Dive Brief:

• Cooper Morgenthau, former CFO of African Gold Acquisition Corp., a special purpose acquisition company (SPAC) set up to acquire a company in the gold mining industry, stole more than $1 million from its operating fund to finance his personal investments in crypto assets and meme stocks, the Securities and Exchange Commission said in a complaint.
• To cover up his theft, the SEC said, Morganthau incorporated two other SPACs, telling investors they were for acquiring strategic metal companies, but instead he transferred the money to the African Gold operating fund and the rest he spent on himself. More than $5 million was stolen from the three SPACs. 
• “Our enforcement team worked swiftly and efficiently to file today’s action in just over four months since [the defendant’s actions were] disclosed, which should serve to deter future bad actors in the SPAC market,” John Dugan, an SEC associate director for enforcement, said in a statement.

Dive Insight:

The African Gold SPAC generated about $414 million in acquisition funds from investors after its IPO in early 2021. From that amount the company transferred $1.5 million to its operating fund to cover acquisition search and other administrative costs.  

Morgenthau implemented a series of 34 withdrawals from the operating fund over the next few months to pay for his personal crypto and meme-stock investments. None of his investments made money for him. 

“His trading strategy was not successful,” the SEC said; “he quickly lost all of the stolen funds that he invested.”

The SPAC had only three employees at the time: Morgenthau, a CEO and COO. The company’s legal, accounting and audit work was outsourced. Morgenthau falsified the information he sent to the accountants, certifying to its accuracy under Sarbanes-Oxley rules. 

“He [provided the information] knowing that the accountants would rely on these falsified statements to generate and maintain African Gold’s books and records,” the SEC said. 

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

Morgenthau used the funds to cover his investment expenses and, with a year-end African Gold audit nearing, replenish that SPAC’s operating account. 

“The [money] did not stay in African Gold’s operating bank account very long,” the SEC said. “On January 3, 2022 — the first business day of the new year — Morgenthau began withdrawing the money he had deposited just days before, transferring approximately $401,000 on that day alone from the African Gold operating bank account to his personal bank accounts. He continued to withdraw funds from the African Gold operating bank account over the next few days, sending the money to himself to fund his trading in crypto asset securities. By the end of the month, the African Gold operating bank account held only $13.”

The scheme unraveled when Morgenthau ran all of his money sources dry.

“African Gold vendors refused to perform work for the company,” the SEC said. 

In its complaint filed in the U.S. District Court for the Southern District of New York, the SEC alleged Morgenthau violated federal securities and SEC laws, and filed false certifications with the federal government.  

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

The U.S. Attorney's Office for the Southern District of New York announced criminal charges against the former CFO as well, for wire fraud in connection with the two strategic metals SPACs he incorporated. Morgenthau pled guilty to those charges and is scheduled to be sentenced by Judge Paul Engelmayer on April 25, 2023, the Department of Justice said.