The Securities and Exchange Commission (SEC) has settled charges against African Gold Acquisition Corp., a special purpose acquisition company (SPAC), for violating Exchange Act provisions related to internal controls, reporting, and recordkeeping. The SEC’s order alleges that the SPAC’s former chief financial officer misappropriated approximately $1.2 million from the company’s operating bank account due to internal control failures that enabled him to make unauthorized withdrawals and alter bank statements to conceal his fraud.
Significant Risks of Material Misstatement
The SEC’s order states that African Gold’s only liquid asset was the money held in its operating bank account, which made potential fraud by management a significant risk of material misstatement in the company’s financial statements. Despite this risk, African Gold gave its former CFO control over almost all aspects of its operating bank account and financial reporting process with little to no oversight, enabling him to make unauthorized withdrawals for more than a year without detection.
As a result of these internal control failures, African Gold made materially false filings with the Commission and maintained inaccurate books and records. The SEC’s order finds that African Gold materially misstated information in several required financial filings with the Commission and failed to maintain accurate books and records. These failures were discovered only when certain vendors refused to provide further services due to unpaid invoices.
Compliance with Basic Exchange Act Requirements
According to John T. Dugan, Associate Director for Enforcement in the SEC’s Boston Regional Office, this settled order with African Gold demonstrates that SPACs must comply with basic Exchange Act requirements, just like any other publicly traded company. The fact that African Gold did not discover the misappropriation of its funds for more than a year indicates that the company neglected to comply with basic internal control requirements.
Cease-and-Desist Order and Civil Monetary Penalty
Without admitting or denying the SEC’s findings, African Gold agreed to a cease-and-desist order and to pay a $103,591 civil monetary penalty. The SEC also charged African Gold’s former CFO, Cooper J. Morgenthau, 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.
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