FTX Auditor Receives Legal Action from the SEC
- The SEC has taken legal action against the auditor of bankrupt crypto exchange FTX, as per a statement.
- Prager Metis, provided auditing services to its clients without maintaining the necessary independence, SEC said.
- The SEC also claims that the activity took over three years to take shape.
- “Over a period of nearly three years, Prager’s audits, reviews, and exams fell short of these fundamental principles.”
The United States Securities and Exchange Commission (SEC) has taken legal action against the auditor of bankrupt crypto exchange FTX on account of multiple breaches. The new developments take place amid a restructuring operation that has been initiated by the creditors under the new CEO of the firm, John Ray III.
According to the legal documents submitted by the SEC on September 29, the auditor responsible for monitoring the operations of FTX, Prager Metis, provided auditing services to its clients without maintaining the necessary independence, as it allegedly continued to offer accounting services. This type of activity is prohibited under the auditor independence framework. As a result, the auditor has received legal proceedings from the regulator.
It is important to mention here that in order to prevent conflicts of interest, accounting and audit tasks are required to be clearly separated, which Prager Metis failed to do. The SEC also claims that the activity took over three years to take shape.
“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,” said the securities regulator in a statement.
The SEC did not mention a single client of the exchange or FTX itself; however, it did claim that there were “hundreds” of auditor independence violations throughout the three-year period. More importantly, it was previously pointed out that the crypto exchange founded by Sam Bankman-Fried, also known as SBF in the crypto space, engaged Metis to audit FTX US and FTX at some point in 2021.
The regulator believes that SBF shared the results of the audits publicly, and it was Metis’ job to recognize that the exchange could use their auditing reports to gather the trust of the investors.
As reported earlier by BitcoinWisdom, Judge Lewis Kaplan claims that Bankman-Fried could be a possible flight risk based on the outcome of his case, and as a result, his bail has been rejected once again. On the other hand, SBF’s lawyers argued that it would be impossible to build their defense with their client behind bars.