The U.S. Securities and Exchange Commission has reached a settlement with audit firm Prager Metis. Prager Metis will pay $1.95 million to resolve two allegations of misconduct in the audit of the shuttered cryptocurrency exchange FTX.
The securities regulator accused Prager of “falsely misrepresenting” FTX’s financial condition between February 2021 and April 2022 and submitting two questionable audit reports that failed to meet generally accepted auditing standards.
FTX, once one of the world’s largest cryptocurrency exchanges, shut down after a surge in customer withdrawals due to a lack of trust in the exchange, with reports that most of the assets were illiquid altcoins. Founder Sam Bankman-Friend was convicted on seven counts of fraud and sentenced to 25 years in prison, but he plans to appeal the decision..
“The SEC alleges that Prager failed to follow GAAS and its own policies and procedures, including failing to properly assess whether it had the capacity and resources to conduct an audit of FTX,” Prager said in a statement.
Specifically, the SEC accused Prager of failing to disclose “the increased risk arising from the relationship between FTX and Alameda Research,” the trading firm at the center of the exchange’s downfall founded by Bankman-Fried.
“To fulfill their role, auditors must, among other things, be independent, exercise due professional care and skepticism, and adhere to all applicable professional standards. As alleged in this enforcement action, Prager Metis fell short in all of these areas,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in a statement.
Prager Metis, which previously had offices in the Metaverse, agreed to pay a $1 million fine and a $205,000 restitution, subject to court approval.
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