SEC signals stepped-up SPAC enforcement with Momentus charges
U.S. securities regulators aren't yet strengthening disclosure rules on SPACs, but they are beginning to step up enforcement of existing rules.
Driving the news: The Securities and Exchange Commission on Tuesday announced charges and a settlement with several entities and people involved in a 2020 SPAC deal for space cargo company Momentus.
- That transaction, first announced in late 2020 but still not closed, was designed to bring Momentus public at a $1.1 billion enterprise value via Stable Road Acquisition, and included a $175 million PIPE. The valuation was recently slashed to $567 million.
- The SEC accused Momentus of making misleading public statements about the results of its in-space tests and accused Stable Road of insufficient due diligence on both those tests and national security concerns involving former Momentus CEO Mikhail Kokorich (this morning the company added ex-Defense Department official John Rood as its new CEO).
- Momentus agreed to pay $7 million in penalties while Stable Road will pay $1 million, and PIPE investors will be given permission to terminate their subscription agreements prior to the deal's shareholder approval vote.
- Prior to the SPAC deal, Momentus had raised nearly $90 million in VC funding, and received a PPP loan.
What SEC chair Gary Gensler is saying: "The fact that Momentus lied to Stable Road does not absolve Stable Road of its failure to undertake adequate due diligence."
The big picture: This situation will fuel SPAC critics who argue that public investors are getting taken in by futuristic tech promises that are unlikely to pan out, particularly in areas like space.
- It also offsets Saturday's successful test flight by Virgin Galactic, which went public via SPAC in 2019 (although its stock has sagged so far this week).
The bottom line: You can't spell space without SPAC, nor can you spell it without SEC.