The U.S. Securities and Exchange Commission (SEC) has reached a $1.95 million settlement with Prager Metis CPAs LLC and its affiliate over serious allegations related to their audits of crypto exchange FTX. The case highlights critical oversights and violations of key industry standards, raising questions about the firm’s practices and the risks it missed. “Prager’s audits of FTX were conducted without due care,” said Gurbir S. Grewal, the SEC’s Enforcement Director.
SEC Fines Prager Metis $1.95M Over Negligent FTX Audits
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Prager Metis Pays $1.95 Million to Settle SEC Charges Over FTX Audits
The U.S. Securities and Exchange Commission (SEC) announced on Tuesday that Prager Metis CPAs LLC and its California affiliate, Prager Metis CPAs LLP, have agreed to pay $1.95 million to settle charges related to negligence in their audits of crypto exchange FTX and violations of auditor independence rules. The settlement resolves two separate actions, including allegations of misrepresenting compliance with auditing standards and auditor independence requirements.
According to the SEC, between February 2021 and April 2022, Prager Metis issued two audit reports for FTX that falsely claimed adherence to Generally Accepted Auditing Standards (GAAS). The SEC alleges the firm did not adequately evaluate its ability to handle the FTX audit, failed to recognize key risks, and fell short of GAAS in numerous ways. One significant oversight was Prager’s failure to address the elevated risks posed by FTX’s relationship with Alameda Research LLC, a crypto hedge fund controlled by FTX’s CEO.
Gurbir S. Grewal, the SEC’s Enforcement Director, commented:
Prager’s audits of FTX were conducted without due care.
In a separate action, Prager Metis settled charges for violating auditor independence rules by including indemnification provisions in more than 200 audits, reviews, and exams between December 2017 and October 2020. The SEC detailed:
The final judgments provide for permanent injunctions, combined civil penalties of $1 million, and combined disgorgement with prejudgment interest of $205,000. The Prager Entities also agreed to be censured. The settlement is subject to court approval.
Eric I. Bustillo, Director of the SEC’s Miami Regional Office, stressed, “Auditor independence is critical to investor protection and a fundamental cornerstone of the integrity of our financial markets.”
What do you think about the SEC’s findings regarding Prager Metis’ audit of FTX? Let us know in the comments section below.
