$FTT New Development in FTX Case: Official Statement from the SEC 📰
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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.
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. According to the SEC, this lack of oversight and failure to comply with GAAS in various aspects of the audit resulted in Prager’s negligent role in the collapse of FTX.
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.
“Because Prager’s FTX audits were conducted without due diligence, FTX investors were left without important protections when making investment decisions. Ultimately, they were defrauded out of billions of dollars when FTX collapsed,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
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. As part of this separate settlement, the firm will pay a total of $1.205 million in penalties and disgorgement, pending court approval, and will face a reprimand.
