Bitrabo Editorial
The US Securities and Exchange Commission (SEC) has reached a settlement with the audit firm Prager Metis, which has agreed to pay $1.95 million to address allegations of misconduct related to its audits of the now-closed cryptocurrency exchange FTX.
$745,000 Penalty for Audit Missteps
On Tuesday, the SEC announced that Prager Metis and its affiliate in California, Prager Metis CPAs, will pay a civil fine of $745,000 as part of this settlement.
Moreover, the firm has committed to taking corrective actions, which include hiring an independent consultant to analyze its auditing and quality control practices. This settlement is subject to court approval.
The SEC’s accusations focus on Prager’s noncompliance with Generally Accepted Auditing Standards (GAAS) during its audit of FTX from February 2021 to April 2022.
The complaint reveals that Prager misrepresented its adherence to these standards, which resulted in significant flaws in its auditing practices.
Specifically, the SEC stated that Prager did not sufficiently evaluate its ability to perform the audit, particularly concerning risks associated with FTX’s connection to Alameda Research, the trading division of the failed exchange.
Gurbir S. Grewal, the Director of the SEC’s Division of Enforcement, underscored the importance of auditors maintaining independence and exercising due diligence. He remarked:
Effective investor protection relies on cooperation between regulators and key participants like auditors. To fulfill their responsibilities, auditors must remain independent, uphold professional diligence and skepticism, and follow all relevant standards. Our enforcement actions indicate that Prager Metis did not meet these crucial requirements.
Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Assets and Cyber Unit, highlighted that this case serves as a caution for auditors against neglecting their legal obligations.
The head of the regulatory unit reiterated the SEC’s dedication to probing potential infractions within the crypto sector and holding accountable those who jeopardize investor confidence.
Prager Metis to Pay $1 Million for Indemnification Violations
In a related issue, Prager Metis also faced independent charges for breaching auditor independence regulations and assisting clients in violating federal securities laws.
The SEC claimed that between December 2017 and October 2020, the firm “improperly” incorporated indemnification clauses into engagement contracts for over 200 audits, thereby compromising its required independence under federal law.
To resolve these allegations, the firm will incur total civil penalties of $1 million, in addition to disgorgement and prejudgment interest amounting to $205,000.
Currently, FTX’s native token FTT is priced at $1.28, reflecting a slight increase of 0.6%, while the overall cryptocurrency market is seeing a significant rebound, primarily driven by the largest digital currency.
Featured image credit to DALL-E, chart from TradingView.com