$200 Million Galois Crypto Hedge Fund Shuts Down as Half of Assets Stuck on FTX Exchange – This is What Happened

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October 22, 2023

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Crypto hedge fund Galois Capital has closed its flagship fund after losing almost half of its capital in the FTX collapse, and later selling the claim to the assets.

The hedge fund confirmed the news in a Twitter thread on Monday, where it said, “it is true that our flagship fund is shutting down.” It added that it lost almost half of its assets in the FTX collapse, and that it later “sold the claim for cents on the dollar.”

“[…] we are among the few who are closing shop with an inception-to-date performance which is still positive,” the hedge fund said, while calling the closure “the end of an era for Galois.”

In spite of that, I am proud to say that although we lost almost half our assets to the FTX disaster and then sold the claim for cents on the dollar, we are among the few who are closing shop with an inception-to-date performance which is still positive.

— Galois Capital (@Galois_Capital) February 20, 2023

The news of the fund’s closure was first reported by the Financial Times on Monday. According to the newspaper, fund investors had at that time already received a letter that said all trading was halted, and that open positions were being rolled back.

In the letter to investors, Galois Capital’s co-founder Kevin Zhou apologized for the situation and said the FTX collapse meant that the fund could no longer justify continuing operations.

According to FT, Zhou further explained that the fund’s investors would receive 90% of the capital that remains available. Meanwhile, 10% would be kept by Galois Capital until further notice.

“Significant funds stuck”

Galois Capital admitted in November last year that it had “significant funds stuck on FTX,” and that it did not attempt to use a loophole known as the “Bahamian method” to get the money out.

Despite this, Galois Capital did not give the impression at the time that it would be forced to shut down. On the contrary, the firm stressed on Twitter that investors in the fund “are still up from inception.”

You realize that my investors are still up from inception.

— Galois Capital (@Galois_Capital) November 12, 2022

Zhou: “Clear warning signs” at Alameda

Notably, Kevin Zhou has in the past said that he noticed red flags regarding the accounting practice at Alameda Research, the crypto trading firm affiliated with FTX and Sam Bankman-Fried, as early as 2018.

“[…] in retrospect, there were sort of clear warning signs and signals for the risks that were to come,” Zhou said in an interview with podcaster Laura Shin about what he saw at Alameda.

How many signs did we miss re: FTX and Alameda? 😱 Kevin Zhou of @Galois_Capital talks about discussing accounting systems with Alameda pre-FTX launch, and the…weird things that, looking back,😑📉 potentially foretold a disaster.

Watch the full episode: https://t.co/vw9NcAF9do pic.twitter.com/JdC3qRpPtm

— Laura Shin (@laurashin) November 21, 2022

FTX and its affiliated companies filed for Chapter 11 bankruptcy in early November last year. The former crypto empire is now led by bankruptcy expert John Ray III, and the massive liquidation process is expected to take several years to complete.

Galois Capital is a US-based crypto hedge fund with approximately $200m in assets under management. The firm specializes in over-the-counter (OTC) trading and algorithmic market-making in crypto markets.