August 15, 2026  ·  Complaint filed August 10, 2026  ·  United States District Court for the Northern District of California, No. 3:25-cv-03172-RFL

Newman News, By David Brunk

Read the complaint

Fritz v. Mohajer Tests Whether SoundHound Board Misled Investors on AI Acquisitions

Shareholder Alleges $9.3 Million Goodwill Error Contradicted Prior SEC Filings

Walter Fritz, a shareholder of SoundHound AI, Inc., filed a verified derivative complaint in the United States District Court for the Northern District of California on August 10, 2026, alleging that the company’s officers and directors—including CEO Keyvan Mohajer, former CFO Nitesh Sharan, and board members James Hom, Diana Sroka, Eric R. Ball, and Larry Marcus—breached their fiduciary duties by issuing materially false and misleading statements about the company’s internal controls and the integration of two major acquisitions. The complaint centers on SoundHound’s 2024 acquisitions of SYNQ3, Inc. and Amelia Holdings, Inc., and the subsequent disclosure of a $9.3 million decrease in goodwill related to the Amelia acquisition, which the plaintiff contends contradicted prior representations in SEC filings. The total consideration for the Amelia Holdings, Inc. acquisition was $80.0 million, consisting of $10.0 million in cash and 13,084,112 shares of SoundHound Class A Common Stock, with an additional 16,822,429 shares issuable upon the achievement of certain milestones (Compl. ¶8).

The company’s March 11, 2025, Form 10-K filing revealed that these representations were false. The 2024 Form 10-K disclosed that SoundHound lacked effective controls over non-routine transactions, such as acquisitions, and that the company had identified material weaknesses in its internal control over financial reporting, which continued to exist as of December 31, 2024. The filing also revealed the $9.3 million decrease in goodwill, which the complaint alleges was the result of accounting errors that had not been previously disclosed. The 2024 Form 10-K disclosed that Amelia Acquisition measurement period adjustments and error corrections totaled a $9.3 million decrease in goodwill (Compl. ¶67).

According to the complaint, former CFO Nitesh Sharan stated during the May 9, 2024, first-quarter earnings call that the SYNQ3 acquisition was "fully in the mix" and that the "benefits of integrating this pioneering restaurant tech organization with our years of voice AI innovations are clear" (Compl. ¶35). The total preliminary purchase consideration for the SYNQ3 acquisition was $17.0 million, consisting of $3.9 million in cash and 5,755,910 shares of SoundHound Class A Common Stock, with an additional $0.8 million in cash and 1,434,936 shares issuable upon the achievement of certain milestones (Compl. ¶8). Confidential witnesses cited in the complaint provide additional support for the allegations. A former accounting employee of Amelia (Confidential Witness 2) stated that Amelia’s accounting processes remained manual post-acquisition, with insufficient staffing and review controls. Another former Amelia accountant (Confidential Witness 3) corroborated these claims, alleging that the company lacked proper segregation of duties and that the accounting team was overwhelmed by the volume of transactions (Compl. ¶59).

The 2024 Form 10-K later admitted that these controls were ineffective, directly contradicting the prior filings. The complaint quotes the 2024 Form 10-K, which states, "the Company has identified material weaknesses in its internal control over financial reporting. These material weaknesses continue to exist as of December 31, 2024" (Compl. ¶64). These admissions, the complaint alleges, "directly contradicted SoundHound’s repeated statements... that the Company had completed a segregation-of-duties assessment identifying key conflicts and mitigating controls" (Compl. ¶68). The complaint further asserts that the Individual Defendants breached their duty of loyalty, which "requiring that each favor SoundHound’s interest and that of its shareholders over their own" (Compl. ¶31).

Generative AI Market Growth Underscores Stakes of Alleged Misrepresentations

The acquisitions at the center of the complaint occurred against the backdrop of rapid growth in the generative AI market. According to a June 2024 report by McKinsey, enterprise spending on generative AI is forecasted to reach between $175 billion and $250 billion by 2027. SoundHound’s August 8, 2024, press release announcing the Amelia acquisition described the company as "expanding [its] leadership position in voice and conversational AI" (Compl. ¶4). The complaint alleges that the Individual Defendants sought to capitalize on this growth by touting the strategic benefits of the acquisitions, including during the August 8, 2024, second-quarter earnings call, where they stated, "This has been a milestone quarter, with strong customer momentum across all of our key industries" (Compl. ¶52). The complaint further quotes the earnings call, where the Individual Defendants explained their acquisition strategy: "The primary filters we have been using to select appropriate acquisition targets have been, one, does it fit within our long-term strategy?" (Compl. ¶54).

