Accounting firm Prager Metis has agreed to settle charges brought by the U.S. Securities and Exchange Commission (SEC) over improper audits of the now-defunct crypto exchange FTX.
SEC Charges
According to a Sept. 17 announcement, Prager Metis will pay $745,000 in penalties to settle two actions. The SEC claims that Prager misrepresented compliance with auditing standards and failed to assess risks tied to FTX’s connection with its sister hedge fund, Alameda Research. The final agreement is subject to court approval.
Prager Metis's Response
The SEC alleges that Prager issued two audit reports for FTX between February 2021 and April 2022 that falsely claimed they met Generally Accepted Auditing Standards (GAAS). The company failed to follow GAAS and its own policies by not determining whether it had the competence and resources to conduct the audits on FTX.
Impact on Investors
Because Prager's audits of FTX were conducted without due care, investors lacked crucial protections when making their investment decisions. The SEC has required Prager Metis to limit its ability to take on new clients and to retain an independent compliance consultant to review and evaluate its audit, review, and quality control policies and procedures.
FTX, once one of the largest crypto exchanges, collapsed in November 2022 due to a severe liquidity crisis and allegations of fraud. The downfall revealed serious issues, leading to bankruptcy and the conviction of its founder and CEO Sam Bankman-Fried for fraud in November 2023.
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