A press release issued Wednesday by the Securities and Exchange Commission (SEC) publicized a settlement with Akazoo S.A., a Greek music streaming business that allegedly defrauded investors in connection with a 2019 “special purpose acquisition company (SPAC) business combination.” According to the agreed final judgment, the company will return $35 million of the $38.8 million to investors in connection with several private class action lawsuits, an amount which will deem the settlement satisfied.
The September 2020 complaint asserts that the start-up initially claimed that it had “launched a free, ad-supported streaming radio service in 2017, and acquired and developed a small portfolio of patented artificial intelligence-based recommendation technology.” In 2019, the company merged with Modern Media Acquisition Corp, a special purpose acquisition Delaware corporation, to form Akazoo.
That year, Akazoo reportedly told investors that it was a fast growing music streaming company focused on emerging markets, touting its over 38.2 million registered users, 4.6 million paying subscribers, and more than $120 million in annual revenue. In fact, the SEC asserts, the company had no paying users and minimal revenue. Akazoo reportedly levied these misrepresentations to enter into a SPAC business combination, through which the company received nearly $55 million from the SPAC and other investors.
A short-seller reportedly exposed the fraud in April 2020. Thereafter, Akazoo’s board of directors commenced an investigation into the company’s operations, ultimately finding that former management team members defrauded the company’s investors by lying about its profitability.
The Southern District of New York complaint further explains that even after Akazoo became listed on a major U.S. stock exchange, it continued to swindle retail investors through false statements in public reports signed by its CEO and filed with the SEC. For example the complaint states, “[i]n the first half of 2019, the Company’s revenues grew 39% year-over-year.”
The SEC avers that the picture painted was far from reality as Akazoo had limited operations, no subscribers, and negligible revenue, all while eating up more than $20 million in investor funds. Before reaching the settlement, the SEC sought and succeeded in freezing the company’s remaining $31.5 million in cash and other assets by emergency motion filed last year.