Prager Metis Settles with the SEC Over FTX Audit Misconduct
Accounting firm Prager Metis has settled over charges by the US Securities and Exchange Commission due to its alleged misconduct regarding audits on the collapsed crypto exchange FTX. The settlement entailed a payment of $745,000 to resolve allegations of misrepresentation on compliance with Generally Accepted Auditing Standards.
SEC’s Allegations Against Audit Violations
According to the SEC, during February 2021 and April 2022, Prager issued two reports on audits it conducted for FTX, including false representations that the audits had been conducted in conformity with relevant auditing standards. These audit reports became material to the assessment of the financial condition of FTX but were bereft of any attendant risks relating to its linkage to sister hedge fund Alameda Research.
Settlement Terms and Consequences
The settlement requires Prager Metis to pay a $745,000 civil penalty and engage an independent consultant to review the firm’s audit procedures and implement improvements where necessary. The firm was also restricted from accepting new audit clients for some time. The firm has neither admitted nor denied the charges but has agreed to remedial actions.
SEC’s Take on Auditor Accountability
Gurbir Grewal, director of the SEC’s enforcement division, wasn’t about to let the action go without making certain he underscored how the case represents the critical role auditors play in investor protection. He added Prager Metis “fell short” in ensuring due diligence was carried out in its FTX audits, thereby undermining investor trust.
Acting Chief of the Crypto Assets and Cyber Unit, Jorge Tenreiro, further added that this settlement sends a message to the crypto market that it is important not to cut corners with regulatory requirements.
FTX Collapse and Ripple Effect
It collapsed in November 2022 after disclosures on its use of its native token, FTT, as collateral for risky loans, exposing a run on customer withdrawals that subsequently forced the exchange into bankruptcy. Its founder, Sam Bankman-Fried, was later convicted for fraud in November 2023.
