A hedge fund that was one of the most high-profile victims of the FTX scandal, when half of its assets were trapped in the collapsed cryptocurrency exchange, has decided to shut down and return its remaining money to investors.
Galois Capital, which had around $200 million in assets under management last year and was one of the largest crypto-focused quantitative funds, told investors it has halted all trading and liquidated all of its positions as it said documents viewed was no longer profitable by the Financial Times.
“Given the severity of the FTX situation, we do not believe it is reasonable to continue the fund both financially and culturally,” wrote co-founder Kevin Zhou. “Once again I am very sorry for the current situation we are in.”
In November, the FT announced that although Galois withdrew some money, he still held about half his wealth in FTX when the stock market crashed.
In a situation reminiscent of Lehman Brothers in 2008, hedge funds with billions of dollars remained trapped in the stock market, with many viewing it as one of the more respected trading platforms in an often lightly regulated or unregulated industry.
Up to 1 million creditors were identified in the FTX bankruptcy in Delaware. 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 closing the fund would result in clients receiving 90 percent of the money not trapped on FTX. The remaining 10 percent would be temporarily held pending talks with the administrators and auditor.
Zhou also indicated in the letter that he prefers to sell the fund’s claim on FTX rather than go through a lengthy court process. He wrote that bankruptcy proceedings can last a decade or more, and that distressed buyers of such claims “have more experience than we do in enforcing claims in bankruptcy courts.” Since sending the letter, Galois has sold his claim for approximately 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 related stablecoin TerraUSD before their $40 billion collapse last year. Much of Galois’ trading acted as a market maker, allowing him to make tiny profits on other investors’ trades.
“This whole tragic saga, starting from the collapse of the Luna to the 3AC [Three Arrows Capital] The credit crunch to the FTX/Alameda failure has certainly set back the crypto space significantly,” Zhou wrote. “However, even now I remain hopeful for the long-term future of crypto.”