The U.S. Securities and Exchange Commission (SEC) has initiated legal proceedings against an accounting firm that provided services to the cryptocurrency exchange FTX before its bankruptcy.
The SEC has accused the accounting firm Prager Metis of violating auditor independence rules by failing to maintain the necessary separation between audit and accounting services for its clients. The auditor independence framework prohibits such entanglement of services. It's crucial to prevent conflicts of interest between auditing and accounting functions. The SEC alleges that these intertwined activities occurred over a span of approximately three years.
While the SEC's statement didn't explicitly name FTX or other clients, it did highlight that there were "hundreds" of alleged breaches of auditor independence over this three-year period.
Notably, a previous court filing revealed that FTX Group had engaged Metis to conduct an audit of FTX US and FTX sometime in 2021. FTX later declared bankruptcy in November 2022.
The filing suggested that Metis should have been aware that FTX would use its work to bolster public trust since former FTX CEO Sam Bankman-Fried had publicly disclosed the results of prior FTX audits. Concerns had been previously raised about the material provided in FTX's audit report.
On January 25, FTX's current CEO, John J. Ray III, expressed "serious concerns about the information provided in these audited financial statements."
Furthermore, Senators Elizabeth Warren and Ron Wyden had expressed doubts about Prager Metis' impartiality, viewing it as an advocate for the cryptocurrency industry.
In a separate development, a law firm providing services to FTX, Fenwick & West, faced scrutiny. In a September 21 court filing, plaintiffs argued that the law firm bore partial responsibility for FTX's collapse due to services allegedly exceeding standard norms. However, Fenwick & West argued that it couldn't be held liable for client misconduct as long as its actions fell within the scope of the client's representation.
