FTX auditor settles US SEC negligence case and pays fine By Reuters

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 alleged negligence in auditing the cryptocurrency exchange led by Sam Bankman-Fried before to be convicted of fraud.

Prager Metis did not admit or deny wrongdoing in accepting Tuesday’s settlements, which include civil penalties of $1.75 million plus disgorgement and interest.

The New York firm was accused of falsely stating that its July 2021 and April 2022 FTX audit reports 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 stole $8 billion from FTX customers, mostly to cover losses at Alameda. FTX collapsed in November 2022 and filed for bankruptcy.

SEC chief Gurbir Grewal said in a statement that the Prager Metis audits deprived FTX clients of “essential protections” when investing.

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

Prager Metis and its attorneys did not immediately respond to requests for comment.

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

Bankman-Fried, 32, is appealing his conviction and 25-year prison sentence for his role in the FTX collapse.

Caroline Ellison, who had been Alameda’s executive director, pleaded guilty for her role and testified against Bankman-Fried, her ex-boyfriend.

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