As I noted in a prior post, last week the SEC filed an enforcement action against Stable Road Acquisition Corp., a special purpose acquisition company (SPAC), and its intended merger target, Momentus, relating to Momentus’s alleged misrepresentations, as well as Stable Road’s alleged lack of due diligence. Perhaps inevitably, a plaintiff shareholder has filed a securities class action lawsuit against Stable Road; Momentus; and other defendants, adding to the growing number of SPAC-related securities suits that have been filed this year. A copy of the July 15, 2021 complaint in the new securities lawsuit can be found here.



Stable Road Acquisition Corp. is a special purpose acquisition company (SPAC) that completed an IPO on November 13, 2019. SRC-NI Holdings LLC is the Stable Road’s sponsor, having provided the SPAC’s initial capital. Brian Kabot is Stable Road’s Chairman and CEO. Momentus, Inc. is a Delaware corporation based in California seeking to develop commercially viable technology it could deploy to provide commercial space services. Mikhail Kokorich, a Russian citizen residing in Switzerland, served as the CEO and Chairman of Momentus until his January 25, 2021 resignation.


On October 7, 2020, Momentus and Stable Road announed their agreement to merge, with Momentus to be the surviving entity, as a publicly traded company. In connection with the merger agreement, SRAC entered into a subscription agreement for a private investment in public equity (PIPE) offering. The proposed merger between Momentus and SRAC has not yet been completed.


On July 13, 2021, the SEC filed a settled administrative enforcement action against Momentus, Stable Road, SRC-HI, and Kabot. The SEC also filed a separate civil lawsuit against Kokorich. The SEC alleged that in public statements Momentus had misrepresented the readiness of its space technology and also the national security status of the company and Kokorich. The SEC alleged that Stable Road had repeated Momentus’s misrepresentations and also that Stable Road and Kabot had not undertaken sufficient due diligence.


The Lawsuit

On July 15, 2021, a plaintiff shareholder filed a securities class action lawsuit in the Central District of California against Stable Road; Momentus; SRC-NI; Kabot; Kokorich; and Stable Road’s CFO. The complaint purports to be filed on behalf of purchasers of Stable Road’s securities between October 7, 2020 (the date the merger was announced) and July 13, 2021 (the date of the SEC enforcement action).


The securities suit complaint largely repeats the allegations from the SEC enforcement action. The complaint alleges that Momentus had misrepresented its space launch technology; had omitted to disclose U.S. government national security concerns about Kokorich; that as a result of the foregoing misrepresentations, the company’s  projections and plans lacked  viability and were false and misleading; and that Stable Road had failed to conduct appropriate due diligence of Momentus while repeating Momentus’s projections and representations.


The securities lawsuit complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The plaintiff seeks to recover damages on behalf of the class.



By my count, this latest lawsuit represents the 17th SPAC-related securities lawsuit to be filed so far in 2021. The SPAC-related suit filings have become a very substantial securities litigation phenomenon, representing almost 15% of all federal court securities suits filed this year. I suspect both the number of SPAC-related suits and the percentage of all lawsuit the SPAC suits represent will grow, perhaps substantially, as the year progresses.


While this latest suit relates to a SPAC, the new lawsuit is somewhat different in certain respects from prior SPAC-related securities suits. For starters, unlike the circumstances involved in most of the prior SPAC-related suits, in this instance the SPAC merger has not yet taken place. In most of the other cases, the lawsuit came in after the business combination was completed. In respect to the fact that the merger has not yet been completed here, this new suit resembles the lawsuit filed earlier this year against Churchill Capital Acquisition Corporation IV/Lucid Motors (discussed here); in that case also the merger had not yet been completed when the securities lawsuit was filed, naming as defendants both the SPAC and the merger target company.


Another unusual feature of this new lawsuit is that the roster of defendants includes not only the SPAC and the merger target and officials of both entities, but it also includes the SPAC sponsor. It is not unprecedented for the SPAC sponsor to be named as a defendant. The SPAC sponsor was named as a defendant in the SPAC-related securities suit filed against Alta Mesa Resources; the complaint in that lawsuit survived a dismissal motion earlier this year, as discussed here. But while there is precedent for the SPAC sponsor being named as a defendant, the SPAC sponsor’s inclusion as a defendant here (as well as in the related SEC enforcement action) does show the scope of prospective litigation targets that can be included in SPAC-related securities suits.


The inclusion of Momentus and its former CEO as securities suit defendants does highlight an insurance coverage issue that can arise when the private company SPAC merger target is hit with a securities suit prior to the business combination. The problem is that the private company likely is insured under a private company D&O insurance policy, which may include some form of securities liability exclusion. It may present a challenge for some private companies to try to obtain coverage under their policy for a claim like this one.


In any event, the circumstances surrounding Stable Road and its merger plan, which has led both to an SEC enforcement action and a securities suit filed against the SPAC and its officers before the SPAC merger has even taken place, does underscore the liability exposures that SPACs and their executives potentially may face. It also underscore the D&O insurance underwriters’ concerns about SPAC-related risks, which in turn may help explain the current disrupted state of the D&O insurance marketplace for SPACs. The events surrounding Stable Road are not likely to sooth the disrupted market. On the other hand, the circumstances do highlight the ways in which D&O insurance could be indispensable for SPACs and their executives.