SEC Files Lawsuit Against FTX’s Auditor

The US Securities and Exchange Commission (SEC) is taking legal action against Prager Metis, an accounting firm linked with the now-bankrupt FTX crypto exchange. This situation happens just as Sam Bankman-Fried, FTX’s co-founder and ex-CEO, is about to face his own legal challenges.

The SEC claims that Prager Metis broke many rules related to auditor independence and helped its clients violate US securities laws from December 2017 to October 2020. The agency says Prager Metis included special clauses, called indemnification clauses, in over 200 of its work agreements, which they believe created a conflict of interest and broke US law.

In a nutshell, these indemnification clauses give protection or compensation to the auditing firm in a specific situation. Eric I. Bustillo, from the SEC, emphasizes that the independence of auditors is important to ensuring trustworthy financial reporting and maintaining public trust.

The SEC’s complaint includes more accusations, like Prager Metis approving various accounting reports even though its independence was supposedly corrupt, and not informing its clients of its law violations after being alerted by the Public Company Accounting Oversight Board.

It's important to note that the SEC lawsuit did not specifically mention FTX or its other clients. Yet, the case is drawing attention due to the known connection between Prager Metis and the collapsed exchange. Earlier, Prager Metis and another firm, Armanimo, were said to be part of fraud-related activities involving Bankman-Fried, according to a class action lawsuit.

Meanwhile, Sam Bankman-Fried is about to face his own day in court, set to begin on October 4, after the selection of the jury on October 3. The trial should last six weeks and will address seven counts of fraud against him. If he is found guilty, he might face up to 20 years in prison for some of the charges.