The hedge fund Galois closes after half of its assets are captured on the crypto exchange FTX
A hedge fund that was one of the most high-profile victims of the FTX scandal when half of its assets were caught in the collapsed cryptocurrency exchange has decided to shut down and return the remaining money to investors.
Galois Capital, which last year had about $200 million in assets under management and was one of the largest crypto-focused quantitative funds, told investors it had halted all trading and liquidated all its positions since it was no longer viable, according to documents seen. by the Financial Times.
“Given the seriousness of the FTX situation, we do not believe it is sustainable to continue operating the fund both financially and culturally,” co-founder Kevin Zhou wrote. “Once again, I am very sorry for the current situation we find ourselves in.”
The FT revealed in November that Galois, despite withdrawing some money, still had about half of his assets stuck in FTX when the stock exchange collapsed.
In a situation reminiscent of Lehman Brothers in 2008, hedge funds were left with billions of dollars trapped in the stock market, and many have seen it as one of the more reputable trading platforms in an often lightly regulated or unregulated industry.
As many as 1 million creditors have been identified in FTX’s Delaware bankruptcy. Its founder, Sam Bankman-Fried, is due to stand trial in October on fraud charges, to which he has pleaded not guilty.
Galois said in the letter that the fund’s closure will result in clients receiving 90 percent of the money not captured at FTX. The remaining 10 percent was temporarily withheld until discussions with administrators and auditors were concluded.
Zhou also indicated in the letter his preference to sell the fund’s claim to FTX, rather than go through a lengthy legal process. He wrote that bankruptcy proceedings can last a decade or more, and that distressed buyers of such claims “have more expertise than we do in pursuing claims in bankruptcy court”. Since sending the letter, Galois has sold his claim for about 16 cents on the dollar.
Galois did not respond to a request for comment.
Zhou, who previously worked at digital exchange Kraken, is known for his early criticism of cryptocurrency luna and associated stablecoin terraUSD before their $40 billion collapse last year. Much of Galois’s trading functioned as a market maker, allowing it to make small profits on other investors’ trades.
“This whole tragic saga from the luna collapse to 3AC [Three Arrows Capital] the credit crunch of the FTX/Alameda failure has certainly set the crypto space back significantly,” Zhou wrote. “However, even now, I remain hopeful for crypto’s long-term future.”
