Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Cyber Security, Quantum, Hacks, Fraud Alerts, Risks, InsurTech
Bitcoin Heist, Kidnapping Warning to Crypto Wealthy
Crypto | Oct 24, 2024
AI image
Bitcoin Heist and Kidnapping Reveal Risks of Flaunting Crypto Wealth
As reported by CNBC, a whopping $230 million in Bitcoin was stolen from a wealthy individual in Washington D.C. in August 2024. The theft is being described as the largest individual crypto theft in U.S. history.
Two guys, Malone Lam and Jeandiel Serrano, are charged with stealing over 4,000 Bitcoin (BTC) by pretending to be Google's security team, tricking the victim into giving them access to his digital accounts -- including a crypto wallet. The accused transferred the stolen crypto and laundered funds through various exchanges and mixers.
Spending Binge
Lam and Serrano reportedly went on a spending spree, purchasing a Rolls-Royce, Lambo and multiple high end properties in Miami and LA. It didn't stop there. The spree included a $2 million watch and bar bills as high as $500,000. That's what tipped law enforcement off who soon became aware of these extravagant expenses.
Unexpected Twist
Then in an unexpected twist, a group of 6 men from Florida kidnapped a different couple thinking that their son had a connection to the stolen Bitcoin and would have knowledge or access to the funds. The 6 men were charged in connection with the incident, as law enforcement unravelled the case. Authorities believe there is still about $100,000 million of Bitcoin that is unaccounted for.
See: FINTRAC Guidance on Bitcoin ATMs and Money Laundering
The Authorities are still trying to track down the remaining stolen Bitcoin and uncover all illegal activity linked to the case as the investigation continues. This case clearly highlights the risks involved with flaunting large amounts of crypto and the importance of being discrete and protecting your digital assets.
Cyber criminals are getting more sophisticated all the time at exploiting even the smallest security flaws. It's a potent warning to be cautious and secure your digital assets.
Connection Between Personal and Institutional Risks
Although the heist highlights individual cyber crime risks, authorities are equally worried about a wider range of dangers. On October 16, 2024, The New York State Department of Financial Services (NYDFS) released updated guidelines for financial businesses to follow regarding the management of cybersecurity risks in the age of artificial intelligence (AI). Firms are advised to understand how AI is enabling new dangers, such as social engineering and data theft. It involves implementing strong security protocols and measures, conducting regular audits and analyses, and educating employees on how best to use AI products.
See: Privacy and Crypto Shaken as Telegram’s CEO Arrested
Adrienne Harris, NYDFS Superintendent:
“AI has improved the ability for businesses to enhance threat detection and incident response strategies, while concurrently creating new opportunities for cybercriminals to commit crimes at greater scale and speed.”
Conclusion
The recent bitcoin heist shows how easily cybercriminals can exploit digital systems and the people that run them. At the same time, New York's new guidelines remind us that staying safe online means always being alert and ready to adapt to new threats.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
 |  |  |
|---|---|---|
 |  |  |
The Role of Shell Companies in Money Laundering & How to Combat Them
Jhon Hickson | Oct 22, 2024
Image: Freepik
Short Summary: Detecting shell companies that are used for laundering purposes is a serious headache for a financial institution and regulatory bodies.
Shell companies are the favorite designated place for criminals to move money from one place to another. The ambiguity in the shell companies' ownership makes it quite an attractive place for criminals to easily launder their illegal money.
That is why detecting shell companies that are used for laundering purposes is a serious headache for financial institutions and regulatory bodies.
Today we will discuss the role of shell companies in money laundering activities and discuss the ways that could be beneficial for the financial institution in combating shell companies’ money laundering.
Let’s discuss the key methods financial institutions can use to detect shell companies involved in money laundering and other financial crimes.
How are Shell companies used in each stage of money laundering?
Establishing shell and offshore companies is officially legal, and everybody has the right to create as many shell companies as one can. But in recent times, the involvement of shell companies in laundering money, evading taxes, and hiding the illegally obtained money has made them suspicious entities.
There isn’t any restriction on using shell for legitimate purposes, but today we will discuss how shell companies are exploited at each stage of money laundering.
1. Placement and use of Shell Companies
Placement is the first stage where launderers try to introduce money into the financial system. And shell companies are an ideal way for them to deposit the money into the banks without being detected as suspicious money.
Shell companies are not only used for depositing money but also used to transfer money. Because of the ambiguity in ownership structure, the placement is done quite easily through the shell companies.
