SEC Charges Prager Metis with Auditor Independence Violations

The Securities and Exchange Commission (SEC) has announced charges against Prager Metis CPAs, LLC, and its affiliated California professional services firm, Prager Metis CPAs LLP, collectively known as Prager. The charges stem from allegations of violations of auditor independence rules and aiding and abetting their clients' violations of federal securities laws.

According to the SEC's complaint, Prager is accused of improperly inserting indemnification provisions into engagement letters for over 200 audits, reviews, and examinations conducted between December 2017 and October 2020. These provisions, the SEC asserts, rendered Prager non-independent from its clients, a violation of federal securities laws. The SEC further alleges that despite repeated notifications to Prager's senior partners that the inclusion of indemnification provisions in engagement letters compromised their independence, the firm continued to use such letters and issued "accountant's reports" in which it claimed independence. Many of Prager's clients subsequently included these reports in their filings with the SEC. Additionally, Prager allegedly failed to inform its clients of these violations, even after being informed by the Public Company Accounting Oversight Board (PCAOB) that these indemnification provisions were non-compliant with independence requirements.

"Auditor independence is critical to both protecting the integrity of financial reporting and promoting public trust," emphasized 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 violations of auditor independence provisions under federal securities laws and aiding and abetting its clients' violations of federal securities laws. The SEC seeks a permanent injunction, disgorgement plus prejudgment interest, and a civil monetary penalty against Prager as part of the enforcement action.

This case underscores the significance of auditor independence in ensuring the integrity and reliability of financial reporting and serves as a reminder of the SEC's commitment to safeguarding investor interests.