Federal investigators are probing the conduct and practices of Mithril Capital, a venture capital firm co-founded by Peter Thiel, Recode has learned.

US officials — including the FBI — have in recent months questioned some people close to Mithril regarding concerns of possible financial misconduct at the firm, according to people familiar with the matter who insisted on anonymity given its sensitivity. Mithril confirmed in a statement that its lawyers are in touch with government authorities.

Mithril’s leader, Ajay Royan, has worked with Thiel for almost two decades and has used that relationship to raise over $1 billion. But in recent years, Royan has frustrated some of his investors by sitting on some of their money rather than investing it in startups — while almost certainly raking in millions of dollars in fees for himself.

This federal probe is just the latest — but most significant — problem for the firm, which has increasingly struggled with internal tensions, declining morale, and employee departures. Not all federal investigations, of course, end with an indictment, and Mithril could eventually be cleared of wrongdoing.

If you have more information about the situation at Mithril Capital or at other venture capital firms, please contact me at teddy.schleifer@recode.net or at 202-809-2946 on messaging services such as Signal, Telegram, Confide, or WhatsApp.

When asked if Mithril and Royan were cooperating with the government probe, a Mithril spokesperson said: “This is a foiled plot by a self-serving ex-employee. There are no allegations from any government agency, or any [investor.] Nevertheless, our attorneys are in contact with government authorities in order to protect [investors], employees, and portfolio companies against any extortionate behavior.”

The drama around Mithril pulls back the curtain on a venture capital industry that is awash in money but governed by relatively few rules. And it raises questions about how often similar situations are unfolding quietly in high finance but don’t manage to draw the scrutiny of the federal government.

And while the probe is in the early stages, it threatens to destabilize the world of Thiel, who heads an enormously influential network of tech investors, startup founders, and political allies across Silicon Valley. Thiel sits on the board of Facebook; he’s also built an unusual amount of political power and raised his public profile as one of Silicon Valley’s most prominent supporters of President Donald Trump.

A federal investigation could subject Thiel, who has not publicly distanced himself from Royan, to new scrutiny as investigators put the firm he co-founded under a microscope. It could also stain the reputation Thiel has established for having a Midas touch in investing.

A spokesperson for Thiel, Jeremiah Hall, declined to comment on the new probe, but has said previously that Thiel was “proud” of Royan.

In the months since Recode reported on unanswered financial questions at Mithril, things have deteriorated, according to people familiar with the matter. The firm has lost staff and has adopted a more defensive posture. Two of the other managing directors at Mithril, Crystal McKellar and Jim O’Neill, recently left the venture capital firm in contentious exits, the people say — departures that until now haven’t previously been reported.

Those two departures, which are at least the sixth and seventh people to leave the investing team since the spring of 2016, have essentially stripped a shop with more than $1.2 billion in assets down to a bare-bones operation whose remaining senior full-time employees consist of Royan, CFO Anuja Royan (his sister), and a close ally named Paul Leggett.

That shrinking staff list might explain why the firm also removed the “Team” page from its website about two months ago, along with other tabs. Its entire website now features just a single substantive paragraph of information about the firm.

Meanwhile, Royan is described by sources close to Mithril as obsessed with trying to plug up leaks in his network, tactics that these sources say have further sapped morale.

Sources told Recode that, this past winter, Royan called his staff to the offices of a downtown San Francisco law firm for a heated, intimidating meeting where he implored them to feel gratitude for working at Mithril. (The firm denies this.)

At one point, he repossessed some of his staff’s phones and computers to try to find leakers, a search mission that effectively cut off some of his remaining employees from any real Mithril work. (Mithril told Recode “this was a device upgrade to increase productivity.”) And in recent months, Royan offered at least one former employee some additional financial upside in Mithril funds — if that employee agreed to become a consultant for the firm and signed reinforced nondisclosure agreements.

The federal government, though, is not the only entity scrutinizing Mithril for possible financial misconduct.

One of the most powerful investment advisers in Silicon Valley, Cambridge Associates, is looking into Mithril over financial mismanagement, according to people briefed on Cambridge Associates’ activity. The firm’s clients have invested millions into Mithril’s second fund, but some of those clients are now, in turn, frustrated with Cambridge Associates, which recommended that they invest in Mithril in the first place.

Cambridge Associates is an outside investment adviser to wealthy families and foundations, serving as a powerful gatekeeper of sorts between Silicon Valley and the richest people in the world. While it cannot compel cooperation in the same way the federal government can, Cambridge Associates is a behind-the-scenes powerbroker in tech investing, and its scrutiny could pose reputational risk to Mithril Capital and Thiel’s empire more broadly.

Cambridge Associates officials repeatedly declined to comment. Mithril denies that Cambridge Associates is investigating its firm.

