FTX [FTT], once a rising star in the crypto exchange world, has faced a relentless barrage of troubles since its dramatic downfall in 2022.
In a recent development, the United States Securities and Exchange Commission (SEC) initiated legal action against an accounting firm that previously provided services to the now-bankrupt cryptocurrency exchange.
The SEC’s allegations center on Prager Metis, the accounting firm in question. According to the SEC, Prager Metis audited FTX while concurrently providing accounting services, thus violating auditor independence regulations.
To protect against conflicts of interest, it’s essential to maintain a clear separation between accounting and audit functions. The SEC claimed that these intertwined activities persisted for nearly three years, constituting a significant breach of investor protection standards.
While the SEC’s statement didn’t explicitly mention FTX or any other clients, it underscored the existence of hundreds of auditor independence violations over this three-year period.
Notably, a prior court filing revealed that FTX Group had engaged Metis to audit FTX US and FTX in 2021. FTX eventually declared bankruptcy in November 2022, making it one of the most high-profile crypto exchange collapses in recent memory.
The court filing also highlighted concerns about the information presented in FTX audit reports. The current FTX CEO, John J. Ray III, expressed substantial doubts about the accuracy of these audited financial statements in a January statement.
This revelation further eroded trust in the exchange’s financial reporting and contributed to the negative sentiment surrounding FTX.
Adding to FTX’s legal woes, Senators Elizabeth Warren and Ron Wyden also raised questions about Prager Metis’ impartiality, alleging that it acted as an advocate for the exchange.
Meanwhile, another law firm involved with FTX, Fenwick & West, came under scrutiny. Plaintiffs contend that the firm should share partial liability for FTX’s collapse due to its reportedly excessive service offerings to the exchange.
A tale of lawsuits and litigations
Notably, FTX hasn’t been solely on the defensive. The exchange recently took legal action against former employees of Salameda, an affiliated Hong Kong-based entity, in an effort to recover approximately $157.3 million.
The lawsuit alleges that these employees benefited from preferential transfers during the Preference Period, the 90 days leading up to FTX’s bankruptcy filing in November 2022.
The filing also claims that the defendants rapidly withdrew assets and leveraged their connections within FTX to secure a priority position over other customers.
Dormant hacker becomes active
However, legal troubles aren’t the only issues haunting FTX. Recent on-chain data has revealed activity in the wallet associated with the perpetrator of the FTX hack. The attack resulted in the theft of $600 million in tokens.
The data showed two transactions involving the exploiter, who moved 2,500 ETH in each transaction, valued at $4 million. Such transfers are often linked to selling activity.
At press time, ETH was trading at $1,679.09 and had grown by 0.32% in the last 24 hours, unaffected by the movement of the hacker’s funds. However, if the hacker does decide to sell, the impact on ETH could be severe and may cause a price correction in the future.