SEC Charges International Accounting Firm Prager Metis with Hundreds of Auditor Independence Violations

The Securities and Exchange Commission today announced charges against accounting firm Prager Metis CPAs, LLC and its California professional services firm, Prager Metis CPAs LLP, (together, Prager) for violating auditor independence rules and for aiding and abetting their clients’ violations of federal securities laws.

According to the SEC’s complaint, between approximately December 2017 and October 2020, Prager improperly included indemnification provisions in engagement letters for more than 200 audits, reviews, and exams. As a result, the complaint alleges, Prager was not independent from its clients for those engagements, as required under the federal securities laws. The SEC alleges that Prager continued to sign engagement letters containing indemnification provisions and also issued “accountant’s reports” in which it purported to be independent in connection with its audits and exams, even after Prager’s senior partners repeatedly were notified that inclusion of indemnification provisions in engagement letters rendered Prager not independent. Many of Prager’s clients included those “accountant’s reports” in their filings with the SEC. Prager allegedly also failed to advise its clients of its violations, even after the Public Company Accounting Oversight Board informed Prager that the indemnification provisions violated the independence requirements of the federal securities laws.

“Auditor independence is critical to both protecting the integrity of financial reporting and promoting public trust,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “As alleged in our complaint, over a period of nearly three years, Prager’s audits, reviews, and exams fell short of these fundamental principles. Our complaint is an important reminder that auditor independence is crucial to investor protection.”

The SEC’s complaint, filed in the U.S. District Court for the Southern District of Florida, charges Prager with violating the auditor independence provisions of the federal securities laws and aiding and abetting its clients’ violations of the federal securities laws. The complaint seeks a permanent injunction, disgorgement plus prejudgment interest, and a civil monetary penalty against Prager. 

The SEC’s ongoing investigation is being conducted by Drew D. Panahi, Michelle Bosworth, and Carol Der Garry and supervised by Thierry Olivier Desmet, Fernando Torres, and Glenn S. Gordon in the Miami Regional Office. The SEC’s litigation is being led by Christine Nestor and supervised by Teresa Verges in the Miami Regional Office.


Related Posts