The Securities and Exchange Commission accused Prager Metis, the former auditing firm for the bankrupt cryptocurrency exchange FTX, of violating U.S. auditor independence rules.
The SEC claims that the firm assisted its clients, including 62 entities under SEC regulation, in violating federal securities laws.
The SEC is seeking a court order against the auditor firm in order to stop it from committing further violations. It is also imposing fines and demanding Prager Metis forfeiture of any profits obtained through these unlawful activities.
In November, a report stated that Prager Metis had conducted an audit of FTX’s international division, revealing that the division had generated $1 billion in revenue in 2021.
Interestingly, on the very same day, FTX filed for bankruptcy in the United States, disclosing a significant deficit of $7 billion on its financial statements. It’s worth noting that FTX had intentions to establish a presence in the Metaverse.
However, the focus of the SEC’s complaint does not revolve around Prager Metis’ connections with FTX but rather on the agreements that FTX had entered into with its numerous clients.
This breach occurred because Prager Metis engaged in agreements that contained clauses allowing clients to absolve the firm from any legal responsibilities and expenses arising from its services, particularly those connected to intentional misrepresentations by a company’s management.
Furthermore, the regulatory authority claimed that Prager Metis had been informed about these violations as early as January 2019.
Eric I. Bustillo, director of the SEC’s Miami regional office, said in a press statement, “Auditor independence is critical to both protecting the integrity of financial reporting and promoting public trust.”
He added, “As alleged in our complaint, over a period of nearly three years, Prager’s audits, reviews, and exams fell short of these fundamental principles. Our complaint is an important reminder that auditor independence is crucial to investor protection.”