SEC and Prager Metis Settle Charges Related to FTX Audits

The Securities and Exchange Commission (SEC) has announced a settlement with audit firm Prager Metis that includes charges related to the firm’s audits of FTX.

The settlement resolves two actions, including SEC allegations about the firm’s audits of the now-bankrupt cryptocurrency exchange and auditor independence violations, the SEC said in a Tuesday (Sept. 17) press release.

Prager Metis did not immediately reply to PYMNTS’ request for comment.

In one action, the SEC alleged that Prager Metis issued two audit reports for FTX between February 2021 and April 2022 that falsely misrepresented that the audits complied with generally accepted auditing standards, according to the release.

The SEC alleged that one example of Prager Metis doing so is that the firm did not adequately assess whether it had the competency and resources to audit FTX, the release said.

Prager Metis did not admit or deny the SEC’s findings, per the release. The company agreed to permanent injunctions, to pay a $745,000 civil penalty and to undertake remedial actions like retaining an independent consultant and abiding by restrictions on accepting new audit clients.

“By limiting Prager’s ability to take on new business and by requiring it to retain an independent compliance consultant, today’s resolutions not only enhance investor protection, they also serve as a warning to audit professionals that are not appropriately meeting their gatekeeping obligations,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in the release.

FTX collapsed after a Nov. 2, 2022, expose revealed to the world the giant hole at the empty center of the relationship between the cryptocurrency exchange and the crypto trading firm Alameda Research, PYMNTS reported in November 2023.

A year after the publication of that expose, FTX CEO Sam Bankman-Fried was convicted on two counts of wire fraud conspiracy, two counts of wire fraud, one count of conspiracy to commit money laundering, conspiracy to commit commodities fraud and conspiracy to commit securities fraud, PYMNTS reported at the time.

In separate charges that were also settled Tuesday, the SEC alleged that Prager Metis violated auditor independence rules between December 2017 and October 2020 by improperly including indemnification provisions in engagement letters for more than 200 audits, reviews and exams, according to the release.

In these final judgments, Prager Metis agreed to be censured and agreed to permanent injunctions, civil penalties of $1 million, and disgorgement with prejudgment interest of $205,000, per the release.