It’s not every day you get to witness a firm getting hit with HUNDREDS of independence violations in one fell swoop. Well today Prager Metis got the independence violation high score in an SEC complaint alleging a mess of them.
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.
Alleges the SEC:
Prager Metis CPAs, LLC and its California professional services firm, Prager Metis CPAs LLP, failed to comply with the Commission’s auditor independence rule in connection with 62 audits, 11 examinations, and 144 reviews, conducted pursuant to 87 engagement letters dated from in or around December 11, 2017 to in or around October 28, 2020. Prager’s auditor independence violations in connection with these engagements affected 62 “SEC Registrant Clients,” comprised of 54 public issuers, 4 registered broker-dealers, and 4 registered investment advisers, from which Defendants collectively earned more than $3,000,000 in fees.
Defendants had been on notice of their independence impairment since at least early January 2019 when a new partner who recently had joined Prager raised the issue with senior Prager partners.
The complaint is brutal which is why I’m embedding it here for your reading pleasure. God speed to them.
SEC complaint against Prager Metis by Adrienne Gonzalez on Scribd
Related (?): If There Was a PCAOB In the Metaverse, It Would Probably Find a Bunch of Errors In Prager Metis’s Audits Too
Not related but funny: Prager Metis Just Spent $35k So They Can Service Clients In the Metaverse
The dynamics at both the PCAOB and the Big Four are horrible. The incentive at the Big Four is to keep prices down to the point at which it’s impossible for a new entrant to break into their charmed group; after all, if it means they end up cutting corners, the worst that happens is that they get gummed by the toothless PCAOB. [