Key Takeaways
- • The SEC settled charges against former Florida-based crypto hedge fund Galois Capital Management, which agreed to pay a civil penalty of $225,000 without admitting or denying the findings.
- • Galois Capital violated the Investment Advisers Act Custody Rule beginning in July 2022 by holding certain crypto assets in online trading accounts at platforms, including FTX Trading Ltd, that were not qualified custodians.
- • Approximately half of the fund's assets under management from early to mid-November 2022 were lost in connection with the collapse of FTX.
- • The SEC also found Galois misled certain investors by requiring at least five business days' notice for redemptions while allowing other investors to redeem on shorter notice.
- • The penalty will be distributed to the fund's harmed investors, and Galois agreed to cease and desist from further Advisers Act violations.
Summary
The Securities and Exchange Commission has settled charges against Galois Capital Management, a former Florida-based cryptocurrency hedge fund, for failing to comply with requirements governing the safeguarding of client assets. According to the SEC's order, the firm violated the Investment Advisers Act's Custody Rule beginning in July 2022 by failing to ensure that certain crypto assets held by the private fund it advised were maintained with a qualified custodian.
The order states that Galois held certain crypto assets in online trading accounts on crypto asset trading platforms, including FTX Trading Ltd, which did not qualify as custodians. Approximately half of the fund's assets under management from early to mid-November 2022 were lost in connection with the collapse of FTX, according to the SEC.
The Commission also found that Galois misled fund investors about redemption terms. Certain investors were told that redemptions required at least five business days' notice before month end, while other investors were permitted to redeem with fewer days' notice.
Without admitting or denying the SEC's findings, Galois consented to an order requiring it to cease and desist from further violations of the Advisers Act and to pay a civil penalty of $225,000. The penalty will be distributed to the fund's harmed investors.
The order states that Galois held certain crypto assets in online trading accounts on crypto asset trading platforms, including FTX Trading Ltd, which did not qualify as custodians. Approximately half of the fund's assets under management from early to mid-November 2022 were lost in connection with the collapse of FTX, according to the SEC.
The Commission also found that Galois misled fund investors about redemption terms. Certain investors were told that redemptions required at least five business days' notice before month end, while other investors were permitted to redeem with fewer days' notice.
Without admitting or denying the SEC's findings, Galois consented to an order requiring it to cease and desist from further violations of the Advisers Act and to pay a civil penalty of $225,000. The penalty will be distributed to the fund's harmed investors.
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