SEC Files Lawsuit Against FTX Auditor – Details

The US Securities and Exchange Commission (SEC) has filed a lawsuit against Prager Metis, an accounting firm that had dealings with the bankrupt FTX crypto exchange. This development comes as the trial of FTX co-founder and former CEO Sam Bankman-Fried looms on the horizon.

SEC Accuses Prager Metis Of Auditor Independence Violation

In a statement published on September 29, the SEC alleges that Prager Metis has violated hundreds of auditor Independence regulations as well as assisting its various clients in violations of the US securities laws.

The plaintiff states that, between December 2017 and October 2020, Prager unethically included indemnification clauses in its engagement letters for over 200 audits, reviews, and examinations, comprising its independence regarding those agreements.

For context, indemnification clauses serve as provisions in an engagement letter – a letter of contracts/agreements – which outline a compensation or protection arrangement for the auditing firm in case of certain losses/events.

The SEC believes that by including such clauses in their agreements with their clients, the FTX former auditor created a conflict of interest that compromised their independence, which is a violation of US federal securities law.

Commenting on this lawsuit, Eric I. Bustillo, Head of the SEC Regional Office in Miami, said:

Auditor independence is critical to both protecting the integrity of financial reporting and promoting public trust. 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.

Furthermore, the US securities market regulator stated that Prager Metis, having allegedly compromised its independence, signed off on various accounting reports of its clients, some of which were used in fillings with the Commission.

In addition, the SEC’s complaint aga

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Author: Semilore Faleti

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