The United States Securities and Exchange Commission (SEC) has taken legal action against an accounting firm that was providing services to the now bankrupt cryptocurrency exchange FTX.
According to a September 29 statement, the SEC is alleging that the firm, Prager Metis, breached the auditor independence framework by continuing to offer accounting services while also providing auditing services to its clients.
The SEC stated: “As alleged in our complaint, over a period of nearly three years, Prager’s audits, reviews, and exams fell short of these fundamental principles. Our complaint is an important reminder that auditor independence is crucial to investor protection.”
Additionally, a court filing highlighted that FTX had engaged Prager Metis to audit FTX US and FTX at some point in 2021. After the audit, FTX declared bankruptcy in November 2022. The filing went on to allege that since former FTX CEO Sam Bankman-Fried publicly announced previous FTX audit results, Prager Metis should have been aware that its work would be used to rebuild trust in the public.
Further raising concerns, Senators Elizabeth Warren and Ron Wyden commented on Prager Metis’ impartiality, arguing that it functioned as an advocate for the crypto industry.
Moreover, a law firm that provided services to FTX, Fenwick & West, has recently come under scrutiny. Plaintiffs in a Sept. 21 court filing argued that Fenwick & West should be held partially accountable for FTX’s collapse due to the scope of their service offerings to the exchange. However, Fenwick & West asserted that it cannot be held accountable for a client’s misconduct as long as its actions remain within the bounds of the client’s representation.
