Renee
1 year ago
AGAC: SEC Admin. Cease and Desist Order:
https://www.sec.gov/litigation/admin/2023/34-96960.pdf
On the basis of this Order and Respondent’s Offer, the Commission finds1
that:
Summary
1. African Gold is a publicly traded special purpose acquisition company (“SPAC”).
Since the closing of its initial public offering (“IPO”) of securities on March 2, 2021 until late
2022, African Gold failed properly to devise and maintain a sufficient system of internal
accounting controls and also failed to maintain internal control over financial reporting (“ICFR”)
and disclosure controls and procedures (“DCP”) as required. African Gold’s failure to implement
sufficient internal controls enabled its former chief financial officer (“CFO”) to misappropriate
nearly all of the money in African Gold’s operating bank account and to otherwise effectively use
African Gold’s operating bank account as his own personal account for over one year.
As a result, African Gold materially misstated the financial information in several required financial filings
with the Commission. African Gold’s former CFO did not have access to African Gold’s trust
account and did not misappropriate any funds from the trust account.
2. According to disclosures in its public filings, African Gold’s activities are limited to
searching for a business combination target and its only liquid asset is the money held in its
operating bank account, which is designated to fund that search. The money that African Gold
raised in its IPO is secured in a trust account. As such, one of African Gold’s most significant risks
of material misstatement in its financial statements was the risk of fraud relating to African Gold’s
operating bank account and cash disbursements.
3. Notwithstanding this risk, African Gold failed to devise and maintain internal
accounting controls sufficient to provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in conformity with generally accepted
accounting principles (“GAAP”). For example, African Gold failed to implement basic
segregation of duties or monitoring controls with respect to its operating bank account, cash
disbursements and financial reporting more generally. Rather, African Gold gave its former CFO
1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding
on any other person or entity in this or any other proceeding.
2 On January 3, 2023, the Commission charged Cooper J. Morgenthau, African Gold’s former
CFO, with violating several provisions of the federal securities laws related to misappropriating
money from African Gold’s operating bank account and for lying to African Gold’s accountants
and auditor, circumventing and/or knowingly failing to implement internal accounting controls,
falsifying African Gold’s books and records, and filing false certifications with the
Commission. See Securities and Exchange Commission v. Cooper J. Morgenthau, 23-cv-00022-
NRB (S.D.N.Y. 2023). On January 6, 2023, the Court entered a consent judgment, which enjoined
Morgenthau from violating the relevant securities laws and rules and granted other relief sought by
the Commission. Relatedly, on January 3, 2023, Morgenthau pleaded guilty to one count of wire
fraud, in violation of 18 U.S.C. § 1343, based on the same conduct alleged in the Commission’s
complaint. See United States v. Cooper J. Morgenthau, 23-cr-002 (S.D.N.Y. 2023).
control over nearly all aspects of its financial reporting process with little to no oversight by or
involvement of other African Gold personnel.
4. African Gold’s failure to have sufficient internal accounting controls resulted in
African Gold’s failure to timely prevent and detect the misappropriation of its only liquid asset—
the money held in its operating bank account, which it needed to fund its search for a business
combination target. This resulted in African Gold filing material misstatements in its Form 10-K
filed with the Commission for the fiscal year ended December 31, 2021 and Forms 10-Q for the
periods ended June 30, 2021, September 30, 2021 and March 31, 2022 (the “Financial Filings”).
African Gold has since disclosed that the Financial Filings must be restated and should not be
relied upon, but has not yet filed any restatements.
5. As a result of the conduct described in this Order , African Gold violated Sections
13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-13, 13a-15(a)-(b),
and 12b-20 thereunder.
Respondent
6. African Gold Acquisition Corp. is a publicly traded special purpose acquisition
company incorporated in the Cayman Islands with its principal place of business in New York,
New York. African Gold’s securities are registered with the Commission pursuant to Section
12(b) of the Exchange Act. African Gold is listed on the New York Stock Exchange under the
symbols AGAC.U, AGAC and AGAC.W.
