When Ida Gao returns to MIT in 2022, the former collegiate pole vaulter and Phi Beta Kappa honoree will have a big role to play: The prestigious university has asked her to teach graduate courses on cryptocurrency and finance at its business school, filling the position recently vacated by Securities and Exchange Commission Chairman Gary Gensler.
Barely a decade removed from his days as an MIT undergraduate, Gao was an undaunted Chinese immigrant who had found success in the crypto world. Forbes He was named to the 30 Under 30 list and runs Shima Capital, a blockchain-focused venture firm. In a short space of time, Gao has raised $200 million from financial heavyweights like Bill Ackman and prominent crypto companies like Dragonfly and Galaxy, participating in over 300 deals and quickly becoming one of the most active investors in the crypto space.
Ko’s promotion was spectacular, but he also left out an important detail. luck The investigation found that, without the knowledge of Ackman and other investors, Gao had secretly set up offshore corporations and funneled assets belonging to his venture fund into corporations set up in his own name. [Investment] “Advisors law,” said Eric Hess, a lawyer who specializes in digital assets and venture capital.
Gao has not yet been charged with any crime, and a representative for Sima Capital said: luck The company said it doesn’t comment on “regulatory matters of this nature,” but a source said the former crypto star is struggling to raise more capital due to his poor performance and actions that appear to violate SEC investor protection rules. And despite the booming market, a Sima representative said: luck The company is not currently raising capital.
Gao’s company has also seen a wave of top staff departures in recent months, including Chief Technology Officer Carl Hua and research director Alexander Lin, who left earlier this year to start his own venture. The departing executives did not respond to requests for comment.
Meanwhile, Cima appears to be struggling despite the current crypto bull market. The firm’s latest SEC filing lists assets under management at about $158 million, which is less than the $200 million Cima has raised in 2022, though the metric doesn’t directly track the fund’s performance.
Corporate misconduct may be as common in crypto as seized Lamborghinis, but Gao has continued to persuade top investors to back him and stay active in the space. His missteps are likely to provide ammunition for critics who have long accused the industry of shoddy behavior.
“In the crypto world, there’s a lot of naivety around and sometimes too much of a ‘trust me’ attitude,” Hess said. “We need to start paying attention to those standards and not be hypocritical unless we’re an orphan of the financial system.”
Shell Game
The scion of a wave of crypto geniuses who suddenly emerged, Gao has followed a more traditional path. Clean-shaven, toned and sporting a stellar resume at blue-chip companies, Gao began his career in finance working in Morgan Stanley in M&A. In his spare time, he invested in startups, often collaborating with a well-connected fellow entrepreneur called Adam Strzok. He worked at venture firm New Enterprise Associates and briefly attended Stanford Business School before dropping out to join Strzok’s venture firm in Santa Monica full time.
While Gao and Strzok’s partnership seemed smooth sailing in public, by 2019 it had turned sour behind closed doors. Strzok sued, accusing Gao of secretly stealing proprietary information and setting up a rival venture firm, Sima Capital, incorporated in Puerto Rico. Gao denied the allegations and claimed Strzok “downplayed” his contributions and didn’t acknowledge their 50/50 partnership, leading him to go independent.
Strzok did not respond to a request for comment about the legal battle, which was settled in October 2023.
The settlement remains confidential, but in court documents Strzok’s lawyers have accused Gao of playing a “dummy game” against several companies, including a wholly owned British Virgin Islands company called Sima B.
Even as he battled Strzok, Gao used his illustrious resume and confident demeanor to convince top crypto and finance figures, including Bill Ackman and former presidential candidate Andrew Yang, to write him checks. luckShima began participating in deals in May 2021 and had invested about $100 million in around 200 projects by September 2022. But not everyone was impressed by Gao’s boyish charm.
Several investors, potential backers, and potential portfolio companies had this to say about Gao and his team: luck Gao was young, inexperienced and didn’t really know what he was doing, but he appears to have jumped on the cryptocurrency bandwagon nonetheless. One person, speaking on condition of anonymity, said Gao falls into the category of blockchain investors who take a quicker, more open-ended approach, which could make him an attractive bet for backers. “You’re buying the risk you’re trying to capture,” they said.
The downsides to betting on Gao quickly became apparent. Most notably, investors began to worry about how his company would value their investment. luck Gao had inflated Sima’s holdings based on his own estimates, an unusual practice that was flagged in the 2023 paper. Financial TimesIn response, Gao promised that Shima would soon have a professional fund manager oversee the accounting.
