The US Securities and Exchange Commission has charged Nigel Bostock, the chief executive of Crowe UK in Britain, for failing to audit a music streaming firm that went ‘public’ on Nasdaq during the Spac boom.
Akazoo, a Scotland-incorporated, Greece-headquartered company, claimed to have almost 40mn registered users and $120mn in annual revenue when it was acquired by Modern Media Acquisition Corp, a shell company, in 2019.
It had zero paying customers, negligible revenues, and was delisted.
According to SEC charges announced Monday, Crowe UK did not discover that Akazoo was presenting fake agreements and fake confirmations to its audit teams in the three-year period leading up to listing. Through this, Akazoo raised over $55mn.
“Crowe UK’s failure to properly auditor Akazoo contributed the air of legitimacy which allowed Akazoo become a publicly listed company”, said Eric Werner a regional director with the SEC.
We will continue to hold gatekeepers accountable. This includes those whose professional failures have allowed financial frauds into our public markets.
Crowe UK has not confirmed or denied the allegations. However, Bostock, and Matthew Stallabrass a senior auditor at the firm will be penalized $785,000.
The company has also agreed to stop auditing any other US listed companies. The SEC stated that the audit team assigned by Akazoo had “nearly no experience or training” in US standards.
Crowe UK expressed its “satisfaction” that the SEC’s claims had been resolved. The firm said that “audit quality, and its continual improvement, remain a top priority.”
Since September 2021, the Financial Reporting Council (UK’s accounting regulator) has been investigating the firm over its audits on Akazoo. The UK investigation covers Akazoo Limited’s financial statements for each of the last three years. The FRC did not provide any further information about its investigation. Crowe said that it was cooperating with the watchdog.
According to the most recent financial statements for the year ending March 2022, Crowe UK employed more than 1,000 employees. According to Adviser rankings data for the second half of 2023, it is the UK’s 8th largest auditor in terms of the number of London listed companies that are audited. It also ranks 13th based on the market value of the clients.
Its audit customers are usually private companies or smaller listed businesses. It does not audit any of the largest listed companies on London’s main stock exchange, the FTSE 350.
In 2020, Akazoo acknowledged that its management was responsible for “a multiyear fraud”. The SEC stated that this was accomplished by creating fictional “aggregators”, which were third-party companies who allegedly sold Akazoo streaming services to telecoms firms to be offered to their clients.
According to the SEC complaint, Crowe UK did not validate the existence of aggregators despite red flags. The SEC complaint states that “no one from the engagement group ever directly contacted aggregators.” . . “[and] did [not] verify the physical address of the aggregators,” the report said.
The SEC announced that Akazoo will pay $38,8mn in settlements by 2021.