Investors in a music streaming service called Akazoo that turned out to be a “complete sham” are suing an auditor who allegedly gave the company a clean bill of health, claiming the accounting firm failed to catch glaring red flags and caused them to lose $40 million.

Akazoo billed itself as a rapidly growing streaming company focused on emerging markets, but federal regulators accused the Greek company in 2020 of defrauding investors out of millions by lying about millions of subscribers and hundreds of millions in revenue. In reality, regulators say the company had almost none of either.

In a lawsuit filed Tuesday in Georgia federal court, a group of investors said the fault for that alleged fraud lies partly on accounting firm Crowe U.K. LLP – arguing that the auditor convinced them to put millions into a company that was later “revealed to be a complete fabrication.”

“This case arises out of the false written and oral representations made by Crowe that caused plaintiffs to invest tens of millions of dollars into a company whose supposed business was essentially a complete fiction with fictional revenues, fictional expenses and fictional assets,” attorneys for the investors wrote.

Akazoo went public in 2019 via a special purpose acquisition company, or SPAC, receiving nearly $55 million from investors. But the U.S. Securities and Exchange Commission leveled charges in 2020 that the company had blatantly lied to investors. Akazoo allegedly told investors that it had 4.6 million paying subscribers and $120 million in annual revenue; the SEC claimed it had actually had “no paying users and, at most, negligible revenue.”

In October, the company agreed to pay $38.8 million to resolve the SEC’s accusations.

Tuesday’s lawsuit was filed by dozens of investors, both individuals and institutions, that put $40 million total into the SPAC that took Akazoo public. Earlier lawsuits by investors targeted Akazoo itself, but the new case took aim at Crowe’s audits, arguing they “did not comply with even the most basic professional audit standards” and painted a false image of the company.

And because Akazoo was a private firm, the investors said the approval of a reputable auditor like Crowe “played an outsized role in convincing investors to contribute money.”

“Crowe bears direct responsibility for plaintiffs’ losses from Akazoo,” the investors wrote. “Crowe negligently performed its work as an auditor and — based on what it learned and ignored about the Company and its purported business — should never have issued its auditor’s report on the company’s financial statements, much less one with an unqualified or ‘clean’ opinion.”

The lawsuit said Crowe missed huge red flags, like the fact that Akazoo “outsourced essentially all of its business” to three companies that the investors described as “very odd and nondescript third-party aggregators.”

“Shockingly, Crowe did essentially nothing to investigate the legitimacy of these entities (either the aggregators or the vendors) or the validity of the reported transactions involving these entities,” the lawsuit said. “Crowe did not try to speak to anyone who actually worked at any of these entities whose significance to Old Akazoo’s business cannot be overstated.”

A representative for Crowe did not immediately return a request for comment.

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