In another example of questionable accounting practices, Sima viewed documents that valued an investment in cryptocurrency exchange Chattex at $250,000. luck The sanctions, effective September 2022, come despite the U.S. Treasury Department having sanctioned the company almost a year earlier for facilitating illicit activity, including ransomware and darknet markets. A Sima representative said: luck The company ultimately wrote off the investment by Q4 2022, but the funds remain on hold pending the company’s sanction resolution “to be conservative.”
And despite Ko’s promises to find an auditor, Shima struggled to hire one, with two well-known accounting firms turning him down, saying he fell outside their risk criteria. of block It will report in July 2023.
An April 2024 SEC filing listed a Cayman Islands-based company called MHA Cayman as Sima’s auditor, and a Sima representative confirmed that MHA completed Sima’s 2023 audit in May 2024. MHA luck.
“It doesn’t make sense.”
On paper, Gao was pitching investors a standard offer: He would take their money and invest in early-stage blockchain companies, bringing exposure to a hot sector and extraordinary profits.
But Shima’s struggle to find an auditor was unusual for a U.S. venture capital firm, as was the existence of an overseas company, ShimaB, solely owned by Gao. While many U.S. crypto ventures incorporate overseas to navigate an uncertain domestic regulatory environment, those entities are owned by the companies, not the individuals who run them.
Gao has shared with potential investors a “fund structure” document outlining a network of limited liability companies owned by Shima, some of which are registered in the Cayman Islands, that will hold investor capital and make investments.
However, upon review of other internal documents, luck That’s a different story. ShimaB, an entity that Gao set up in his own name while working with Strzok, never appeared in Gao’s fund structuring documents or in the prospectus distributed to investors.
Meanwhile, other internal documents outlining Shima’s holdings revealed that more than 100 investments made between mid-2021 and late 2022 after Shima announced a $200 million fundraising were held by Gao’s Island B.
While there is no evidence that Gao set up the arrangement to misappropriate assets, experts say the structure appears to be a serious violation of conflict-of-interest rules set out in the Investment Advisers Act, a law that outlines venture capital firms’ ethical obligations to investors. In the case of Shima B, the law appears to prohibit Gao from using investors’ money to invest in companies he legally owns without proper disclosure.
Basic transparency aside, if something were to happen to Gao, such as his sudden death or bankruptcy, ownership of the investment could be contested. “It just doesn’t make sense,” says Hess, the venture and blockchain lawyer. “I don’t think it’s a defensible strategy.”
Red Flag
In late 2022, Shima’s investors began noticing the ownership structure and valuation imbalances, raising the alarm for Shima’s management. Galaxy was able to redeem its investment. Other firms that had made smaller investments, including Bill Ackman’s family office and Dragonfly, largely stayed out of the dispute. People familiar with the matter suggested that was because the investments were relatively small. (Representatives for Galaxy, Ackman and Dragonfly declined to comment.)
In March 2023, Gao met with Sima’s small advisory board and attempted to allay concerns by disclosing that the firm had made “warehouse” investments using Sima B, a term used to describe parking deals made before a full investment round had been completed.
According to the minutes, the island claimed to have made investments using investors’ money but always intended to transfer the funds to the company. luckShima’s representative reiterated that the firm had stored the investment through “affiliated” companies, including ShimaB, and transferred the investment to Shima’s new fund.
However, nothing in the minutes or the representative’s responses indicates that the company ever disclosed its agreement with Shima B to the investors, nor do they reflect that Mr. Taka transferred funds in his own name without going through Mr. Shima. Moreover, because many investments have transfer restrictions, it is unclear whether Mr. Shima will even be able to return all of his investment to the company.
Beyond disgruntled investors, Sima’s compliance problems could have legal implications for Gao and his company. According to lawyer Hess, the apparent conflict of interest violations could cause a lot of trouble with the SEC if Sima had not disclosed the questionable arrangements during the investigation. Hess added that enforcement penalties could range from fines to the revocation of Sima’s investment advisory license, but he doesn’t think they would rise to the level of fraud.
Despite his bleak track record, Shima remains an active participant in deals. Investors are flocking to cryptocurrencies again, with meme coins like the popular Dogwifhat rising alongside regulatory wins in the U.S. In April, Shima was listed as an investor in a new blockchain token round for another dog-themed coin, Shiba Inu.
Gao may not be an anomaly in crypto, but for an industry struggling to shake off its reputation for being unruly, he offers a cautionary tale for investors hoping to avoid the mistakes of the last bull market.
