SPAC Settles Charges for Internal Control Failures, Misappropriation by CFO

A publicly traded special purpose acquisition company ("SPAC") settled SEC charges relating to internal control failures that allowed its CFO to control and access its operating account with "little or no oversight."

According to the Order, the company failed to establish sufficient accounting and financial reporting controls following its initial public offering in March 2021. According to the SEC, the company's liquid assets were contained solely in an account over which the CFO had exclusive and unlimited access. In addition, the CFO had controlled the company's cash disbursements. As a result, the SEC determined that the company's CFO was able to misappropriate cash and make unauthorized withdrawals. This resulted in the company making several material misstatements in its quarterly and annual financial reports. According to the SEC, the fraud was not discovered internally but instead came to light as a result of certain vendors flagging unpaid invoices.

The SEC determined that the company violated SEA Section 13 ("Periodical and Other Reports"), as well as SEA Rules 12b-20 ("Additional Information"), 13a-1 ("Requirements of Annual Reports"), 13a-13 ("Quarterly Reports on Form 10-Q") and 13a-15 ("Controls and Procedures"). To settle the charges, the company agreed to (i) cease and desist and (ii) pay a civil monetary penalty of $103,591.

The SEC is currently pursuing a separate enforcement proceeding against the former CFO.