The United States Securities and Exchange Commission (SEC) has filed a lawsuit against accounting firm Prager Metis for allegedly violating auditor independence rules while providing services to cryptocurrency exchange FTX. The SEC claims that Prager Metis offered auditing services to its clients while continuing to offer accounting services, a practice prohibited under the auditor independence framework. The alleged violations spanned over a three-year period, with hundreds of instances identified. While the statement does not mention FTX specifically, a previous court filing revealed that FTX had engaged Prager Metis to audit its operations in 2021, prior to declaring bankruptcy in 2022.
Concerns have also been raised about the material presented in FTX audit reports, with the current CEO expressing substantial concerns about the information in audited financial statements. Senators Elizabeth Warren and Ron Wyden have questioned Prager Metis’ impartiality and argued that the firm functioned as an advocate for the crypto industry.
In addition to Prager Metis, a U.S.-based law firm called Fenwick & West has been accused of exceeding the norm in its service offerings to FTX and potentially contributing to its collapse. However, the law firm asserts that it cannot be held responsible for a client’s misconduct as long as its actions remain within the scope of the client’s representation. The legal proceedings against both accounting and law firms highlight the challenges and implications of maintaining independence and accountability in the cryptocurrency industry.