United States SEC Fines Audit Firm Crowe UK, CEO & Senior Auditor $785,000 for Audit Violations of SPAC Music Streaming Company Akazoo, Negligible Revenue But 2018 Statements Falsely Claimed of $120 Million Revenue, Crowe Audit Team Had Almost No Experience or Training in Public Company Accounting Oversight Board Standards & Overlooked Red Flags Including Fabricated Agreements
18th August 2023 | Hong Kong
The United States Securities & Exchange Commission (SEC) has fined audit firm Crowe UK, CEO & a senior auditor $785,000 for audit violations of SPAC (Special Purpose Acquisition Vehicle) music streaming company Akazoo, which had negligible revenue but 2018 financial statements falsely claimed of $120 million revenue. The Crowe UK audit team had almost no experience or training in Public Company Accounting Oversight Board (PCAOB) standards and overlooked red flags including fabricated agreements. Crowe UK is fined $750,000, CEO Nigel Bostock is fined $50,000 and senior auditor Matthew Stallabrass is fined $10,000. United States SEC: “The Securities and Exchange Commission today charged Crowe U.K. LLP, a London based audit firm, its CEO, Nigel Bostock, and senior auditor, Matthew Stallabrass, for the firm’s deficient audit of music streaming company Akazoo Limited. Crowe U.K., Bostock, and Stallabrass have agreed to settle the SEC’s charges. According to the SEC’s order, Crowe U.K. issued a clean audit report of Akazoo’s 2018 financial statements. However, as the order finds, after Akazoo went public in September 2019 via merger with a special purpose acquisition company, also known as a De-SPAC transaction, it was revealed that the company’s 2018 financial statements falsely claimed $120 million in revenue when Akazoo had only negligible amounts of revenue. The order finds that Crowe U.K. claimed that it conducted its 2018 audit in accordance with Public Company Accounting Oversight Board (PCAOB) standards when, in fact, its Akazoo audit team had almost no experience or training in PCAOB standards. Further, the order finds that the audit team overlooked red flags when, for instance, they failed to exercise an appropriate level of due professional care or professional skepticism when Akazoo presented fabricated agreements and inauthentic confirmation letters to the audit team. The order also finds that Crowe U.K. made false statements in its audit report when it claimed that Akazoo fairly presented its financial statements in all material respects for 2018. The order finds that, by violating PCAOB standards in connection with the 2018 Akazoo audit, Crowe U.K., Bostock, and Stallabrass engaged in improper professional conduct. Additionally, the SEC order finds that Bostock, as the engagement partner for the Akazoo audit, among other things, failed to appropriately supervise the engagement, maintain adequate documentation, and exercise due professional care. The SEC order also finds that Stallabrass, the engagement quality reviewer for the audit, failed to conduct a sufficient engagement quality review.” In 2021, the United States Securities and Exchange Commission (SEC) reached a $38.8 million fraud settlement of SPAC music streaming company Akazoo. Based in Greece, Akazoo had allegedly defrauded investors of $55 million in connection with a 2019 special purpose acquisition company (SPAC) business combination. More info below.
“ United States SEC Fines Audit Firm Crowe UK, CEO & Senior Auditor $785,000 for Audit Violations of SPAC Music Streaming Company Akazoo, Negligible Revenue But 2018 Statements Falsely Claimed of $120 Million Revenue, Crowe Audit Team Had Almost No Experience or Training in Public Company Accounting Oversight Board Standards & Overlooked Red Flags Including Fabricated Agreements “
Eric Werner, the Regional Director of the Fort Worth Regional Office: Crowe U.K.’s failure to properly audit Akazoo contributed to the air of legitimacy that allowed Akazoo to become a publicly traded company. We will continue holding gatekeepers accountable, especially those whose professional failings allow financial frauds to enter our public markets.”
United States SEC Fines Audit Firm Crowe UK, CEO & Senior Auditor $785,000 for Audit Violations of SPAC Music Streaming Company Akazoo
- SEC Charges UK Audit Firm, CEO, and Senior Auditor for Failures in Connection with De-SPAC Transaction
14th August 2023 – The Securities and Exchange Commission today charged Crowe U.K. LLP, a London based audit firm, its CEO, Nigel Bostock, and senior auditor, Matthew Stallabrass, for the firm’s deficient audit of music streaming company Akazoo Limited. Crowe U.K., Bostock, and Stallabrass have agreed to settle the SEC’s charges.
According to the SEC’s order, Crowe U.K. issued a clean audit report of Akazoo’s 2018 financial statements. However, as the order finds, after Akazoo went public in September 2019 via merger with a special purpose acquisition company, also known as a De-SPAC transaction, it was revealed that the company’s 2018 financial statements falsely claimed $120 million in revenue when Akazoo had only negligible amounts of revenue. The order finds that Crowe U.K. claimed that it conducted its 2018 audit in accordance with Public Company Accounting Oversight Board (PCAOB) standards when, in fact, its Akazoo audit team had almost no experience or training in PCAOB standards. Further, the order finds that the audit team overlooked red flags when, for instance, they failed to exercise an appropriate level of due professional care or professional skepticism when Akazoo presented fabricated agreements and inauthentic confirmation letters to the audit team. The order also finds that Crowe U.K. made false statements in its audit report when it claimed that Akazoo fairly presented its financial statements in all material respects for 2018. The order finds that, by violating PCAOB standards in connection with the 2018 Akazoo audit, Crowe U.K., Bostock, and Stallabrass engaged in improper professional conduct.
