SEC Charges Momentus SPAC for Misleading Investors, Company Names New CEO
The Securities and Exchange Commission (SEC) has charged the Momentus special purpose acquisition company (SPAC), its sponsor, the sponsor’s CEO, the company, and founder Mikhail Kokorich for misleading claims about Kokorich that have troubled the company since it announced the deal to go public.
The SEC announced July 13 that the SPAC, Stable Road Acquisition Company, its sponsor SRC-NI, CEO Brian Kabot, and Momentus are settling with the SEC for more than $8 million penalties, but the SEC’s litigation is proceeding against Kokorich.
According to the SEC’s settled order, Kokorich and Momentus repeatedly told investors that it had “successfully tested” its propulsion technology in space when the company’s only in-space test had failed to achieve its mission objectives. The order also found that Momentus and Kokorich misrepresented the implications of national security concerns around Kokorich’s Russian citizenship.
Momentus founding CEO Mikhail Kokorich and co-founder Lev Khasis are both Russian citizens. Kokorich stepped down in January and both co-founders have now completely divested from the company. But this affected flight approval for its Vigoride orbital transfer vehicle, and the U.S. Federal Aviation Administration (FAA) denied approval. Momentus recently signed a National Security Agreement (NSA) with the U.S. government to resolve national security concerns.
The SEC order said that Stable Road claimed to have conducted extensive due diligence on the deal, but never reviewed the results of Momentus’s in-space test or received sufficient documents to assess he 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,” commented SEC Chair Gary Gensler. “Stable Road, a SPAC, and its merger target, Momentus, both misled the investing public. The fact that Momentus lied to Stable Road does not absolve Stable Road of its failure to undertake adequate due diligence to protect shareholders.”
“Today’s actions will prevent the wrongdoers from benefitting at the expense of investors and help to better align the incentives of parties to a SPAC transaction with those of investors relying on truthful information to make investment decisions,” Gensler added.
Momentus, Stable Road, and Kabot will pay civil penalties of $7 million, $1 million, and $40,000, respectively. Momentus and Stable Road have also agreed to provide PIPE investors with the right to terminate their subscription agreements prior to the shareholder vote to approve the merger; SRC-NI has agreed to forfeit 250,000 founders’ shares it would have received upon consummation of the business combination; and Momentus has agreed to undertakings requiring enhancements to its disclosure controls.
A day after the SEC charges were announced, Momentus named John Rood, former U.S. under secretary of defense for policy, as CEO, starting August 1. Dawn Harms, who has served as Momentus’ interim CEO since January of this year, will step down from the board and return to her prior role as chief revenue officer.
“John’s leadership signals a new chapter for Momentus as we focus on the future,” Harms said. “His deep national security experience, proven expertise in business growth, and steadfastness in government service are invaluable assets.”
Momentus merger is still up for approval from SPAC shareholders, who are set to meet on August 11. The startup recently cut its valuation in half from $1.2 billion to $700 million.