Former FTX Accountant Prager Metis Sued By SEC

Updated: 02 October 2023

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Former FTX accountant Prager Metis was sued by the US Securities and Exchange Commission (SEC) for violating auditor independence rules and aiding and abetting its clients’ violations of federal securities laws.

Prager Metis improperly included indemnification provisions in engagement letters for more than 200 audits, reviews, and exams between approximately December 2017 and October 2020, the SEC said. Prager thus failed to maintain its independence from its clients as required under federal securities laws, it added

“Over a period of nearly three years, Prager’s audits, reviews, and exams fell short of these fundamental principles,” it said. “Auditor independence is crucial to investor protection.”

Today we announced charges against international accounting firm Prager Metis for committing hundreds of auditor independence violations. https://t.co/P7mBzw96x6

— U.S. Securities and Exchange Commission (@SECGov) September 29, 2023

The SEC further alleged that Prager Metis continued to sign engagement letters containing indemnification provisions and also issued “accountant’s reports” in which it purported to be independent in connection with its audits and exams, even after Prager’s senior partners repeatedly were notified that inclusion of indemnification provisions in engagement letters rendered Prager not independent.

Many of Prager Metis’s clients included those “accountant’s reports” in their filings with the SEC, it said. Prager allegedly also failed to advise its clients of its violations, even after the Public Company Accounting Oversight Board informed Prager Metis that the indemnification provisions violated the independence requirements of the federal securities laws, it added.

Prager Metis Ties to FTX

While the current allegations and lawsuit do not mention the firm’s connection with FTX, a previous court filing said that Prager Metis “facilitated the FTX Group enterprise by giving Bankman-Fried’s entities clean bills of health, which Bankman-Fried used to convince customers and investors to trust him with their money.”

https://twitter.com/retheauditors/status/1707835206143500756

The complaint added that Prager Metis should have known that FTX would use its work to increase public trust since former FTX CEO Sam Bankman-Fried had publicly disclosed earlier FTX audit results.

While FTX filed for bankruptcy in the United States with a $7 billion deficiency on its balance sheet in November, Prager Metis reported $1 billion in revenues for the year 2021.

SEC Seeks Fine and Disgorgement

The SEC is seeking a permanent injunction against Prager Metis, a fine, and the forfeiture of income earned through from the business.

In response, Prager Metis stated that the company disagrees with the SEC’s claims and that they “solely arose from template indemnification language used several years ago that was never enforced or sought to be enforced,” according to an email to the Wall Street Journal.

The accounting company added that it will defend itself in court.

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