Breaking: FTX Auditor Settles With US SEC For Negligence

The United States Securities and Exchange Commission (SEC) has settled with FTX Derivatives Exchange’s auditor Prager Metis. This startup served as the in-house auditor for FTX prior to its collapse. It faced probe from the regulator for its negligence in auditing the firm’s books to possibly flag its inconsistencies.

US SEC Bags Fresh Closure In FTX Case

Many experts in the crypto ecosystem blamed the US SEC’s poor oversight for the FTX collapse. Following the criticisms, the agency went on to seek closure from everyone or any entity that might have been involved in the firm’s blowup. This was how Prager Metis got dragged in.

The Commission accused the auditing firm of falsely misrepresenting FTX’s financial position. The firm also failed to meet generally accepted auditing standards between February 2021 and April 2022.

Prager Metis’ failure to disclose the increased risk stemming from the relationship between FTX and Alameda Research was also highlighted by the SEC. In conclusion, the frm was charged for negligence-based fraud.

With the recent settlement, Prager Metis will now pay $1.95 million to resolve two actions alleging misconduct in its audits of the now-defunct crypto asset trading platform, and auditor independence violations. The fine includes $745,000 civil penalty, a combined civil penalties of $1 million, and combined disgorgement with prejudgment interest of $205,000.

SEC Crackdown on Flyfish Club’s NFT Membership Concept

This FTX auditor settlement comes on the heels of the $750,000 fine levied on Flyfish Club NFT for violating securities laws. For context, the regulator issued an order against Flyfish Club, LLC, for the unregistered sale of NFTs between August 2021 and May 2022.

When Flyfish Club designed the NFTs, what it had in mind was a digital collectible that is marketed as membership access. Ultimately, this NFT would grant holders exclusive access to a planned high-end dining club.

Unfortunately, the US SEC claimed that the Flyfish Club’s NFTs are securities. To give credence to its argument, the Commission highlighted their potential for resale at higher values and the possibility of earning passive income through leasing.

Meanwhile, Commissioners Mark Uyeda and Hester Peirce do not agree with the SEC’s action. They cited that the agency, led by Gary Gensler was becoming too crypto-obsessed and this is reflected in the volume of enforcement actions against crypto firms. The two commissioners jointly released a statement that emphasized how the intent of a buyer cannot transform a non-security asset into a security.