Prager Metis CPAs to Pay $1.95 Million for Audit Misconduct Involving FTX
Prager Metis CPAs has reached a settlement totaling $1.95 million with the U.S. Securities and Exchange Commission (SEC) to resolve allegations of misconduct in its audits of FTX, alongside violations of auditor independence regulations. This announcement was made on September 17.
Overview of the Settlement
The settlement comes in response to negligence-based fraud charges linked to previous audits conducted on FTX, as well as claims of breaching auditor independence rules.
Key Statements from SEC Officials
Jorge G. Tenreiro, the Acting Chief of the SEC’s Crypto Assets and Cyber Unit, remarked:
“Once more we see an entity, lured by the siren song of the crypto asset markets, cutting corners on its obligations to comply with the law.”
Allegations Against Prager Metis
- The SEC claims that Prager misrepresented adherence to Generally Accepted Auditing Standards (GAAS) in two FTX audit reports dated from February 2021 to April 2022.
- Prager allegedly did not assess its competency for the audit concerning FTX nor did it sufficiently understand the risks arising from the exchange’s association with Alameda Research.
Impact on Investors
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, highlighted that Prager’s audits lacked the necessary care, leading to inadequate investor protections regarding their investment decisions concerning FTX.
Details of the Settlement Agreement
While Prager did not admit or deny the findings, the settlement includes:
- A permanent injunction against future violations
- A civil penalty of $745,000 related to the FTX audits
- Remedial measures, including a thorough review of its audit practices by an independent consultant
Additionally, in a separate agreement, the Prager Entities consented to resolve prior audibility independence violations, resulting in a payment of:
- $1 million in civil penalties
- $205,000 in disgorgement with prejudgment interest
Next Steps
The settlements are pending approval from the court, and the SEC continues its investigation into Prager’s audits of FTX.