Prager Metis, a New York-based auditing firm, has agreed to pay $1.95 million to settle two cases brought by the U.S. Securities and Exchange Commission (SEC), including allegations of negligence in auditing the cryptocurrency exchange FTX, formerly led by Sam Bankman-Fried.
Without admitting or denying wrongdoing, Prager Metis will pay $1.75 million in civil fines plus disgorged profit and interest as part of the settlement, announced on Tuesday. The SEC accused the firm of falsely claiming that its audit reports for FTX in July 2021 and April 2022 complied with generally accepted auditing standards.
According to the SEC, the partner overseeing the audits “fundamentally did not understand FTX, or the crypto asset markets in which it operated,” and the firm failed to grasp FTX’s close ties with Bankman-Fried’s hedge fund, Alameda Research.
Bankman-Fried allegedly siphoned off $8 billion from FTX customers to cover Alameda’s losses, leading to FTX’s collapse in November 2022 and subsequent bankruptcy filing.
SEC enforcement chief Gurbir Grewal said the audits deprived FTX customers of “crucial protections” when investing, resulting in their being defrauded out of billions when the company collapsed.
The second settlement addressed allegations that Prager Metis violated auditor independence rules between December 2017 and October 2020 in its relationships with other clients.
Bruce Braun, a lawyer for Prager Metis, claimed that the firm was also a victim of the “collusive fraud by management at FTX.”
Bankman-Fried, who was convicted of fraud and sentenced to 25 years in prison, is appealing the conviction.
Earlier, U.S. prosecutors connected Ryan Salame, the former co-CEO of FTX, to accounts under the names of Thai prostitutes in a bid to unfreeze funds tied to FTX and Alameda Research. They opposed Salame’s motion to vacate his guilty plea in a case involving campaign finance violations.
The motion accused Salame of using misleading and false assertions to evade his sentence for his involvement in a large-scale illegal campaign finance scheme and running an unlicensed money transmitting business.
