The lead auditor of the team overseeing failed crypto giant FTX Trading Ltd. has settled enforcement allegations from the U.S. Securities and Exchange Commission (SEC).
The SEC issued an order settling charges against an accountant and partner at Prager Metis CPAs, LLC, Francis Decker, who led the team that audited FTX and issued audit reports on the company in 2021 and 2022.
According to the regulator’s order released Wednesday, the firm’s audits of FTX weren’t conducted in line with generally accepted accounting standards (GAAS), and Decker allegedly breached the securities rules by failing to live up to professional standards in this area.
“The foundational failure to meet GAAS stemmed from the fact that Decker did not have a sufficient understanding of FTX, or the crypto asset markets in which it operated,” the SEC said in its order, adding that the audit team didn’t have the knowledge or experience to carry out proper audits of FTX.
In particular, the auditors didn’t fully understand FTX’s relationship with Alameda Research LLC — the crypto hedge fund firm that was also controlled by FTX’s founder and owner, Sam Bankman-Fried — and didn’t understand the “pivotal role” that Alameda played in FTX’s business.
“Ultimately, the FTX-Alameda relationship was at the heart of the misappropriation of billions of dollars of FTX customer assets that led to the collapse of FTX in November 2022,” it noted.
And, the auditors’ failure to understand this risk resulted in the issuance of deficient audit reports, the regulator said.
Without admitting or denying the SEC’s findings, Decker agreed to be banned from appearing as an accountant before the SEC, with the right to apply for reinstatement after two years.
Back in 2024, Prager Metis agreed to pay US$1.95 million to resolve enforcement actions alleging misconduct in its FTX audits, and violations of auditor independence rules.
Without admitting or denying the SEC’s findings, the firm agreed to permanent injunctions, monetary penalties and disgorgement with interest. It also agreed to permanent injunctions and to undertake remedial actions to beef up its audit policies and procedures.