Additionally, the SEC order finds that Bostock, as the engagement partner for the Akazoo audit, among other things, failed to appropriately supervise the engagement, maintain adequate documentation, and exercise due professional care. The SEC order also finds that Stallabrass, the engagement quality reviewer for the audit, failed to conduct a sufficient engagement quality review
Without admitting or denying the SEC’s findings, Crowe U.K., Bostock, and Stallabrass agreed to settle the charges and pay penalties of $750,000, $25,000, and $10,000, respectively, and to cease and desist from committing or causing violations of the proxy and reporting provisions of the Exchange Act and Regulation S-X. Crowe U.K. also agreed to be censured, pay disgorgement and prejudgment interest (the payment of which is deemed satisfied by Crowe U.K.’s payments in related private litigation), voluntarily withdraw its PCAOB registration, and implement undertakings related to the firm’s acceptance of new clients. Bostock and Stallabrass also agreed to be suspended from appearing or practicing before the SEC as accountants, with the right to apply for reinstatement after five years and two years, respectively.
The SEC’s investigation was conducted by Samantha Martin, Melvin Warren, and Carol Stumbaugh of the SEC’s Fort Worth Regional Office, under the supervision of Sarah S. Mallett and Eric Werner. The SEC appreciates the assistance of the United Kingdom Financial Conduct Authority.
United States SEC Reaches $38.8 Million Fraud Settlement of SPAC Music Streaming Company
29th October 2021 – The United States Securities and Exchange Commission (SEC) has reached a $38.8 million fraud settlement of SPAC music streaming company Akazoo. Based in Greece, Akazoo had allegedly defrauded investors of $55 million in connection with a 2019 special purpose acquisition company (SPAC) business combination. Akazoo’s assets were previously frozen as the result of an emergency action filed by United States SEC in September 2020. Akazoo represented to investors that it was a rapidly growing music streaming company focused on emerging markets with more than 38.2 million registered users, 4.6 million paying subscribers, and over $120 million in annual revenue. In reality, the complaint alleged that the company had no paying users and, at most, negligible revenue. SPAC (Special Purpose Acquisition Company)
SPAC (Special Purpose Acquisition Company) is also popularly referred to as a blank cheque company, that allows the listed company without any existing businesses to raise capital through an IPO (initial public offering), and thereafter use the capital to invest into companies.
United States SEC on SPAC Akazoo:
According to the United States Securities and Exchange Commission ‘complaint, Akazoo represented to investors that it was a rapidly growing music streaming company focused on emerging markets with more than 38.2 million registered users, 4.6 million paying subscribers, and over $120 million in annual revenue. In actuality, the complaint alleged that the company had no paying users and, at most, negligible revenue. Akazoo allegedly leveraged these misrepresentations to enter into a SPAC business combination in 2019, in which the company received nearly $55 million from the SPAC and other investors. According to the complaint, after the business combination, Akazoo became listed on Nasdaq and proceeded to defraud retail investors by misrepresenting, among other things, that it had earned tens of millions of dollars in revenue during 2019 and increased its paying subscriber base by 28% year-over-year. In reality, the company allegedly continued to have limited operations, no subscribers, and marginal revenue, all while depleting more than $20 million of investor funds.
The SEC filed its emergency action to, among other things, preserve the company’s remaining $31.5 million in cash and other assets. In October 2020, the court signed and entered an agreed stipulation whereby Akazoo agreed to an asset freeze. In April 2021, without admitting or denying the allegations, Akazoo agreed to a bifurcated judgment that permanently enjoined the company from violating, among other things, the antifraud and reporting provisions of the federal securities laws. The settlement announced today fully resolves the litigation by ordering Akazoo to pay $38.8 million in disgorgement, an amount that will be deemed satisfied by the company’s payment of $35 million to the investors victims and settlements in connection with several private class action lawsuits.
David Peavler, Regional Director of the SEC’s Fort Worth Regional Office:
“One goal in filing this emergency action was to preserve assets for the benefit of injured investors, and this resolution accomplishes that goal. The SEC is intently focused on SPAC merger transactions, and we will continue to hold wrongdoers in this space accountable.”
The SEC’s investigation, which is ongoing, is being conducted by Samantha S. Martin, Melvin Warren, and Carol Stumbaugh of the SEC’s Fort Worth Regional Office, under the supervision of Scott F. Mascianica and Eric Werner. Matthew Gulde led the litigation against Akazoo under B. David Fraser’s supervision.
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