Prager Metis Faces SEC Lawsuit for Alleged Violations of Auditor Independence Rules
Prager Metis, the former auditor for now-insolvent cryptocurrency exchange platform FTX, finds itself in a precarious situation. The SEC recently filed charges against the audit firm, suggesting its involvement in contracts that apparently violated auditor independence rules. Continuing its investigation, the SEC claims that Prager Metis assisted a set of clients, including 62 entities officially registered with the SEC, in violating federal securities guidelines. What does the regulator demand? A court injunction against Prager Metis, accompanied by fines and restitution of unlawfully acquired profits.
Auditor independence is crucial to safeguard the integrity of financial information and promote public confidence. As our complaint indicates, for nearly three years, Prager’s audits, reviews, and examinations failed to uphold these fundamental principles. Our complaint serves as an important reminder that auditor independence is crucial for investor protection.
Eric Bustillo, Director of the SEC’s Miami Regional Office
Depth of the SEC’s Lawsuit
While the past ties between FTX and Prager Metis have made headlines, especially with the audit firm’s report of $1 billion in revenue for FTX’s international branch in 2021, the SEC’s grievance is not based on this relationship. Interestingly, the crux of the dispute lies in the agreements that Prager Metis structured with its diverse client base. In particular, the company engaged in the creation of indemnification-laden agreements. These clauses allowed clients to absolve Prager of any financial obligation or penalty arising from its services, particularly in cases where deliberate misinformation by the client’s management was detected.
The revelations, as documented in the court filing with the U.S. District Court for the Southern District of Florida, suggest that Prager Metis had been repeatedly alerted to these violations since January 2019. Eric I. Bustillo, head of the SEC’s Miami regional office, shed light on the essence of auditor independence, emphasizing its critical role in upholding the sanctity of financial communication and strengthening public trust.