The US Securities and Exchange Commission (SEC) has reached a settlement with audit firm Prager Metis. The firm has agreed to pay a total of $1.95 million to address allegations of misconduct related to its audits of the now-defunct cryptocurrency exchange, FTX.
$745,000 Over FTX Audit Failures
On Tuesday, the SEC announced that Prager Metis and its California affiliate, Prager Metis CPAs, would pay a civil penalty amounting to $745,000 as part of the settlement. In addition to the financial penalty, the firm will be required to take remedial actions, including the appointment of an independent consultant to review its audit and quality control policies. This settlement is currently pending court approval.
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The SEC’s allegations are centered around Prager Metis’s failure to adhere to Generally Accepted Auditing Standards (GAAS) during its audits of FTX between February 2021 and April 2022. According to the complaint, Prager Metis misrepresented its compliance with these standards, leading to significant deficiencies in its auditing processes.
The SEC highlighted that Prager Metis did not adequately assess its ability to conduct the audit, particularly in relation to the risks associated with FTX’s relationship with Alameda Research, the trading arm of the defunct exchange.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the importance of auditors maintaining independence and exercising professional skepticism. He stated:
Effective investor protection requires a collaborative approach that includes both regulators and gatekeepers such as auditors. To fulfill their role, auditors must, among other things, be independent, exercise due professional care and skepticism, and comply with all applicable professional standards. As we allege in these enforcement actions, Prager Metis fell short in all of these areas.
Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Assets and Cyber Unit, added that this case serves as a warning to other auditors against “cutting corners” in complying with their legal obligations. He reiterated the SEC’s commitment to investigating potential violations within the crypto space and ensuring accountability for those who compromise investor trust.
Prager Metis To Pay $1 Million For Indemnification Violations
In a related matter, Prager Metis also faced separate charges for violating auditor independence rules and aiding client violations of federal securities laws. The SEC alleged that between December 2017 and October 2020, the firm improperly included indemnification provisions in engagement letters for over 200 audits, thereby undermining its independence as required by federal law.
To resolve these charges, Prager Metis will pay combined civil penalties of $1 million, along with disgorgement and prejudgment interest amounting to $205,000.
At the time of writing, FTX’s native token, FTT, is trading at $1.28, showing a modest gain of 0.6%, while the broader cryptocurrency market experiences a more notable resurgence led by the market’s largest digital asset.
