Expert: SEC’s view on Prager Metis indemnity clauses ‘problematic’


Audit firms should carefully weigh the pros and cons of indemnity clauses in light of the Securities and Exchange Commission’s (SEC) recent complaint against Prager Metis.

Last month, the SEC charged Prager Metis with violating independence requirements of federal securities laws on 62 audits, 11 examinations, and 144 reviews, largely because the firm included indemnification provisions in 87 client engagement letters. The agency’s complaint, filed in U.S. District Court for the Southern District of Florida, is just the latest example of its enforcement focus on auditor independence.

The prudent path for auditors is not to use indemnity clauses in any way whatsoever, said Frank Borger Gilligan, a member of the corporate, mergers and acquisitions, and securities practice group at law firm Dickinson Wright.

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