The SEC Takes Legal Action Against Accounting Firm Linked to FTX
The United States Securities and Exchange Commission (SEC) has filed a lawsuit against Prager Metis, an accounting firm that provided services to cryptocurrency exchange FTX before it declared bankruptcy. The SEC alleges that Prager Metis violated auditor independence rules by offering auditing services while also providing accounting services.
Auditor Independence Violations
The SEC claims that Prager Metis’ entwined activities of auditing and accounting went on for nearly three years, resulting in “hundreds” of violations of auditor independence. These violations are considered a breach of investor protection.
FTX Connection
While the SEC statement does not specifically mention FTX, a previous court filing revealed that Prager Metis was engaged to audit FTX US and FTX in 2021. Following this audit, FTX filed for bankruptcy in November 2022. The filing argued that Prager Metis should have been aware that their work would be used by FTX to build public trust.
Hot Take: Upholding Auditor Independence for Investor Protection
The SEC’s legal action against Prager Metis highlights the importance of maintaining auditor independence to safeguard investors. By prohibiting the intertwining of auditing and accounting services, regulations aim to prevent conflicts of interest and ensure transparency in financial reporting. This case serves as a reminder to accounting firms and auditors about the fundamental principles of their profession and their responsibility towards investor protection.
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