Facts
7. On March 2, 2021, African Gold closed its IPO. As of March 31, 2021, African
Gold had approximately $1.5 million in its operating bank account to fund its search for a business
combination target. According to disclosures in African Gold’s public filings, the money held in
African Gold’s operating bank account is its only liquid asset and is designated to fund its search
for a business combination target.
8. African Gold failed to establish internal accounting controls sufficient to provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP.
9. For example, African Gold failed to establish sufficient segregation of duties and
monitoring controls over its operating bank account and did not require African Gold personnel
other than its former CFO to periodically monitor bank account activity, reconcile the bank
account activity, or have responsibility for the record keeping of its assets, including in connection
with African Gold’s quarterly reviews or annual audit. Because African Gold failed to establish
sufficient internal accounting controls, African Gold’s former CFO was able to make unauthorized
withdrawals to himself and to otherwise use African Gold’s operating bank account as if it were his
own personal account for over one year without detection. African Gold’s insufficient internal
controls also enabled its former CFO to alter African Gold’s bank account statements in order to
conceal his unauthorized transactions and to fabricate the balance held in African Gold’s operating
bank account, among other transactional details.
10. African Gold also failed to establish sufficient segregation of duties and monitoring
controls over its cash disbursements. As with its operating bank account, African Gold delegated
all responsibility and control over its cash disbursements to its former CFO, with little to no
established monitoring controls. For example, only payments over $50,000 required the approval
of someone other than its former CFO—a largely ineffective requirement given the nature of
African Gold’s limited activities and expenses, as well as the lack of restrictions on the aggregate
amounts that its former CFO was able to transfer without any oversight. Indeed, with the
exception of expenses paid in March 2021 in connection with its IPO, African Gold had no
expenses over $50,000. As a result, African Gold’s former CFO was able to make unauthorized
withdrawals to himself totaling approximately $1.2 million and, with respect to various vendors
who were providing services to African Gold, selectively determine which vendors to pay to avoid
detection.
11. In addition, African Gold failed to maintain ICFR and DCP, and further failed to
evaluate DCP, as required for registrants like itself. See Exchange Act Rules 13a-15(a), (b), (e)
and (f). African Gold had limited activities, and its only liquid asset was the money held in its
operating bank account. Accordingly, African Gold’s most significant risk of material
misstatement stemmed from potential fraud by management. Yet, African Gold had insufficient
internal controls to timely prevent and detect fraud related to its operating bank account and cash
disbursements in order to provide reasonable assurance that its financial reporting and related
disclosures were accurate.
12. For example, African Gold had insufficient internal controls relating to the
oversight and governance of financial reporting and related disclosures, or clearly specified
financial reporting objectives and responsibilities. Instead, African Gold delegated all aspects of
its financial reporting processes to its former CFO—with no established monitoring controls or
involvement by other African Gold personnel. This enabled its former CFO to provide African
Gold’s accountants and external auditor with false information, which formed the basis of African
Gold’s financial filings and books and records. In addition, African Gold’s management failed to
evaluate the effectiveness of African Gold’s DCP, including with respect to the amount and
sufficiency of its cash on-hand and the accuracy of its related disclosures.
13. African Gold’s Forms 10-Q for the quarters ended June 30, 2021, September 30,
2021 and March 31, 2022 materially misstated the amount and sufficiency of cash available to
fund African Gold’s ongoing search for a business combination target. In addition, while African
Gold’s Form 10-K for the fiscal year ended December 31, 2021 accurately reflected the amount of
cash available to fund its ongoing search for a business combination target as of December 31,
2021, the disclosures were materially misleading in light of the fact that its operating bank account
held negative balances from December 1 until December 31, 2021, when its former CFO
temporarily deposited $549,146 into the account. African Gold’s CFO subsequently withdrew the
entire amount deposited on December 31, 2021 in a series of transactions beginning the following
business day, leaving African Gold with no money to fund its search for a business combination
target. In addition, African Gold’s Form 10-K for the fiscal year ended December 31, 2021 failed
to disclose the amount of losses due to its former CFO’s fraud, the impact of which was material to
its financial statements.
