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

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Joel Frank

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Joel Frank

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Since graduating with a degree in economics from the University of Birmingham in 2018, Joel has worked as a financial market/cryptocurrency analyst. He firmly believes that emerging crypto technology…

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Last updated:

September 3, 2024 13:59 EDT

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Crypto advisor firm Galios Capital Management LLC has just been charged by the US Securities and Exchange Commission (SEC) over custody and disclosure failures that harmed its investors.

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

Galios Capital is a former investment advisor for a private fund that invested in crypto assets, the press release reads.

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

The SEC found that some of Galios’ 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, as it turned out, 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 need to come in at least 5 business days before the month’s end. But some investors redeemed with a smaller notice period.

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

Max Schatzow, a legal council for registered investment advisors and fund managers on matters relating to registration, compliance and enforcement, was critical of the SEC’s charges in a post on X.

He labelled the SEC as “vindictive” over charging Galios for holding assets with FTX.

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

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.

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

Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.