The Securities & Exchange Commission today charged Crowe U.K. LLP, a London based audit firm, its CEO, Nigel Bostock, & senior auditor, Matthew Stallabrass, for the firm’s deficient audit of music streaming company Akazoo Limited. Crowe U.K., Bostock, & 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 & 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, & 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, & 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.
“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, the Regional Director of the Fort Worth Regional Office. “We will continue holding gatekeepers accountable, especially those whose professional failings allow financial frauds to enter our public markets.”
Without admitting or denying the SEC’s findings, Crowe U.K., Bostock, & Stallabrass agreed to settle the charges & pay penalties of $750,000, $25,000, & $10,000, respectively, & to cease & desist from committing or causing violations of the proxy & reporting provisions of the Exchange Act & Regulation S-X. Crowe U.K. also agreed to be censured, pay disgorgement & prejudgment interest (the payment of which is deemed satisfied by Crowe U.K.’s payments in related private litigation), voluntarily withdraw its PCAOB registration, & implement undertakings related to the firm’s acceptance of new clients. Bostock & 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 & two years, respectively.
The SEC’s investigation was conducted by Samantha Martin, Melvin Warren, & Carol Stumbaugh of the SEC’s Fort Worth Regional Office, under the supervision of Sarah S. Mallett & Eric Werner. The SEC appreciates the assistance of the United Kingdom Financial Conduct Authority.