The United States Securities and Exchange Commission (SEC) has initiated legal proceedings against Prager Metis, an accounting firm that had previously provided services to the cryptocurrency exchange FTX before its declaration of bankruptcy.
The SEC alleges that Prager Metis violated auditor independence regulations by providing auditing services while also offering accounting services to its clients. This simultaneous provision of services is prohibited under the auditor independence framework.
The SEC's statement, issued on September 29, does not explicitly mention FTX or any specific clients but underscores that there were allegedly "hundreds" of violations of auditor independence over a three-year period.
A prior court filing revealed that the FTX Group had engaged Prager Metis to audit FTX US and FTX at some point in 2021. Subsequently, FTX declared bankruptcy in November 2022. The filing suggested that Prager Metis should have recognized the potential use of its work by FTX to bolster public trust, especially since former FTX CEO Sam Bankman-Fried had publicly announced previous FTX audit results.
On January 25, the current CEO of FTX, John J. Ray III, expressed substantial concerns about the information presented in the audited financial statements during a bankruptcy court hearing.
Senators Elizabeth Warren and Ron Wyden had also raised concerns about Prager Metis's impartiality, suggesting that it acted as an advocate for the cryptocurrency industry.
Additionally, a law firm that provided services to FTX is currently facing legal action. In a court filing on September 21, plaintiffs allege that the U.S.-based law firm Fenwick & West should share partial responsibility for FTX's collapse because it reportedly went beyond standard service offerings to the exchange. However, Fenwick & West contends that it cannot be held accountable for a client's misconduct as long as its actions remained within the scope of the client's representation.
Comments