- Prager Metis and its California affiliate have agreed to pay $1.95 million to resolve SEC allegations related to their audits of FTX and auditor independence violations
- The SEC claims Prager issued misleading audit reports for FTX and disregarded crucial risks associated with the crypto platform
- The settlement includes penalties, permanent injunctions, and a requirement for Prager to retain an independent consultant to review its audit practices
Prager Metis CPAs, LLC and its California counterpart have agreed to pay $1.95 million to settle two SEC enforcement actions. The allegations include misrepresenting their audits of the now-defunct FTX crypto trading platform and violating auditor independence rules. The SEC claims that Prager’s audits of FTX were conducted without sufficient care, leaving investors vulnerable to fraud. In addition to financial penalties, Prager must implement remedial actions such as retaining an independent consultant.
SEC Accuses Prager of Negligence
The SEC’s complaints center on Prager’s audits of FTX between February 2021 and April 2022. According to the SEC, Prager falsely claimed compliance with Generally Accepted Auditing Standards (GAAS) in its reports, despite significant failures in its processes.
“Prager failed to assess whether it had the competency and resources to audit FTX,” the SEC’s report stated. This negligence extended to Prager’s inability to recognize the risks posed by FTX’s ties to Alameda Research, a hedge fund controlled by FTX’s CEO, further jeopardizing investors.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the broader consequences of Prager’s failures, saying, “FTX investors lacked crucial protections…they were defrauded out of billions of dollars when FTX collapsed.” Grewal also highlighted the settlement’s importance in reinforcing auditor accountability, saying it serves as a “warning to audit professionals not appropriately meeting their gatekeeping obligations.”
Prager Doesn’t Admit to Faults
Prager has not admitted or denied the SEC’s findings but has agreed to a series of penalties and preventive measures, including a $745,000 civil penalty and a requirement to hire an independent consultant to review and update its audit policies. Additionally, the firm will face restrictions on accepting new audit clients, subject to court approval.
The SEC also announced that Prager had settled previous charges for violating auditor independence rules: between 2017 and 2020, Prager allegedly included improper indemnification provisions in over 200 audits, undermining its required independence from clients. For these violations, Prager has agreed to pay an additional $1 million in combined penalties and disgorgement, alongside further compliance measures.