2. Layering and role of shell companies
Shell companies are often created in quite complex corporate structures that make the detection process quite difficult for regulatory bodies. Therefore, money is transferred between different shell companies to appear as a legitimate source. At this stage, the transactions are made to shell companies that are established in different jurisdictions or states that have weak AML regulations.
These companies are also used to buy assets, make loans, or engage in high-volume transfers to hide the origin of funds.
3. Integration
At the integration stage, the criminals try to enter the laundered money again into the financial system so that the money should appear 100 percent legitimate.
See: 4 AML Challenges for 2024 and Beyond
Now shell companies offer them to purchase luxury items that in reality never exist. At this point, the illicit funds are disguised as legitimate earnings, and shell companies act as fronts to receive these funds through legal channels, such as real estate investments, luxury goods, or even stock market transactions.
Effective Ways to Combat Money Laundering Through Shell Companies
Financial institutions, regulators, and law enforcement agencies are constantly working to detect and prevent the misuse of shell companies for laundering purposes. The following strategies can help combat this practice:
1. Enhanced Beneficial Ownership Transparency
The major reason shell companies are used for money laundering activities is the lack of transparency in their ownership structure. Therefore, the most effective way to stop shell companies from being used for money laundering is to improve transparency around beneficial structures.
Government and regulatory bodies need to make collaborative efforts to establish the proper structure that could be helpful for financial institutions in the fight against money laundering crimes.
2. Strengthening KYC and KYB Processes
What could be more beneficial for financial institutions to mitigate money laundering crime than knowing who their customers are and what business they do? For that, businesses need to check and verify the identities of their clients.
This process includes collecting comprehensive information on company ownership structure, business activities, and the purpose of transactions.
If businesses conduct such a type of due diligence, it will be helpful for businesses to implement the Enhanced Due Diligence on high-risk clients.
3. Automated Transaction Monitoring Systems
Relying on old and conventional methods of monitoring and screening customer transactions is a reliable way of detecting suspicious transactions. Therefore, businesses need to integrate advanced monitoring and screening into their compliance program to ensure no shell company is being used for money laundering purposes.
These advanced AML systems come with the capability of analyzing the big data and patterns of human behavior, such as large transfers to offshore accounts, multiple transactions in high-risk jurisdictions, or high-velocity transfers with no commercial explanation.
4. Regulatory Compliance and Reporting Obligations
For financial institutions, it is essential to comply with the AML regulations that also include reporting suspicious transaction and etnties to the relevant department for further action against them.
Reporting suspicious activity reports is quite helpful in identifying shell companies used for illicit purposes such as money laundering and terrorist financing.
Summing It Up
The financial institutions can still detect suspicious transactions made to shell companies if they integrate advanced AML technologies. Their advanced technologies have databases that update the shell companies' information every 15 minutes and keep the financial institution ahead of the criminals.
Author Bio:
Jhon Hickson is a passionate writer and researcher with a keen interest in technology, and its impact on society. With a background in computer science and a love for storytelling, he combines his technical knowledge and creative skills to deliver engaging and informative articles. He loves to cover different aspects of AI technologies that help in improving online security.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
| | |
|---|---|---|
| | |
FBI Sting Uncovers $25M Crypto Market Manipulation
Crypto Sting | Oct 11, 2024
Image: Pixabay/Spectra112
FBI's Fake Crypto Sting Uncovers $25 Million in Market Manipulation
The U.S. Attorney's Office in the District of Massachusetts announced on October 9, 2024 that the FBI has successfully taken down a major market manipulation scheme by creating a fake Ethereum-based token called NexFundAI (NEXF). The undercover FBI sting (known as 'Operation Token Mirrors') led to 18 individuals and businesses being charged for their involvement in a pump-and-dump scam, leading to the uncovering of $25 million in unlawful earnings, which has been confiscated by the U.S. Department of Justice (DOJ). According to the DOJ, this is the first time that financial services companies in the crypto sector have been charged with market manipulation.
See: Ex-FTX Exec Ryan Salame Starts 7.5-Year Jail Sentence
Jodi Cohen, Special Agent in Charge of the FBI’s Boston Division, on the case:
“What the FBI uncovered in this case is essentially a new twist to old-school financial crime. The FBI took the unprecedented step of creating its very own cryptocurrency token and company to identify, disrupt, and bring these alleged fraudsters to justice.”.
