Audit Firm Prager Metis Settles With SEC for $1.95M Over Misleading FTX Financial Reports

• Prager Metis faced SEC charges for misrepresenting FTX’s financial condition and failing to disclose FTX-Alameda ties.
• FTX’s collapse was linked to its illiquid assets and misuse of customer funds by Alameda, overlooked in Prager’s audits.
• Prager Metis agreed to pay $1.95M, including $1.75M in fines, for filing misleading audit reports and not following GAAS.

Audit firm Prager Metis agreed to a $1.95 million settlement with the U.S. Securities and Exchange Commission (SEC) following allegations of misconduct during its audits of the now-defunct cryptocurrency exchange, FTX. 

The charges stem from accusations that Prager Metis misrepresented FTX’s financial condition and failed to disclose critical details regarding the relationship between FTX and Alameda Research, a trading firm linked to FTX’s founder, Sam Bankman-Fried.

SEC’s Accusations Against Prager Metis

The SEC charged Prager Metis with filing misleading audit reports in 2021 and 2022. These reports allegedly violated generally accepted auditing standards (GAAS) and failed to adequately assess FTX’s financial health. 

Notably, the audit firm was also accused of overlooking the risks posed by the close relationship between FTX and Alameda Research, which played a significant role in FTX’s collapse. The SEC highlighted that Prager’s audits gave customers false confidence, ultimately contributing to billions of dollars in losses.

FTX’s Collapse and Sam Bankman-Fried’s Role

FTX, once a leading cryptocurrency exchange, saw its downfall after reports revealed its reliance on illiquid assets, triggering mass customer withdrawals. The collapse was further complicated by FTX’s connection to Alameda Research, where customer funds were allegedly misused. 

Sam Bankman-Fried, the founder of both entities, was convicted of multiple fraud charges and sentenced to 25 years in prison. The SEC noted that Prager’s audits failed to identify these risks, depriving FTX customers of vital protections.

Prager Metis’ Response and Settlement Details

Prager Metis did not admit to or deny the allegations but acknowledged its shortcomings. In a statement, the firm remarked, 

The SEC alleges that Prager failed to follow GAAS and its own policies and procedures by, among other deficiencies, not adequately assessing whether it had the competency and resources to undertake the audit of FTX.

As part of the settlement, the firm agreed to pay $1.75 million in civil fines and $205,000 in disgorged profits, pending court approval.