SEC Lawsuit Raises Concerns About Shima Capital's Future Amid Wind-Down Plans

Days after the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Shima Capital and its founder over claims of investor fraud, internal emails indicating plans to wind down the firm have emerged online.

Key Takeaways

The SEC has charged Shima Capital and its founder, Yida Gao, for allegedly misleading investors while raising funds.
Gao is accused of exaggerating investment returns and failing to disclose personal profits from transactions.
Internal emails suggest Shima Capital is planning an orderly wind-down, with independent advisers overseeing the process.
Shima Capital was founded in 2021 and successfully raised a $200 million venture fund to invest in blockchain start-ups.

SEC lawsuit puts Shima Capital’s future in question as wind-down message surfaces

On November 25, the SEC announced that it had charged Shima Capital Management LLC and Yida Gao with making false and misleading statements while raising almost $170 million from investors, as revealed on December 3. The lawsuit, filed in the U.S. District Court for the Northern District of California, accused Gao of exaggerating his investment track record in promotional materials while attempting to raise capital for Shima Capital Fund I between 2021 and 2023.

According to the SEC, Gao falsely claimed a previous investment returned 90 times capital when, in reality, the actual return was closer to 2.8 times. The SEC further alleged that when these discrepancies in marketing materials were about to be made public, Gao misled investors by attributing the flaws to clerical errors.

SEC Claims $1.9 Million in Undisclosed Gains

In a separate allegation, the SEC stated that Gao secured around $11.9 million via a special purpose vehicle (SPV) associated with BitClout tokens, assuring investors that they would benefit from discounted token purchases. However, although Gao did acquire tokens at a reduced price, he sold them to the SPV at a higher cost, withholding about $1.9 million in profits from investors.

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On Wednesday, crypto journalist Kate Irwin shared screenshots of an email that Gao allegedly sent to portfolio founders. In these screenshots, Gao reportedly indicated that he would resign as managing director of Shima Capital, signaling an “orderly wind-down” of the fund.

Gao’s alleged email to portfolio companies. Source: Kate Irwin

The email allegedly indicated that the SEC and Department of Justice actions were related to his personal conduct rather than the operations of Shima Capital's portfolio companies, claiming that no fines had been levied against the firm. The screenshots suggested that independent advisers from FTI Consulting and FTI Capital Management would oversee the wind-down and monetization of investments, while Shima’s finance team would continue to operate. Gao purportedly mentioned that he would remain engaged in providing support for portfolio companies “as permitted,” but without any management authority.

Cointelegraph was unable to independently verify the authenticity of the email and reached out to Shima Capital and several of the fund's portfolio companies for confirmation but had not received any responses by the time of publication.

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Shima Capital's Background and Investment Focus

Founded in 2021 by Yida Gao, Shima Capital launched its first venture fund, Shima Capital Fund I, in 2022, raising $200 million to invest in early-stage blockchain startups. Gao claimed that the fund attracted support from various prominent investors, including Dragonfly Capital, Animoca Brands, OKX Blockdream Capital, Republic, and Andrew Yang.

Shima Capital has made investments in a variety of crypto projects, such as Humanity Protocol, Berachain, Monad, Pudgy Penguins, Shiba Inu, among others.

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