A former FTX auditor will pay $1.95 million to settle two U.S. Securities and Exchange Commission cases, including one for alleged negligence in auditing the cryptocurrency exchange that Sam Bankman-Fried ran before being convicted of fraud.
Prager Metis neither admitted nor denied wrongdoing in agreeing to Tuesday’s settlements, which include $1.75 million in civil penalties plus repaid profits and interest.
The New York-based firm was accused of falsely stating that its July 2021 and April 2022 audit reports for FTX complied with generally accepted auditing standards.
The Prager Metis partner who conducted the audits “fundamentally did not understand FTX or the cryptoasset markets in which it operated,” according to the SEC.
Prager Metis misunderstood FTX’s relationship with Bankman-Fried’s hedge fund, Alameda Research, the SEC said.
Prosecutors said Bankman-Fried looted $8 billion from FTX customers, much of it to cover up Alameda’s losses. 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.
“In the end, FTX defrauded them of billions of dollars and they 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 charges 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 collapse of FTX.
Caroline Ellison, who had been Alameda’s chief executive, pleaded guilty to her role and testified against Bankman-Fried, her ex-boyfriend.
Ellison is scheduled to be sentenced on Sept. 24. She has asked a federal judge not to send her to prison.
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