Defunct investment firm Galois Capital Management LLC has inked a settlement with the US Securities and Exchange Commission (SEC) over fraudulent investor relation. This settlement traces its roots back to the collapse of FTX Derivatives Exchange which the firm had strong exposure to.
Origin of the US SEC and Galois Capital Brawl
Prior to its collapse Galois Capital operated as a registered investment advisor for a fund that primarily invested in cryptocurrencies. The US SEC announced that the firm operated without recourse to the law to protect its investors. The firm was also accused of misleading certain investors by telling them that their redemptions required a certain amount of advance notice. Meanwhile, some other investors were allowed to redeem funds with less notice.
Overall, the firm is now required to pay $225,000 in civil penalty. The fine will be distributed to users. It is worth noting that Galois alreasy lost $40 million to the collapse of FTX. This did not stop the SEC from specifically calling out the firm for using FTX to hold customer assets. Moreso, the regulator made it clear that such crypto asset trading platforms are not qualified custodians.
Considering Galois Capital’s history before FTX crashed, the latest event is a huge blow. The investment firm rode high on the 2022 crypto market turmoil that saw many companies file for bankrupt and conduct series of layoffs. Galois Capital was one of those that questioned the stability of Terra and UST before they eventually imploded.
US SEC Launch Crypto Crackdown Spree
The US regulator is obviously out to truncate the activities of crypto firms that they find in misalignment to its standards. This Galois Capital settlement comes barely a week after the regulator sent a Wells Notice to OpenSea. In the Wells Notice, the US SEC claimed that the trading of Non-Fungible Tokens (NFT) is an investment contract. Although, it does not signify the start of an enforcement action on the NFT marketplace.
Even FTX which plans to distribute $16 billion to its creditors, is facing a legal debacle with the SEC and the U.S. Trustee. Fortunately, some key industry players have lent their voice to the discussion, challenging the regulator’s stance.
Coinbase CLO Paul Grewal slammed the US SEC, stating that the regulator holds a keen interest in maintaining uncertainty over crypto rules.
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