The U.S. Securities and Exchange Commission (SEC) announced settled charges against investment advisory firm Galois Capital Management LLC, a Florida-based investment advisory firm specializing in crypto assets. The SEC accused the company of failing to comply with the Investment Advisers Act’s Custody Rule and misleading investors about its redemption practices.
According to the SEC’s order, Galois Capital violated custody requirements by holding crypto assets in online trading accounts on platforms such as FTX Trading, which are not classified as qualified custodians.
This practice allegedly exposed investors to significant risks, as evidenced by the loss of approximately half of the fund’s assets under management during the FTX collapse in November 2022.
The SEC also found Galois Capital misrepresented its redemption policies to investors.
While the firm claimed to require at least five business days’ notice for redemptions, it reportedly allowed some investors to redeem with shorter notice periods, potentially creating an unfair advantage for certain clients.
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Corey Schuster, co-chief of the SEC Enforcement Division’s Asset Management Unit, said, “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.”
Without admitting or denying the SEC’s findings, Galois Capital has agreed to settle the charges.
The firm will pay a civil penalty of $225,000, which will be distributed to affected investors.
Additionally, Galois Capital has been ordered to cease and desist from further violations of the Advisers Act and faces censure.
Industry experts and investors seeking to better understand the regulatory landscape and its implications for the future of crypto investments may find valuable insights at Benzinga’s upcoming Future of Digital Assets event on Nov. 19.
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