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 close and return the rest of its money to investors.
Galois Capital, which last year managed about $200 million in assets and was one of the largest crypto-focused quantitative funds, told investors that it stopped all trading and deleted all of its positions as it was no longer viable, according to documents seen by the Financial Times.
“Given the severity of FTX’s situation, we believe it is not viable to continue to operate the fund both financially and culturally,” co-founder Kevin Zhou wrote.
“Once again, we are terribly sorry for the current situation we find ourselves in.”
Several funds in dire straits
In November the FT revealed that Galois, despite withdrawing some money, still had about half of its assets tied up in FTX when the exchange collapsed.
In a situation reminiscent of Lehman Brothers in 2008, hedge funds were left with billions of dollars trapped on FTX, while many saw it as one of the most trusted trading platforms in an often poorly 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 go on trial in October on fraud charges, to which he has pleaded not guilty.
Galois said in the letter that upon closing the fund, customers will receive 90% of the money not trapped in FTX.
The remaining 10% will be held temporarily until discussions with the managers and the auditor are completed.
Zhou also indicated in the letter his preference for selling the fund’s claim to FTX rather than going through a lengthy legal process.
He wrote that bankruptcy proceedings can take a decade or more and that distressed buyers of such claims “have more experience than we do in pursuing claims in bankruptcy court.”
Since sending the letter, Galois has sold her claim for about 16 cents on the dollar.
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