A U.K. audit firm has been sanctioned over its faulty audit of a company that went public via a deal with a special purpose acquisition company (SPAC).
The U.S. Securities and Exchange Commission (SEC) settled charges against auditor Crowe U.K. LLP, the firm’s CEO Nigel Bostock and its senior auditor Matthew Stallabrass for its deficient audit of a company called Akazoo.
Akazoo later merged with a SPAC in 2019, enabling the company to go public through a so-called “de-SPAC” transaction.
According to the SEC’s order, Crowe issued a clean audit report on Akazoo’s financial statements for 2018, which falsely claimed that the company had US$120 million in revenue when, in fact, the company was only generating “negligible” amounts of revenue.
The SEC alleged 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 and inauthentic confirmation letters.”
“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, director of the SEC’s Fort Worth office.
“We will continue holding gatekeepers accountable, especially those whose professional failings allow financial frauds to enter our public markets,” he added.
Without admitting or denying the SEC’s findings, the firm and the executives agreed to settle the charges.
The firm agreed to pay a US$750,000 penalty while the CEO agreed to pay US$25,000 and to be banned for five years. The senior auditor agreed to pay US$10,000 and to be banned for two years.