On July 13, 2021, the SEC announced charges against Stable Road Acquisition Company (“Stable Road”), its sponsor, SRC-NI, its CEO, Brian Kabot, Stable Road’s proposed merger target Momentus Inc.(“Momentus”), and Momentus’s founder and former CEO Mikhail Kokorich (“Kokorich”) for “misleading claims about Momentus’s technology and about national security risks associated with Kokorich.” All parties except Kokorich are settling with the SEC, paying total penalties of more than $8 million, amongst other remedies. The SEC’s litigation will proceed against Kokorich in the U.S. District Court for the District of Columbia. The Complaint seeks permanent injunctions, penalties, disgorgement plus prejudgment interest, and an officer-and-director bar against Kokorich.
According to the release, Kokorich and Momentus repeatedly told investors that it had “successfully tested” its propulsion technology in space when, in reality, the company’s only in-space test had failed. It did not meet its primary mission objectives and did not demonstrate the technology’s commercial viability. The SEC order found that Momentus and Kokorich also downplayed national security concerns involving Kokorich undermining Momentus’s ability to secure required governmental licenses essential to its operations. To make matters worse, Stable Road repeated Momentus’s misleading statements in public filings associated with the proposed merger. According to the order, while Stable Road claimed it 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.”
The SEC’s complaint against Kokorich alleges that Kokorich violated antifraud provisions of the securities laws and aided and abetted Momentus’s violations of the same provisions. This marks the first enforcement action against a SPAC in the past year. As discussed previously in this post, the amount of SPAC initial public offerings has exploded this past year. Not surprisingly, the SEC’s Division of Enforcement has noticed this bubble and appears to be monitoring the SPAC marketplace for potential securities law violators.