SEC accuses Galois Capital of improperly storing client crypto assets

The company agreed to pay a fine to settle the claims

04.09.2024 - 08:40

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2 min

What’s new? The US Securities and Exchange Commission (SEC) has accused Florida-based crypto investment company Galois Capital Management, formerly licensed as an investment adviser, of violating client asset protection requirements and selling unregistered securities. To settle the claims, the company agreed to pay $225 000, which will be distributed to the affected clients.

Press release

What else is known? Galois Capital failed to transfer assets under the management of a private fund to a qualified custodian, a violation of the custody rule in the Investment Advisers Act. The violation lasted from July 2022.

Instead, the company held client assets in the accounts of crypto exchanges that do not qualify as qualified custodians. One such platform was FTX, which went bankrupt in November 2022 as a result of a multi-billion dollar fraud by its top management.

Consequently, approximately half of the assets of the fund managed by Galois Capital were lost following the collapse of FTX.

In addition, Galois Capital misled some investors by claiming that they could only withdraw their money from the fund by giving at least five business days’ notice before the end of the month. Payments to other clients were made in shorter timeframes.

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The SEC explained that Galois Capital, by failing to comply with securities custody rules, exposed investors’ assets to misappropriation, misuse, and loss.

Although the company agreed to pay a fine to be distributed to clients, it neither admitted nor denied the regulator’s allegations.

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