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

According to the SEC’s complaint, between approximately December 2017 & October 2020, Prager improperly included indemnification provisions in engagement letters for more than 200 audits, reviews, & 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 & also issued “accountant’s reports” in which it purported to be independent in connection with its audits & 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 & 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, & 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 & aiding & abetting its clients’ violations of the federal securities laws. The complaint seeks a permanent injunction, disgorgement plus prejudgment interest, & a civil monetary penalty against Prager. 

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