The U.S. Securities and Exchange Commission (SEC) announced today that Prager Metis has agreed to pay $1.95 million to settle two enforcement actions related to its audits of defunct cryptocurrency platform FTX.
SEC Announcement
The U.S. Securities and Exchange Commission (SEC) announced today that Prager Metis has agreed to pay $1.95 million to settle two enforcement actions related to its audits of defunct cryptocurrency platform FTX.
Allegations and Violations
The settlement addresses allegations of mismanagement, including violations of auditor independence requirements and negligence in FTX's audits. According to the SEC, Prager Metis issued two audit reports for FTX between February 2021 and April 2022, claiming to be in compliance with Generally Accepted Auditing Standards (GAAS). The SEC alleges that the firm failed to properly assess its competence and resources to conduct the audits and failed to recognize the risks associated with FTX’s close relationship with Alameda Research LLC, a hedge fund controlled by FTX’s CEO.
Consequences and Future Actions
The SEC charged Prager with negligent fraud, and although the firm did not admit or deny the findings, it agreed to a $745,000 civil penalty, permanent injunctions and to hire an independent consultant to review its auditing procedures. Prager also faces restrictions on taking on new auditing clients while it awaits court approval of the settlement. In addition to this settlement, the SEC announced that Prager Metis also pleaded guilty to separate charges related to violations of auditor independence rules between 2017 and 2020. The firm compromised its independence to clients by improperly including indemnification provisions in engagement letters for more than 200 audits, reviews, and investigations. As part of this separate settlement, the firm will pay a total of $1.205 million in penalties and disgorgement, pending court approval.
These SEC measures highlight the importance of adherence to independence and competency requirements in auditing, especially in complex and volatile fields like cryptocurrency.
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