The Securities and Exchange Commission (SEC) has charged Momentus, an early-stage space exploration company, and other affiliated parties with misleading claims to investors ahead of a forthcoming special purpose acquisition company (SPAC) merger, according to a press release.
The SPAC in question is Stable Road Acquisition Company, and that company has been charged along with its CEO, Brian Kabot, the SPAC sponsor SRC-NI, and Momentus’ CEO, Mikhail Kokorich, the release stated.
The SEC said in the release these parties repeatedly told investors that Momentus had “successfully tested” its propulsion tech in space. In reality though, this was not the case. The only in-space test the company had done didn’t reach its goals, and the company had not demonstrated the commercial viability of the tech.
In addition, Momentus and Kokorich haven’t been completely honest about how national security concerns involving Kokorich hurt Momentus’ ability to get the right kinds of government licenses it needed to operate, according to the release.
And Stable Road was drawn in because it, too, had allegedly failed its due diligence to properly review Momentus’ space test, even though it said it had done so extensively, the release stated.
“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, according to the release.
The SEC is proceeding against Kokorich, while all the others will be settling, the release stated. There will be total penalties of over $8 million along with tailored investor protection undertakings. In addition, SRC-NI will give up its founder’s shares that it will receive if the merger, which is slated to happen in August, is approved.
Experts have warned of the risks regarding SPACs as the black-check companies have risen to prominence in the past year. Paul Munter, acting chief accountant at the SEC, said in March that stakeholders should consider whether the companies have clear plans and are ready to go public.