The fallout from FTX’s 2022 collapse continues to ripple through the crypto industry, leaving firms like Galois Capital grappling with the consequences. Even two years later, the collapse remains one of the most significant crises in the sector, affecting countless companies and shaking investor confidence.
One of the latest firms to face repercussions is Galois Capital, a Florida-based investment adviser with a focus on cryptocurrency. The U.S. Securities and Exchange Commission (SEC) recently fined Galois Capital $225,000 for violating the Investment Advisers Act of 1940, specifically for failing to comply with the Custody Rule. This rule requires investment advisers to ensure that client assets, including crypto assets, are held with qualified custodians.
The SEC’s investigation revealed that starting in July 2022, Galois Capital did not properly secure its clients’ crypto assets. Instead of holding these assets with qualified custodians, the firm stored them in online trading accounts, including on FTX, which the SEC does not recognize as a qualified custodian. The risks of this practice only became glaringly apparent after FTX’s collapse.
The collapse of FTX was a pivotal moment for the crypto industry, exposing deep vulnerabilities within the market. Galois Capital was particularly affected, with approximately half of its assets under management—around $50 million—trapped on FTX when the exchange went under. This devastating loss ultimately led to the shutdown of Galois Capital, marking it as one of the many firms caught in the wake of FTX’s downfall.
The impact of FTX’s collapse has been far-reaching, affecting other prominent crypto firms as well, including Genesis Trading, Galaxy Digital, CoinShares, and BlockFi. These firms, like Galois Capital, suffered significant losses, highlighting the ongoing instability in the crypto space caused by FTX’s failure.
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