SEC Files Lawsuit Against Prager Metis for Auditor Independence Violations

The US Securities and Exchange Commission (SEC) recently made news by suing renowned accounting firm Prager Metis, alleging a violation of the rules governing auditor independence. The case, which was filed on September 29, has broad ramifications for the financial sector, especially in light of cryptocurrency exchanges like FTX.

The SEC’s Allegations

According to the SEC’s statement, Prager Metis offered its clients with a dual set of services for around three years—auditing and accounting—in direct violation of SEC rules. In order to avoid any potential conflicts of interest, these standards are meant to make sure that auditors retain total independence from the firms they audit.

According to the SEC’s lawsuit, between 2019 and 2021, Prager Metis performed “hundreds” of audits, reviews, and exams while concurrently providing accounting services to the same customers. According to the organization, these activities gravely breached the core tenants of auditor independence.

The firms involved are not named in the SEC statement, but court records show that Prager Metis audited the financial statements of FTX and its subsidiary, FTX US, in 2021. When FTX filed for bankruptcy in November 2022 amid accusations of mishandling client monies, it attracted considerable media attention.

Sam Bankman-Fried, former CEO of FTX, has displayed Prager Metis audit findings to highlight the exchange’s sound financial position. But after FTX’s demise, John Ray, the current CEO, had “substantial concerns” over the veracity of those certified financial figures.

Senators from the United States have gone so far as to claim that Prager Metis serves more as an ally of the cryptocurrency sector than as an impartial auditor. However, the company strenuously rejects any impropriety associated with its work for FTX.

The SEC’s move to sue Prager Metis serves as a reminder of how crucial auditor independence is to protecting investor interests. The integrity and openness of the financial markets are anchored by auditor independence.

The litigation is serving as a harsh reminder of the need to maintain a distinct distinction between auditing and any extra services offered to customers. It reaffirms the SEC’s commitment to ensuring that businesses abide by these crucial standards, fostering investor confidence and defending the integrity of the financial system.