FTX Auditor Fined $2 Million by SEC for Negligence
The U.S. Securities and Exchange Commission (SEC) has fined the auditing firm Prager Metis CPAs $2 million to settle allegations of negligence in its audits of cryptocurrency exchange FTX. The settlement, announced on September 17, 2024, relates to two FTX audit reports from February 2021 to April 2022, where the SEC found evidence of misconduct.
Negligence Allegations and Settlement
The SEC’s investigation revealed that Prager Metis CPAs had misrepresented its compliance with Generally Accepted Auditing Standards (GAAS) in the FTX audit reports. The auditing firm also failed to assess its competency for the FTX audit and did not fully understand the risks associated with the exchange’s relationship with Alameda Research.
Jorge G. Tenreiro, Acting Chief of the SEC’s Crypto Assets and Cyber Unit, emphasized the importance of compliance with the law in the crypto asset markets. He 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.”
As part of the settlement, Prager Metis CPAs agreed to pay $1.95 million to resolve the negligence-based fraud charges related to the FTX audits. The firm also agreed to permanent injunctions, a $745,000 civil penalty, and remedial actions, including an independent consultant review of its audit procedures.
Auditor Independence Violations
In addition to the negligence charges, Prager Metis CPAs also faced separate allegations of violating auditor independence rules. The firm agreed to pay $1 million in civil penalties and $205,000 in disgorgement with prejudgment interest to settle these charges.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, highlighted the impact of Prager’s negligent audits on FTX investors. He stated that the audits were conducted without due care, resulting in investors lacking crucial protections when making their investment decisions.
Ongoing Investigation
While the settlements are subject to court approval, the SEC’s investigation into Prager Metis CPAs’ FTX audits is still ongoing. The regulatory agency continues to monitor the situation closely to ensure compliance with auditing standards and investor protection.
Conclusion
The SEC’s fine of $2 million against Prager Metis CPAs for negligence in its audits of FTX underscores the importance of upholding auditing standards and investor protection in the cryptocurrency market. The settlements reached between the auditing firm and the SEC serve as a reminder to auditing firms to conduct thorough and independent audits to maintain investor trust and market integrity.