them.
Gao did indeed share a "fund structure" document with potential investors outlining a network of limited liability companies owned by Shima that would hold investor capital and make investments, several of which were registered in the Cayman Islands.
However, other internal documents reviewed by Fortune magazine tell a different story. The entity ShimaB, which Gao set up in his own name during his collaboration with Struck, did not appear in Gao's fund structure document or in the prospectus shared with investors.
At the same time, other internal documents outlining Shima's holdings showed that from mid-2021 to the end of 2022, after Shima announced raising $200 million, over 100 investments were owned by Gao's ShimaB.
While there is no evidence that Gao made arrangements to misappropriate assets, experts say that this structure appears to seriously violate the conflict of interest rules set out in the Investment Advisers Act, which outlines the ethical obligations of venture capital firms to their investors. In the case of ShimaB, the law seems to prohibit Gao from using investor funds to invest in entities he legally owns without proper disclosure.
In addition to basic transparency, the reason is that if something were to happen to Gao, such as sudden death or bankruptcy, ownership of the investments could be disputed. Venture capital and blockchain lawyer Hess said, "I don't think this is a defensible strategy."
Warning Signs
By the end of 2022, Shima's investors began to notice discrepancies in its ownership structure and valuations, and issued warnings to the management of Shima. Galaxy successfully redeemed its investment. Other smaller investors, including Bill Ackman's family office and Dragonfly, were largely not involved in the dispute. Sources familiar with Ackman and Dragonfly's operations said this was because their investments were relatively small. (Representatives of Galaxy, Ackman, and Dragonfly all declined to comment.)
In March 2023, Gao attempted to alleviate concerns by meeting with Shima's small advisory committee and disclosed that the company had "warehoused" investments using ShimaB, a term describing trades parked before completing full investment rounds.
According to meeting records, Shima claimed to have used investor funds for these investments but always intended to transfer them to the company's name. In response to a series of questions from Fortune magazine, a representative of Shima repeatedly stated that the company conducted warehousing investments through "affiliated" entities, including ShimaB, and had transferred the investments to Shima's new fund.
However, neither the meeting records nor the representative's responses mentioned that the company had disclosed the ShimaB arrangement to investors, nor did they reflect that Gao was moving their funds in his own name rather than through Shima. Additionally, it is currently unclear whether Shima can transfer all investments back to the company due to restrictions on the allocation of many investments.
In addition to disgruntled investors, Shima's compliance issues could also have legal implications for Gao and his company. Lawyer Hess said that if Shima failed to disclose these problematic arrangements during a review, clear violations of conflict of interest rules could lead to a series of issues with the U.S. Securities and Exchange Commission (SEC). He added that enforcement penalties could range from fines to Shima losing its investment adviser status, although he believed it would not rise to the level of fraud.
Despite these unsavory records, Shima continues to be actively involved in trading. Investors are re-entering the cryptocurrency market, rebounding alongside popular meme coins like Dogwifhat and regulatory victories in the United States. In April, Shima was listed as an investor in another blockchain token round for a new dog-themed coin, Shiba Inu.
Gao may not be an exception in the cryptocurrency field. However, for an industry trying to shake off its reputation for not playing by the rules, he provides a cautionary tale for investors hoping to avoid the mistakes of the previous bull market cycle.
免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。
