SEC and FTX auditor Prager Metis settle misconduct case

The U.S. SEC and Prager Metis have agreed to resolve claims of the auditor’s negligence related to the defunct crypto exchange FTX.

Auditor Prager Metis consented to pay $1.95 million to settle two charges brought by the Securities and Exchange Commission, alleging misleading reports created for Sam Bankman-Fried’s fallen crypto giant between February 2021 and April 2022.

The SEC said Prager fell below generally accepted auditing standards, failing to represent the “increased risk” caused by ties between FTX and its sister hedge fund, Alameda Research.

Because Prager’s audits of FTX were conducted without due care, for example, FTX investors lacked crucial protections when making investment decisions. Ultimately, they were defrauded out of billions of dollars by FTX and bore the consequences when FTX collapsed.

Gurbir S. Grewal, director of the SEC’s Division of Enforcement

FTX and its founder, Sam Bankman-Fried, once dined with Washington’s elite and sought to craft digital asset regulations. The exchange was regarded as one of crypto’s biggest trading venues, alongside Binance and Coinbase.

That changed in 2022, when observers discovered the company’s falsified financial statements and commingled customer funds with corporate cash. 

A liquidity crunch ensued, and Bankman-Fried paused withdrawals at the exchange before declaring bankruptcy shortly after. The U.S. 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. His lawyers filed papers asking for a new trial, as Bankman-Fried insists he did not intentionally defraud thousands of investors of over $8 billion.