Crypto Advisory Firm Galois Capital Charged by SEC for Custody and Disclosure Failures

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Joel Frank

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Joel Frank

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Since graduating with a degree in economics from the University of Birmingham in 2018, Joel has worked as a financial market/cryptocurrency analyst. He firmly believes that emerging crypto technology…

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Last updated:

September 3, 2024 13:59 EDT

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The US Securities and Exchange Commission (SEC) charged crypto advisor firm Galois Capital Management LLC on September 3 with custody and disclosure failures that harmed its investors.

Per an SEC press release, Galois Capital agreed to pay the agency $225,000, which will be distributed to the firm’s harmed investors.

Galois Capital is a former investment advisor for a private fund that invested in crypto assets.

Contrary to what it told investors, the firm failed to ensure that certain crypto assets were maintained with a qualified custodian, in violation of the Investment Advisors Act’s Custody Rule.

The SEC found that some of Galois’ assets were held in online trading accounts, including on FTX.

As many readers may remember, FTX imploded spectacularly in November 2022 as investors rushed to withdraw their assets, which were not fully backed.

Galios lost roughly half of its assets in connection with the FTX collapse.

The SEC also charged Galios with misleading investors regarding redemptions.

Investors were told that redemption requests needed to be received at least 5 business days before the end of the month, but some redeemed with a shorter notice period.

Galois Capital said in a post on X that they would release a statement on the charges soon.

Max Schatzow, legal counsel for registered investment advisors and fund managers on matters relating to registration, compliance, and enforcement, posted on X critical of the SEC’s charges.

He labeled the SEC as “vindictive,” overcharging Galois for holding assets with FTX.

“These are the kind of cases that keep compliance and legal awake at night, but they really are outliers,” Schatzow said.

X user venture apologist, meanwhile, claimed that Galios’ only crime was to sell their FTX claims at the bottom.

Fellow X user Luke Martin, who hosts the Stacks Podcast, criticized the SEC’s regulatory approach.

He lambasted the agency for failing to prevent the biggest financial fraud in history and then going after funds like Galios, who fell victim to this fraud.