SEC Takes Action Against UK Company Over Audit

Table of Contents

• Akazoo revenue overstated
• Failings and penalties

The SEC has taken decisive action against Crowe U.K. LLP, a pro-crypto London-based audit firm over the auditing of music streaming service Akazoo.

The firm's CEO, Nigel Bostock, and senior auditor, Matthew Stallabrass, who advocate for wider crypto adoption, have also been implicated for their roles in a flawed audit of the music streaming entity, Akazoo Limited. All parties involved have opted for a settlement with the SEC. 

Akazoo revenue overstated

Diving into the details, the SEC's findings reveal that Crowe U.K. had given Akazoo's 2018 financial statements a clean bill of health. However, post Akazoo's public debut in 2019 through a merger with a special purpose acquisition entity, discrepancies emerged.

Akazoo's 2018 financial records boasted a whopping $120 million in revenue, a figure that was later debunked, revealing only trivial revenue figures. The SEC's probe highlighted that Crowe U.K.'s audit team lacked the requisite experience and training in Public Company Accounting Oversight Board (PCAOB) standards. 

The oversight became evident when the team missed glaring warning signs, such as accepting fabricated agreements and dubious confirmation letters from Akazoo without the necessary scrutiny. 

Failings and penalties

The SEC's findings also spotlighted the roles of Bostock and Stallabrass. Bostock, as the lead for the Akazoo audit, was found lacking in his supervisory duties, documentation, and professional care. On the other hand, Stallabrass, responsible for reviewing the audit's quality, failed to conduct a comprehensive review. 

Eric Werner, the Regional Director of the Fort Worth Regional Office, commented on the situation, emphasising the role of Crowe U.K. in lending an unwarranted legitimacy to Akazoo, facilitating its entry into the public trading arena. He stressed the SEC's commitment to holding such gatekeepers accountable to prevent financial deceptions from infiltrating public markets. 

In the settlement, without admitting to any wrongdoing, Crowe U.K., Bostock, and Stallabrass have agreed to pay penalties amounting to $750,000, $25,000, and $10,000, respectively. They've also committed to refraining from any future violations related to the Exchange Act and Regulation S-X. Additionally, Crowe U.K. will voluntarily withdraw its PCAOB registration and introduce measures concerning new client acquisitions. 

Both Bostock and Stallabrass face suspensions from practising before the SEC as accountants, with potential reinstatements after five and two years, respectively.