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The US Securities and Exchange Commission (SEC) has charged British audit firm Crowe UK and its CEO, Nigel Bostock, for failures in auditing a music streaming company that went public on Nasdaq during the Spac boom. Akazoo, a company incorporated in Scotland and headquartered in Greece, was acquired by Modern Media Acquisition Corp in 2019. Despite claiming to have 40 million registered users and $120 million in annual revenue, it was later revealed that Akazoo had no paying customers and negligible revenue, resulting in its delisting.
The SEC charges state that Crowe UK failed to uncover the company’s presentation of fabricated agreements and fake confirmation letters to its audit team over a three-year period leading up to the listing, during which Akazoo raised $55 million. Eric Werner, a regional director at the SEC, stated that Crowe UK’s failure to conduct a proper audit contributed to the company’s perceived legitimacy as a publicly traded entity.
Crowe UK, Bostock, and senior auditor Matthew Stallabrass have agreed to pay penalties totaling $785,000 without confirming or denying the allegations. Additionally, Crowe UK will no longer audit US-listed companies. The SEC highlighted the lack of experience and training in US standards among the audit team assigned to Akazoo. Crowe UK expressed satisfaction in resolving the SEC claims and emphasized its commitment to continuous improvement in audit quality.
Since September 2021, Crowe UK has also been under investigation by the UK’s accounting regulator, the Financial Reporting Council (FRC), regarding its audits of Akazoo Limited for the years up to 2018. The details of the FRC investigation have not been disclosed, but Crowe UK has stated its cooperation with the watchdog.
Crowe UK, with over 1,000 employees, ranks as the eighth largest auditor of London-listed companies and the thirteenth largest in terms of market value of its clients. Its audit clients mainly consist of private companies and smaller listed businesses, with no involvement in auditing FTSE 350 index companies.
In 2020, Akazoo admitted to perpetrating a multiyear fraud, which involved the creation of fictional aggregators to sell its streaming services. The SEC complaint revealed that Crowe UK failed to validate the existence of these aggregators and did not verify their physical addresses, despite several red flags. The SEC settled charges against Akazoo for $38.8 million in 2021.
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