The Securities and Exchange Commission charged Momentus Space and its founder, Mikhail Kokorich, on Tuesday with allegedly defrauding investors about the company’s propulsion technology and downplaying national security concerns about Kokorich, who is of Russian descent.
As part of a deal to take Momentus public, the SEC charged the company that was going to acquire Momentus, Stable Road Acquisition Corp., with violating the securities laws (and sidestep the IPO process). Stable Road Acquisition Corp is a SPAC, which is a company that exists solely for the purpose of acquiring another company. The SEC has also charged the company’s CEO, Brian Kabot, as well as the company’s sponsor, SRC-NI. Everyone, with the exception of Kokorich, has reached a settlement with the SEC and paid a fine.
A new company, Momentus, was launched in 2017 with the goal of providing a “last-mile” transportation service for satellites already in orbit. The company uses a novel water-based propulsion system to drag satellites into different orbits. According to the SEC, Momentus misled investors by falsely claiming that the company had “successfully tested” its technology in space when, in fact, the company had only tested its technology in space once, and it failed. According to the SEC, Stable Road never reviewed the results of this test, despite the fact that the company claimed to have conducted “extensive due diligence.” Additionally, during that process, it was unable to obtain the documents necessary to determine whether Kokorich posed a threat to national security.
According to SEC Chair Gary Gensler, “This case demonstrates the risks associated with SPAC transactions, as those who stand to profit significantly from a SPAC merger may conduct inadequate due diligence and mislead investors.”
Momentus agreed to pay $7 million in settlement, Stable Road agreed to pay $1 million, and Kabot agreed to pay $40,000. If the proposed SPAC merger is completed — which is expected to occur in August, several months later than the SEC’s original target of early 2021 — the SEC will order “tailored investor protection undertakings, as well as the forfeiture of the SPAC sponsor’s founder’s shares,” according to a statement from the SEC.
Because Kokrich is Russian, US authorities have been concerned that Momentus’ technology could end up in the hands of foreign adversaries, prompting a lengthy investigation and delaying the company’s plan to go public. Kokorich resigned as CEO of Momentus in January, citing a desire to separate the company from national security concerns. According to a revised amended registration statement Stable Road filed with the Securities and Exchange Commission last month, the company’s projected value has been cut in half, from $1.1 billion to just $566.6 million.
According to Stable Road’s June filing, in which it reduced Momentus’ value, the company’s technology was still in its early stages and that “the technology underlying its anticipated service offerings (including its water plasma propulsion technology) is still in the process of being developed and has not been fully tested or validated in space.”