The U.S. Securities and Exchange Commission (SEC) has slapped Galois Capital Management LLC with a $225,000 fine for falling short of the Custody Rule laid out in the Investment Advisers Act. The crypto-centric hedge fund and advisory firm was also accused of misleading investors about the redemption process.
SEC Charges Galois Capital
According to the SEC’s investigation, Galois Capital, based in Florida, failed to ensure that specific crypto assets were secured with a qualified custodian, as the Custody Rule mandates. Instead, these assets were kept in online trading accounts on platforms like FTX Trading Ltd., which didn’t meet the criteria for a qualified custodian. This misstep contributed to nearly half of the fund’s assets being lost after FTX’s collapse in Nov. 2022.
The SEC’s press release further pointed out that Galois Capital misled its investors regarding the redemption process. The firm allegedly told some investors that redemptions required at least five business days’ notice before the month’s end, while allowing others to redeem on shorter notice. This inconsistency in communication undermined investor trust and highlighted the firm’s failure to maintain transparency and fairness.
Without admitting or denying the SEC’s findings, Galois Capital agreed to settle the charges by paying the $225,000 civil penalty. The fine will be distributed to investors harmed by the firm’s actions. The SEC reiterated the importance of upholding investor protection obligations and committed to holding violators accountable. Galois Capital had previously attracted attention for its warnings about the risks surrounding Terra’s algorithmic stablecoin UST, which eventually de-pegged and led to the collapse of the Terra blockchain ecosystem.
Source: Bitcoin
