{"id":14906,"date":"2021-07-15T13:40:47","date_gmt":"2021-07-15T13:40:47","guid":{"rendered":"https:\/\/crigroup.com\/?p=14906"},"modified":"2024-01-23T14:43:20","modified_gmt":"2024-01-23T14:43:20","slug":"spac-momentus-hit-8m-million-sec-fine","status":"publish","type":"post","link":"https:\/\/crigroup.com\/ar\/spac-momentus-hit-8m-million-sec-fine\/","title":{"rendered":"Inadequate Due Diligence Hit Space-Transport SPAC Momentus $8 Million SEC Fine"},"content":{"rendered":"
Home<\/a> | Resources<\/a> | Industry Insights<\/a> | Inadequate Due Diligence Hit Space-Transport SPAC Momentus $8 Million SEC Fine<\/strong><\/span><\/span><\/span><\/span><\/div>\r\n\r\n
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Inadequate Due Diligence Hit SPAC Momentus <\/strong>$8 Million SEC Fine<\/strong><\/h2>\r\n\r\n\r\n

Inadequate due diligence hit SPAC Momentus $8 million SEC fine after misleading investors. The Securities and Exchange Commission (SEC) has charged the Momentus particular purpose acquisition company (SPAC), its sponsor SRC-NI, the sponsor’s CEO Brian Kabot, the company, and founder Mikhail Kokorich – which involved in a $1.2 billion space-transport SPAC for defrauding investors and obscuring the CEO’s status as a US national security risk.<\/p>\r\n\r\n\r\n

The Fraud Claimed<\/strong><\/p>\r\n\r\n\r\n

The SPAC, Stable Road Acquisition Corp, had sought to merge with Momentus, a private start-up, to take it public. Momentus’s key offering was a “microwave electro-thermal water plasma thruster,” a way of zapping water vapour to propel a spacecraft, intending to transport satellites into space.<\/p>\r\n\r\n\r\n

But Momentus’s propulsion tech failed to show results, according to SEC\u00a0filings<\/a>. A test mission fell well short of the company’s benchmarks, and a former Momentus employee said that the test yielded “no data to suggest that that thruster would deliver an impulse of any commercial significance.”<\/p>\r\n\r\n\r\n

According to the SEC’s settled order, Kokorich and Momentus, an early-stage space transportation company, repeatedly told investors that it had “successfully tested” its propulsion technology in space when, in fact, the company’s only in-space test had failed to achieve its primary mission objectives or demonstrate the technology’s commercial viability.<\/p>\r\n\r\n\r\n

The order finds that Momentus and Kokorich also misrepresented the extent to which national security concerns involving Kokorich undermined Momentus’s ability to secure required governmental licenses essential to its operations.<\/p>\r\n\r\n\r\n

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The Compliance Issue: Inadequate Due Diligence<\/strong><\/h3>\r\n

The SEC\u2019s settled order finds that Stable Road repeated Momentus\u2019s misleading statements in public filings associated with the proposed merger and failed its due diligence obligations to investors.<\/p>\r\n

According to the order, while Stable Road claimed to have conducted extensive due diligence of Momentus, it never reviewed Momentus\u2019s in-space test results or received sufficient documents relevant to assessing the national security risks posed by Kokorich.<\/p>\r\n

The order finds that Kabot participated in Stable Road\u2019s inadequate due diligence and filed its inaccurate registration statements and proxy solicitations. The SEC\u2019s complaint against Kokorich includes factual allegations that are consistent with the findings in the order.<\/p>\r\n\r\n\r\n

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“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. 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<\/strong>. Today\u2019s actions will prevent the wrongdoers from benefitting at the expense of investors<\/strong> 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.<\/p>\r\nSEC Chair Gary Gensler<\/cite><\/blockquote>\r\n\r\n\r\n

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The Litigation Against Momentus, Stable Road, and Kabot<\/strong><\/p>\r\n

Associate Director of the SEC\u2019s Division of Enforcement, Anita B, mentioned in her statement that Momentus\u2019s former CEO alleged to have engaged in fraud by misrepresenting the viability of the company\u2019s technology and his status as a national security threat, inducing shareholders to approve a merger in which he stood to obtain shares worth upwards of $200 million.<\/p>\r\n

The SEC\u2019s order finds that Momentus violated scienter-based antifraud provisions of the federal securities laws and caused sure of Stable Road\u2019s violations. It also considers that Stable Road violated negligence-based antifraud provisions of the US federal securities laws as well as specific reporting and proxy solicitation provisions.<\/p>\r\n

The order finds that Kabot violated provisions of the federal securities laws related to proxy solicitations. Kabot and SRC-NI caused Stable Road\u2019s violation of Section 17(a)(3) of the Securities Act of 1933. Without admitting or denying the SEC\u2019s findings, Momentus, Stable Road, Kabot, and SRC-NI consented to an order requiring them to cease from future violations. Momentus, Stable Road, and Kabot will pay civil penalties of $7 million, $1 million, and $40,000, respectively.<\/p>\r\n

Inadequate due diligence hit SPAC Momentus $8 million SEC fine. Source: US Securities and Exchange Commission<\/a>\u00a0<\/p>\r\n\r\n\r\n

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