FTX Auditor Prager Metis Settles for $1.95 Million Due to Negligence
FTX’s former auditor, Prager Metis, has agreed to pay $745,000 in civil penalties to the Securities and Exchange Commission (SEC) to settle allegations of misconduct related to its audits of the now-defunct cryptocurrency exchange. The SEC also revealed that Prager Metis will pay an additional $1.2 million for violating auditor independence rules during audits of over 200 companies from 2017 to 2020. The settlement includes $1 million in civil penalties and $205,000 in recovery and interest.
The SEC’s complaint against Prager Metis highlighted negligence-based fraud in two audit reports for FTX, one in 2021 and another in 2022. The regulator accused the audit firm of falsely claiming that the audits were conducted in accordance with Generally Accepted Auditing Standards (GAAS) while disregarding multiple aspects of the framework, as well as its own policies and procedures. Additionally, the SEC noted that Prager Metis failed to establish the connection between FTX and its sister crypto hedge fund, Alameda Research.
Gurbir Grewal, Director of the SEC’s Division of Enforcement, emphasized that auditors are expected to be independent, exercise professional care and skepticism, and comply with all relevant standards. Grewal stated, “Prager Metis fell short in all of these areas” in relation to their audits of FTX.
FTX, once valued at $32 billion, filed for bankruptcy in November 2022 due to the unethical practices of its founder and former CEO, Sam Bankman-Fried. Bankman-Fried, who commingled customer funds with business funds, was convicted of seven criminal counts of fraud and conspiracy and received a 25-year prison sentence. His legal team has recently appealed the conviction and sought a new trial.
Grewal further highlighted the consequences of Prager Metis’ negligence, stating that FTX investors lacked crucial protections when making investment decisions due to the audits’ lack of care. Ultimately, investors were defrauded out of billions of dollars as FTX collapsed.