Galois Capital Settles SEC Lawsuit, Agrees to Pay $225K Fine

The Securities and Exchange Commission has settled a lawsuit with defunct crypto hedge fund Galois Capital.

The Securities and Exchange Commission has settled a lawsuit with defunct crypto hedge fund Galois Capital over allegations that it failed to comply with regulatory requirements and misled some investors.

The agency announced the settlement on Friday, stating that Galois had agreed to pay a fine of $225,000 to those identified as the firm’s harmed investors. However, Galois did not admit to any wrongdoing by settling the charges.

The SEC had alleged that Galois failed to comply with regulatory requirements by holding some of its digital assets on FTX and other crypto exchanges — firms that are not registered as qualified custodians.

The agency also accused Galois of misleading some investors about the notice period required for the redemption of funds — telling them it would need five days to process the funds — while others were allowed to redeem with a shorter notice.

No allegation was made that clients lost funds over the matter.

The investigation into Galois began two years ago, according to Galois co-founder Kevin Zhou. He stated that the firm used Fireblocks, a non-qualified custodian, to safeguard its crypto assets.

“Although Fireblocks was not a qualified custodian, we believed they were the best solution for our needs and, in our opinion, the safest way to secure crypto for our investors at the time,” Zhou said in a post on X.

On the matter of the five-day redemption requirement: while that was the firm’s official policy, Zhou said the company thought it would be “a nice thing to do to allow investors out of the fund earlier if they didn’t want to be there without having to wait the full five business days.”

“No good deed goes unpunished,” he added.

Galois Capital rose to fame in the crypto industry after it publicly shorted Terra’s LUNA token weeks before it imploded in May 2022, wiping out $30 billion worth of value from the market in a matter of days.

However, the crypto hedge fund lost half of its assets in the FTX collapse in November 2022, and it subsequently closed shop in February 2023.

The settlement with the SEC comes on the heels of the news that NFT marketplace OpenSea has received a Wells Notice from the agency — indicating that it’s currently under investigation.

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