- The US SEC initiated legal scrutiny over the FTX auditor Prager Metis.
- The charges include the violation of auditor independence rules and assistance in clients’ violation of federal securities laws.
- Prager Metis had been providing auditor services to its clients without maintaining independence from its clients.
The US Securities and Exchange Commission (SEC) has initiated legal scrutiny over the public accounting and consulting firm Prager Metis for allegedly breaching auditor independence rules and encouraging clients’ violation of federal securities laws.
In an official statement released on September 29, the SEC unveiled that Prager Metis had been providing auditor services to its clients without maintaining independence from its clients; this practice is forbidden according to the auditor independence framework. From December 2017 to October 2020, the platform reportedly included improper “indemnification provisions in engagement letters” for nearly 200 audits. The statement further claimed,
“The SEC alleges that Prager continued to sign engagement letters containing indemnification provisions and also issued “accountant’s reports” in which it purported to be independent in connection with its audits and exams, even after Prager’s senior partners repeatedly were notified that inclusion of indemnification provisions in engagement letters rendered Prager not independent.”
Consequently, Prager has abetted its clients to infringe the federal securities laws by not guiding them properly. The regulators identified that many clients had incorporated the auditor’s “accountant’s reports” in their SEC filings, violating the securities laws. Prager failed to inform clients about the law even after the Public Company Accounting Oversight Board warned the auditor.
The SEC has charged the auditor for both violating and aiding others to break the rules. Eric I. Bustillo, Director of the SEC’s Miami Regional Office, reiterated the significance of auditor independence, showcasing its role in “protecting the integrity of financial reporting and promoting public trust”.
Though the SEC hasn’t mentioned the names of Prager clients, it is clear that the bankrupt FTX is one among them. According to a previous court filing in November 2022, Prager audited FTX and FTX US.
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