Wash Trading Scam
The pump-and-dump scam used wash trading as their primary strategy to create the appearance of increased trading volume for NexFundAI without the actual market demand. The fake demand was used to influence investor behaviour by artificially inflating prices, and then when the NEXF token reached a certain point, the market manipulators swiftly sold their tokens leaving regular investors in the lurch with significant loses. The case involved popular market makers including ZM Quant, Gotbit, CLS, MyTrade MM, Saitama, and Robo Inu who all provided services to inflate token values on behalf of cryptocurrency companies.
See: TD Bank’s CEO Departs Amid $3B Money Laundering Failure
As part of the investigation, 'Operation Token Mirrors' uncovered a range of tokens with the most prominent token targeted with fraudulent activity called Saitama, which had a market value of $7.5 billion at it's peak. These scams obviously effect individual traders but the entire crypto sector as a whole.
Global Operation with Major Arrests
This was a global sting operation with authorities collaborating across international borders. To bring these people to court, the FBI collaborated extensively with foreign partners, such as the UK's National Crime Agency and Portugal's Policia Judiciaria. Arrests were made in Portugal, the United States, and the United Kingdom with several of the defendants now awaiting trial, and four have already entered guilty pleas.
Joshua Levy, Acting U.S. Attorney stressed investor diligence:
"These charges are a stark reminder of how vigilant online investors must be... People considering making investments in the cryptocurrency industry should understand how these scams work so that they can protect themselves.”.
See: Regulatory Updates for Crypto Asset Trading Platforms
Conclusion
Operation Token Mirrors clearly demonstrates the increasingly sophisticated tools that the FBI and law enforcement agencies are using to combat fraud in digital times. Seizing $25 million and making multiple high profile arrests sends a strong message to both bad actors and investors.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
| | |
|---|---|---|
| | |
TD Bank’s CEO Departs Amid $3B Money Laundering Failure
Banking | Oct 11, 2024
Image: Freepik/macrovector
TD Bank CEO Bharat Masrani to Retire After $3 Billion Money Laundering Fine
TD Bank hit with $3 billion penalties for anti-money laundering (AML) compliance violations, the largest ever for this type of infraction. As a result, TD bank's longtime CEO, Bharat Masrani, has announced plans to retire by April 2025. So what went wrong? Well TD let drug cartels launder more than $670 million through the bank between 2018 and 2024. Masrani's exit reflects the bank's bigger issues with reputation, compliance, and any hopes at further U.S. expansion.
- Bharat Masrani, TD Bank's CEO for 10+ years, has accepted full responsibility for the bank's AML failures that happened under his direction. "I accept full responsibility for the anti-money laundering issues we face, which occurred during my tenure as CEO," Masrani said in a statement. He's set to retire from his role in April 2025 and is transitioning.
- $3 billion historic fine for money laundering failure is the highest in U.S. banking history, and is broken down into $1.3 billion to The Treasury Department's Financial Crimes Enforcement Network, and another $1.8 billion to the U.S. Department of Justice.
See: TD Bank’s Money-Laundering and Bribery Scandal
- As part of a planned leadership transfer, Masrani will be replaced by Raymond Chun, a former senior executive in TD Bank's Canadian personal banking sector who hasn't been directly involved in TD's U.S. business nor connected with any AML concerns . In November 2024, he will assume the role of Chief Operating Officer, and by April 2025, he will assume the role of CEO.
- The money laundering investigation has forced TD bank to stall its U.S. expansion plans and cancel its agreement to acquire Tennessee-based First Horizon Corp. TD also now faces restrictions in the U.S. that limit its business growth.
OSFI Statement on TD Bank
The Superintendent of Financial Institutions, Peter Routledge, issued a statement recognizing the seriousness of TD Bank's anti-money laundering infractions as exposed by U.S. authorities. He underlined the substantial risks posed by TD Bank's shortcomings and urged prompt action to resolve them while emphasizing the need for good management and compliance procedures.
Why It Matters
TD Bank will need to rebuilt trust with both regulators and consumers which will slow if not hamper it's growth and reputation while competing in the highly competitive U.S. markets, under new leadership.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
| | |
|---|---|---|
| | |
JPMorgan vs. Regulators Over Zelle Fraud Scams
Payments | Oct 4, 2024
Image: Freepik
JPMorgan Chase Considering Lawsuit Against Consumer Financial Protection Bureau (CFPB) Over Zelle Fraud Claims
JPMorgan Chase is thinking of suing Consumer Financial Protection Bureau (CFPB) after the CFPB claimed that the bank failed to remove fraudulent accounts from the platform and didn't reimburse scam victims on the peer-to-peer payment network Zelle, which is owned by a consortium of 7 major US banks and setup to compete with fintech giants, Paypal and Venmo in 2017. Previously, the U.S. Senate scrutinized JPMorgan for it's handling of these same Zelle payments network fraud claims.
