SEC Settles SPAC Enforcement Action

On July 13, 2021, the Securities and Exchange Commission (the “SEC”) announced settlement of enforcement actions aganist a Special Purpose Acquisition Corporation (the “SPAC”), entitled Stable Road Acquisition Company, its sponsor, its CEO, its merger target, entitled Momentus Inc. (“Momentus”) and the founder and the former CEO of Momentus. SPACS have become increasingly popular in the era of COVID-19, as investment money looks for outlets, but the SEC has warned that these vehicles – which raise funds from investors and then seek to acquire companies – have the potential for abuse. This case represents a major case in the modern era involving a SPAC. Among other things, the SEC found that Momentus and its CEO misstated the commercial viability of its space propulsion technology. The penalties included, among other things, that the companies and officials agreed to pay a total of over $8 million in fines, and investors in the private shares (“PIPES”) were allowed to terminate their subscription agreements. The SEC made clear that at minimum, the SPAC had a duty to do much more diligence on the investment than it had. The case may indicate that the SEC plans to be more active in the future with regard to SPACs, disclosure to investors and diligence on acquisition targets.