Galois Capital has been charged by the U.S. Securities and Exchange Commission (SEC) for not properly handling investor funds and for misleading its clients with false information.
The hedge fund made headlines in 2022 when it warned about the risk of investing in Terra’s LUNA and UST, but it is now facing legal issues after failing to follow regulations.
SEC investigated Galois Capital and found that the company had stored its customers’ crypto assets on several trading platforms, including the now-bankrupt FTX exchange.
According to the SEC’s press release, these platforms were not considered qualified custodians, which are usually registered broker-dealers or banks. This failure to use a regulated custodian has investors’ assets at great risk, including the potential loss or misuse of their assets.
Following the collapse of FTX in November 2022, Galois Capital lost $40 million which contributed to its closure in early 2023.
In addition, the SEC discovered that the hedge fund provided some of its investors with unclear information about withdrawing their investments.
The firm told some clients they needed to give at least five business days’ notice to get their funds, while others were allowed to withdraw their money with less notice.
Although Galois did not admit to or deny the SEC’s findings, the firm had agreed to pay a $225,000 penalty to settle the charges. This will be given to the investors who were affected by the loss.
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