CFO turned SPACs into private banks to fund crypto, meme investments

Dive Brief:

• Cooper Morgenthau, previous CFO of African Gold Acquisition Corp., a exclusive objective acquisition firm (SPAC) set up to acquire a firm in the gold mining marketplace, stole extra than $1 million from its running fund to finance his personal investments in crypto property and meme stocks, the Securities and Exchange Fee mentioned in a criticism.
• To include up his theft, the SEC explained, Morganthau integrated two other SPACs, telling traders they were being for acquiring strategic metal corporations, but as an alternative he transferred the dollars to the African Gold functioning fund and the relaxation he invested on himself. Extra than $5 million was stolen from the a few SPACs. 
• “Our enforcement staff worked quickly and proficiently to file today’s motion in just about 4 months due to the fact [the defendant’s actions were] disclosed, which really should provide to discourage potential terrible actors in the SPAC market place,” John Dugan, an SEC associate director for enforcement, said in a statement.

Dive Perception:

The African Gold SPAC produced about $414 million in acquisition money from investors just after its IPO in early 2021. From that total the enterprise transferred $1.5 million to its working fund to address acquisition look for and other administrative expenditures.  

Morgenthau applied a collection of 34 withdrawals from the functioning fund above the up coming number of months to pay for his own crypto and meme-stock investments. None of his investments made dollars for him. 

“His trading technique was not effective,” the SEC mentioned “he speedily shed all of the stolen funds that he invested.”

The SPAC experienced only 3 staff members at the time: Morgenthau, a CEO and COO. The company’s authorized, accounting and audit get the job done was outsourced. Morgenthau falsified the information he sent to the accountants, certifying to its accuracy less than Sarbanes-Oxley guidelines. 

“He [provided the information] knowing that the accountants would count on these falsified statements to produce and retain African Gold’s textbooks and documents,” the SEC stated. 

With the operating fund nearly depleted, Morgenthau in mid-2021 included two extra SPACs, Strategic Metals Acquisition Corp. I and Strategic Metals Acquisition Corp. II, raising about $4.7 million in proceeds. 

Morgenthau utilized the funds to include his expenditure bills and, with a year-close African Gold audit nearing, replenish that SPAC’s running account. 

“The [money] did not stay in African Gold’s operating financial institution account pretty lengthy,” the SEC reported. “On January 3, 2022 — the very first enterprise day of the new yr — Morgenthau commenced withdrawing the dollars he experienced deposited just days right before, transferring approximately $401,000 on that day on your own from the African Gold functioning bank account to his individual bank accounts. He continued to withdraw resources from the African Gold running lender account in excess of the subsequent couple of times, sending the funds to himself to fund his investing in crypto asset securities. By the finish of the thirty day period, the African Gold functioning bank account held only $13.”

The plan unraveled when Morgenthau ran all of his dollars resources dry.

“African Gold vendors refused to perform get the job done for the company,” the SEC stated. 

In its complaint submitted in the U.S. District Courtroom for the Southern District of New York, the SEC alleged Morgenthau violated federal securities and SEC regulations, and filed wrong certifications with the federal govt.  

The SEC is asking for monetary penalties, disgorgement of gains and to bar Morgenthau from long term management roles in public companies.

The U.S. Attorney’s Office for the Southern District of New York declared criminal prices from the former CFO as perfectly, for wire fraud in link with the two strategic metals SPACs he included. Morgenthau pled guilty to these costs and is scheduled to be sentenced by Decide Paul Engelmayer on April 25, 2023, the Department of Justice explained.