In one of the first major enforcement actions of its kind, several parties involved in the planned merger of a SPAC and space exploration company Momentus have agreed to pay $8 million to settle allegations that they misled investors in statements promoting the deal.
According to the U.S. Securities and Exchange Commission, Momentus made material misrepresentations about its key technology and failed to disclose that the U.S. government had considered its former CEO, Russian citizen Mikhail Kokorich, to be a security risk.
Additionally, the SEC said, blank-check company Stable Road Acquisition, which had agreed to take Momentus public through a $1.2 billion merger, “engaged in negligent misconduct by repeating and disseminating Momentus’s misrepresentations in commission filings without a reasonable basis in fact.”
The settlement of one of the first cases to target a SPAC merger covers the SEC’s allegations against Momentus, Stable Road, and the SPAC’s chief executive, Brian Kabot. The commission is proceeding separately with a civil complaint against 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,” SEC Chair Gary Gensler said in a news release.
As Reuters reports, the case “marks the latest escalation in the SEC’s crackdown on Wall Street’s special purpose acquisition company, or SPAC, frenzy.”
Space start-ups have been among the popular targets of SPACs, with Kobat and Kokorich negotiating the details of a merger agreement that was announced in October 2020. The value of the deal was lowered to $700 million last month.
The SEC alleged Kokorich and Momentus told investors that the company had “successfully tested” its propulsion technology in space when, in fact, the company’s only in-space test, dubbed the El Camino Real mission, had failed to achieve its primary mission objectives or demonstrate commercial viability.
Stable compounded the misrepresentations and omissions, the commission said, by conducting its due diligence of Momentus in a compressed timeframe and unreasonably failing both to review Momentus’s claims about the technology or follow up on national security red flags.