SEC initiates legal action against FTX's auditor
The United States Securities and Exchange Commission (SEC) has commenced legal proceedings against an accounting firm that had provided services to cryptocurrency exchange FTX prior to its bankruptcy declaration.
According to a September 29 statement, the SEC alleged that Prager Metis provided auditing services to its clients without maintaining the necessary independence, as it continued to offer accounting services. This practice is prohibited under the auditor independence framework.
To prevent conflicts of interest, accounting and audit tasks must be kept clearly separate. However, the SEC claims that these entwined activities spanned over a period of approximately three years:
While the statement doesn't explicitly mention FTX or any other clients, it does emphasize that there were allegedly "hundreds" of auditor independence violations throughout the three-year period.
Furthermore, a previous court filing pointed out that the FTX Group engaged Metis to audit FTX US and FTX at some point in 2021. Subsequently, FTX declared bankruptcy in November 2022.
The filing alleged that since former FTX CEO Sam Bankman-Fried publicly announced previous FTX audit results, Metis should have recognized that its work would be used by FTX to bolster public trust.
Related: FTX founder’s plea for temporary release should be denied, prosecution says
Concerns were previously reported about the material presented in FTX audit reports.
On Jan. 25, current FTX CEO John J. Ray III told a bankruptcy court that he had “substantial concerns as to the information presented in these audited financial statements.”
Furthermore, Senators Elizabeth Warren and Ron Wyden raised concerns about Prager Metis' impartiality. They argued that it functioned as
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