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The US Securities and Exchange Commission (SEC) has settled with audit firm Prager Metis, which has agreed to pay $1.95 million to resolve misconduct allegations related to its audits of the now-defunct cryptocurrency exchange FTX. 

$745,000 Over FTX Audit Failures

On Tuesday, the SEC announced that Prager Metis and its California affiliate, Prager Metis CPAs, would pay a civil penalty of $745,000 as part of the settlement. 

Additionally, the firm will implement remedial measures, including hiring an independent consultant to review its audit and quality control policies. This settlement is pending court approval.

The SEC’s allegations revolve around Prager’s failure to adhere to Generally Accepted Auditing Standards (GAAS) while conducting audits for FTX between February 2021 and April 2022. 

The complaint indicates that Prager misrepresented its compliance with these standards, leading to “significant deficiencies” in its auditing processes. 

Specifically, the SEC said Prager failed to adequately assess his ability to conduct the audit, particularly concerning the alleged risks associated with FTX’s relationship with Alameda Research, the trading arm of the defunct exchange.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized auditors’ need to maintain independence and exercise professional skepticism. He stated: 

Effective investor protection requires a collaborative approach that includes both regulators and gatekeepers such as auditors. To fulfill their role, auditors must, among other things, be independent, exercise due professional care and skepticism, and comply with all applicable professional standards. As we allege in these enforcement actions, Prager Metis fell short in all of these areas

Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Assets and Cyber Unit, added that the case serves as a warning to other auditors against “cutting corners” in compliance with legal obligations. 

The head of the regulator’s Crypto and Cyber Unit reiterated the SEC’s commitment to investigating potential violations in the crypto space and ensuring accountability for those who compromise investor trust.

Prager Metis To Pay $1 Million For Indemnification Violations

In a related matter, Prager Metis also faced separate charges for violating auditor independence rules and aiding client violations of federal securities laws. 

The SEC alleged that between December 2017 and October 2020, the firm “improperly” included indemnification provisions in engagement letters for over 200 audits, undermining its independence as required by federal law. 

As part of resolving these charges, the firm will incur combined civil penalties of $1 million, along with disgorgement and prejudgment interest totaling $205,000.

At the time of writing, FTX’s native token FTT is trading at $1.28, posting a minimum gain of 0.6%, while the broader crypto market is experiencing a more notable resurgence led by the market’s largest digital asset.

Featured image from DALL-E, chart from TradingView.com

“}]] The US Securities and Exchange Commission (SEC) has settled with audit firm Prager Metis, which has agreed to pay $1.95 million to resolve misconduct allegations related to its audits of the now-defunct cryptocurrency exchange FTX.  $745,000 Over FTX Audit Failures On Tuesday, the SEC announced that Prager Metis and its California affiliate, Prager Metis CPAs,  Read More  Bitcoinist.com