Photo credit: Graeme Sloan/Bloomberg

The Securities and Exchange Commission (SEC) announced it has settled charges against Galois Capital Management, an investment advisory company, for failing to safeguard clients’ crypto assets by holding them on trading platforms that were “not qualified custodians,” such as FTX Trading.

According to the press release, Galois Capital Management violated the Investment Advisor’s Act’s Custody Rule by holding the crypto assets on unqualified trading platforms.

However, as part of the settlement, Galois Capital had agreed to pay a civil penalty of $225,000, which will be distributed to the investors who faced losses or damages.

The SEC reported that approximately half of the funds’ investors were lost after the collapse of the FTX. After the collapse, the SEC found that Galois also misled fund investors about the notice period required for redemptions. Galois Capital misled investors by informing them that redemptions required at least five business days' notice before the end of the month. Meanwhile, other investors were able to withdraw with fewer days’ notice. 

Making a statement regarding Galois crimes, the Co-Chief of the SEC Enforcement Division’s Asset Management Unit, Corey Schuster, said:

“By failing to comply with Custody Rule provisions, Galois Capital exposed investors to risks that fund assets, including crypto assets, could be lost, misused, or misappropriated.”

For the uninitiated, the collapse of crypto exchange FTX happened when the company lacked liquidity and mismanagement of funds. The news about FTX’s mismanagement caused investors to withdraw large amounts of crypto assets. 

The SEC’s order also disallows Galois Capital from taking any actions that would violate the Advisers Act.

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