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The US Securities and Alternate Fee has charged the auditor of collapsed cryptocurrency trade FTX with misconduct, saying the agency took on Sam Bankman-Fried’s firm as a consumer with out correctly understanding the crypto market.
Prager Metis, an accounting agency that ranks outdoors the highest 50 US companies by income, gave a clear invoice of well being to FTX’s monetary outcomes for the 2 years earlier than it collapsed in November 2022 with an $8bn gap in its steadiness sheet.
“In its rush to just accept FTX as an audit consumer, Prager Metis assembled an engagement crew that collectively lacked the competence, expertise, and data to appropriately conduct the audits,” the SEC’s criticism alleged, together with a lead associate who “basically didn’t perceive FTX, or the crypto asset markets wherein it operated”.
From this preliminary failure flowed a sequence of different auditing failures within the design and execution of the audits, the SEC mentioned.
Particularly, Prager Metis did not correctly perceive the relationship between Bahamas-based FTX and Bankman-Fried’s crypto hedge fund Alameda Analysis, which was later revealed to have had the power to borrow limitless buyer funds from FTX. Bankman-Fried was sentenced in March to 25 years in prison for fraud.
Prager Metis can pay a civil penalty of $745,000 to settle the costs associated to FTX, with out admitting or denying the SEC’s findings.
Bruce Braun, an lawyer for Prager Metis on the regulation agency Sidley Austin, mentioned that “like others, it was a sufferer of the collusive fraud by administration at FTX. Prager Metis stays devoted to audit high quality and dedicated to steady enchancment.”
In response to the SEC’s criticism, FTX wanted audited monetary statements shortly and Prager Metis signed off on an preliminary set of accounts in July 2021 — 5 months after taking it on as a consumer — with out correctly exploring the borrowing by Alameda.
“Bankman-Fried and the FTX crew had been unsuccessful of their prior makes an attempt to establish a agency that was prepared to audit FTX’s monetary statements, and so they had been keen to acquire audited monetary statements to help their plan of participating in a public providing,” the SEC wrote.
Prager Metis took “at face worth the assertion that Alameda — the corporate Bankman-Fried owned and that served as the first market maker for FTX — operated below phrases that had been no totally different than those who would apply to a person buyer buying a small quantity of bitcoin on margin for the primary time.”
The agency additionally agreed on Tuesday to pay $1.2mn to settle separate SEC charges alleging violations of auditor independence guidelines in dozens of different audits.
