Wall Street’s latest beloved darlings, SPACs, or special purpose acquisition companies, may soon meet their demise, as the SEC tightens its crackdown on the $100 billion frenzy.
On Tuesday, the SEC announced that it has charged blank-check company Stable Road Acquisition Corp (NASDAQ: SRAC), its proposed merger target space exploration company Momentus Inc, its sponsor SRC-NI, as well as two executives over misleading investors about details surrounding their planned merger. The regulator alleges that Momentus and its CEO and founder Mikhail Kokorich told investors that the company had “successfully tested” its propulsion technology in space, when in fact the only in-space test it conducted failed to even achieve basic objectives.
The SEC also found that Momentus and Kokorich failed to disclose the full extent of Kokorich’s national security risks and how they would subsequently undermine Momentus’ capability of procuring necessary government-issued licenses needed for its operations. In addition, the regulator also accused Stable Road and its CEO Brian Kabot over repeating Momentus’ misleading claims in public filings related to the proposed merger, as well as failing to meet its due diligence obligations.
“This case illustrates risks inherent to SPAC transactions, as those who stand to earn significant profits from a SPAC merger may conduct inadequate due diligence and mislead investors,” explained SEC Chair Gary Gensler. Although the entities involved have agreed to the charges, neither of them have admitted or denied the allegations. Momentus has been ordered to pay a $7 million fine, while Stable Road and its CEO, Kabot, have agreed to pay $1 million and $40,000, respectively.
Back in October, Momentus announced that it would make its public debut via a $1.2 billion merger alongside Stable Road, which has since been lowered to $700 million in June. However, the latest SEC settlement will give private investors of Stable Road a chance to recoup their funds, while retail investors will be debriefed on the extent of reparations before voting on the merger come August.
Information for this briefing was found via the SEC. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.