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Image: Sharon Herald

Image: Sharon Herald

FTX Dumpster Fire Turns Up Heat on Regulators

Jay Speakman by Jay Speakman
November 29, 2022
in Markets
Reading Time: 3 mins read
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The toxic dumpster fire that is FTX has focused attention on the two US-based accounting firms that the crypto exchange claims it used to audit its books even as the FTX contagion spreads. 

FTX stated that its financial results for 2021 were audited by Armanino, one of the top 20 accounting firms in the country by revenue, and Prager Metis, which bills itself as the first auditing firm to establish headquarters in the Metaverse.

The two firms are among a few in the United States that have touted their expertise with digital assets as they compete for business from the growing number of cryptocurrency companies, despite the fact that the rules for accounting with digital assets are generally murky and businesses are still in the early stages. 

Sam Bankman-Fried: A pillar of virtue?

FTX founder, Sam Bankman-Fried, touted an audit of its financials as a pillar last year, but the accounts were not made public, and the name of an auditor was not revealed until Friday, on the eve of its bankruptcy.

When Forbes published its cryptocurrency exchange rankings earlier this year, FTX provided it with “an extensive amount of information about its operations, including the majority of companies with which it does business, the date of its most recent audit, and details about its regulatory licenses. If an accounting firm offers assurance, what kind of assurance is offered, how broad is the scope, and which entities are covered?”

This would be especially difficult to audit if there were any cross-company transactions.

Prager Metis, which has over 100 partners and 600 employees spread across 24 offices worldwide, stated that its clients include private and publicly traded companies in industries ranging from hospitality to manufacturing.

According to a report issued in August by the Government Accountability Oversight Board, a watchdog for the U.S. auditing profession, its inspectors discovered flaws in all four audits of publicly traded companies reviewed by Prager Metis.

Where is the oversight?

The firm informed the PCAOB that it was working to resolve the issues. According to its filings, the firm’s digital assets practice serves cryptocurrency exchanges, non-fungible token issuers, and cryptocurrency hedge funds, among other clients.

It has also attempted to provide advisory services to businesses establishing operations in the metaverse, an immersive virtual world.

As Prager Metis opened its “headquarters” in Decentraland, a metaverse platform, in January, CEO Glenn Friedman stated that there is “a huge need for expertise and resources on finance in an evolving digital world.” 

Recently, the company sponsored a campaign for Decentraland’s music festival. In a now-deleted June site post featuring Prager Metis and FTX employees at a Yankees baseball game, the company stated that it was “proud to be supporting FTX U.S.” and looked forward to “our next venture together.”

Suffice to say that comment didn’t age well. Yet, Prager Metis is not alone as many on Wall Street and Washington, DC were only too happy to believe in and support FTX, while looking the other way when the warning lights were flashing red.

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Jay Speakman
Jay Speakman

Jay Speakman is a technology writer based in San Francisco, California. He writes on the topics of blockchain, cryptocurrency, DeFi and other disruptive technologies. Clients include Avalanche, Be[in]Crypto, Trust Machines and several blogs devoted to blockchain gaming. He will not rest until fiat currency is defeated.

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