SEC Charges Crypto-Focused Advisory Firm Galois Capital for Custody Failures

The Securities and Exchange Commission (SEC) announced settled charges against Galois Capital Management LLC for failing to comply with requirements related to safeguarding client assets, including crypto assets offered and sold as securities. The SEC found that Galois misled fund investors about the notice period required for redemptions, allowing certain investors to redeem with fewer days' notice than represented. As a result of its failure to ensure that certain crypto assets were maintained with a qualified custodian, Galois lost approximately half of the fund's assets under management in November 2022 due to the collapse of FTX Trading Ltd. To settle the SEC's charges, Galois agreed to pay a civil penalty of $225,000, which will be distributed to its fund's harmed investors. The SEC emphasized its commitment to holding accountable advisers who violate investor protection obligations and protecting investors from risks associated with non-compliance.