Shima Capital to Shut Down Amid US SEC Lawsuit
Recent reports indicate that plans are underway to cease operations at Shima Capital. Screenshots of an internal email detailing the intends to wind down the company have been making rounds on the internet. This follows a lawsuit filed against the company and its founder, Yida Gao, by the US Securities and Exchange Commission (SEC).
SEC Charges Shima Capital Over Investor Fraud
The SEC leveled charges against Shima Capital Management LLC and its founder, Yida Gao, on Nov. 25 for supposedly providing false and misleading statements to investors, which helped them raise nearly $170 million. The allegations followed an SEC announcement made on Dec. 3 and a complaint initiated in the US District Court for the Northern District of California.
The SEC contends that Gao boosted his investment history in marketing materials to secure capital for Shima Capital Fund I from 2021 to 2023. The regulator alleges that Gao falsely claimed one of his former investments yielded a 90x return, while the actual return was about 2.8x.
Gao’s Claims of Clerical Errors
The SEC also raised concerns that when disparities in the pitch deck were on the brink of public disclosure, Gao informed investors that the issues were due to administrative errors. This assertion led to further scrutiny by the SEC, casting more doubt on Gao’s actions and his handling of investment funds.
Allegations Surrounding BitClout Tokens
Additionally, the SEC alleges that Gao garnered approximately $11.9 million via a special purpose vehicle (SPV) linked to BitClout tokens. Gao allegedly told investors that their investments would be safeguarded by discounted token purchases. Even though Gao did procure tokens at a discounted rate, the SEC alleges he sold them to the SPV at a greater price, consequently retaining about $1.9 million in profits without disclosing this to the investors.
Email Screenshots Revealed
Screenshots of an email supposedly sent by Gao to portfolio founders have been shared on various platforms by Kate Irwin, a crypto journalist. The shared screenshots conveyed Gao’s plan to resign as the managing director of Shima Capital and outline an orderly wind-down strategy for the fund. It further suggests that the SEC and Department of Justice actions are related to Gao’s individual conduct, and not that of Shima Capital’s portfolio companies.
Gao’s Future Involvement
In the leaked email, Gao stated that no fines have been served on the company. It also mentioned that independent advisers from FTI Consulting and FTI Capital Management would direct the wind-down process and selling off investments. Meanwhile, Shima’s finance team is expected to maintain their roles. Gao purportedly mentioned that he would stay involved with portfolio support as permitted, albeit without control over management.
Shima Capital’s Journey
In 2022, Shima Capital publicly announced the unveiling of its first venture fund, Shima Capital Fund I. The fund started with $200 million and aimed to support early-stage blockchain startups. Shima Capital was founded by Gao in 2021, and the fund was backed by renowned investors including Dragonfly Capital, Animoca Brands, OKX Blockdream Capital, Republic, and Andrew Yang.
Since its inception, Shima Capital has injected funds into numerous crypto projects such as Humanity Protocol, Berachain, Monad, Pudgy Penguins, and Shiba Inu. However, recent events mark a sudden and dramatic shift in the trajectory of the once-promising venture firm.
