FTX auditor settles US SEC negligence case, pays fine

5:04 pm Tuesday, September 17th, 2024

By Jonathan Stempel

NEW YORK (Reuters) -A former auditor for FTX will pay $1.95 million to settle two U.S. Securities and Exchange Commission cases, including for alleged negligence in auditing the cryptocurrency exchange Sam Bankman-Fried led before being convicted of fraud.

Prager Metis, based in New York, did not admit or deny wrongdoing in agreeing to Tuesday’s settlements, which include $1.75 million of civil fines plus disgorged profit and interest.

In court papers, the SEC accused Prager Metis of falsely representing that its FTX audit reports in July 2021 and April 2022 complied with generally accepted auditing standards.

The Prager Metis partner leading the audits “fundamentally did not understand FTX, or the crypto asset markets in which it operated,” according to the SEC.

Prager Metis did not understand FTX’s relationship with Bankman-Fried’s hedge fund Alameda Research, the SEC said.

Prosecutors said Bankman-Fried looted $8 billion from FTX customers, in large part to plug losses at Alameda. FTX collapsed in November 2022 and filed for bankruptcy.

SEC enforcement chief Gurbir Grewal said in a statement that Prager Metis’ audits deprived FTX customers of “crucial protections” when investing.

“Ultimately, they were defrauded out of billions of dollars by FTX and bore the consequences when FTX collapsed,” he said.

The second settlement addressed charges that Prager Metis violated auditor independence rules between December 2017 and October 2020 in relationships with other clients.

Bruce Braun, a lawyer for Prager Metis, said the firm was pleased to settle. “Like others, it was a victim of the collusive fraud by management at FTX,” he added.

Bankman-Fried, 32, is appealing his conviction and 25-year prison sentence over his role in FTX’s collapse.

Caroline Ellison, who had been Alameda’s chief executive, pleaded guilty over her role and testified against Bankman-Fried, her former boyfriend.

Ellison’s sentencing is scheduled for Sept. 24. She has asked a federal judge not to send her to prison.

(Reporting by Jonathan Stempel in New York; Editing by Chizu Nomiyama and Matthew Lewis)