See: CFPB Eyes Digital Payment Regulation for Big Tech
JPMorgan strongly disagrees with this claim and hinted in a recent financial filing that they make consider taking the CFPB to court over the issue. This is certainly an interesting twist where a major bank may sue their regulator. Lots of tension as incumbent banks, fintechs, and regulators balance client protection and fraud concerns in a quickly evolving market.
What's the Issue With Zelle and Fraud?
- A U.S. Senate report claims that Zelle handled transactions totaling more than $800 billion in the previous year of which $166 million was challenged as fraudulent taking place at one of 3 large banks including Wells Fargo, Bank of America, and JPMorgan Chase.
- Only around 38% of these claims received reimbursement.
- According to JPMorgan, it reimburses 100% of transactions that are considered "unauthorized," but the way such transactions are classified is the issue. Refunds are unlikely if a consumer voluntarily pays money to someone, even if they were defrauded because the customer 'authorized' it.
- The bank has now included a warning message to help customers stay safe and understand that refunds may not be available for certain transactions.
- According to Zelle, 99.9% of its transactions are trouble-free and as a precaution now warns consumers of scammers.
Larger Debate
The CFPB believes that banks should do more to identify and prevent fraudulent/fake accounts, and customers should be compensated when they are scammed.
See: JPMorgan’s New Programmable Payments in Blockchain
Part of the push is from Biden's administration for a wider regulatory effort to protect consumers and lower costs associated with digital payments, overdrafts, and credit card fees. JPMorgan's potential lawsuit could set a precedent for how banks interact with regulators and encourage other financial institutions to challenge regulations more aggressively.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
| | |
|---|---|---|
| | |
AI’s Double-Edged Sword of Retail Investing
Report | Sep 25, 2024
Image: Freepik, AI generated
OSC Research on AI and Retail Investing - Exploring Opportunities, Risks, and Scams
The Ontario Securities Commission (OSC) just dropped two reports about Artificial Intelligence and Retail Investing. The first report explores the 'Use Cases and Experimental Research', and the second report looks at 'Scams and Effective Countermeasures'. Below we share some takeaways of how AI is affecting individual investors on both sides of the equation, good and bad.
AI Use Cases in Retail Investing
While there are many emerging use cases of how AI is being used to enhance the retail investing experience, there are two main areas that people investing in stocks, bonds, ETFs, and other financial instruments without professional management are using new AI tools today.
The first is using AI as a decision support tool. Retail investors are using AI systems to analyze portfolios or the entire market to gain data-driven insights, guidance, and recommendations. Previously, access to this type of intel was either too complex or expensive for ordinary, smaller investors to use on a regular basis. An example of this is via self-directed investment platforms with AI chatbots or financial advisors that can evaluate an investor's objectives and compare them with their stock picks and/or portfolio.
See: A Look Inside 2024 DIY Investing Trends in Canada
The second main use case is trading automation, where retail investors can automate their investing decisions via robo-advisors or AI powered investment funds. This allows individual investors to manage their own portfolios efficiently and without the need for ongoing monitoring. These solutions are popular with ordinary investors because they basically provide low cost, lite touch portfolio management services without large advisory fees.
Select Risks and Challenges
The reports highlights a laundry list of risks for retail investors which is heightened due to the limited financial experience and resources available to them compared to institutional investors. Here are a few challenges to understand and mitigate.
If a retail investor has an investment advisor, they can always ask them a specific question and expect to receive a measured, qualified, and tailored response. This explainability and transparency is different than AI trading systems that often function as 'black boxes' where decision logic is hidden from review. Retail investors who become overly reliant on new AI tools without knowing how they actually work may find themselves in a risky situation. A biases AI model, for example, can lead to bad investing decisions.
See: Generative AI Myths That Founders Should Know
AI systems can have systemic risks like herding behaviour where AI pushes all retail investors to make the same choices because the AI model says so. Retail investors who may lack basic trading knowledge could be disproportionately affected by this, which may increase market volatility, especially during financial crises. Think of how many of us 'follow' google maps down unknown roads yet we can see a steady stream of cars that are also heading down the same unknown road. Did we ever stop and think is this a good decision?
The report highlights a challenge called 'Principal-Agent risk' which describes the danger of an AI tools being used by a larger firm that prioritizes their own profits over the best interests of individual retail investors (unknowingly of course). This could result in a conflict of interest where AI is in fact acting against the best interest of a client.
