Accounting firm Prager Metis fined $1.95 million by SEC for falsely auditing FTX

The U.S. Securities and Exchange Commission (SEC) recently charged accounting firm Prager Metis, responsible for auditing the exchange FTX, for improper auditing practices, which contributed to the collapse of FTX and subsequently affected users worldwide, resulting in a hefty fine of nearly $1.95 million.

History of Audit Fraud Leads to Heavy Sentencing of Nearly $1.95 Million

According to CoinDesk, the international accounting firm Prager Metis has currently signed a settlement agreement with the SEC due to improper audits before the collapse of FTX, which led to SEC accusations. The court has ruled that Prager Metis must pay $740,000 as a settlement for the SEC's accusations.

The agreement states that due to Prager Metis' history of audit fraud, the SEC will launch a secondary investigation, stemming from the company's improper audits of over 200 companies from 2017 to 2020, involving numerous violations of accounting independence principles. Currently, Prager Metis has agreed to pay a $1.2 million civil penalty to resolve these accusations, pending court approval. In total, the fine amounts to nearly $1.95 million.

False Claims of Meeting Audit Standards, Lack of Professionalism, and Rushed Work

The SEC stated that the accounting firm Prager Metis wrote two audit reports for FTX from 2021 to 2022, deceiving the SEC by claiming that FTX substantially met the "Generally Accepted Auditing Standards (GAAS)," when in fact, FTX did not meet the standards in most audit aspects.

The SEC further elaborated that Prager Metis rushed to assemble an accounting team and accepted audit tasks from FTX, lacking not only the abilities, knowledge, and experience in audit-related matters but also failing to understand the business relationship between FTX and Alameda, as well as Alameda's role within FTX.

It was added that because Prager Metis did not carefully and seriously conduct the audit of FTX, it became one of the key factors leading to the collapse of FTX and resulting in losses of billions of dollars for users worldwide.

SEC's Warning to the Industry, Prager Metis to Provide Remedies and Face Permanent Ban

The SEC can be seen as setting an example with this incident, not only imposing a "permanent ban" on Prager Metis but also requiring the firm to provide remedies, including hiring professional audit consultants for evaluation, ensuring audit quality, and accepting "customized requests from new clients." This incident serves as a warning to the audit industry to handle their professionalism and business with caution and rigor.

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