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The FBI is investigating Silicon Valley venture firm Hone Capital over concerns it may have shared sensitive information with China.
As reported by the Financial Times, the probe examines whether Hone’s Chinese connections allowed access to U.S. technology secrets.
Background on Hone Capital’s Investments
Hone Capital invested in over 360 U.S. startups in less than three years. Many of these startups work with sensitive technologies, including government contracts. At the center of the concern is Hone Capital’s Chinese parent company, CSC Group. Federal investigators are exploring whether CSC Group might have exploited its relationship with Hone Capital to obtain sensitive data from U.S. startups, compromising national security.
The FBI has interviewed Hone employees and founders of companies that received investments about the risk of intellectual property exposure.
“These people said concerns have been raised during FBI interviews that some of its portfolio companies are contracted to provide services to the US government, and that some of Hone’s money may have originated from Chinese government funds.” 2/ pic.twitter.com/a7jNhixB55
— Theresa Fallon (@TheresaAFallon) September 25, 2024
Hone’s funds primarily flowed from China Science & Merchants Investment Management Group, transferring millions of dollars through offshore entities into Hone and other U.S.-based investment vehicles.
The funds were then used to support tech companies and secure real estate financing. Although Hone has since divested from many of its investments, concerns remain that the firm may have been a conduit for Chinese government-linked funds.
Legal and Geopolitical Implications
The investigation comes amid rising tensions between the U.S. and China, particularly around technology and espionage. The U.S. government has been increasingly wary of foreign influence in sensitive industries, especially from Chinese-backed entities.
These tensions have led to a broader crackdown on Chinese investments in U.S. tech, with authorities raising alarms about espionage risks. Techopedia reported on Tuesday that the U.S. government is proposing a ban on Chinese software in connected cars.
Meanwhile, Hone has been embroiled in legal disputes with former executives since 2020. The firm’s former head of Silicon Valley operations, Veronica Wu, and ex-chief financial officer, Purvi Gandhi, have both faced legal action from Hone, which accused them of fraud.
They, in turn, have denied these claims, arguing that the firm was misappropriating funds and that they were denied their share of the company’s profits.
Both Wu and Gandhi have raised concerns about the pressure they faced to invest in critical technologies, which they claim may have included intellectual property at risk of being passed to China. Hone’s legal team, however, maintains that the company’s actions were entirely lawful.