Board’s Failure to Respond to Demand Letter Fuels Futility Argument

The complaint alleges that the Individual Defendants’ misconduct was not only reckless but also self-serving. The CEO, Keyvan Mohajer, held a significant ownership stake in the company, representing 19.8% of the total voting power as of March 30, 2026, through ownership of 761,277 shares of Class A Common Stock and 14,139,064 shares of Class B Common Stock (Compl. ¶8). James Hom, the Chief Product Officer and a board member, held 2.6% of the total voting power through ownership of 401,530 shares of Class A Common Stock and 1,812,588 shares of Class B Common Stock (Compl. ¶8). Other board members, including Diana Sroka, Eric R. Ball, and Larry Marcus, also held substantial shares of Class A Common Stock, with Sroka owning 234,605 shares, Ball owning 543,741 shares, and Marcus owning 200,054 shares (Compl. ¶8). Former CFO Nitesh Sharan owned 1,230,631 shares of Class A Common Stock as of March 30, 2026 (Compl. ¶8).

Plaintiff Walter Fritz served a demand letter on SoundHound’s Board of Directors on June 22, 2026, requesting that the Board investigate the alleged breaches of fiduciary duty and pursue remedies against the Individual Defendants. The complaint alleges that the Board constructively refused the demand by failing to respond, which the plaintiff contends was not independent, reasonable, or in good faith. The complaint argues that demand was futile because the Board was conflicted, with the CEO controlling a significant portion of the company’s voting power and other defendants serving on the Audit Committee, which was responsible for overseeing financial reporting. The Audit Committee Charter, referenced in the complaint, tasks the committee with monitoring the integrity of financial statements, the independence of the company’s auditors, and compliance with legal and regulatory requirements (Compl. ¶38-39). The charter also requires the committee to oversee compliance with the company’s Code of Ethics and procedures for handling complaints regarding accounting, internal controls, or auditing matters (Compl. ¶40-41). The complaint alleges that the Individual Defendants breached these duties by failing to ensure accurate financial reporting and adequate internal controls.

The Board’s failure to respond to the demand letter is cited as further evidence of a lack of independence and a refusal to hold the Individual Defendants accountable. The complaint states that the Board provided no record of any investigation or response to the demand, which the plaintiff argues demonstrates that the Board’s refusal was not made in good faith (Compl. ¶86). The complaint further alleges that the Board’s refusal was unreasonable because the demand sought to address clear breaches of fiduciary duty and violations of federal securities laws (Compl. ¶89). The complaint asserts that the Individual Defendants exercised control over wrongful acts and public statements, as outlined in the allegations that "Individual Defendants exercised control over wrongful acts and public statements" (Compl. ¶32).

Federal Securities Claims and Related Class Action Highlight Broader Risks

The complaint alleges that the Individual Defendants made untrue statements of material fact and omitted material adverse facts in SEC filings and public disclosures, with reckless disregard for the truth. The complaint asserts violations of Section 10(b) of the Exchange Act (15 U.S.C. § 78j(b)) and SEC Rule 10b-5 (17 C.F.R. § 240.10b-5) against all Individual Defendants, as well as a claim for contribution under Sections 10(b) and 21D of the Exchange Act against Defendants Mohajer and Sharan (Compl. ¶6). The complaint details that the first-quarter and second-quarter 2024 Form 10-Q filings were signed by Mohajer and Sharan, who provided Sarbanes-Oxley certifications attesting to the accuracy of the financial statements and the effectiveness of internal controls (Compl. ¶35).

The court in a related securities class action, St. John Family Trust, et al. v. SoundHound AI, Inc., et al. (Case No 3:25-cv-03172-RFL. 3:25-cv-02915-RFL), issued an order in May 2026, permitting claims based on misrepresentations about internal controls to proceed. The derivative complaint alleges that SoundHound has incurred significant legal fees defending the securities class action and is exposed to potential liability, which the Individual Defendants’ misconduct caused. The complaint states, "Such damages include costs of defending the Company against the Securities Class Action and exposing the Company to millions of dollars in potential class-wide damages" (Compl. ¶100). The complaint further alleges that the Individual Defendants’ misconduct has caused reputational harm to SoundHound, resulting in a decline in the company’s stock price. The complaint cites the company’s March 4, 2025, disclosure of the delayed 2024 Form 10-K filing, which caused the stock price to decline by approximately 4%, from $10.12 per share on March 3, 2025, to $9.72 per share on March 4, 2025 (Compl. ¶8). The court in the securities class action sustained allegations that SoundHound’s statements about the completion of a segregation-of-duties assessment and the absence of material changes in ICFR were actionable misstatements (Compl. ¶38).

