According to the SEC, Prager Metis, an accounting company hired by the defunct cryptocurrency exchange FTX in 2021, violated auditor independence hundreds of times.
The Securities and Exchange Commission (SEC) of the United States has filed a lawsuit against an accounting firm that worked with the cryptocurrency exchange FTX before it filed for bankruptcy.
In a recent statement, the SEC said that accounting firm Prager Metis continued to sell accounting services while providing auditing services to its clients without preserving the required independence. The framework for auditor independence forbids this practise.
Accounting and auditing duties must be maintained apart to avoid conflicts of interest. However, according to the SEC, these intertwined operations took place over a period of around three years:
“As alleged in our case, Prager’s audits, reviews, and tests failed to adhere to these essential standards over a period of almost three years. The importance of auditor independence for investor protection is emphasised by our complaint.
The statement emphasises that there were reportedly “hundreds” of auditor independence violations over the course of the three-year period even though it doesn’t specifically reference FTX or any other clients.
The FTX Group hired Metis to audit FTX US and FTX at some time in 2021, according to a recent court filing. FTX then filed for bankruptcy in November 2022.
The complaint claimed that Metis should have known that FTX would use its work to increase public trust since former FTX CEO Sam Bankman-Fried had publicly disclosed earlier FTX audit results. The information supplied in FTX audit reports has already been the subject of complaints. John J. Ray III, the current CEO of FTX, stated in a bankruptcy court on January 25 that he had “substantial concerns as to the information presented in these audited financial statements.”
Senators Ron Wyden and Elizabeth Warren also questioned Prager Metis’ objectivity. They claimed that it served as an ally for the cryptocurrency sector. Meanwhile, a law firm that represented FTX just filed for bankruptcy.
Plaintiffs claim that U.S. law firm Fenwick & West should be held partially responsible for FTX’s failure since it allegedly went above and beyond the call of duty in terms of its service offers to the exchange in a court document filed on September 21.
Fenwick & West contends that as long as its acts stay within the parameters of the client’s representation, it cannot be held liable for the misbehaviour of a client.