Another FTX Casualty, Prager Metis Settles With SEC for $1.95m
Key Takeaways
- FTX auditor Prager Metis has settled with the SEC for audit norm violations.
- Prager Metis conducted two defunct FTX audits between 2021 and 2022.
- SEC accused Prager of falsely claiming to have followed GAAS standards while auditing FTX.
The aftershocks of the FTX fiasco continue to reverberate nearly two years after the company’s catastrophic failure in November 2022.
The latest ripple in the ongoing enforcement effort has reached a key cog in the exchange’s machinery: its audit firm, Prager Metis.
In a settlement announced on Sept. 17, the Securities and Exchange Commission (SEC) levied a $1.95 million penalty on the audit firm as part of an ongoing investigation into the businesses and firms accountable for FTX’s rise and fall.
Audit Firm Violated Policies to Give FTX Clean Sheets
According to the SEC, the audit firm’s reviews of FTX’s financial records were riddled with problems, violating fundamental principles of auditing and independence.
Between February 2021 and April 2022, Prager Metis issued two audit reports that purported to have been conducted per Generally Accepted Auditing Standards or GAAS.
However, the SEC alleged that these reports were inaccurate and misleading, as the firm had failed to follow proper procedures and ignored potential risks.
The audit firm’s shortcomings, the SEC charged, were particularly egregious in its assessment of the complex relationship between FTX and Alameda Research, a hedge fund controlled by the exchange’s chief executive.
“This quality control failure led Prager to fail to comply with GAAS in multiple aspects of the audit, most significantly by failing to understand the increased risk stemming from the relationship between FTX and Alameda Research LLC, a crypto hedge fund controlled by FTX’s CEO,” the SEC wrote.
Prager Metis has agreed to settle the SEC’s charges, consenting to pay a civil penalty of $745,000 and a separate disgorgement of $1.2 million, for a total of $1.95 million.
The firm has also agreed to be permanently barred from future auditing work, a major punishment for what the SEC characterized as negligent and reckless conduct.
Prager Metis Had a History of Violations
The civil penalties against the audit firm are not a first.
Prager Metis has previously faced regulatory action for violating auditor independence rules.
Between December 2017 and October 2020, the firm conducted over 200 audits, reviews, and exams that the SEC alleged were not independent of its clients. As a result, Prager Metis was fined $1 million and ordered to pay a combined disgorgement with prejudgment interest of $205,000.
Prager Metis also agreed to pay $1 million and combined disgorgement with prejudgment interest of $205,000 for violating auditor independence rules and aiding and abetting their clients’ violations of federal securities laws.
The SEC takes auditor independence very seriously, and for good reason. As Eric I. Bustillo, director of the SEC’s Miami Regional Office, noted, “Auditor independence is critical to investor protection and a fundamental cornerstone of the integrity of our financial markets.”
In the case of FTX, Prager Metis’s lack of independence was a contributing factor to the exchange’s downfall.
The firm’s failure to conduct proper audits allowed FTX to continue fudging its balance sheet and hiding its true relationship with Alameda Research , a hedge fund controlled by the exchange’s chief executive.
The consequences were disastrous: FTX, once the world’s second-largest exchange, collapsed in November 2022, wiping out billions of dollars in customer funds.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
You may also like
Trump turns on ‘buddy’ Putin over Ukraine, says he’ll slap Russia with sanctions now
Share link:In this post: Trump warned he may hit Russia with new sanctions after fresh missile attacks on civilians. Trump met with Zelenskyy in Rome and called the meeting productive, but gave no full details. Trump offered a peace deal that includes recognizing Crimea as Russian territory, which Zelenskyy rejected.
Trump’s economic and geopolitical failures took center stage at Pope Francis’ funeral
Share link:In this post: Trump’s economic and diplomatic tensions took over the spotlight at Pope Francis’ funeral. Trump met briefly with Zelenskyy, Macron, and Starmer during the service but made little progress. Trump skipped a second meeting with Zelenskyy and left Rome quickly after the Mass.

Elon Musk and Nobel laureates call for investigation into OpenAI’s nonprofit mission
Share link:In this post: Elon Musk called OpenAI restructuring plan the “scam of the century” after experts oppose it. Legal and AI experts have called on Attorneys General of Delaware and California to OpenAI core mission as a non-profit. Concerns about Open AI deviating from its non-profit origins is not limited to Musk.

Republicans propose shutting down US audit regulator PCAOB
Share link:In this post: Republicans plan to scrap the Public Company Accounting Oversight Board (PCAOB). The agency’s responsibilities could be pushed to the SEC if the lawmakers succeed in shutting it down. Republicans also want to pass a major tax bill that could change the non-profit sector.

Trending news
MoreCrypto prices
More








