Charges were brought by the U.S. Securities and Exchange Commission (SEC) against an accounting firm that was employed by the defunct cryptocurrency exchange FTX. The business, Prager Metis, has been charged with aiding clients in violating both federal securities laws and the independence of auditors.
Prager Metis, an FTX accountant, is accused of violating the auditor rules.
The U.S. Securities and Exchange Commission has accused the accounting company Prager Metis CPAs, LLC and its California professional services firm, Prager Metis CPAs, LLP, of breaking the regulations governing auditor independence and encouraging its customers to break the securities laws.
The SEC alleges in its lawsuit that Prager incorporated indemnity clauses in engagement letters for more than 200 audits, reviews, and tests between December 2017 and October 2020. The complaint was filed in the U.S. District Court for the Southern District of Florida. It asserts:
According to the federal securities regulations, Prager was not needed to be independent from its clients for those activities.
Despite regulators frequently informing Prager Metis' top partners that this conduct constituted the business not independent, the Commission claims that Prager Metis continued to sign engagement papers with indemnification clauses and publish "accountant's reports" in which it claimed to be independent.
These 'accountant's reports' were included in several of Prager's clients' SEC filings. The Public Company Accounting Oversight Board allegedly warned Prager that the indemnity terms violated the federal securities laws' requirements for independence, but Prager allegedly neglected to inform its clients of these violations, according to the SEC.
A complaint filed against Prager seeks a permanent injunction, disgorgement plus prejudgment interest, and a civil monetary penalty, according to a news statement released on Friday. The SEC further cited the following remarks from the director of its Miami Regional Office:
Protecting the integrity of financial reporting and fostering public trust both depend on auditor independence. Our case serves as a key reminder that independent auditors are essential to investor safety.
The bankrupt cryptocurrency exchange stated before it collapsed in November 2022 that its 2021 financial statements had been audited by Prager Metis and another company claiming competence in crypto, Armanino, even though the release does not specifically reference FTX or other clients of the accounting firm. FTX's new management had reservations about the company's audited financial statements earlier this year.
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