The Securities and Exchange Commission today announced settled charges against Florida-based Galois Capital Management LLC, a former registered investment adviser for a private fund that primarily invested in crypto assets, for failing to comply with requirements related to the safeguarding of client assets, including crypto assets being offered and sold as securities. The Commission also found that Galois misled fund investors about the notice period required for redemptions. To settle the SEC’s charges, Galois agreed to pay a civil penalty of $225,000, which will be distributed to its fund’s harmed investors.
The SEC’s order found that, beginning in July 2022, Galois Capital failed to ensure that certain crypto assets held by the private fund that it advised were maintained with a qualified custodian, a violation of the Investment Advisers Act’s Custody Rule. According to the order, Galois Capital held certain crypto assets in online trading accounts on crypto asset trading platforms, including FTX Trading Ltd., that were not qualified custodians. Approximately half of the fund’s assets under management from early to mid-November 2022 were lost in connection with the collapse of FTX. The SEC’s order also found that Galois Capital misled certain investors by representing to them that redemptions required at least five business days’ notice before month end while allowing other investors to redeem with fewer days’ notice.
“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,” said Corey Schuster, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “We will continue to hold accountable advisers who violate their core investor protection obligations.”
The SEC’s order found that Galois Capital violated the Investment Advisers Act. 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 discussed above.
The SEC’s investigation was conducted by Annie Hancock and Rory Alex and supervised by Colin Forbes, Brent Wilner, Mr. Schuster, and Andrew Dean, all of the Division of Enforcement's Asset Management Unit. The team was assisted by Kelly Kibbie, Neil Lombardo, and Janet Grossnickle of the SEC’s Division of Investment Management.
