SEC Properly Alleged Ex-Space Company CEO Lied to Secure Merger, Court Says

A Washington, D.C., court last week rejected a Russian citizen’s bid to dismiss government accusations that he misled investors about his company’s “key” space technology and several U.S. “adverse national security determinations” against the company. The ruling came after the Securities and Exchange Commission said Mikhail Kokorich, former CEO of space industry startup Momentus, made several “misrepresentations, false statements, and material omissions” in merger discussions with another firm, failing to disclose that the Commerce Department had rejected at least one of his company's export license applications and planned to deny another (SEC v. Mikhail Kokorich, D.D.C. # 21-1869).

The U.S. District Court for the District of Columbia ruled March 23 that the SEC plausibly alleged Kokorich lied or made misleading omissions in his effort to combine his company with Stable Road Acquisition Group. Judge Ana Reyes also said the SEC showed that Kokorich had “both motive and opportunity” to commit fraud.

The case stemmed from a 2019 plan by Momentous to test its technology in space to attract investors, the court said. Although “internal” communications showed the test failed to prove the technology’s “commercial viability," Kokorich told news outlets, would-be investors and Road Stable executives the mission was successful.

But Kokorich told the court that the test was, in fact, a success because the technology “fired in space for the first time.” The judge disagreed, saying his statements misrepresented the mission's ultimate outcome. "It may well have fired in space for the first time," the judge said. "However, as any loyal Red Sox fan knows all too well, the fact that a team scores a run in the first inning says nothing about whether it ultimately wins the game."

Kokorich also told Stable Road the test was a “success,” the court said, and said Momentus had not “yet” obtained an export control license from the Bureau of Industry and Security despite being rejected “outright” two years earlier. BIS had determined Kokorich was not an “acceptable recipient” of U.S. export-controlled technology for “national security reasons, the judge said.

Kokorich applied for another BIS license in 2020, but the agency told him it planned to deny the license “without internal appeal.” Kokorich failed to "share the extent of these national security issues during his merger communications with Stable Road," the court said.

About one year later, the Department of Defense told Momentus in a letter that Kokorich’s ownership “posed a risk to national security,” the court said, which risked preventing the company’s merger with Stable Road. Momentus eventually entered into a national security agreement with the Committee on Foreign Investment in the U.S. that required Kokorich to divest from Momentus (see 2109160037 and 2105180014).

Kokorich said the 2021 DOD letter was a "game changer" because, until then, he hadn’t been “aware” of U.S. national security concerns, the court said. But Reyes said the claim didn’t “comport” with Kokorich’s timeline. He had been repeatedly notified of his immigration and national security issues before this letter was sent, the judge said, adding that the SEC proved “scienter” in that Kokorich acted with "intent to deceive, manipulate, or defraud."

“The alleged motive is predictable,” Reyes said. “Defendant stood to benefit financially from a successful mission and merger with Stable Road, which would increase investor confidence in the technology behind Momentus’s business model.”