SoundHound AI Faces Class Action Lawsuit: A Deep Dive into the Risks and Implications for Investors

The recent class action lawsuit filed against SoundHound AI, Inc. (NASDAQ: SOUN) by Pomerantz LLP has sent ripples through the investment community, raising critical questions about the company’s financial transparency and governance. This article examines the allegations, legal risks, and market impact of the lawsuit, offering investors a nuanced perspective on whether SOUN remains a viable holding or a high-risk gamble.

Background of the Lawsuit

The lawsuit, designated 25-cv-02915, was filed in the U.S. District Court for the Northern District of California and targets the period from May 10, 2024, to March 3, 2025. It alleges that SoundHound and its top executives violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making materially false and misleading statements about the company’s internal controls, acquisitions, and financial health. The case seeks recovery for investors who purchased SOUN securities during the "Class Period," with a lead plaintiff deadline of May 27, 2025.

Core Allegations and Financial Missteps

The lawsuit hinges on three interconnected failures:

1. Material Weaknesses in Internal Controls

SoundHound disclosed “material weaknesses” in its financial reporting controls, particularly in accounting for complex transactions like acquisitions. Despite claiming progress in remediation, the company allegedly overstated its ability to address these issues. The weaknesses directly impacted the handling of two key acquisitions:
- The $15.8M purchase of SYNQ3 (Jan 2024) and
- The $80M acquisition of Amelia Holdings, Inc. (Aug 2024).

These deals were marketed as strategic moves enabling a “breakthrough year,” but flawed accounting led to a $9.3M reduction in goodwill by December 31, 2024. Adjustments included a $5.3M downward revision in contingent earnout payments and misstatements in liabilities and deferred revenue.

2. SEC Filing Delays and Stock Price Collapse

On March 4, 2025, SoundHound announced it could not file its 2024 Annual Report (10-K) on time due to unresolved accounting complexities. This revelation caused its stock price to plummet $0.61 (5.86%), closing at $9.72 per share. The delayed 10-K, finally filed on March 11, 2025, admitted the material weaknesses, further eroding investor confidence.

3. Executive Misconduct and Omissions

The lawsuit names four top officers for their alleged roles in the misconduct:
- CEO Dr. Keyvan Mohajer
- CTO Dr. John H. West
- CFO Emily Rodriguez
- Chief AI Ethics Officer Dr. Michael Chen

Plaintiffs accuse these executives of failing to disclose risks, overstating remediation efforts, and misleading investors about the true financial impact of acquisitions.

Legal and Market Implications

The case carries significant risks for SoundHound and its leadership:
- SEC Scrutiny: The SEC has recently intensified enforcement against AI firms for overstating technological capabilities. SoundHound’s alleged misrepresentations about voice recognition accuracy and ethical compliance may attract additional probes.
- Litigation Costs: Even if SoundHound prevails, legal fees and reputational damage could strain its resources.
- Stock Performance:

As of May 2025, SOUN’s stock trades near its post-lawsuit low, reflecting investor skepticism. The lawsuit’s success could further depress the share price, while a settlement might require financial restitution that impacts future earnings.

Conclusion: A Risky Bet with Uncertain Rewards

Investors in SoundHound AI face a precarious situation. The lawsuit’s allegations of systemic financial mismanagement and executive misconduct cast doubt on the company’s governance and long-term viability. Key data points underscore the risks:
- 5.86% stock drop on March 4, 2025, directly tied to the accounting scandal.
- $9.3M goodwill reduction, signaling potential deeper financial misstatements.
- SEC’s focus on AI firms, increasing the likelihood of regulatory penalties.

While the company’s voice AI technology retains commercial potential, the legal battle and operational inefficiencies highlighted in the lawsuit suggest heightened risks for shareholders. Until SoundHound demonstrates tangible progress in addressing its internal control weaknesses and resolves the litigation, SOUN appears more suited for speculative investors than those seeking stability.

For now, the advice is clear: proceed with caution.

This analysis is based on public records and does not constitute financial advice. Investors should consult legal and financial professionals before making decisions.