The United States Securities and Exchange Commission (SEC) has initiated legal proceedings against an accounting firm that previously rendered services to the cryptocurrency exchange FTX before it declared bankruptcy.
In a statement dated September 29th, the SEC claimed that Prager Metis, the accounting firm in question, had provided auditing services to its clients while failing to maintain the required independence. This practice is prohibited under the auditor independence framework.
Extract from the SEC’s September 29 statement. Source: SEC
The SEC’s statement does not explicitly name FTX or any other clients but highlights alleged “hundreds” of violations of auditor independence over a three-year period.
According to a previous court filing, FTX Group had engaged Metis to audit FTX US and FTX at some point in 2021. Subsequently, FTX declared bankruptcy in November 2022. The filing suggested that Metis should have been aware that its work would be used by FTX to enhance public trust, especially after former FTX CEO Sam Bankman-Fried publicly disclosed previous FTX audit results.
There were prior concerns regarding the content of FTX audit reports. On January 25th, the current FTX CEO, John J. Ray III, expressed significant doubts about the information presented in these audited financial statements during a bankruptcy court hearing.
Senators Elizabeth Warren and Ron Wyden also raised concerns about Prager Metis’ impartiality, asserting that it appeared to advocate for the crypto industry.
Meanwhile, another law firm that provided services to FTX, Fenwick & West, has faced recent scrutiny. In a September 21st court filing, plaintiffs alleged that the firm should bear partial responsibility for FTX’s collapse because it allegedly exceeded standard service offerings to the exchange. However, Fenwick & West maintains that it cannot be held liable for a client’s misconduct as long as its actions fall within the bounds of its representation of the client.