Claims for Breach of Fiduciary Duty, Waste, and Unjust Enrichment Target Board Oversight

The complaint asserts claims for breach of fiduciary duties, aiding and abetting breach of fiduciary duty, waste of corporate assets, unjust enrichment, abuse of control, and contribution under the Exchange Act. The breach of fiduciary duty claim alleges that the Individual Defendants violated their duties of loyalty, good faith, and due care by favoring their personal interests over those of SoundHound and its shareholders. The complaint references the company’s Code of Ethics, which requires officers and directors to "promptly disseminate accurate and truthful information regarding the Company’s business, financial condition, and results of operations" (Compl. ¶27). The complaint alleges that the Individual Defendants breached this duty by issuing false and misleading statements and failing to disclose material weaknesses in internal controls. Specifically, the complaint alleges that the Individual Defendants breached their duty of loyalty, which requires that each favor SoundHound’s interest and that of its shareholders over their own (Compl. ¶31). The complaint further asserts that the Individual Defendants acted as agents of each other and of SoundHound, as stated in the allegation that "Individual Defendants acted as agents of each other and SoundHound" (Compl. ¶33).

The waste of corporate assets claim alleges that the Individual Defendants caused SoundHound to incur millions of dollars in legal liability and costs to defend unlawful actions. The complaint states, "the Individual Defendants have caused SoundHound to incur many millions of dollars of legal liability and/or costs to defend unlawful actions, conduct internal investigations, and suffer the loss of financing and business opportunities" (Compl. ¶108). The unjust enrichment claim alleges that the Individual Defendants received bonuses, stock options, and other compensation tied to the company’s financial performance, which they would not have received absent their wrongful conduct. The complaint states, "The Individual Defendants either benefitted financially from the improper conduct, or received bonuses, stock options, or similar compensation that they would not have received absent the wrongful conduct" (Compl. ¶114). The complaint also alleges that the Individual Defendants had actual or constructive knowledge of their misconduct, as stated in the allegation that "The Individual Defendants had actual or constructive knowledge that they caused the Company to engage" in wrongful acts (Compl. ¶97).

The abuse of control claim alleges that the Individual Defendants exercised control over SoundHound’s wrongful acts and public statements, using their positions to conceal the material weaknesses in internal controls and the accounting errors in the Amelia acquisition. The complaint alleges that the Individual Defendants encouraged and facilitated breaches of fiduciary duties by illegal and improper transactions and by concealing them from the public, as stated in the allegation that "the Individual Defendants have encouraged, facilitated, and advanced their breaches of their fiduciary duties" (Compl. ¶104). The contribution claim seeks to hold Defendants Mohajer and Sharan liable for any damages SoundHound may incur in the related securities class action, as their misconduct is alleged to have caused the company’s liability. The complaint alleges that the class members in the securities litigation "suffered damages because the value of their investments was artificially inflated by the false and misleading statements" made by the Individual Defendants (Compl. ¶124).

The complaint seeks a range of remedies, including corporate governance reforms, restitution for benefits obtained by the Individual Defendants, and damages for the harm caused to SoundHound. The complaint also demands that the Individual Defendants be held accountable for the legal fees and reputational harm incurred by the company as a result of their alleged misconduct. The complaint alleges that the Individual Defendants’ misconduct was continuous and ongoing through the relevant period, causing continuous harm to the company (Compl. ¶109). The complaint further alleges that the Individual Defendants caused SoundHound to waste valuable corporate assets, incurring legal liability, costs to defend unlawful actions, and loss of business opportunities, as stated in the allegation that "the Individual Defendants have caused SoundHound to waste valuable corporate assets, incurring millions in legal liability, costs to defend unlawful actions, internal investigations, and loss of financing and business" (Compl. ¶108).

The allegations in the complaint are unproven, and no defendant has yet responded.

The allegations described here are taken from the filing and remain unproven; no responsive pleading is reflected in the source document.

David Brunk is a civil litigation attorney. He can be reached at david@newmanbrunk.com.