SEC Settles with Prager Metis Over FTX Audit Misconduct

The U.S. Securities and Exchange Commission (SEC) has settled with audit firm Prager Metis, which has agreed to pay $1.95 million to resolve two charges alleging misconduct during its audits of the now-defunct cryptocurrency trading exchange FTX.

Allegations

The SEC accused Prager of filing two suspicious audit reports that “falsely misrepresented” FTX’s financial condition and did not meet generally accepted auditing standards (GAAS) between February 2021 and April 2022.

FTX, once among the world’s largest crypto exchanges, collapsed after significant customer withdrawals, attributed to a lack of confidence in the exchange due to reports of most of its assets being illiquid altcoins. Its founder, Sam Bankman-Fried, was found guilty of seven fraud-related charges and sentenced to 25 years in prison, although he plans to appeal.

Specific Failures

The SEC claims Prager did not adequately assess its competency and resources for FTX’s audit and failed to disclose the “increased risk” from FTX’s relationship with Alameda Research, the trading firm founded by Bankman-Fried.

Gurbir S. Grewal, director of the SEC’s Division of Enforcement, stated that auditors must be independent, exercise due professional care, and comply with all professional standards. He asserted that Prager Metis fell short in all these aspects.

Financial Penalties

Prager Metis has consented to pay a $1 million penalty and $205,000 in disgorgement, pending court approval. Notably, the firm had previously opened an office in the metaverse.