SEC: Akazoo to pay $38.8M in fraud case concerning SPAC merger

The SEC first filed a lawsuit against Akazoo in September 2020 alleging securities fraud, one year after the company went public through its SPAC merger with Modern Media Acquisition Corp. The agency’s probe followed a short-seller report alleging fraud in April 2020, prompting Akazoo’s board to launch an internal investigation.

In May 2020, Akazoo shared the results of its investigation in a regulatory filing with the SEC, in which it admitted, “’Former members of Akazoo’s management team and associates defrauded Akazoo’s investors … by materially misrepresenting Akazoo’s business, operations, and financial results as part of a multi-year fraud.’

“Additionally, Akazoo admitted that it had only negligible revenue and subscribers, its historical financial statements were materially false and misleading, and ‘former members of Akazoo management and associates participated in a sophisticated scheme to falsify Akazoo’s books and records[.]’ As a result of the conduct by Akazoo’s former management team, and as described in its public filings, Akazoo defrauded its investors and violated the federal securities laws,” the SEC’s complaint stated.

Akazoo had told investors it had more than 38.2 million registered users, 4.6 million paying subscribers, and more than $124 million in annual revenue, according to the agency. The company continued to mislead the public whiles its shares were traded on the Nasdaq from September 2019 to May 2020.

Akazoo in October 2020 agreed to an asset freeze aimed at preserving the company’s remaining $31.5 million in cash and other assets. In April 2021, without admitting or denying the SEC’s allegations, Akazoo agreed to a bifurcated judgment that permanently enjoined it from violating the antifraud and reporting provisions of the federal securities laws.

Wednesday’s final judgment “fully resolves the litigation by ordering Akazoo to pay $38.8 million in disgorgement, an amount that will be deemed satisfied by the company’s payment of $35 million to the investors victims and settlements in connection with several private class-action lawsuits,” the SEC stated.

David Peavler, regional director of the SEC’s Fort Worth Regional Office, commented, “The SEC is intently focused on SPAC merger transactions, and we will continue to hold wrongdoers in this space accountable.”

In a separate investigation, the U.K. Financial Reporting Council (FRC) on Oct. 4 announced a probe into Crowe UK concerning its audit of Akazoo’s financial statements for the fiscal years ended Dec. 31, 2016-18.