The SEC has reached a settlement with Galois Capital Management, including a civil penalty of $225,000, over charges of failing to safeguard client assets and misleading investors regarding redemption practices.
Galois Capital, a former registered investment adviser based in Florida, managed a private fund primarily invested in crypto assets.
According to the SEC's order dated September 3, Galois Capital breached the custody rule of the Investment Advisers Act by not ensuring that certain crypto assets under its management were held with a qualified custodian. The firm reportedly held these assets in online trading accounts on platforms such as FTX Trading Ltd., which did not meet the requirements for qualified custodians.
The SEC's order noted that the collapse of FTX in November 2022 resulted in the loss of approximately half of the fund's assets under management during that period.
A Financial Times report from that period, which placed Galois among the industry's largest crypto-focused quant funds during the time, estimated that some $100 million would have been caught up in the blowup of the ill-fated crypto platform.
“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,” Corey Schuster, co-chief of the SEC Enforcement Division’s Asset Management Unit, said in a statement announcing the order Tuesday.
In addition to the custody failures, the SEC found that Galois Capital had misled certain fund investors about the notice period required for redemptions. The firm reportedly informed some investors that redemptions required at least five business days' notice before the end of the month, while allowing other investors to cash out more quickly.
The fund's limited partnership agreement required investors to provide 30 days' written notice, though Galois had the ability to approve a shorter heads up.
"Galois had an informal practice of permitting redemptions with at least five business days’ notice before month end, which was communicated to certain investors," the SEC order said. "However, Galois allowed certain Fund investors to redeem with less than five business days’ notice."
Galois Capital agreed to pay a $225,000 civil penalty to settle the charges, which will be distributed to the harmed investors. The firm also consented to a cease-and-desist order to prevent further violations of the Advisers Act.
“We will continue to hold accountable advisers who violate their core investor protection obligations,” Schuster said.
The restructuring advisers running the now-defunct FTX has been working to repay its more than 2 million customers in full, selling off assets to build up an estimated $16.3 billion in cash, according to a May report from Bloomberg.
"In any bankruptcy, this is just an unbelievable result," John Ray, who took over as Sam Bankman-Fried as FTX CEO and famously oversaw the liquidation of Enron, said at the time.
Chicago-based Mesirow Fiduciary Solutions adds flexPATH's plan-level outsourced fiduciary book, boosting its retirement market reach to $164 billion.
Also, Raymond James's employee advisor channel adds breakaways from Wells Fargo and Stifel, while UBS welcomes an ex-Morgan Stanley duo in Indiana.
It promised guaranteed principal and 10% monthly returns. The SEC says it invested nothing.
Ten years after entering the fee-based annuity market, MassMutual Ascend says nearly half its lifetime sales came in the past two years alone – but barriers remain among fee-only advisors.
Amplify, WealthReach, Zeplyn and Zocks have unveiled partnerships aimed at automating portfolio management, content creation, account opening, and client communication.
Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains
Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income
