The Securities and Exchange Commission (SEC) has announced settled charges against Florida-based Galois Capital Management LLC, a former investment advisor specializing in crypto assets. The SEC alleges that Galois failed to comply with requirements related to safeguarding client assets, including cryptocurrencies classified as securities.
Key Violations
- Custody Rule Breach: Starting in July 2022, Galois Capital failed to ensure that certain crypto assets were maintained with a qualified custodian, a violation of the Investment Advisers Act’s Custody Rule. The SEC’s order states that Galois held some crypto assets in online trading accounts on platforms like FTX, which were not qualified custodians. Approximately half of the fund’s assets were lost due to the FTX collapse.
- Misleading Investors: Galois also misled some investors regarding the notice period required for redemptions, allowing certain investors to redeem with less notice than others.
Galois Capital has agreed to pay a $225,000 civil penalty, which will be distributed to harmed investors. The SEC’s order also requires Galois to cease and desist from further violations of the Advisers Act and censures the firm.
Corey Schuster, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, emphasized the importance of compliance with investor protection obligations. “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,” he said. The SEC remains committed to holding advisors accountable for such violations.
