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USA's SEC sues over space SPAC.

BIScom Subsection: 
Author: 
Nigel Morris-Cotterill

From an SEC press notice, 13th July 2021 (slightly edited)

"The Securities and Exchange Commission today announced [proceedings] against special purpose acquisition corporation Stable Road Acquisition Company, its sponsor SRC-NI, its CEO Brian Kabot, the SPAC’s proposed merger target Momentus Inc., and Momentus’ founder and former CEO Mikhail Kokorich [alleging] misleading claims about Momentus’ technology and about national security risks associated with Kokorich. "

The various parties, except one, have agreed settlements with the SEC. Kokorich is the hold-out and the action against him is continuing in the US District Court in Washington D.C.

According to the press notice "All other parties are settling with the SEC, with terms including total penalties of more than USD8 million, tailored investor protection undertakings, and the SPAC sponsor’s forfeiture of founder’s shares it stands to receive if the merger, currently scheduled for August 2021, is approved."

It's not a merger. The actual structure was the creation and funding of a SPAC, Stable Road Acquisition Company and for the reversing into that company of Momentus Inc., also a US corporation.

Momentus has a very impressive website with the extension dot space.

There are computer generated images, not quite Hollywood standard but impressive nevertheless, of spacecraft doing spacecrafty things. It says "Momentus plans to offer infrastructure services to support the growing space economy. With in-space transportation as our core service, our goal is to help our customers optimize the destination of space."

So, not so much "early stage", as the SEC suggests, more "a bit of an idea.
"Momentus intends to use a multi-pronged approach to become a provider of three critical functions in the new space economy: Space Transportation, Satellite as a Service, and In-Orbit Servicing."

The website carries a large headling "Momentus to become public through merger with Stable Road Acquisition." The misnamed "merger agreement" was signed in October 2020. There is no article behind the headline, as at today. But elsewhere there is a release saying "Stable Road Acquisition Corp and Momentus Revise Merger Agreement and Financial Outlook ". Dated 30 June 2021, it shows a very different picture to the images on the website.

https://momentus.space/wp-cont...

"As announced on May24, 2021, Momentus is standing down its flight plan for 2021 as it works to thoroughly address the U.S. government’s national security concerns."

"A complete divestment of the Momentus shares held by its co-founders and their related entities on 8 June, 2021,which significantly increased the equity ownership percentage of Momentus’ current stockholders. As a result, the revised valuation below to benefit public equity holders and PIPE investors does not compromise the ultimate equity ownership percentage of current Momentus stockholders in the combined company relative to what was originally expected."

The disposal of the shares by the founders of Momentus was the price of entering into an agreement with the US Department of Defence and the Department of the Treasury acting as representatives of the Committee on Foreign Investment in the USA. This revolved around national security concerns: to say that the National Security Agency was "concerned" would be to dramatically understate the case.

In February 2021, Momentus announced a "service agreement" to deliver two "cubesats" into low orbit for Singaporean startup Qosmosys which has plans to "expand its novel business ideas to the moon" using a "bus" being developed in association with another Singaporean space start-up, NuSpace. NuSpace has not updated its website, including media releases, since 2019. When it did, the announcement was marked as being made in Santa Clara, California.

It is notable that the 11th February 2021 announcement by Momentus also is marked as being made in Santa Clara. Again, the announcement refers to an agreement to offer "in-space infrastructure services" to " Xona Space Systems, a San Mateo-based startup creating a secure and precise Position, Navigation, and Timing satellite service."

That company, too, has not put anything into space, yet.

Which brings us back to Momentus and why the SEC is upset.

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.

The order finds that Momentus and Kokorich also misrepresented the extent to which national security concerns involving Kokorich undermined Momentus ability to secure required governmental licences essential to its operations. In addition, the order finds that Stable Road repeated Momentus misleading statements in public filings associated with the proposed merger and failed its due diligence obligations to investors.

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

The order finds that Kabot participated in Stable Road’s inadequate due diligence and in filing its inaccurate registration statements and proxy solicitations.

The SEC’s complaint against Kokorich includes factual allegations that are consistent with the findings in the order.

"Momentus former CEO is alleged to have engaged in fraud by misrepresenting the viability of the company’s 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 USD200 million,” said Anita B. Bandy, Associate Director of the SEC’s Division of Enforcement.

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