Key Takeaway:
- SEC charges Florida-based Galois Capital for compliance failures and investor misrepresentation.
- Galois Capital breached the Investment Advisers Act’s Custody Rule by not maintaining client assets properly.
- Galois Capital held crypto assets in non-qualified custodian accounts, resulting in substantial losses.
- SEC found Galois Capital misled investors on redemption procedures, leading to confusion.
- Galois Capital settles charges with a $225,000 civil penalty and agreement to stop further violations.
Galois Capital’s Compliance Failures
Galois Capital, based in Florida, has been charged by the SEC for serious compliance failures related to custody practices and investor misrepresentation. The firm breached the Investment Advisers Act’s Custody Rule by not maintaining client assets, including crypto assets, with qualified custodians as mandated by the rule. Instead, they held assets in trading accounts on platforms like FTX Trading, which are not recognized as qualified custodians by the SEC.
Galois Capital’s Investor Misrepresentation
In addition to custody failures, the SEC also found that Galois Capital misled investors about redemption procedures. The firm had inconsistent redemption policies, informing some investors of a five-business-day notice requirement for redemptions, while allowing others to redeem with shorter notice periods. This inconsistency led to confusion among investors about the terms and conditions of their investments.
Galois Capital’s Settlement and Resolution
To resolve the charges brought by the SEC, Galois Capital has agreed to a settlement that includes a civil penalty of $225,000. This penalty will compensate the fund’s investors who were harmed by the firm’s actions. Without admitting or denying the findings, Galois Capital has agreed to cease any further violations of the Advisers Act and has been formally censured as part of the SEC’s order.
