SEC fines Prager Metis $1.95 million over FTX audit failures

The U.S. Securities and Exchange Commission (SEC) has fined Prager Metis CPAs LLC and its affiliate $1.95 million for negligence and non-compliance in their audits of the cryptocurrency exchange FTX (CRYPTO:FTT).

The settlement addresses charges that the firm failed to meet industry standards and violated auditor independence rules, revealing serious deficiencies in its auditing practices.

Between February 2021 and April 2022, Prager Metis issued two audit reports for FTX that falsely claimed compliance with Generally Accepted Auditing Standards (GAAS), according to the SEC.

The investigation uncovered that Prager Metis did not properly assess its ability to handle the FTX audit, failed to identify key risks, and did not comply with GAAS requirements in several areas.

A significant concern was the firm’s failure to address the risks related to FTX’s relationship with Alameda Research LLC, a crypto hedge fund controlled by FTX’s CEO.

Gurbir S. Grewal, the SEC’s Enforcement Director, remarked, “Prager’s audits of FTX were conducted without due care,” underscoring the gravity of the firm’s shortcomings, especially in the volatile cryptocurrency sector where accurate audits are vital for investor confidence.

The SEC also found that Prager Metis misrepresented its adherence to auditing standards and auditor independence rules, further questioning the reliability of its audits.

Prager Metis CPAs, an independent accounting and consulting firm with over 500 staff and 100 partners, operates 18 offices in major cities like New York, Los Angeles, Washington D.C., and London.

The firm provides a range of accounting, audit, and consulting services with a focus on customized client relationships.

At the time of reporting, the FTX (FTT) price was $1.28.