A U.K. audit firm has been sanctioned over its faulty audit of a music streaming company that went public via a deal with Modern Media Acquisition.
The SEC settled charges against auditor Crowe U.K., the firm’s CEO Nigel Bostock and its senior auditor Matthew Stallabrass for its deficient audit of a company called Akazoo.
According to the SEC’s order, Crowe issued an audit report on Akazoo’s financial statements for 2018, which falsely claimed that the company had $120 million in revenue when, in fact, the company was only producing “negligible” amounts of revenue.
The SEC alleged 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.”
Without admitting or denying the SEC’s findings, the firm agreed to pay a $750,000 penalty while the CEO agreed to pay $25,000 and to be banned for five years. The senior auditor agreed to pay $10,000 and to be banned for two years, according to the SEC’s notice.
Based in Greece, Akazoo in October 2021 settled a fraud case with the SEC for $38.8 million. According to the SEC, 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 negligible revenue, if any. 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. Read more.
