The US Securities and Exchange Commission (SEC) settled fraud allegations against a space company, Momentus, and the special purpose acquisition company (SPAC), Stable Road, that agreed to take it public last year. The two companies together paid $8 million in penalties.
The settlement comes as financial regulators warn that the rise in SPAC transactions, which operate under looser disclosure rules than traditional IPOs, can leave investors in the lurch. “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,” SEC Chair Gary Gensler said.
Stable Road’s chairman, Brian Kabot, paid $40,000 personally to settle allegations against him. But Momentus’ Russian founder and former CEO, Mikhail Kokorich, whose actions are at the heart of the government’s allegations, didn’t join in the settlement, and is instead fighting the SEC’s charges.
Quartz reached out to Kokorich to get his side of the story. In the first interview granted since the charges were announced, he says he did not hide key facts about his work at Momentus from investors. He also says he’s owed a payout from Momentus, which purchased his share of the company, and that he has started a new space vehicle start-up in Switzerland.
Did Kokorich mislead investors about his immigration status?
Momentus, a five-year old company based in Silicon Valley, is focused on building a space vehicle designed to launch on a large rocket and then ferry small satellites to their specific orbits. The vehicle relies on a novel propulsion system ostensibly developed by Kokorich, who was trained in physics at Novosibirsk State University in Russia and became a serial space entrepreneur, starting a firm in Russia before moving to the US in 2014. Momentus, which emerged from the esteemed Y Combinator start-up incubator, entered in to an agreement to go public via a SPAC in 2019 which valued it at $1.2 billion. Its new CEO, former US Defense official John Rood, starts Aug. 1.
Space technology is deemed by the US government to have military uses, and foreign nationals are barred from working on it without a residency permit or export license. Quartz broke the news about the federal investigation into Kokorich’s immigration status last year after the company’s acquisition was announced. Momentus could not secure a license to launch its spacecraft, which led Kokorich to resign and divest his shares earlier this year in an effort to ensure the company’s viability. And, as Quartz reported, he had been previously forced to divest from another space company, Astro Digital, over similar national security concerns, leaving behind a trail of disgruntled employees.
When Kokorich met investors, he told them that he was seeking asylum and an export license that would let him do his job. But the SEC says Kokorich already knew his asylum petition had been denied. His case had been referred to immigration court after federal agents raided Momentus’ offices and arrested him in 2019, before he was released on bond.
“Both company lawyers and Stable Road lawyers had complete information about the status of my asylum application and export licenses,” Kokorich said in an email interview with Quartz, pointing out both issues were raised in the company’s filings. “During the due diligence process, I never gave any instructions to our lawyers to hide any information about my immigration status and export licenses. Also, when our lawyers drafted the first S4, they had access to all information about my asylum and export licenses.”
The SEC says Kokorich knew he was being sent to immigration court for removal proceedings, but Kokorich argues that “getting asylum through immigration court is a common practice” and that “during the asylum process, I had job authorization that allowed me to be CEO of Momentus.”
Did Kokorich mislead investors about Momentus’ technology?
The second key allegation by the SEC is that Kokorich misled investors about a crucial test intended to prove Momentus’ propulsion system could generate enough thrust to maneuver its vehicle and deploy satellites.
The company maintained the spacecraft had been tested in a 2019 launch, but the SEC cites internal communications that said the test did not produce “any useful mission results,” leading to the creation of an internal failure review board. Of 100 planned test firings, just 23 were attempted before Momentus lost contact with the satellite, and only three produced the hot plasma necessary to move a vehicle in space. Financial regulators argue Kokorich knew the test did not verify the commercial potential of his product, and should have told investors.
“The test of the entire propulsion system was successful,” Kokorich maintains today. “We demonstrated that thrusters had ‘hot fires,’ which meant that propulsion as the whole (tank, feed system, water pump, valves, controllers, vaporizers, high power unit, microwave generator, coaxial cable, thruster) worked properly. If any of the propulsion system elements failed, we wouldn’t be able to fire propulsion.”
Kokorich says what failed were onboard computers built by another company. “Momentus created a failure review board to investigate a failure of the avionics (including an onboard computer) on the satellite bus,” he continued. “As a result of the review board, the technical team decided to build robust and fault-tolerant avionics in-house. So by the time we filed S4, we didn’t have in our technology roadmap the avionics that failed during the first test mission.”
What does Kokorich’s future hold?
Kokorich is now living in Switzerland, where he says he received a residency permit within two months. Asked if he would return to the US to face a trial, Kokorich told Quartz that “I have no active US visa, and I voluntarily left the country and abandoned my asylum process. So I don’t have a legal basis to enter the US, but I want to contest these allegations in any possible legal way.”
Momentus is continuing with its plans to go public without Kokorich, which will require a majority of the shareholders in Stable Road’s SPAC to approve the deal in a vote scheduled for Aug. 11. “We’re pleased to be closing this chapter and moving forward. We remain committed to building a partnership with the U.S. government, demonstrating value to our stockholders and customers, and looking ahead to a bright future as a public company,” interim CEO Dawn Harms said in a statement.
If the deal is approved, Kokorich and several other Russian investors forced to divest from the company earlier are due a $50 million pay-out. Momentus didn’t respond to questions about whether it would contest this agreement.
“I think it would be fair to be paid for the company I created and the technologies I invented,” Kokorich says. “But I was ousted from the previous company I co-founded, Astro Digital, without any payment for my shares.”
Now, he says he is starting an ambitious new space company in Switzerland called Destinus, “which develops the technology for near-space vehicles, hybrids between airplane and a rocket. These vehicles will be capable of low-cost delivery for express cargo between continents in 60-90 minutes.”
Kokorich says US officials misunderstand his intentions, to the detriment of the economy.
“I understand why the US government conducts a policy of restricting foreign investors, specifically Russian and Chinese, from investing in critical sectors, including aerospace and high-tech,” he wrote. “But I believe that this logical policy was misapplied to me. I came to the US as an entrepreneur and technologist. I built companies using my hard work, entrepreneurial talent, and technical acumen. I created hundreds of engineering jobs, invented a lots of technologies. My companies made and launched dozens of satellites. Unfortunately, I could not convince the US government that I am a sincere and honest entrepreneur who could become the next Sikorsky for the US aerospace industry.”