SEC Settles with FTX Auditor for Almost $2 Million

The U.S. Securities and Exchange Commission (SEC) has reached a settlement with Prager Metis, the auditor for the now-collapsed FTX Derivatives Exchange.

This firm had been responsible for auditing FTX before its downfall and was scrutinized by the SEC for failing to detect significant issues in the company’s financial statements.

The SEC’s investigation revealed that Prager Metis misrepresented FTX’s financial health and did not adhere to standard auditing practices from February 2021 to April 2022. The firm also failed to report risks related to FTX’s connections with Alameda Research.

As a result, Prager Metis has agreed to pay $1.95 million to settle charges of audit negligence and violations of auditor independence. This settlement includes a $745,000 civil penalty, $1 million in combined civil penalties, and $205,000 in disgorgement with prejudgment interest.

In a related development, the SEC also fined Flyfish Club NFT $750,000 for securities law violations. The SEC found that Flyfish Club’s NFTs, initially marketed as digital collectibles offering membership access to a luxury dining club, actually constituted unregistered securities due to their potential for resale and passive income opportunities.

However, SEC Commissioners Mark Uyeda and Hester Peirce have expressed concerns about the agency’s heavy-handed approach to cryptocurrency regulation, arguing that the SEC’s actions are overly aggressive and reflect an excessive focus on crypto. They maintain that the nature of an asset should not change based on the buyer’s intentions.