SEC charges fund adviser Galois Capital over crypto custody failures

• The SEC has charged investment adviser Galois Capital with crypto custody violations, including holding of investor assets on FTX.
• Galois Capital has settled with the regulator and will pay $225,000 in civil penalty.

The US Securities and Exchange Commission has charged Florida-based investment adviser Galois Capital Management LLC over the company’s failure to properly custody client assets.

In an announcement on September 3, the SEC said the Galois Capital had failed to comply with crypto custody requirements and had violated the Advisers Act, including holding cryptocurrencies with the collapsed crypto exchange FTX. As a result, nearly half of the assets under management of a hedge fund Galois advised were lost when FTX imploded.

Galois Capital also misled investors

The SEC also notes that the firm misled its investors on redemption practices – particularly on “the notice period required for redemptions.”

“By failing to comply with Custody Rule provisions, Galois Capital exposed investors to risks that fund assets, including crypto assets, could be lost, misused, or misappropriated,” Corey Schuster, co-chief of the SEC Enforcement Division’s Asset Management Unit, said.

According to the SEC, Galois agreed to a settlement with the regulator and will pay $225,000 in civil penalties. The fine will be distributed to investors harmed during the collapse.

“Without admitting or denying the SEC’s findings, Galois Capital consented to the entry of an order requiring it to cease and desist from further violations of the Advisers Act, censuring it, and imposing the civil penalty,” the SEC wrote.

The SEC has in recent weeks charged Abra with offering unregistered securities and two brothers in relation to a $60 million Ponzi scheme.

NFT marketplace OpenSea also received a Wells Notice from the regulator.