SEC and Prager Metis Settle $1.95M FTX Auditing Negligence Case

The U.S. SEC and Prager Metis have agreed to resolve claims of the auditor’s negligence related to the defunct crypto exchange FTX.

Settlement Agreement

Auditor Prager Metis consented to pay $1.95 million to settle two charges brought by the Securities and Exchange Commission. These charges allege that Prager Metis created misleading reports for Sam Bankman-Fried’s crypto giant between February 2021 and April 2022.

Failures in Auditing Standards

The SEC stated that Prager Metis fell below generally accepted auditing standards. The firm failed to represent the “increased risk” caused by ties between FTX and its sister hedge fund, Alameda Research. Because Prager’s audits of FTX were conducted without due care, FTX investors lacked crucial protections when making investment decisions. Ultimately, they were defrauded out of billions of dollars when FTX collapsed.

Gurbir S. Grewal, director of the SEC’s Division of Enforcement

FTX’s Fall from Grace

FTX and its founder, Sam Bankman-Fried, once dined with Washington’s elite and sought to craft digital asset regulations. The exchange was regarded as one of crypto’s biggest trading venues, alongside Binance and Coinbase. That changed in 2022, when observers discovered the company’s falsified financial statements and commingled customer funds with corporate cash. A liquidity crunch ensued, and Bankman-Fried paused withdrawals at the exchange before declaring bankruptcy shortly after.

Legal Consequences

The U.S. Justice Department extradited the former crypto tycoon to Manhattan, where a judge sentenced him to 25 years in prison. Last week, Bankman-Fried formally appealed the decision, claiming judicial bias in the case. His lawyers filed papers asking for a new trial, as Bankman-Fried insists he did not intentionally defraud thousands of investors of over $8 billion.