The United States Securities and Exchange Commission (SEC) has taken legal action against accounting firm Prager Metis for alleged violations of auditor independence rules. The SEC stated that the firm provided auditing services to its clients, including cryptocurrency exchange FTX, while also offering accounting services, which is prohibited under the auditor independence framework. The SEC claims that these violations occurred over a period of three years. Although the statement does not specifically mention FTX, it highlights that there were allegedly “hundreds” of auditor independence violations during this time.
In a previous court filing, it was revealed that FTX engaged Prager Metis to audit its operations in 2021 before declaring bankruptcy in November 2022. The filing argued that Prager Metis should have recognized that their work would be used to strengthen public trust, especially considering former FTX CEO Sam Bankman-Fried’s public announcement of previous FTX audit results. Concerns were previously raised about the accuracy of the material presented in FTX audit reports, with FTX’s current CEO expressing doubts about the information presented in audited financial statements.
Senators Elizabeth Warren and Ron Wyden have also raised concerns about Prager Metis’ impartiality, suggesting that the firm acted as an advocate for the crypto industry. Meanwhile, another firm that provided services to FTX, Fenwick & West, is facing allegations that it should be held partially responsible for FTX’s collapse due to its extensive service offerings to the exchange. However, Fenwick & West argues that it cannot be held accountable for a client’s misconduct as long as its actions remain within the bounds of the client’s representation.
