As a seasoned researcher with years of experience in the financial industry, I find this settlement between the SEC and Prager Metis to be both a sobering reminder and a testament to the evolving landscape of regulation in the crypto space.
In a settlement agreement, the American Securities and Exchange Commission (SEC) has imposed a fine of $1.95 million on auditing firm Prager Metis, following accusations of misconduct in their audits of the defunct cryptocurrency trading platform FTX.
$745,000 Over FTX Audit Failures
Yesterday, I learned that I’ll be contributing to a $745,000 civil penalty as part of a settlement, along with Prager Metis and its California branch, Prager Metis CPAs, following an announcement by the SEC on Tuesday.
Moreover, the company plans to take corrective actions, such as bringing on a third-party expert to scrutinize their auditing and quality assurance procedures. However, this agreement is yet to be sanctioned by the court.
The SEC’s allegations revolve around Prager’s failure to adhere to Generally Accepted Auditing Standards (GAAS) while conducting audits for FTX between February 2021 and April 2022.
The complaint indicates that Prager misrepresented its compliance with these standards, leading to “significant deficiencies” in its auditing processes.
The SEC stated that Prager did not properly evaluate his capacity to perform the audit, especially in relation to the potential risks linked to FTX’s connection with Alameda Research, a trading division of the collapsed platform.
Gurbir S. Grewal, head of the Securities and Exchange Commission’s (SEC) Division of Enforcement, underscored the importance of auditors preserving their objectivity and adopting a questioning attitude. In his words:
A successful strategy for safeguarding investors necessitates a team effort involving both regulatory bodies and intermediaries like auditors. In order to carry out their duties effectively, auditors should demonstrate independence, exercise cautious judgment, and adhere to all relevant professional guidelines. In the cases we’ve outlined here, Prager Metis is alleged to have failed in all these aspects.
Jorge G. Tenreiro, temporarily leading the SEC’s Crypto Assets and Cyber Unit, emphasized that this case should act as a reminder for other auditors to avoid compromising on their responsibilities by neglecting due compliance with legal obligations.
The head of the regulator’s Crypto and Cyber Unit reiterated the SEC’s commitment to investigating potential violations in the crypto space and ensuring accountability for those who compromise investor trust.
Prager Metis To Pay $1 Million For Indemnification Violations
Additionally, it’s worth noting that Prager Metis encountered separate accusations regarding infractions of auditor independence regulations and assisting clients in breaching federal securities laws.
According to the SEC, the company is accused of inserting questionable protections into more than 200 audit contracts between December 2017 and October 2020. This practice, they claim, violated the firm’s legal requirement for independence as set forth by federal regulations.
To address these allegations, the company will face a total of $1 million in civil fines, in addition to having to return $205,000 (which includes disgorgement and pre-judgment interest).
As I type this, the price of FTX’s token, FTT, stands at approximately $1.28, marking a minor increase of 0.6%. Meanwhile, the overall cryptocurrency market is witnessing a more significant rebound, primarily driven by the most prominent digital asset in the market.
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2024-09-17 23:26