WASHINGTON – A space transport company trying to go public has not told potential investors that its satellite transport technology has failed, that it has lost contact with a satellite in space and that its Russian founder has been considered a national security risk by the United States government, said the Securities and Exchange Commission.
If the company, Momentus Inc., had filed a traditional initial public offering, bankers working on the transaction could be held liable for any misleading representations to investors. But this is not the case. It is attempting to go public by merging with a special purpose acquisition company, a route that does not require bankers to do due diligence on the company entering the public markets.
While PSPCs are hot, this is a path the SEC is trying to curb. The commission accused Momentus and its founder of fraud and its partner SPAC of negligence for not discovering the issues and disclosing them in regulatory documents and investor documents.
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“Those who could reap significant benefits from a PSPC merger may exercise inadequate due diligence and mislead investors,” SEC Chairman Gary Gensler warned, announcing earlier enforcement action. this month that included a settlement order.
Momentus agreed to pay $ 7 million and SPAC, Stable Road Acquisition Corp. SRAC -0.97%, agreed to pay $ 1 million to settle the SEC investigation, the agency said. The resolution did not require companies to admit their wrongdoing.
The SEC also sued Momentus founder, Russian entrepreneur Mikhail Kokorich, in federal court. Kokorich denies SEC claims that he misled investors and his partner PSPC, and “believes his position will be justified,” said his attorney, Thomas Gorman.
Momentus said it was “happy to close this chapter” and looks forward to going public and delivering shareholder value. A Stable Road lawyer did not respond to requests for comment. The company, in a recent regulatory filing, said it has performed “in-depth due diligence” on Momentus’ finances, technology and intellectual property.
In a traditional IPO, bankers, lawyers, and accountants conduct exhaustive research on the publicly traded company, examining records to verify statements made to investors.
“With a traditional IPO, the investment bank is involved, and it has to do due diligence,” said Georges Ugeux, senior lecturer at Columbia Law School and former New York Stock Exchange executive. SPACs are supposed to do due diligence in mergers, he said, adding, “It won’t be that deep.”
The SPACs raise capital, list on the stock market and then look for merger targets. A SPAC typically has two years to complete an acquisition, or it must return the money to shareholders, creating an incentive to close a deal. Stable Road has until August to finalize the merger with Momentus.
Investment bank Evercore Inc. advised Momentus on its financial projections and negotiations with Stable Road. Evercore’s role is akin to a bank’s work in a merger, providing financial advice to a company in the process of being acquired, Ugeux said. A spokesperson for Evercore declined to comment.
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The founders of Stable Road first considered cannabis companies when they started looking for a startup to go public. They launched talks with Momentus, initially valued at $ 1.8 billion, in July 2020, according to regulatory documents.
Momentus, in a fall investment presentation, said its clients included the National Aeronautics and Space Administration and government contractors such as Lockheed Martin Corp. It predicts that SpaceX rockets will carry Momentus’ small transport vehicles into space, according to the submission and regulatory documents. Lockheed is no longer a customer, according to Momentus.
Its propulsion technology to transport satellites from rockets and place them into orbit has not been proven, and a test in 2019 failed by company criteria as the company lost contact with it. a demonstration satellite, which remains in space, the SEC said. A Russian Soyuz rocket carried the Momentus thruster into space, according to Momentus. The company told investors after the demonstration that it was successful, the SEC said.
Stable Road did not begin its review of Momentus until a month before the merger announcement in October 2020, and a consultant hired by Stable Road to review Momentus’ technology did not assess the outcome of the test mission. , the SEC said.
Kokorich, who founded the space company in 2017, also misled investors and Stable Road about its national security concerns, the SEC alleged in its lawsuit.
A Department of Commerce unit rejected Momentus’ application in March 2018 for an export license allowing Kokorich to access the company’s propulsion technology after consulting with the Defense and State Departments, because he “was not an” acceptable “recipient of the technology” for reasons of national security. , ‘”The SEC said. The SEC filing did not clarify the Commerce Department’s decision.
A month later, the Committee on Foreign Investment in the United States, a multi-agency panel that examines deals for national security risks, reported Kokorich’s investment in another space company and later suggested that he is divesting his stake, citing the sophistication of the company’s technology and unspecified concerns about himself and that of other investors, according to the lawsuit.
U.S. Citizenship and Immigration Services quickly revoked Kokorich’s work visa and denied his application for permanent resident status, according to the SEC. He then applied for political asylum, which was also denied to him. He now lives in Switzerland, according to the SEC.
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Kokorich resigned as chief executive in January, days after the Defense Ministry told Momentus that his ownership and control of the company posed a risk to national security.
Momentus and Stable Road are still seeking shareholder approval next month for their merger. The value of Momentus has been reduced to $ 566 million, according to securities filings. Private investors withdrew $ 118 million from the deal after the SEC’s enforcement action was announced, but the company raised funds from new investors, according to regulatory documents.