The U.S. Securities and Exchange Commission filed charges against Crowe U.K. LLP, its CEO and senior auditor for their role in an inadequate audit of music streaming company Akazoo Limited. Crowe U.K., Bostock, and Stallabrass opted to resolve the charges brought forward by the SEC, according to an Aug. 14 news release.
“Crowe U.K.’s failure to properly audit Akazoo contributed to the air of legitimacy that allowed Akazoo to become a publicly traded company,” Regional Director of the Fort Worth Regional Office Eric Werner said in the release. “We will continue holding gatekeepers accountable, especially those whose professional failings allow financial frauds to enter our public markets.”
The SEC has taken legal action against London-based audit firm Crowe U.K. LLP, CEO Nigel Bostock and senior auditor Matthew Stallabrass, for their involvement in a deficient audit of music streaming company Akazoo Limited, the release reported.
Crowe U.K. reportedly issued a positive audit report for Akazoo’s 2018 financial statements. However, it later emerged Akazoo’s 2018 financial statements contained false information, particularly overstating revenue by $120 million, according to the release.
The SEC asserts Crowe U.K. falsely claimed to have conducted the audit in accordance with Public Company Accounting Oversight Board standards, despite the audit team’s lack of experience and training in these standards. The audit team allegedly disregarded red flags, demonstrating inadequate due professional care and skepticism, leading to the presentation of fabricated agreements and fraudulent confirmation letters by Akazoo, the release said.
The SEC order also said Bostock, who was the engagement partner for the Akazoo audit, failed in his responsibilities. Among other oversights, he inadequately supervised the engagement, failed to maintain adequate documentation and didn’t exercise due professional care, the release reported. Additionally, the engagement quality reviewer, Stallabrass, was found to have not conducted a thorough engagement quality review.
Without admitting or denying the SEC’s findings, Crowe U.K., Bostock and Stallabrass have agreed to settle the charges. They will pay penalties of $750,000, $25,000 and $10,000 respectively. The settlement terms also require them to cease and desist from causing violations of the Exchange Act and Regulation S-X, the release said.
Crowe U.K. will also undergo censure, pay disgorgement and prejudgment interest with payment deemed fulfilled by related private litigation payments, voluntarily terminate its PCAOB registration and commit to specific undertakings regarding new client engagements. Furthermore, Bostock and Stallabrass will be subject to suspensions from appearing or practicing before the SEC as accountants, with the opportunity to apply for reinstatement after specified durations, according to the release.
The investigation was conducted by Samantha Martin, Melvin Warren and Carol Stumbaugh from the SEC’s Fort Worth Regional Office. Their efforts were supervised by Sarah S. Mallett and Werner, the release reported. The SEC acknowledges the support provided by the United Kingdom Financial Conduct Authority during the investigation.
The actions against Crowe U.K., Bostock and Stallabrass highlight the SEC’s commitment to enforcing transparency and accountability in the auditing sector to ensure accurate and reliable financial reporting, according to the release.
