SEC Settles with Prager Metis for $1.95M Over FTX Audit Failures and Hidden Risks

• Prager Metis agrees to a $1.95M settlement for FTX audit failures, including hiding links to Alameda Research and misleading reports.
• SEC’s settlement with Prager Metis includes audit bans and a new consultant requirement, highlighting failures in FTX audit practices.
• Prager Metis faces audit restrictions and must hire an outside consultant after settling for $1.95M over FTX-related missteps.

Prager Metis, an auditing firm, has reached a settlement settled with the SEC for $1.95 million. This settlement addresses complaints about the company’s audit of the exchange FTX. Prager Metis had lied about FTX’s profitability and covered up the company’s relationship with Alameda Research. In the continuing examination of FTX’s collapse.

Prager Metis CPAs, LLC & its CA professional services firm, Prager Metis CPAs LLP, agreed to pay $1.95M to resolve 2 actions alleging misconduct in its audits of the now-defunct crypto asset trading platform, FTX, & auditor independence violations. https://t.co/INoIHKXzsz pic.twitter.com/2rZWGgUPBN

— U.S. Securities and Exchange Commission (@SECGov) September 17, 2024

Errors and Misrepresentations in Audits

As per the SEC, the reports were misleading since they did not adhere to the auditing standards known as “GAAS”. It is accused of having misjudged potential risks and pooh-poohed its own capability to audit FTX. Prager Metis thus failed to identify important problems in its audit, which ultimately led to FTX’s demise.

The fact that Prager Metis neglected to draw attention to the dangers posed by FTX’s collaboration with Alameda Research was another point of contention. The SEC claims this was a major oversight that led to this disaster. 

A key factor in the demise of the exchange was the trading company, which was run by FTX’s founder, Sam Bankman-Fried. The silence regarding this relationship was therefore very important.

Consequences and Industry Implications

Prager Metis has consented to a number of limitations in addition to the $1.95 million settlement. Future audit work by the business will be prohibited, and it will be required to engage an outside consultant to examine its audit procedures. Moving future, this is meant to guarantee adherence to auditing requirements.

The SEC’s dedication to upholding strict audit standards is demonstrated by this settlement. Auditor independence is essential for safeguarding investors, as noted by Eric I. Bustillo of the SEC’s Miami Regional Office. The severity of not meeting these norms is reflected in Prager Metis’s consequences.

One event that took place in November 2022 was FTX’s failure. The usage of FTX Token (FTT) as collateral resulted in a liquidity crisis, which made the exchange’s problems worse. This crisis consequently caused consumer losses worth billions of dollars.

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