The Securities and Exchange Commission announced charges against the acquisition corporation Stable Road Acquisition Company, its sponsor SRC-NI, and the SPAC’s proposed merger target Momentus Inc. for what it calls “misleading claims” about Momentus’s technology, as well as national security risks associated with Momentus’s founder and former CEO Mikhail Kokorich. Charges were also announced against Stable Road CEO Brian Kabot.
The SEC’s litigation is proceeding against Kokorich, whom the SEC filed a complaint against in the U.S. District Court in DC. All other parties are settling with the SEC, with terms including total penalties of more than $8 million, tailored investor protection undertakings, and the SPAC sponsor’s forfeiture of founder’s shares it stands to receive if the merger, currently scheduled for August 2021, is approved.
According to the SEC, Kokorich and Momentus, a space transportation company, told investors that it had “successfully tested” its propulsion technology in space. But the company’s only in-space test had failed to achieve its primary mission objectives or even demonstrate the technology’s commercial viability.
The order finds that Momentus and Kokorich also misrepresented the extent to which national security concerns involving Kokorich might undermine Momentus’s ability to secure essential governmental licenses.
The SEC also said that Stable Road repeated Momentus’s misleading statements regarding the proposed merger and failed its due diligence obligations. While Stable Road claimed to have conducted extensive due diligence of Momentus, it never reviewed the results of Momentus’s in-space test or received sufficient documents relevant to assessing the national security risks posed by Kokorich.
“This case illustrates risks inherent to SPAC transactions, as those who stand to earn significant profits from a SPAC merger may conduct inadequate due diligence and mislead investors,” said SEC Chair Gary Gensler in a statement. 