The Securities and Exchange Commission has reached a settlement with African Gold Acquisition Corp., a publicly-traded special purpose acquisition company (“SPAC”), to resolve allegations that the company’s internal controls, reporting and recordkeeping failures enabled its former chief financial officer to misappropriate more than $1.2 million. The former CFO’s fraudulent behavior also caused the company to maintain inaccurate books and record, and to make several materially false filings with the SEC.
According to the SEC’s order, African Gold’s operating account, which was intended primarily to fund the company’s search for a business combination target, was its only liquid asset. The company’s most significant fraud risk consisted in the possibility of making material misstatements in its financial reports and cash disbursements. Despite this risk, the company failed to adopt and maintain internal accounting controls that conformed with generally accepted accounting principles, giving the former CFO control over almost every aspect of the financial reporting process with practically no segregation of duties or monitoring controls by other personnel. As noted in the order, these failures enabled the former CFO to make unauthorized withdrawals for himself, and to conceal the transactions by altering the bank account statements without detection for at least a year. The false information provided by the former CFO to African Gold’s accountants and external auditor formed the basis of the company’s financial filings, causing African Gold to make material misstatements in three quarterly securities filings regarding the amount and sufficiency of cash available in its operating account. In addition, the company’s fiscal year-end filing failed to disclose the amount of losses caused by the fraud, which further impacted its financial statements. The company was ultimately left with no money to search for a business combination target.
According to the SEC, African Gold personnel only discovered the funding issues after critical vendors refused to provide services due to unpaid invoices. When these issues came to light, African Gold staff could not ascertain the truth because the former CFO was the only person with active access to the operating bank account. The company has informed the public that it should not rely upon previous financial filings, and acknowledged that the filings must be restated, thus far no restated financials have been filed, and the company’s quarterly financial filings for June and September 2022 have not been issued.
The SEC charged African Gold with violating the internal controls, reporting and recordkeeping provisions in the Securities Exchange Act of 1934, including Sections 13(a), 13(b)(2)(A)and 13(b)(2)(B) and Rules 13a-1, 13a-13, 13a-15(a)-(b) and 12b-20 thereunder. Without admitting or denying the SEC’s allegations, the company agreed to cease-and-desist from committing further Exchange Act violations and agreed to pay a civil money penalty of $103,591.
In January 2023, the SEC also charged Cooper J. Morgenthau, African Gold’s former CFO, with violating several federal securities laws for allegedly orchestrating a $5 million scheme to defraud African Gold and investors in two other SPACs that he incorporated. The US Attorney’s Office for the Southern District of New York has also filed a parallel criminal action against Morgenthau.
SEC Press Release | SEC Order | SEC Press Release (January 2023) | DOJ Press Release (January 2023)