backOn September 17, 2024, the Securities and Exchange Commission (“SEC”) filed an unopposed motion for entry of final judgments against Prager Metis CPAs, LLC (“Prager LLC”) and Prager Metis CPAs LLP (“Prager LLP”), to resolve two separate SEC actions.
In one action, the SEC alleged that Prager LLC violated Sections 17(a)(2) and (3) of the Securities Act by issuing two audit reports for defunct crypto platform FTX Trading Ltd. (“FTX”), which the SEC alleged were provided in connection with an FTX offer of sale of equity securities, that falsely represented that the audits complied with Generally Accepted Auditing Standards. The SEC alleged that, contrary to that representation, Prager LLC did not adequately assess whether it had the competency and resources to conduct the audit, that it violated quality control standards, that it failed to understand the risk of the relationship between FTX and Alameda Research, and that it did not adequately understand the role Alameda played in FTX’s business.
In the other action, the SEC alleged that Prager LLP and Prager LLC violated the SEC’s auditor independence rules by including indemnification provisions in engagement letters for more than 200 audits, reviews, and examinations between 2017 and 2020. The SEC alleged that those indemnification provisions rendered the Prager entities not independent from their clients because such provisions “induce a departure from the standards of objectivity and impartiality” and remove or “greatly weaken[]” one of the “major stimuli to objective and unbiased consideration of the problems encountered” in an audit.
Without admitting or denying the SEC’s allegations (except as to jurisdiction), the Prager entities consented to the entry of final judgments that (a) enjoin them from committing violations of various securities laws; (b) require them to pay civil penalties totaling $1,745,000; (c) require them to retain an independent consultant to review and evaluate its audit, review, quality control policies and procedures, and consent to SEC-imposed restrictions for accepting new audit clients; and (d) order disgorgement and prejudgment interest of $205,000.
The SEC’s complaints are available here and here. Copies of the proposed judgments are available here and here. The SEC’s press release is available here.