SEC and FTX auditor Prager Metis settle misconduct case

The U.S. Securities and Exchange Commission (SEC) and Prager Metis have agreed to resolve allegations of auditor negligence related to bankrupt cryptocurrency exchange FTX.

Auditor Prager Metis has agreed to pay $1.95 million to resolve two charges brought by the Securities and Exchange Commission over allegations that it created misleading reports for Sam Bankman-Fried’s bankrupt cryptocurrency giant between February 2021 and April 2022.

The SEC said Prager fell below generally accepted auditing standards and failed to represent the “heightened risk” posed by ties between FTX and sister investment fund Alameda Research.

For example, because Prager’s FTX audits were conducted without due diligence, FTX investors were left without critical protections when making investment decisions. As a result, they were defrauded of billions of dollars by FTX and suffered the consequences when FTX collapsed.

Gurbir S. Grewal, director of the SEC Enforcement Division

FTX and its founder, Sam Bankman-Fried, once dined with Washington’s elite and worked to craft digital asset regulations. The exchange was considered one of the largest trading platforms for cryptocurrencies, along with Binance and Coinbase.

That changed in 2022 when watchdogs discovered the company’s fraudulent financial statements and the commingling of client funds with company money.

There was a liquidity crunch and Bankman-Fried halted withdrawals from the exchange before declaring bankruptcy shortly after. The US Justice Department extradited the former crypto tycoon to Manhattan, where a judge sentenced him to 25 years in prison.

Last week, SBF formally appealed the decision, claiming judicial bias in the case. Its lawyers filed papers requesting a new trial after Bankman-Fried insisted he did not deliberately defraud thousands of investors of more than $8 billion.