The Securities and Exchange Commission has settled a lawsuit with defunct crypto hedge fund Galois Capital.
The agency said today that Galois had failed to comply with regulatory requirements by holding some of its digital assets on FTX and other crypto exchanges — firms that are not registered as qualified custodians.
The SEC also accused Galois of misleading some investors about the notice period required for the redemption of funds — telling them it would need five days to process the funds — while others were allowed to redeem with a shorter notice.
No allegation was made that clients lost funds over the matter.
Galois settled the SEC charges, the announcement said, agreeing to pay a fine of $225,000 to those identified as the firm’s harmed investors. Galois did not admit to any wrongdoing by settling the charges.
“We’re glad to put this matter behind us,” Galois co-founder Kevin Zhou posted on X. The SEC investigation took two years, he said.
“We used Fireblocks, a non-qualified custodian, as a best-in-class solution to secure our crypto assets,” Zhou said. “Although Fireblocks was not a qualified custodian, we believed they were the best solution for our needs and, in our opinion, the safest way to secure crypto for our investors at the time.”
On the matter of the five-day redemption requirement: while that was the firm’s official policy, Zhou said the company thought it would be “a nice thing to do to allow investors out of the fund earlier if they didn’t want to be there without having to wait the full five business days.”
“No good deed goes unpunished,” he added.
Galois Capital rose to fame in the crypto industry after it publicly shorted Terra’s LUNA token weeks before it imploded in May 2022, wiping out $30 billion worth of value from the market in a matter of days.
However, the crypto hedge fund lost half of its assets in the FTX collapse in November 2022, and it subsequently closed shop in February 2023.
The settlement with the SEC comes on the heels of the news that NFT marketplace OpenSea has received a Wells Notice from the agency — indicating that it’s currently under investigation.
Tom Carreras writes about markets for DL News. Got a tip about Galois or the SEC? Reach out at tcarreras@dlnews.com
