The United States Securities and Exchange Commission (SEC) has taken legal action against accounting firm Prager Metis for allegedly violating auditor independence rules while providing services to cryptocurrency exchange FTX before its bankruptcy. The SEC claims that Prager Metis offered auditing and accounting services simultaneously, which is prohibited under auditor independence regulations. The violations reportedly occurred over a three-year period and involved multiple clients. Although the SEC statement does not explicitly mention FTX, court filings revealed that Prager Metis audited FTX US and FTX in 2021, and FTX later declared bankruptcy. Concerns were previously raised about the quality of FTX audit reports, and Senators Elizabeth Warren and Ron Wyden accused Prager Metis of biased advocacy for the crypto industry. Another law firm, Fenwick & West, has also faced scrutiny for its services to FTX and potential liability for the exchange’s collapse.
The SEC has accused accounting firm Prager Metis of breaching the auditor independence framework by providing auditing services to various clients, including FTX, while simultaneously offering accounting services. This practice is prohibited as it can lead to conflicts of interest. The alleged violations occurred over a period of approximately three years, with “hundreds” of auditor independence violations reported. Although Prager Metis is not explicitly mentioned in relation to FTX in the SEC statement, court filings revealed that the firm audited FTX US and FTX in 2021 before the exchange’s bankruptcy declaration. Concerns over the credibility of FTX audit reports had previously been raised, and Senators Elizabeth Warren and Ron Wyden criticized Prager Metis for its alleged bias towards the crypto industry.
In addition to Prager Metis, law firm Fenwick & West has also faced scrutiny for its involvement with FTX. Plaintiffs have argued that Fenwick & West should bear partial responsibility for FTX’s collapse due to its allegedly excessive service offerings to the exchange. However, Fenwick & West maintains 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. The SEC’s legal proceedings against Prager Metis and the ongoing controversies surrounding FTX highlight the importance of maintaining auditor independence and ensuring the credibility of audit reports in the cryptocurrency industry.