In relation to their inadequate audit of the music streaming startup Akazoo Limited, the U.S. Securities and Exchange Commission (SEC) has filed charges against Crowe U.K. LLP, a London-based auditing firm, its CEO Nigel Bostock, and its senior auditor Matthew Stallabrass. The parties concerned have consented to resolve the SEC’s allegations.
According to the SEC’s order, Crowe U.K. provided a clean audit report for Akazoo’s 2018 financial statements. It was discovered, however, that Akazoo’s 2018 financial statements had incorrectly reported $120 million in revenue, when in fact the company had only negligible revenue amounts, after the company went public in September 2019 through a merger with a special purpose acquisition company (De-SPAC transaction).
The SEC ruling also made note of Crowe U.K.’s assertion that its 2018 audit adhered to Public Company Accounting Oversight Board (PCAOB) requirements. The Crowe U.K. Akazoo audit team, on the other hand, had significant PCAOB training or expertise. The audit team also failed to notice a number of warning signs, such as failing to use the proper professional caution or scepticism when Akazoo supplied them with forged agreements and fake confirmation letters. The SEC decision also made note of Crowe U.K.’s deceptive claim in its audit report that Akazoo’s 2018 financial statements were fairly presented in all material respects.
Bostock and Stallabrass were determined to have made mistakes, according to the SEC decision.It was discovered that Bostock, the engagement partner for the Akazoo audit, had not exercised appropriate professional care, had not properly documented, and had not adequately monitored the engagement. On the other hand, Stallabrass, who was in charge of examining the audit’s quality, failed to carry out a complete engagement quality evaluation.
“Crowe U.K.’s failure to properly audit Akazoo contributed to the air of legitimacy that allowed Akazoo to become a publicly traded company,” said Eric Werner, Regional Director of the Fort Worth Regional Office. We’ll keep holding gatekeepers responsible, especially those whose mistakes in judgement let financial frauds into our open markets.
Without admitting or disputing the SEC’s conclusions, Crowe U.K., Bostock, and Stallabrass have agreed to pay fines of $750,000, $25,000, and $10,000 respectively as part of the settlement. Additionally, they have promised to stop and refrain from breaking any rules such as Regulation S-X and the Exchange Act. Additionally, Crowe U.K. will voluntarily revoke its PCAOB registration and put into action specified commitments relating to taking on new customers. Bostock and Stallabrass have both been barred from appearing before the SEC as accountants or engaging in their respective professions. However, after five years and two years, respectively, they are both eligible to request for reinstatement.
The SEC’s investigation was carried out by the Fort Worth Regional Office, and the commission recognised the UK Financial Conduct Authority’s help in this matter.