Summary of African Gold Quarterly Reported Cash vs. Actual Cash in Bank Account
Q2 FY 2021 Q3 FY 2021 YE 2021 Q1 FY 2022
Reported Cash $1,251,503 $932,771 $544,103 $432,819
Actual Cash $101,303 $104,371 $544,103. $(1,761)
Overstatement $1,150,200 $828,400 $ - $434,580
Overstatement as % of Actual Cash
(Absolute Value) 1135.4% 793.7% 0.0% 24671.2%
14. African Gold has disclosed that the Financial Filings must be restated and should
not be relied upon, but has not yet filed any restated financials. African Gold has also failed to file
its Forms 10-Q for the quarters ended June 30, 2022 and September 30, 2022.
15. African Gold did not discover the misappropriation of its assets through any form
of self-policing or as the result of its internal controls. African Gold only suspected issues with its
operating bank account when certain critical vendors refused to provide services because their
invoices remained unpaid, at which point African Gold personnel sought to confirm its former
CFO’s representations regarding the balance held in African Gold’s operating bank account and
transaction activity. However, no African Gold personnel other than its former CFO had active
access to the operating bank account, and the other personnel were unable to access the account to
assess the possibility of fraud.
Violations
16. As a result of the conduct described above, African Gold violated Section 13(a) of
the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder, which require Exchange Act
reporting companies to file with the Commission complete and accurate annual and quarterly
reports and that such reports contain further material information as may be necessary to make the
required statements not misleading.
17. In addition, as a result of the conduct described above, African Gold violated
Section 13(b)(2)(A) of the Exchange Act, which requires Exchange Act reporting companies to
make and keep books, records, and accounts which, in reasonable detail, accurately and fairly
reflect their transactions and dispositions of their assets.
18. In addition, as a result of the conduct described above, African Gold violated
Section 13(b)(2)(B) of the Exchange Act, which, among other things, requires Exchange Act
reporting companies to devise and maintain a system of internal accounting controls sufficient to
provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, or any other criteria applicable to such statements.
19. In addition, as a result of the conduct described above, African Gold violated
Exchange Act Rule 13a-15(a) which requires Exchange Act reporting companies to maintain ICFR
and DCP, as well as Exchange Act Rule 13a-15(b) which requires Exchange Act reporting
companies to evaluate the effectiveness of DCP.
IV.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions
agreed to in Respondent’s Offer.
Accordingly, it is hereby ORDERED that:
A. Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from
committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and
13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-13, 13a-15(a)-(b) and 12b-20 thereunder.
B. Respondent shall, within 10 days of the entry of this Order, pay a civil money
penalty in the amount of $103,591 to the Securities and Exchange Commission for transfer to the
general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3). If timely
payment is not made, additional interest shall accrue pursuant to 31 U.S.C. §3717.
Payment must be made in one of the following ways:
(1) Respondent may transmit payment electronically to the Commission, which
will provide detailed ACH transfer/Fedwire instructions upon request;
(2) Respondent may make direct payment from a bank account via Pay.gov
through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or
(3) Respondent may pay by certified check, bank cashier’s check, or United
States postal money order, made payable to the Securities and Exchange
Commission and hand-delivered or mailed to:
Enterprise Services Center
Accounts Receivable Branch
HQ Bldg., Room 181, AMZ-341
6500 South MacArthur Boulevard
Oklahoma City, OK 73169
Payments by check or money order must be accompanied by a cover letter identifying
Respondent as a Respondent in these proceedings, and the file number of these proceedings; a
copy of the cover letter and check or money order must be sent to John Dugan, Division of
Enforcement, Securities and Exchange Commission, 33 Arch Street, 24th Floor, Boston, MA
02110.
C. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be
treated as penalties paid to the government for all purposes, including all tax purposes. To
preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor
Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any
award of compensatory damages by the amount of any part of Respondent’s payment of a civil
penalty in this action (“Penalty Offset”). If the court in any Related Investor Action grants such a
Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order granting
the Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the
Penalty Offset to the Securities and Exchange Commission. Such a payment shall not be deemed
an additional civil penalty and shall not be deemed to change the amount of the civil penalty
imposed in this proceeding. For purposes of this paragraph, a “Related Investor Action” means a
private damages action brought against Respondent by or on behalf of one or more investors based
on substantially the same facts as alleged in the Order instituted by the Commission in this
proceeding.
Renee
1 year ago
AGAC: courtesy Samsamsamiam
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=170852817
Department of Justice
U.S. Attorney’s Office
Southern District of New York
FOR IMMEDIATE RELEASE
Tuesday, January 3, 2023
Former Chief Financial Officer Of Two SPACs Pleads Guilty To Fraud Scheme
Cooper Morgenthau Embezzled More Than $5 Million and Caused False Statements to Be Made to Accountant and Auditor and in SEC Filings
Damian Williams, the United States Attorney for the Southern District of New York, announced today that COOPER MORGENTHAU, the former chief financial officer of two special purpose acquisition companies (“SPAC-1” and “SPAC-2”), pled guilty to one count of wire fraud in connection with a scheme to embezzle more than $5 million from the two companies. The defendant pled guilty before U.S. District Judge Paul A. Engelmayer.
U.S. Attorney Damian Williams said: “Cooper Morgenthau, the former CFO of two SPACs, has admitted that he breached the trust that he owed to his public and private investors, stealing millions of dollars from them to trade meme stocks and cryptocurrencies. This Office remains committed to rooting out fraud in the SPAC market and to protecting Main Street investors from abuses on Wall Street.”
According to the allegations in the Information and statements made in public court proceedings:
Between in or about June 2021 and in or about August 2022, MORGENTHAU, who was the CFO of SPAC-1 and SPAC-2, embezzled more than $5 million from the two companies. SPAC-1 had recently had its initial public offering, while SPAC-2 was raising money from private investors in preparation for its anticipated IPO. MORGENTHAU used the embezzled funds to trade equities and options of so-called “meme stocks” and cryptocurrencies, losing almost all of the money that he stole. To conceal and facilitate his embezzlement from SPAC-1, MORGENTHAU fabricated bank statements, which he provided to SPAC-1’s accountant and auditor; made and caused to be made material misstatements in SPAC-1’s public filings with the Securities and Exchange Commission (“SEC”); and transferred some of SPAC-2’s funds to SPAC-1 to cover up the funds he had misappropriated from SPAC-1.
* * *
MORGENTHAU, 35, of Fernandina Beach, Florida, pled guilty to one count of wire fraud, which carries a maximum sentence of 20 years in prison. As part of his guilty plea, MORGENTHAU agreed to forfeit $5,111,335 and to pay restitution of $5,111,335.
The statutory maximum sentence is prescribed by Congress and provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. MORGENTHAU is scheduled to be sentenced by Judge Engelmayer on April 25, 2023.
Mr. Williams praised the outstanding work of the Federal Bureau of Investigation. Mr. Williams further thanked the SEC for its assistance and cooperation in this investigation.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force and Money Laundering and Transnational Criminal Enterprises Unit. Assistant U.S. Attorneys Joshua A. Naftalis and Anden Chow are in charge of the prosecution.
Attachment(s):
Download U.S._v._Morgenthau_Information.pdf
https://www.justice.gov/usao-sdny/press-release/file/1560631/download
Topic(s):
Securities, Commodities, & Investment Fraud
Component(s):
USAO - New York, Southern
Contact:
Nicholas Biase (212) 637-2600
Press Release Number:
23-001
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samsamsamiam
1 year ago
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