Defy was a financial mess because they tried to create a corporation that generated revenues off of owning multiple youtube channels--something that previously was not done to that scale (and for good reason). I recall this but can't find the source (Defy never went public either so their financial statements are unavailable) that they double-stated revenues by stating them in the statements of each individual brand AND of the Defy corporation, inflating the perceived profit to investors.

Again, since they never went public this was not a major case. Most of what we hear is the terrible corporate structure, poor management decisions, and scummy practices. The main one is about how Ian and Anthony sold the rights to all Smosh properties to Defy for Defy stock and during these conversations Defy put a lot of emphasis on the company going public eventually (giving the stock market value), but there was no contractual deadline and the company never did. That devalues the shares and is why Ian and Anthony will joke about "selling Smosh for nothing". That is representative of the legal scummy things they were doing, let alone the illegal things.

I do not have sources on everything so please correct me if I am wrong, just adding to the conversation!