Crypto Advisory Firm Galois Capital Charged by SEC for Custody and Disclosure Failures

The US Securities and Exchange Commission (SEC) charged crypto advisor firm Galois Capital Management LLC on September 3 with custody and disclosure failures that harmed its investors.

Per an SEC press release, Galois Capital agreed to pay the agency $225,000, which will be distributed to the firm’s harmed investors.

*SEC CHARGES CRYPTO-FOCUSED ADVISORY FIRM GALOIS CAPITAL FOR CUSTODY FAILURES

Source: DB

— db (@tier10k) September 3, 2024

Galois Capital is a former investment advisor for a private fund that invested in crypto assets.

Contrary to what it told investors, the firm failed to ensure that certain crypto assets were maintained with a qualified custodian, in violation of the Investment Advisors Act’s Custody Rule.

The SEC found that some of Galois’ assets were held in online trading accounts, including on FTX.

As many readers may remember, FTX imploded spectacularly in November 2022 as investors rushed to withdraw their assets, which were not fully backed.

Galios lost roughly half of its assets in connection with the FTX collapse.

The SEC also charged Galios with misleading investors regarding redemptions.

Investors were told that redemption requests needed to be received at least 5 business days before the end of the month, but some redeemed with a shorter notice period.

Galois Capital said in a post on X that they would release a statement on the charges soon.

Will have a statement soon.

— Galois Capital (@Galois_Capital) September 3, 2024

Community Reacts to Galois Capital Charge

Max Schatzow, legal counsel for registered investment advisors and fund managers on matters relating to registration, compliance, and enforcement, posted on X critical of the SEC’s charges.

He labeled the SEC as “vindictive,” overcharging Galois for holding assets with FTX.

Sometimes the @SECGov staff shows it is vindictive and recent enforcement action against Galois Capital Management is one of those instances.

The SEC alleges that this RIA failed to maintain "funds and securities" with a qualified custodian, because they held tokens at FTX.
The… pic.twitter.com/hYTGrUXHP4

— Max Schatzow (@AdviserCounsel) September 3, 2024

“These are the kind of cases that keep compliance and legal awake at night, but they really are outliers,” Schatzow said.

galois capital's only crime was selling their ftx claims at the stone bottom https://t.co/4TmMaSqgmh

— venture apologist (@0xBalloonLover) September 3, 2024

X user venture apologist, meanwhile, claimed that Galios’ only crime was to sell their FTX claims at the bottom.

Fellow X user Luke Martin, who hosts the Stacks Podcast, criticized the SEC’s regulatory approach.

>SEC mandate is to protect investors
>SEC doesn't stop biggest financial fraud in history FTX
>crypto funds lose money trapped on FTX
>SEC goes after the funds who got scammed
>….
>….
>Gensler somehow still not in prison

— Luke Martin (@VentureCoinist) September 3, 2024

He lambasted the agency for failing to prevent the biggest financial fraud in history and then going after funds like Galios, who fell victim to this fraud.