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SEC initiates legal action against FTX’s auditor

  • The United States Securities and Exchange Commission (SEC) has filed a lawsuit against an accounting firm that provided services to cryptocurrency exchange FTX before its bankruptcy declaration.
  • The SEC alleges that Prager Metis, the accounting firm, violated auditor independence rules by offering accounting services while providing auditing services to its clients. Combining these activities is prohibited by the auditor independence framework.
  • The alleged violations of auditor independence spanned over a period of approximately three years.
  • Although the SEC’s statement does not explicitly mention FTX or other clients, it emphasizes that there were allegedly “hundreds” of auditor independence violations during the three-year period.
  • FTX had engaged Prager Metis to audit its US and global operations in 2021, and later declared bankruptcy in 2022.
  • Concerns were previously raised about the material presented in FTX audit reports, and FTX CEO John J. Ray III expressed substantial concerns about the information in the audited financial statements.
  • Sens. Elizabeth Warren and Ron Wyden have questioned Prager Metis’ impartiality and argued that the firm appeared to function as an advocate for the crypto industry.
  • Another law firm, Fenwick & West, which provided services to FTX, has also come under scrutiny in relation to FTX’s collapse.
  • The law firm has stated that it cannot be held responsible for a client’s misconduct as long as its actions remain within the bounds of the client’s representation.

Image Source: SEC

Disclaimer: This article is provided for informational purposes only and should not be considered as investment advice. The information provided is not intended to be a substitute for professional legal, financial, or investment advice.

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