Key Takeaways
- Galois Capital settled with the SEC without admitting or denying charges.
- The $225,000 penalty fine will be distributed to Galois Capital investors.
- FTX repayments may be delayed due to a recent SEC intervention.
The FTX downfall dominos continue to drop as the U.S. Securities and Exchange Commission (SEC) settles charges against Galois Capital for misleading investors and custody failures due to its ties with defunct exchange, FTX.
Galois Capital Settles
As per the Sep. 3 press release from the SEC, Galois Capital has been charged with failure to comply with asset safeguarding requirements, misleading investors, as well as “offering and selling” cryptocurrencies as securities.
Without admission or denial of these charges, Gallois has agreed to pay a $225,00 civil penalty, which it claims will go directly to its investors.
The SEC highlights that Galois leveraged several unqualified custodians, including FTX, which exposed investors to a significant risk. To be more specific, Galois explains that it leveraged Fireblocks, an FTX-integrated “enterprise-grade” digital asset platform as its custodian.
Around this time, Fireblocks was offering secure storage and transfer tools for exchanges, banks, hedge funds, custodians, and other entities. The firm’s tech was integrated with FTX, which exposed Fireblock clients to great risk when FTX eventually crashed.
In November 2022, FTX’s collapse resulted in almost half of the firm’s assets being burned. Co-Chief of the SEC’s Enforcement Division’s Asset Management Unit, Corey Schuster, stated
“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,”
The SEC reports that it also found that Galois further misled “certain” investors by offering a 5-business day redemption period, while on the other hand offering other investors “fewer days’ notice”.
Galois Bites Back
In a lengthy post, Galois Capital took to X to celebrate the end of the battle and give their side of the story.
It admits that it did use unqualified custodian Fireblocks, which it disclosed to the SEC. But, Galois says it believed the firm was the “best solution” for its needs. In addition, it describes Fireblocks as the safest means to store investors’ crypto “at the time.”
With regards to the redemption period discrepancies, Galois oddly explains that there was a five-business-day redemption policy before the end of the month. However, it thought “it would be a nice thing” to allow investors to exit the fund if they desired without the five-day wait.
FTX Repayments
The news arrives as the FTX collapse continues to cast a thick shadow over the crypto landscape. Most recently, an SEC court filing raised concerns that could majorly disrupt the creditor repayment plan.
The SEC’s major contention is that there is little clarity on who would distribute stablecoin repayments to creditors. The regulator has urged the court to deny any confirmation of the repayment plan until certain changes are made.
“Unless the Plan provides that the Debtors shall not receive a discharge and removes any discharge injunction, the Court should deny confirmation,”
FTX’s bankruptcy is a historic moment for the work of crypto and finance overall. It was the perfect storm, and it continues to rage on to this day.
Eddie is a gaming and crypto writer at CCN. Covering the often weird and wonderful world of Web3 with an adoring, but skeptical eye.
Prior to CCN, Eddie has spent the past seven years working his way through the crypto, finance, and technology industry. He began with PR and journalism with Bitcoin PR Buzz and BitcoinNews.com, eventually working his way to become a copywriter with a dozen firms, including the likes of Polkadot before returning to journalism in 2023.
Having studied Radio production and journalism at University in the UK, Eddie spent a few years making podcasts and presenting on a local London radio station as he built up his writing chops.
A lifelong skateboarder, Eddie can often be found at the skatepark or touring the streets looking for something new to try. That, or kicking back playing JRPGs on his original PSP.
