The SEC has settled with Galois Capital, a crypto hedge fund that is no longer in operation. They agreed to pay $225,000 after facing accusations of not following regulations.
According to the SEC, Galois didn’t use qualified custodians to protect its investors’ assets. Some of their digital assets were held on platforms like FTX, which aren’t registered as qualified custodians.
Additionally, the SEC claimed Galois misled some investors about how long it would take to redeem their funds. They told some investors it would take five days, while others could redeem their funds sooner. Importantly, the SEC didn’t say that any clients actually lost money because of this.
As part of the settlement, Galois will pay $225,000 to the investors affected but did not admit to any wrongdoing. Kevin Zhou, a co-founder of Galois, expressed relief at moving on from this issue. He mentioned that the SEC investigation lasted two years.
Zhou explained that they used Fireblocks, a non-qualified custodian, because they believed it was a top solution for securing their crypto assets. While Fireblocks wasn’t a qualified custodian, they thought it was the safest option available at the time.
Regarding the five-day redemption policy, Zhou clarified that while it was the official rule, they tried to be flexible. They wanted to allow investors to exit the fund sooner if they chose to, without waiting the full five business days. He commented, “No good deed goes unpunished.”
Galois Capital became well-known in the crypto world for shorting Terra’s LUNA token just before it collapsed in May 2022, wiping out $30 billion in market value in days. However, they lost half of their assets during the FTX collapse in November 2022 and eventually closed down in February 2023.
This settlement comes as NFT marketplace OpenSea has received a Wells Notice from the SEC, indicating it is under investigation as well.