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The SEC has charged and settled with crypto-focused investment fund Galois Capital over issues related to how it managed client assets.
What’s the scoop?
- Settlement Details: Galois Capital agreed to pay a $225K penalty without admitting or denying the SEC's findings.
- FTX Collapse Impact: Galois Capital was significantly affected by FTX's collapse in November 2022. It lost around half of its assets under management, leading to its eventual shutdown in February 2023.
- Redemption Misrepresentation: The SEC also found that Galois misled investors about its redemption policy, allowing some to redeem assets with less than the required notice period.
Bankless Take:
The case against Galois Capital has sparked debate about the implications of the SEC’s suit on how funds handle client assets. Despite Galois Capital’s efforts to safeguard assets using Fireblocks, a reputable asset management platform, their reliance on non-qualified custodians and flexible redemption policies ultimately placed them in the SEC’s crosshairs. The lawsuit has sparked a discussion on the broader implications for crypto hedge funds and how such regulations might force hedge funds to limit their trading activities to platforms like Coinbase, which comply with qualified custodian rules, potentially restricting fund flexibility.
After an exhaustive and costly investigation of nearly two years, and without admitting or denying the findings detailed in the SEC’s order, we agreed to settle with the SEC and pay a $225,000 penalty which will go directly to our investors.
— Galois Capital (@Galois_Capital) September 3, 2024
