CFO Misappropriates SPAC Assets

Cooper Morenthau served as the CFO of publicly traded SPAC African Gold Acquisition Corporation, a firm looking to acquire a company in the gold mining industry. During that time, Defendant misappropriated about $5 million from his employer. For a time, he was able to conceal his misdeeds but ultimately in mid-2022 the fraud was revealed.

Securities entities – brokers, dealers, investment companies and investment funds – are among the most heavily regulated firms. Each has redundant processes designed to protect investor cash held by them for the benefit of its owner. Regulators help bolster the redundant systems of these firms with inspections. Nevertheless, periodically one or more of the people entrusted with a key position at one of these firms that gives them access to cash misappropriates portions of the client money and diverts it to their personal use. The Commission recently filed an enforcement action which is a good illustration of how even the most regulated entities can be victimized by a fraudster. SEC v. Moreanthau, Civil Action No. 23 Civ. 00022 (S.D.N.Y. January 3, 2023).

In the first part of the scheme Defendant Morenthau misappropriated about $1.2 million from African Gold. To conceal his misconduct, Defendant falsified the bank records. He altered the records that reflected the his withdrawals. Those records were then sent to the accountants and auditors. Mr. Morgenthau did not believe that the records would be challenged. They were not.

Defendant used the $1.2 million to trade mene stocks – those with a large retail online investor following. Much of the money was lost trading; the balance was spent.

To cover the losses Defendant Morganthau launched a new scheme. He raised money by soliciting investors to help launch another series of SPACs: Strategic Metals Acquisition Corp. I and II. Over a period of about 1 year, beginning in July 2021, $4.7 million was raised. Some of the money was put into African Gold by Defendant to conceal his earlier misdeeds. Almost immediately after the auditors confirmed they year end balance of the firm, Defendant began withdrawing money from African Gold’s bank account. Those funds were used to trade crypto asset securities.

By mid-2022 Defendant was out of cash. African Gold vendors refused to perform work for the company. Mr. Morgenthau was terminated on in late August 2022. The fraud could no longer be concealed. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending.

The U.S. Attorney’s Office for the Southern District of New York announced the filing of parallel criminal charges.

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