3 Years in Prison for Ex-CFO who stole $5M to trade crypto and ‘meme stocks’.

People commit fraud for a lot of reasons. Often they want a lifestyle they can’t afford. Maybe they want to eliminate debt or they feel underappreciated, Perhaps they are trying to cover gambling or investment losses.

Today’s story is a modern twist on fraud to cover investment losses. In 2021 SPAC’s were all the rage. A Special Purpose Acquisition Company (SPAC) is designed to take cash from investors for the purposes of finding a company to take public. The SPAC creates a publicly traded entity, raises cash from investors, and acquires a private company. The owners of the private company get paid with SPAC money and the investors now own shares of a public entity, all without the hassle of a traditional IPO. (Note: I didn’t say this was a great way to go public, but it is a way.)

SPACs are not forever. They have a period of time to find a suitable target, usually 2 years. If a suitable target isn’t found within the timeframe, the money is returned to investors. If one is found, it’s used to acquire the target. The bottom line is that it’s not the SPAC’s money to do whatever they want, it’s investor money for a designated purpose.

Cooper Morgenthau didn’t quite agree with that. Morgenthau was the CFO of a SPAC named AGAC. To make this even shadier, AGAC stood for African Gold Acquisition Corp. If you’re thinking Nigerian princes, I am too. Nonetheless, AGAC raised $360 million at it’s IPO.

While searching for a target, Morgenthau took $1.2 million from AGAC to personally trade options and equity in crypto currency and meme stocks. Unsurprisingly, he lost just about all of it. To cover his crimes, Morgethau turned to a different fund, SMAC or Strategic Metals Acquistion Corp. This sounds like a more corporate name for African Gold Acquistion, but whatever.

SMAC was in the investment phase raising money for an future IPO. Morgenthau took money from that fund to try to recover his losses in AGAC. In total Morgethauh was conviced of stealing about $5 million.

In terms of sophistication, this fraud it pretty low. SPAC’s are effectively shells, so there aren’t a lot of employees and in this case, no segregation of duties. Morgenthau simply transferred the money to his personal accounts. Per the SEC investigation, he had full and unfettered access to the accounts. He then altered bank statements to conceal the fraud. Essentially there were zero controls on $360 million. I’m a little disappointed Morgenthau didn’t just disappear with as much as he could take. Then again, with lots of free time on his hands, he might have lost all of it trading crypto currencies and meme stocks.

AGAC was ultimately fined $104k by the SEC for reporting violations. Morgenthau is required to pay back $5.1 million and serve 3 years in prison.

Honestly, you can’t make this stuff up. An African Gold SPAC gets defrauded by their own CFO and let’s toss in a SMAC down to make it fun.

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