- FTX’s collapse in 2022 led to widespread instability.
- SEC just fined Galois Capital for improper custody.
- Galois had major exposure to FTX.
Even after two years, the collapse of FTX remains one of the biggest crises in the crypto industry. Despite the conviction of its former CEO, Sam Bankman-Fried (SBF), the industry still feels the aftershocks of the collapse.
The latest example of this ongoing turmoil is the SEC’s recent action against Galois Capital. This crypto-focused advisory firm became entangled in FTX, leading to charges of mismanagement.
SEC Fines Galois Capital for Involvement with FTX
FTX collapse continues to reverberate across the crypto space. On Tuesday, September 3, the SEC announced that Galois Capital Management LLC, a Florida-based investment adviser, had agreed to settle the charges by paying a $225,000 civil penalty. These funds will be distributed to its investors.
Sponsored
The SEC’s charges against Galois Capital stem from the firm’s violations of the Investment Advisers Act of 1940, specifically concerning the Custody Rule. This rule mandates that investment advisers must ensure that client assets, including crypto assets, are held with qualified custodians.
The SEC found that beginning in July 2022, Galois Capital failed to secure its clients’ crypto assets. Instead, they held them in online trading accounts, including on FTX, which the SEC does not recognize as qualified custodians. The issues with this practice only became apparent after the FTX collapse.
FTX Collapse Causes Galois Capital Collapse
The collapse of FTX was a watershed moment for crypto, revealing structural vulnerabilities within the market. Galois Capital was at the heart of this crisis. The firm held approximately half of its assets under management with FTX.
When FTX collapsed, approximately $50 million of Galois Capital assets were trapped on FTX. A lengthy bankruptcy case ensued, and Galois Capital had no choice but to shut down.
The collapse of FTX didn’t just affect Galois Capital. Other prominent crypto firms, including Genesis Trading, Galaxy Digital, CoinShares, and BlockFi, also faced significant losses.
On the Flipside
- The FTX collapse was, in turn, part of a broader cascade of events, which involved the collapse of Terra-Luna, Three Arrows Capital, and more.
- The FTX collapse accelerated the regulatory efforts in multiple jurisdictions, including the US.
Why This Matters
The SEC’s action against Galois Capital highlights the continued consequences of the FTX collapse. Almost two years after its bankruptcy, FTX is still having negative effects on the market.
Read more about the Galois Capital bankruptcy:
Galois Capital Shuts Down Over FTX Loss, Returns Funds
Read more about Solana’s memecoin platform controversy:
Pump.fun Hits $100M in Record Time Amid Mounting Criticism
