International accounting firm Prager Metis has agreed to pay $745,000 to settle charges filed by the U.S. Securities and Exchange Commission (SEC). The SEC previously accused Prager Metis of issuing a "poor audit report" before the collapse of cryptocurrency exchange FTX, committing misconduct, and accepting FTX as a client without proper understanding of the cryptocurrency market.
The settlement agreement was announced on September 17. It also included the SEC’s resolution to conduct a second investigation into Prager Metis. This investigation accused Prager Metis of violating accounting regulations when conducting accounting audits of more than 200 companies from 2017 to 2020. Provisions on the independence of auditors have been made. Prager Metis agreed to pay a $1.2 million civil penalty plus prejudgment interest to settle the charges, but the settlement must be approved by the court.
The SEC previously accused Prager Metis of committing "negligent fraud" because the two accounting audit reports produced by the company for FTX in 2021 and 2022 both misstated that "the audit report followed generally accepted auditing standards (GAAS)", but in fact Many aspects of the above audit failed to comply with GAAS standards.
According to the SEC, Prager Metis was essentially blindsided by FTX and "did not fully assess whether it had the ability and resources to undertake the audit of this cryptocurrency exchange."
The SEC complaint stated: "Prager Metis was eager to accept FTX as an audit client and assembled a task force but lacked the ability, experience and knowledge to properly perform the audit."
That initial misstep led to a cascade of other audit missteps... The most egregious failure was Prager Metis's failure to understand FTX's relationship with Alameda Research and the latter's critical role in FTX's business.
In addition to the fine, Prager Metis agreed to a permanent injunction and remedies, including hiring an independent consultant to review and evaluate its audit and quality control policies, as well as certain restrictions on accepting new audit clients.
Gurbir S. Grewal, director of the SEC's Division of Enforcement, said in a press release:
Because Prager Metis' audit of FTX was not performed with the care it should have, FTX investors lacked important protections when making their investment decisions. Ultimately, they were defrauded of billions of dollars by FTX and suffered the consequences when FTX collapsed.
He continued: "By limiting Prager Metis's ability to take on new business and requiring the retention of independent compliance counsel, today's decision not only strengthens investor protection, but also serves as a warning to audit professionals who do not appropriately discharge their gatekeeping obligations."
〈FTX accounting firm fined $745,000! SEC: Doesn’t understand the encryption market, and the audit report is full of errors and omissions> This article was first published on "Block Guest".
