FTX collapse brings down Galois Capital, SEC sets charges for misleading investors and custody failures

• SEC Announces Settled Charges Against Galois Capital for Custody Failure and Crypto Assets Being Offered and Sold as Securities.
• Galois Capital held crypto assets in trading platforms, including the bankrupt exchange FTX, which is not a qualified custodian.
• The firm settled the allegations without admitting or denying the SEC’s allegations for a civil penalty of $225,000, according to the SEC press release.

The Securities & Exchange Commission (SEC) issued a press release announcing the settled charges against former registered investment advisor Galois Capital Management LLC. The US financial regulator charged the firm with custody failure and offering and selling crypto-assets as securities.

Galois Capital’s official X account tweeted about the SEC action and said the firm used Fireblocks, an unqualified custodian and informed the regulator about the same in a filing.

SEC files settled charges against Galois Capital

The SEC’s September 3 press release states that the US financial regulator charged Galois Capital with failing to comply with requirements related to safeguarding client assets. The firm was charged with “offering and selling crypto-assets as securities.”

The SEC notes that the bankrupt exchange FTX is among the crypto trading platforms used as custodians by the firm. The regulator alleges that Galois misled investors about the redemption period and allowed some to get their funds within five business days, while others waited excessively longer.

In the November 2022 FTX crash, Galois Capital investors lost almost half of their crypto assets and funds they hold with a non-custodian, exposing users to greater risks and leading to greater losses.

A civil penalty of $225,000 was imposed on Galois Capital. The funds will be used to pay SEC charges and will be distributed to investors who were harmed in the process.

Galois Capital criticizes the SEC and says no good deed goes unpunished

The former investment advisory firm explains in an official Twitter thread on X that investors were allowed to exit the fund early if they didn’t want to be there and said the SEC’s actions mean “no good deed goes unpunished” . “

Even though the firm faces civil penalties for using a non-custodian firm, Galois Capital believes that Fireblocks was the best solution for their needs at the time and was the safest way to secure cryptocurrencies for investors. The firm shared details of its use of Fireblocks for custody of user funds in its Form ADV filing with the SEC.