All of this months-long drama surrounding Mithril has proven to be an embarrassing series of events for Thiel, who has personally given a total of $300 million to the firm and is tied to Mithril by reputation. Some entrepreneurs and investors have chosen to work with Royan specifically because they thought it could give them greater access to Thiel, sources say, even though he is not involved in Mithril’s day-to-day operations.

While Thiel has a high appetite, in general, for media spectacle, part of the reason Mithril’s drama is so notable is because Thiel projects typically are well-run. Royan promised when he started the firm that it would be the “capstone” to Thiel’s investment empire.

Thiel, who is averse to confrontation, became aware of the concerns surrounding Mithril earlier this year but has been slow to take any action. Thiel and Royan are very close personally — Royan, for instance, sits on the board of the Thiel Foundation — but the relationship has nevertheless been strained by the recent disarray, sources have previously told Recode.

Some of Mithril’s investors, which have included the MacArthur Foundation and Temasek, have for months expressed concerns directly to Thiel, Royan, and to one another about the venture capital firm’s seeming unwillingness to actually spend the money that they gave Mithril, according to some investors. Others are more sympathetic to Royan’s desire to be parsimonious with their money, or at least felt somewhat reassured by the multibillion dollar acquisition of one of Mithril’s portfolio companies, Auris Health, earlier this year. But many remain unsettled.

In its statement, Mithril said that many of its LPs “have expressed overwhelming appreciation for Mithril’s disciplined deployment of capital and exceptional returns in this late-cycle environment.”

Other prominent investments by Mithril include the Thiel-founded data analytics company Palantir, and, according to sources, uBiome, a biotech company under its own federal investigation that just last week filed for bankruptcy. Mithril never announced that latter deal.

Investments though have become few and far between. Recode reported in February that the firm had only invested about $90 million of the $740 million that the firm held its first close on in April 2016. It has only publicly announced one new deal since that story: a $15 million investment in a startup called Neocis. But on Tuesday, Glance, an Indian artificial intelligence startup, said Mithril would back it with $45 million. Even so, that is a highly unusual pace of deployment for a venture capital firm, which charges its investors management fees in order to invest money into startups on their behalf.

But then just before Labor Day weekend, Royan suddenly sent investors a long investor update that defended his strategy — a move read by at least some investors as an attempt to quell their concerns. As criticism toward his firm has mounted, he’s also begun quickly trying to spend the money: He told investors that he would be spending about $90 million on upcoming deals, sources say, a sum that includes Neocis and Glance; if actualized, that would mean Mithril has invested about $180 million of the total $740 million that it collected.

In its statement, Mithril told Recode that it has communicated its investment strategy to its investors and that the firm “takes a disciplined and concentrated investment approach.”

But over the course of the eight-page investor letter, Royan said not a word about any of the turnover or drama at his firm in the past year, which in the words of one person familiar with the matter, was “glaring in its omission.”

Mithril is likely collecting as much as $20 million a year in management fees, sources familiar with the figures have previously told Recode — an unusually large haul for a venture capital firm that each month has a smaller and smaller staff and therefore smaller and smaller expenses. (Mithril disputed the $20 million figure but did not provide an alternative.) At least 75 percent of the firm’s management company is owned by a Cayman Islands limited company that is, in turn, owned in excess of 75 percent by Royan, according to legal documents. So some of that money is going to Royan directly as salary.

Those management fees go further in a low-tax state like Texas, where Mithril Capital said it was moving late last year. Several employees resisted the sudden move to Austin, which has a much smaller startup scene than Silicon Valley. Royan has said the move was rooted in his distaste for the Bay Area. But beyond that, two sources told Recode that Mithril leaders alluded to tax advantages when privately explaining the multiple reasons for the move. Mithril denied this.

It’s unclear whether it is the tax strategy, the management fees, or something else that is drawing the scrutiny of federal investigators. Multiple investigative agencies could be interested in policing potential misconduct at the firm. The Securities and Exchange Commission, which generally governs bad behavior in the investment world, has aggressively gone after venture capital firms like Rothenberg Ventures for fraud.

And Department of Justice officials in San Francisco have increasingly expressed interest in regulating the world of Silicon Valley investors and possible fraud with the US Attorney’s Office’s new Corporate Fraud Strike Force. The FBI, the investigative arm for the DOJ, is one of the agencies involved in the Mithril probe.

The DOJ, FBI, and SEC each declined to comment.

Royan can proceed with his work even as federal investigators probe his firm. Investigations can take years. As Mithril is being scrutinized, Royan has added to his public relations team.

For now, he is keeping up a busier-than-normal public schedule. Never one in the past for pursuing press, Royan in the months following Recode’s first Mithril story has offered interviews to outlets like Fortune, the Globe and Mail, and the Financial Times. He’s also scheduled to speak at TechCrunch Disrupt, a high-profile startup festival, next month.

That appearance, though, might be contingent on how the federal probe plays out.