SEC Charges Galois Capital Management
On September 3, 2024, the United States Securities and Exchange Commission (SEC) took action against Galois Capital Management LLC, a crypto advisory firm, for custody and disclosure failures detrimental to its investors. According to an official press release, Galois Capital has agreed to pay a penalty of $225,000, which will be used to compensate the firm’s harmed investors.
Background on Galois Capital
Galois Capital had previously served as an investment advisor for a private fund that focused on crypto assets. The SEC found that the firm misled its investors by stating it would maintain certain crypto assets with a qualified custodian, a requirement under the Custody Rule of the Investment Advisors Act. In reality, some of Galois’ assets were kept in online trading accounts, including on the now-defunct exchange, FTX.
Impact of FTX’s Collapse
FTX collapsed in November 2022, resulting in a massive loss for investors who found themselves unable to withdraw fully backed assets. Galois Capital was not spared, suffering a significant blow with losses amounting to roughly half of its assets during the FTX fallout.
Misleading Redemption Information
In addition to custody failures, Galois Capital faced charges for misleading its investors regarding redemption requests. Investors were informed that these requests needed to be submitted at least five business days before the end of the month; however, some were able to redeem their investments with less notice, which led to further complications.
Reactions from the Financial Community
The charges did not go unnoticed within the financial community. Max Schatzow, a legal adviser specializing in investment advisors and fund managers, expressed his discontent with the SEC’s approach on social media, labeling the charges against Galois as “vindictive”. He argued that the situation exemplified excessive enforcement actions, especially given that Galois merely held tokens at FTX.
Critical Views on SEC’s Priorities
Several users on social media provided their perspectives on the SEC’s actions. A user named @0xBalloonLover suggested that Galois’ only fault was selling their claims against FTX when the market was at its lowest. Another user, @VentureCoinist, criticized the SEC for failing to prevent FTX’s catastrophic fraud while instead targeting firms that were victims of the fraud.
The discourse surrounding Galois Capital’s situation highlights broader issues within the regulation of the crypto industry and raises questions about accountability among regulatory agencies. Many are calling for clearer guidelines and better protections for investors as the crypto landscape continues to evolve.