FTX Audit Firm Reaches Agreement With SEC Over $3.15 Million Fine

Key Points:

• Prager Metis settled with the SEC for misconduct in its audits of FTX.
• The FTX audit firm was accused of misrepresenting FTX’s financial standing and violating auditor independence rules.
• Prager Metis agreed to pay $3.15 million in penalties and consented to permanent injunctions.

The US Securities and Exchange Commission has reached a settlement with an audit firm, Prager Metis, over claims of misbehavior in its auditing practices related to the fallen cryptocurrency exchange FTX.

Read more: Former FTX Exec Is Still Fighting Legal Battle With Prosecutors

FTX Audit Firm Charged with Misleading Investors

The SEC said the FTX audit firm issued two audit reports that misstated the crypto firm’s financial condition between February 2021 and April 2022. The regulator alleged Prager Metis violated Generally Accepted Auditing Standards on the audits and did not conduct any procedures to determine whether it was qualified to properly audit the crypto exchange.

The SEC also highlighted his failure to understand the accounting transactions resulting from the complex arrangement between FTX and Alameda Research, a hedge fund run by FTX founder Sam Bankman-Fried.

Under the settlement, Prager Metis will pay $1.95 million to settle charges relating to the auditing of FTX, which blew up in November 2022.

Bankman-Fried was found guilty of siphoning off billions of dollars from FTX customers and using a portion of it to offset losses at Alameda. The sudden collapse resulted in bankruptcy, as customers were left with tremendous losses.

SEC Settlement Settles FTX and Independence Violations

SEC enforcement chief Gurbir Grewal said the deficient audits of Prager Metis denied investors critical protections and made them vulnerable to fraud.

In addition to the action related to FTX, the SEC settled a separate investigation of Prager Metis for violations of the auditor independence rules in connection with over 200 audits conducted between 2017 and 2020. Prager Metis has agreed to pay $1.2 million in civil penalties to resolve those charges.

While the FTX audit firm has neither admitted nor denied the findings from the SEC, it did consent to permanent injunctions and penalties. Bruce Braun, an attorney for Prager Metis, said the firm was pleased to settle the matter and claimed it too was a victim of FTX’s fraudulent management.