A former auditor for FTX has agreed to pay $1.95 million to settle two U.S. Securities and Exchange Commission (SEC) actions alleging misconduct in its audits of the collapsed exchange after it was accused of not understanding the crypto market.
A statement released on September 17 announced that the settlement resolves negligence-based fraud allegations connected to FTX audits, along with separate charges of violating auditor independence regulations.
Prager Metis CPAs, LLC & its CA professional services firm, Prager Metis CPAs LLP, agreed to pay $1.95M to resolve 2 actions alleging misconduct in its audits of the now-defunct crypto asset trading platform, FTX, & auditor independence violations. https://t.co/INoIHKXzsz pic.twitter.com/2rZWGgUPBN
— U.S. Securities and Exchange Commission (@SECGov) September 17, 2024
The SEC claims Prager Metis misrepresented compliance with Generally Accepted Auditing Standards (GAAS) in two FTX audit reports from February 2021 to April 2022. Without admitting or denying the SEC’s findings, the New York-based company agreed to permanent injunctions, as well as to pay a $745,000 civil penalty, and to undertake remedial actions.
Jorge G. Tenreiro, SEC’s crypto assets and cyber unit acting chief, stated: “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.
He added: “As we have seen time and time again, these shortcuts do not pay. They do not pay for the entities who take them or for the multitude of victims that this misconduct leaves in its wake.”
Why is Prager Metis paying SEC over FTX?
SEC claims that Prager failed to understand the risk stemming from the relationship between FTX and Alameda Research LLC, a crypto hedge fund controlled by FTX’s CEO, Sam Bankman-Fried.
The commission’s enforcement chief, Gurbir S. Grewal, stated: “Because Prager’s audits of FTX were conducted without due care, for example, FTX investors lacked crucial protections when making their investment decisions.”
He explained that customers were ultimately defrauded out of billions of dollars and ended up bearing the consequences when FTX collapsed.
Cited by the Financial Times, Prager Metis’s attorney, Bruce Braun, said that “like others, it was a victim of the collusive fraud by management at FTX. Prager Metis remains dedicated to audit quality and committed to continuous improvement.”
In March, Bankman-Fried was sentenced to 25 years in prison for fraud. He is appealing the verdict and sentence.
Earlier this month, ReadWrite reported that SEC said it may challenge the repayment plan of the defunct exchange.
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