Stable Road Acquisition Stock Craters After SEC Allegations
In a deal announced last October, Stable Road Acquisition (NASDAQ: SRAC), a special purpose acquisition company (SPAC), is currently trying to merge with space infrastructure startup Momentus. The company plans to offer infrastructure and transportation services in space to partners like SpaceX and NASA, among others. The current deal assigns Momentus a post-money enterprise value of $1.2 billion.
In a massive blow to the merger, which has not yet closed, the SEC announced yesterday evening that it is charging Stable Road Acquisition, the SPAC’s sponsor SRC-NI Holdings, Momentus, and several executives with making misleading claims regarding the proposed transaction. As of 11:30 a.m. EDT, Stable Road Acquisition shares were down 10%.
Momentus’s “water plasma propulsion technology” is allegedly not viable
The securities regulator alleges that Momentus founder and former CEO Mikhail Kokorich and SRC-NI CEO Brian Kabot have misled investors regarding the viability of the target company’s technology. The SEC notes that it is only proceeding with litigation against Kokorich, as all other parties have opted to settle the charges with the agency, including paying over $8 million in monetary penalties.
Additionally, Momentus faces national security risks in proceeding with its business plan since Kokorich is a Russian national. The SEC argues that the SPAC’s due diligence was inadequate and that it never reviewed the results of Momentus’s in-space tests.
“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 regulator said.
“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.”
Momentus claimed that it had “successfully tested its water plasma propulsion technology” back in 2019 and that the first transport vehicle that it had developed, dubbed the Vigoride, was capable of delivering payloads of up to 750 kilograms to low Earth orbit (LEO).
Ambitious forecasts have become a mainstay of many SPAC deals, and Momentus is no exception. The company estimated that 2020 revenue would be $2 million but expected sales to climb to over $4 billion in 2027.
“The fact that Momentus lied to Stable Road does not absolve Stable Road of its failure to undertake adequate due diligence to protect shareholders,” SEC Chair Gary Gensler said in a statement. “Today’s actions will prevent the wrongdoers from benefitting at the expense of investors 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.”
Stable Road Acquisition shareholders are set to vote on the proposed deal on August 13 following an extension. Despite the SEC action and subsequent decline, the stock is still trading above the net asset value (NAV) of $10.
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