ChainCatcher reported that the SEC accused crypto asset investment advisory firm Galois Capital Management LLC of failing to comply with customer asset protection regulations and misleading investors about redemption notice periods. In order to settle the SEC's allegations, Galois agreed to pay a civil penalty of $225,000, which will be distributed to damaged investors in its fund.
The SEC investigation found that Galois Capital failed to ensure that certain crypto assets held by its managed private funds were kept by qualified custodians since July 2022, in violation of the custody rules of the Investment Advisers Act. The company deposited some of its assets on trading platforms that were not qualified custodians, including FTX, resulting in the loss of about half of its managed assets when FTX went bankrupt in November 2022.
In addition, Galois Capital told some investors that redemptions required five business days’ notice, but actually allowed other investors to redeem in a shorter time, which constituted misleading behavior. Corey Schuster, co-director of the SEC’s asset management division, emphasized that advisors who violated core investor protection obligations will continue to be held accountable. Galois Capital agreed to stop the violations and accept the censure, but did not admit or deny the SEC’s findings. The fine will be distributed to the harmed investors.
