The U.S. Securities and Exchange Commission (SEC) has begun legal proceedings against an accounting firm that provided services to cryptocurrency exchange FTX before it declared bankruptcy.
According to a report on September 29th statement, the SEC alleged that Prager Metis provided audit services to clients without maintaining the required independence while continuing to provide accounting services. This practice is prohibited under the auditor independence framework.
Accounting and auditing services must be clearly separated to prevent conflicts of interest. However, the SEC alleges that these intertwined activities occurred over a period of approximately three years.
“As alleged in our complaint, for nearly three years, Prager’s audits, reviews, and examinations failed to meet these fundamental principles. It’s an important reminder of the critical importance of home protection.”
The statement does not explicitly mention FTX or other clients, but it does highlight “hundreds” of alleged breaches of auditor independence over a three-year period.
Furthermore, in a previous court, filing FTX Group noted that at some point in 2021 it engaged Metis to audit FTX US and FTX. FTX then declared bankruptcy in November 2022.
In the filing, former FTX CEO Sam Bankman-Fried made public the results of past FTX audits, which Metis said will be used by FTX to improve public trust. They argue that they should have been aware of this.
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Concerns have previously been raised regarding the content contained in the FTX audit report.
On January 25, FTX’s current CEO, John J. Ray III, told the bankruptcy court that he had “serious concerns with the information presented in these audited financial statements.” said.
Additionally, Sens. Elizabeth Warren and Ron Wyden expressed concerns about the fairness of Prager-Métis. They claimed that it acts as a defender of the cryptocurrency industry.
Meanwhile, the law firms that provided services to FTX have recently come under increased scrutiny.
In a Sept. 21 court filing, the plaintiffs said Fenwick & West was partially responsible for FTX’s collapse because the service FTX reportedly provided to the exchange was substandard. He argued that he should be responsible.
However, Fenwick & West argues that it cannot be held liable for its clients’ illegal acts so long as those acts fall within the scope of its clients’ agency.
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