In its rush to accept FTX as an audit client, Prager Metis assembled an engagement team that collectively lacked the competence, experience, and knowledge to appropriately conduct the audits. From this initial failure flowed a series of other auditing failures. The most significant deficiency was Prager Metis's failure to understand FTX's relationship with Alameda Research LLC and the pivotal role Alameda played in FTX's business.
The SEC's complaint accused the accounting firm of negligence-based fraud. In the two audit reports Prager Metis produced for FTX in 2021 and 2022, the SEC alleges that the firm falsely represented that the audits were compliant with Generally Accepted Auditing Standards (GAAS), when in fact, the firm failed to comply with GAAS in multiple aspects of the audit.
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