Stable Road Acquisition Company Accused of Misleading Investors

Penalties of Over $8M Imposed on Stable Road Acquisition Company and Others

The Securities and Exchange Commission (SEC) filed fraud charges against special purpose acquisition company (SPAC) Stable Road Acquisition Company and its CEO Brian Kabot. The company’s sponsor SRC-NI, proposed merger target Momentus Inc., and the latter’s ex-CEO Mikhail Kokorich are also facing charges.

The regulator is accusing them of making misleading claims to investors about the target’s technology and national security risks involving Kokorich. While the Commission’s lawsuit against Kokorich will continue to move forward, the other parties reached settlements with the regulator. This included paying $8M in penalties.

Momentus is an early-stage space transportation company. In its settled order, the SEC noted that the company and its ex-CEO “repeatedly told investors” that it had successful results when testing propulsion technology in space. When, in truth, Momentus had conducted just one test in space.

This test had failed in its primary mission goals and did not show commercial viability. Also, any security concerns involving Kokorich that “undermined” the company’s ability to procure the required governmental licenses were purportedly misrepresented.

Misrepresentations Could Have Allowed Ex-Momentus CEO to Obtain Up to $200M in Shares

The SEC Division of Enforcement Associate Director, Anita B. Bandy, stated that Kokorich’s misrepresentations were fraudulent. Allegedly, he had gotten shareholders to approve a merger that would have allowed him to obtain up to $200M in shares. The regulator is seeking penalties, permanent injunctions, disgorgement with prejudgment interest, and officer and director bars against him.

Meanwhile, Stable Road Acquisition Company was found to have repeated the misleading statements at issue in public filings involved in the proposed merger. The SEC said that the SPAC did not fulfill its due diligence duties to investors despite having claimed to have done so.

SEC found that Kabot not only was involved in the SPAC’s due diligence failures but also in its filing of registration statements and proxy solicitations that were “inaccurate.” Without denying or admitting to the findings, Stable Road Acquisition Corp, Momentus, SRC-NI, and Kabot consented to an order mandating that they cease and desist from committing future violations moving forward.

Momentus’ penalty is $7M. Stable Road will pay a $1M penalty. Kabot’s penalty is $40K. SRC-NI now forfeits the founder’s shares it would have obtained if the merger, slated for this month, obtains approval.

What is a SPAC?

Special purpose acquisition companies are also known as blank check companies. Money is raised for a merger or acquisition with investors not knowing what company will be acquired ahead of time. Unlike a traditional IPO, a SPAC merger can be completed in 3-6 months.

Unfortunately, the structure of a SPAC can make it easy for investor fraud to happen. Self-dealing on a sponsor’s part is also a risk as they are the ones who get to decide which company to acquire. Profits could end up being extremely low or no acquisition may go through at all.

Visit our SPACs page to find out more.

Investor Lawyers Fighting for SPAC Investors

Shepherd Smith Edward and Kantas (SSEK Law Firm at investorlawyers.com) represents investors who suffered losses because their financial advisor unsuitably recommended a special purpose acquisition vehicle to them.

Contact our SPAC investor attorneys so that we can help you explore your legal options. Call (800) 259-9010 today.