The United States Securities and Exchange Commission (SEC) has initiated legal proceedings against an accounting firm that had previously provided services to the now-defunct cryptocurrency exchange FTX.
According to a September 29 statement, the SEC alleged that Prager Metis provided auditing services to its clients without maintaining the necessary independence, as it allegedly continued to offer accounting services, a practice that is prohibited in the industry.
The SEC claims that these activities spanned approximately three years:
“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.”
While FTX itself wasn’t explicitly mentioned, the report highlights “hundreds” of auditor independence violations.
Furthermore, a previous court filing pointed out that the FTX Group seemed to have engaged Metis to audit FTX US and FTX at some point in 2021. FTX declared bankruptcy in November 2022.
The filing claimed that given Bankman-Fried’s public announcement of previous FTX audit results, Metis should have been cognizant that its work would be utilized by FTX to enhance public trust.
It was previously reported over concerns over the information presented in the financial statements.
On Jan. 25, current FTX CEO John Ray told a bankruptcy court that he had “substantial concerns as to the information presented in these audited financial statements.”
Furthermore, Senators Elizabeth Warren and Ron Wyden raised concerns about the firm’s impartiality, contending that they functioned as advocates for the crypto industry.
Meanwhile, a law firm that provided services to FTX has come under scrutiny in recent times.
In a Sept. 21 court filing, plaintiffs allege that Fenwick & West can be held liable because it reportedly exceeded the norm when it came to its service offerings to FTX.
However, Fenwick & West denies that it can be held responsible as it falls outside the scope of the representation of the client.