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FTX's Former Auditor Prager Metis Sued by SEC
The regulator alleged in a court filing that the firm had entered into contracts with clients that violated auditor independence rules.
Updated Oct 2, 2023, 8:36 a.m. Published Oct 2, 2023, 8:36 a.m.
Bankrupt crypto exchange FTX's former auditing firm Prager Metis has been accused of violating U.S. auditor independence rules by the Securities and Exchange Commission, a Friday court filing shows.
The SEC alleges the firm helped its clients – including 62 entities registered with the regulator – to break federal securities laws. It seeks an injunction against the auditor and wants it to pay fines and give up any profits made from illegal activity.
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Prager Metis audited FTX's international arm and reported $1 billion in revenues in 2021, CoinDesk reported in November, on the same day that FTX filed for bankruptcy in the U.S. – with a $7 billion shortfall on its balance sheet. The company also had plans to open a location in the Metaverse. The SEC's complaint, however, isn't centered on the auditor's ties to FTX but on agreements the firm made with its numerous clients.
According to Friday's filing with the U.S. District Court for the Southern District of Florida, Prager Metis violated auditor independence standards by entering into agreements that included indemnification provisions – where clients agreed to release Prager from liabilities and costs from its services "attributable to any knowing misrepresentations by management."
The regulator also alleged the auditor was notified of these violations since at least January 2019.
“Auditor independence is critical to both protecting the integrity of financial reporting and promoting public trust. 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,” Eric I. Bustillo, director of the SEC’s Miami regional office said in a press statement.
Read more: Meet the Metaverse Nightclub–Loving Audit Firm That Presided Over FTX’s Financials
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