The U.S. Securities and Exchange Commission (SEC) announced a settlement with Galois Capital Management LLC, a former registered investment adviser based in Florida, for violations in safeguarding client assets. The firm, which managed a private fund heavily invested in crypto assets, failed to adhere to rules regarding the secure custody of these assets, some of which were offered and sold as securities. As part of the settlement, Galois agreed to a $225,000 civil penalty, which will be distributed to the fund’s harmed investors.
According to the SEC, Galois did not ensure that certain crypto assets held by its fund were kept with a qualified custodian, which is a requirement under the Investment Advisers Act’s Custody Rule. Instead, Galois stored these assets in online trading accounts on platforms like FTX Trading Ltd., which were not qualified custodians. This lack of compliance exposed investors to significant risks, including the loss of assets when FTX collapsed, with nearly half of Galois’s assets under management lost during that period.
The SEC also found that Galois misled certain fund investors about redemption notice requirements, indicating that redemptions required five business days’ notice, while allowing others to redeem with fewer days. This uneven application of terms raised concerns about transparency and fair treatment of investors. Corey Schuster, Co-Chief of the SEC’s Asset Management Unit, stated that Galois’s actions increased risks that fund assets could be lost, misused, or misappropriated.
Without admitting or denying the findings, Galois consented to the SEC’s order to cease further violations of the Advisers Act. The firm was also censured as part of the settlement. The SEC’s investigation was led by Annie Hancock and Rory Alex, with supervision from the Asset Management Unit.
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