- The U.S. Securities and Exchange Commission (SEC) fined Galois Capital Management LLC $225,000 for regulatory noncompliance.
- Galois Capital failed to ensure crypto assets were held by a qualified custodian, violating the Investment Advisers Act’s Custody Rule.
- The firm placed assets on online platforms like FTX, leading to significant losses, with 50% of assets disappearing after the FTX crash in November 2022.
The U.S. Securities and Exchange Commission (SEC) has issued a Galois Capital Management LLC Florida crypto asset investment advisory firm a civil penalty of $225,000. This action follows Galois’s noncompliance with the necessary regulations to ensure the protection of the customer’s assets and the firm’s misleading statements about the redemption notice periods to the investors.
Galois Capital, a company that managed a private fund investing mainly in crypto assets, was put under scrutiny after it was revealed that it hadn’t ensured that the cryptocurrency assets managed were with a qualified custodian, according to the press release.
Instead, the company placed a portion of these assets in online trading platforms like FTX, which did not qualify as proper custodians. This setback led to the company suffering a considerable loss, where around 50% of the assets under its management disappeared due to the FTX crash in November 2022.
Among the SEC’s findings was the fact that the company had breached the Investment Advisers Act’s Custody Rule as of July 2022. The Custody Rule was formulated to protect the client’s assets by mandating that the assets be kept by credible custodians. Galois’s non-compliance with this rule put investors’ assets, particularly those connected to cryptocurrencies that are already highly volatile, at risk of loss.
Galois Capital Misleads Investors on Redemption Terms
Further complicating matters, the SEC revealed that Galois had not been completely honest with some of its investors about the notice periods for redemptions. The firm stated that a five-business-day notice was required before redemption at the end of the month, but it was found out that Galois permitted some investors to redeem with less notice, which created doubts about fairness and transparency.
Corey Schuster, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, underlined the gravity of the violations by saying that Galois Capital had put the investors’ assets at risk. The SEC’s enforcement action reminds investors of the need to comply with investor protection regulations, especially in the rapidly changing crypto-asset industry.
Galois Capital has neither agreed nor declined any of the allegations made by the SEC in settlement terms. The final provisions carried out by the parties contain the civil penalty and the order governing future non-violation of the Advisers Act. However, the investigation initiated by the SEC was quite exhaustive and organized with the participation of the chief staff of the Division of Enforcement Asset Management Unit and Division of Investment Management.
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