The SEC Takes Legal Action Against FTX’s Former Auditor
The United States Securities and Exchange Commission (SEC) is continuing its efforts to regulate the crypto industry. In its latest move, the SEC has filed a lawsuit against Prager Metis, the former auditor of FTX, accusing them of numerous violations.
Alleged Violations of Federal Securities Laws
The SEC initiated the lawsuit on September 29, alleging that Prager Metis provided auditing services to its clients without maintaining the necessary independence. The regulatory framework of the SEC requires the separation of accounting and audit functions to prevent conflicts of interest.
According to the SEC’s complaint, Prager Metis improperly added indemnification provisions in engagement letters for over 200 audits, reviews, and exams between December 2017 and October 2020. This allegedly compromised their independence from clients, as mandated by federal securities laws.
Failure to Advise Clients of Violations
The SEC also accused Prager Metis of signing “accountant’s reports” that claimed independence in connection with audits and exams. The agency highlighted that despite being informed by the Public Company Accounting Oversight Board (PCAOB) that these provisions violated independence requirements, Prager failed to inform their clients of these violations.
Senators Elizabeth Warren and Ron Wyden’s Criticisms
Earlier this year, Senators Elizabeth Warren and Ron Wyden raised concerns about Prager Metis’ lack of independence when auditing cryptocurrency companies. They argued that the firm acted as an advocate for the crypto industry. The senators brought their complaints to the attention of the PCAOB, which is overseen by the SEC.
Notably, Prager audited FTX and provided a clean bill of health before it declared bankruptcy.
Hot Take: A Step Towards Regulating Crypto
The SEC’s legal action against Prager Metis is a positive step towards regulating the crypto industry. By cracking down on violators, the SEC aims to eliminate bad actors that undermine the integrity of the market.
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