Galois Capital Settles With the SEC Over Alleged Custody Failures

Galois Capital chose to settle with the U.S. Securities and Exchanges Commission (SEC) within hours of being charged with alleged custody failures.

“After an exhaustive and costly investigation of nearly two years, and without admitting or denying the findings detailed in the SEC’s order, we agreed to settle with the SEC and pay a $225,000 penalty, which will go directly to our investors,” the defunct crypto hedge fund said on social media.

Earlier this morning, an SEC release claimed that “Galois Capital failed to ensure that certain crypto assets held by the private fund that it advised were maintained with a qualified custodian, a violation of the Investment Advisers Act’s Custody Rule.”

The SEC alleges that the firm misled investors about inconsistent redemption policies and also cited that Galois held crypto assets in trading platforms that were not qualified custodians, including FTX Trading Ltd.

Galois Capital shuttered its flagship crypto fund in 2023 after losing a substantial portion of its assets when FTX collapsed.

Galois also stated that it used Fireblocks to secure the fund’s crypto assets, and while Fireblocks is a non-qualified custodian, the firm claims to have disclosed its usage of the digital asset platform in its ADV filing with the SEC.

SEC Form ADV is a disclosure form that is required for professional investment advisers, which specifies details such as assets under management (AUM) and investment style.

The firm’s social media post continued, “We 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. As a result, no good deed goes unpunished. What more is there to say.”