Prager Metis CPAs has settled with the SEC for $1.95 million over allegations of audit negligence and violations of auditor independence rules in its audits of crypto exchange FTX.
Settlement Details and Background
FTX's auditor, Prager Metis CPAs, has agreed to a $1.95 million settlement with the U.S. Securities and Exchange Commission (SEC). This settlement comes after allegations of misconduct during the former’s audits of the crypto exchange FTX from February 2021 to April 2022. The SEC's investigation found evidence of negligence and violations of auditor independence rules in these audits.
Charges and Misconduct
The SEC's investigation revealed that Prager Metis misrepresented its adherence to Generally Accepted Auditing Standards (GAAS) in the audit reports for FTX. Additionally, the firm failed to report significant risks associated with FTX's ties to Alameda Research. This lack of due diligence in the auditing process led to negligence-based fraud charges.
In a press release issued by the regulator, Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Assets and Cyber Unit, commented,
"Once more we see an entity, lured by the siren song of the crypto asset markets, cutting corners on its obligations to comply with the law."
Financial Penalties and Remedial Actions
Prager Metis has agreed to pay a total of $1.95 million, which includes a $745,000 civil penalty specifically for the FTX-related charges, $1 million in combined civil penalties, and $205,000 in disgorgement with prejudgment interest. Additionally, the firm consented to permanent injunctions and will undergo a review of its audit procedures by an independent consultant.
In a separate agreement, Prager Metis settled charges related to violations of auditor independence rules, agreeing to pay $1 million in civil penalties and $205,000 in disgorgement.
SEC Director: Prager Metis Fell Short
Gurbir S. Grewal, Director of the SEC's Division of Enforcement, emphasized the crucial role auditors play in investor protection, highlighting the collaborative approach that regulators and auditors need to maintain for effective investor protection.
He noted that Prager Metis fell short in terms of auditor independence, professional care, and adherence to standards in its audits of FTX, leading to the investors being left without essential protections, and subsequent financial losses when the exchange collapsed.
Supporting the steps taken against the firm by the SEC, Grewal said,
“By limiting Prager’s ability to take on new business and by requiring it to retain an independent compliance consultant, today’s resolutions not only enhance investor protection, they also serve as a warning to audit professionals that are not appropriately meeting their gatekeeping obligations.”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.