Why We Are Publishing Today

Akazoo S.A. is the modern reference case for a SPAC-era subscriber-metric fraud. Quintessential Capital Management's April 2020 report alleged that Akazoo — which had listed in 2019 via merger with Modern Media Acquisition Corp., a SPAC — had fabricated its disclosed subscriber base and revenue. The SEC, in an unusually rapid sequence, brought fraud charges in September 2020 — less than six months after the QCM publication — and concluded with a US$38.8 million settlement that, after Akazoo's effective insolvency, was substantially funded by recoveries from the SPAC and related parties.

Section 1 — The QCM Thesis (April 20, 2020)

Quintessential Capital Management's report alleged that Akazoo:

• Fabricated the substantial majority of its disclosed paid subscribers, with QCM characterizing the gap between disclosed and verifiable subscriber numbers as 90%+ of the headline figure;
• Fabricated reported revenue and operating metrics correlated with the subscriber number;
• Used a network of related-party arrangements in jurisdictions including the UK and Greece to give the appearance of arms-length commercial scale.

QCM disclosed a short position. The report drew on on-the-ground research and counterparty verification work.

Section 2 — Internal Investigation and SEC Charges

The post-publication sequence was unusually rapid:

• April–May 2020. Akazoo board commissions an internal investigation through outside counsel.
• June 2020. Internal investigation publicly confirms that previously-reported subscriber and revenue figures were not supported and require restatement.
• September 30, 2020. US Securities and Exchange Commission files civil fraud charges against Akazoo, alleging that the company had defrauded SPAC investors at the time of the merger.
• 2020–2021. Akazoo agrees to disgorgement and civil penalties of US$38.8 million in resolution of the SEC charges. The settlement was structured to be paid from available company funds and recoveries from related parties.

Section 3 — Delisting, Civil Proceedings, and Investor Recovery

Akazoo was delisted from Nasdaq following the disclosure cascade. Common equity in Akazoo was effectively zero in subsequent distributions.

Civil proceedings in the UK and elsewhere addressed claims against former Akazoo executives and counterparties. Investor recoveries — including from the Modern Media Acquisition Corp. founders, sponsors and underwriters of the original SPAC merger — were pursued through class-action and direct-claim mechanisms.

Section 4 — Where Things Stand (October 2020) and What Muddy Insights Takes From The Case

As of October 2020:

• Akazoo S.A. as a listed entity is wound down.
• The September 2020 SEC settlement is final.
• Civil-litigation recovery proceedings against former executives and counterparties have substantially concluded.

What Muddy Insights takes from the Akazoo case:

1. It is the fastest-resolving US-listed forensic short of the SPAC era. Six months from QCM publication to SEC charges is unusual; the speed reflects the unusually strong on-the-ground evidentiary base QCM presented and the relatively-clean US-securities-law theory available to SEC enforcement.
2. The "fabricated subscriber metric" template generalizes. Subscriber-dependent business models (music streaming, video streaming, telehealth, ed-tech) where disclosed user numbers cannot be easily independently verified warrant the Akazoo template's application.
3. SPAC sponsors and underwriters carry meaningful tail-risk exposure. The civil-recovery channels through which Akazoo investors achieved partial restitution include SPAC sponsor and underwriter parties — a useful precedent for subsequent SPAC-era fraud-recovery work.

Source Index (selected)

• Quintessential Capital Management, "Akazoo: The Music Streaming Mirage," April 20, 2020.
• Akazoo S.A. internal-investigation public disclosure, June 2020.
• US Securities and Exchange Commission — Litigation Release, September 30, 2020; subsequent settlement materials.
• Nasdaq delisting notices and OTC trading status materials, 2020.
• Civil-litigation filings against former Akazoo executives and Modern Media Acquisition Corp. sponsors and underwriters.

— Muddy Insights, October 15, 2020.