AI Scams Targeting Retail Investors
With the advancements of generative AI, scammers are creating more convincing phishing ploys, deepfake videos, and even fraudulent investment platforms specifically targeting retail investors. AI is helping fraudsters look more legitimate, making it harder to detect scammers, putting unsuspecting retail investors at risk because they often base their investing decisions from a social media influencer or public endorsement.
See: Can AI Truly Replace Human Financial Advisors?
AI supported Ponzi schemes where scammers advertise fake trading platforms or algorithms driven by AI that provide large profits at low risk. Retail investors are drawn to these schemes to generate quick profits but these platforms are often fraudulent, tricking investors who may never see their funds again.
Protecting Retail Investors
The reports suggests that retail investors can protect themselves from AI powered fraud and manipulation by increasing their financial literacy and knowledge of AI powered scams. According to the findings, prebunking (proactively prevent misinformation) and inoculation strategies can reduce the chance that a retail investor would fall for a specific fraud. that uses artificial intelligence.
Regulation. Measures that require more transparency and disclosures from AI platforms including a clear understanding of how the AI decision logic is being made and ensuring their are accountable for it.
Why This Matters
AI is already changing the retail investing landscape, so the OSC research findings are important especially for retail investors.
See: The AI Revolution in Wealth Management: Top 3 Innovations (and more)
While AI systems are enabling more access at a cheaper cost they also pose new dangers for every day investors. As the sophistication of AI continues to grow, there will be a disproportionate impact for vulernable retail investors.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
| | |
|---|---|---|
| | |
Prager Metis Pays $1.95 Million for FTX Auditing Failures
Governance | Sep 25, 2024
Image: Freepik
Prager Metis Settle $1.95M SEC Fine Over FTX Audits
The collapse of FTX in November 2022 exposed major supervisory and governance gaps in what is now known as the biggest crypto fraud in history. An important participant in this fiasco was the auditing company Prager Metis CPAs who agreed to pay a $1.95 million fine to resolve allegations of audit failures in FTX and breach of auditor independence regulations that the Securities and Exchange Commission (SEC) had issue with.
Audit Failures and Negligence
From February 2021 to April 2022, Prager Metis was responsible for auditing FTX according to the Generally Accepted Auditing Standards (GAAS) but the SEC took enforcement action and a court judge raised the following issues:
- Prager Metis did not adequately assess the risk between FTX and Alameda Research which was controlled by FTX's CEO Sam Bankman Fried and led to the misappropriation of billions in customer funds.
- Prager Metis put together an audit team without the skills or experience required to audit a fast changing crypto company like FTX. As a result, the Prager Metis failed to recognize significant warning signs, such as FTX's substantial holdings in illiquid tokens and its close relationship and financial links to Alameda.
See: Which Companies Were Affected by FTX’s Collapse?
- Prager Metis's audit reports misled investors into believing that FTX's financial statements were accurate and followed Generally Accepted Accounting Principles creating a false sense of security.
- The judge emphasized that Prager Metis's inclusion of indemnity clauses in their engagement letters was a violation of auditor independence regulations. This hurt their ability to stay unbiased when reviewing over 200 companies from 2017 to 2020, including FTX. As a result, the reliability of their audits was questioned.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement:
"Prager Metis fell short in all of these areas. Because Prager’s audits of FTX were conducted without due care, for example, FTX investors lacked crucial protections."
SEC Settlement
- A $745 000 civil fine for fraud based on carelessness. This fine was imposed in response to the company's violations of auditing practices when working with FTX.
- $1.205 million penalty for violating auditor independence requirements involving incorrect indemnity arrangements in over 200 audit engagements between 2017 and 2020.
- Remedial action to hire an independent compliance expert who will review and improve its audit and quality control processes. Additionally, restrictions on Prager Metis's ability to take on new audit customers was restricted.
See: The Complexities of Auditing Digital Assets
Jorge G. Tenreiro, Acting Chief of the SEC's Crypto Assets and Cyber Unit:
“Cutting corners on obligations to comply with the law… does not pay for the entities who take them or for the multitude of victims that this misconduct leaves in its wake”.
Conclusion
The penalties against Prager Metis raise important questions about whether auditors are prepared to handle quickly evolving and risky industries like cryptocurrency. Auditors must stay independent, skilled, and skeptical to protect investors. In the case of FTX, failing to meet these standards led to major financial losses and damaged public trust in both the auditing profession and the markets.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
| | |
|---|---|---|
| | |
