Law360 (February 15, 2022, 6:25 PM EST) — Special purpose acquisition company Stable Road Acquisition Corp. and commercial space business Momentus Inc. have asked a California federal court to let them out of a proposed investor class action, arguing the shareholders didn’t properly back up their claims about purported company misstatements.
The companies said in memoranda filed Monday that claims made against them by a proposed class of investors led by Hartmut Haenisch should be dismissed with prejudice. Stable Road argued that Haenisch conceded in the latest version of the complaint that information he alleged should have been disclosed wasn’t actually ever shared with Stable Road.
“The primary exhibit on which plaintiff relies — a cease-and-desist order filed by the [U.S. Securities and Exchange Commission] — concluded that the Stable Road defendants did not act with fraudulent intent and the SEC declined to bring the very same claims that plaintiff asserts here,” Stable Road argued.
The SEC filed the cease and desist order in July 2021 when it reached settlements with Stable Road, its sponsor and CEO, and the SPAC’s proposed merger target, Momentus, for allegedly falsely telling investors that Momentus’ propulsion technology had been successfully tested in space. The SEC said that the settlement penalties totaled more than $8 million, a development that alerted key players in the booming SPAC market about the risks of cutting corners.
The agency said that Momentus and its founder and former CEO, Mikhail Kokorich, repeatedly told investors that the company had successfully tested its propulsion technology in space when in reality the company’s only in-space test actually “failed to achieve its primary mission objectives or demonstrate the technology’s commercial viability.”
The SEC also filed a complaint against Kokorich in July 2021 that alleged he deceived Stable Road and investors in order to complete the transaction, according to court records. Stable Road noted Monday that Kokorich denied those allegations and that litigation is ongoing.
Shortly after the SEC settlements were announced, investor Keith Jensen filed the initial version of the proposed class action, accusing Stable Road of failing to admit that in-space tests of Momentus’ technology had failed. Jensen also cited the SEC’s contention that “Momentus and Kokorich also misrepresented the extent to which national security concerns involving Kokorich undermined Momentus’s ability to secure required governmental licenses essential to its operations.“
Jensen alleged that Kokorich’s January 2021 resignation from Momentus sent trading prices for Stable Road shares tumbling by nearly 20%. The investor also claimed that the SEC’s July announcement of its settlement with the Stable Road parties pushed down trading prices for the company’s shares by 10%.
Haenisch was appointed lead plaintiff in October and filed an amended complaint the following month, according to court records.
Stable Road argued Monday that Haenisch relies on “a scattershot of conclusory and circumstantial allegations” in his claims that the company made the purported misstatements with scienter, or fraudulent intent. The SPAC also said that the investor’s allegations that Kokorich and Momentus misrepresented and concealed information from Stable Road undercut his claim that the SPAC acted with scienter.
Stable Road said Haenisch is trying to hold the SPAC liable for statements it didn’t make and that he conceded Stable Road didn’t know about the alleged falsity of disclosures regarding Momentus. And Haenisch didn’t adequately show that the SPAC acted with deliberate recklessness because the investor pointed out that the company retained third-party advisers to help with diligence efforts and put out multiple disclosures warning investors about the “limitations” of the company’s diligence.
The SPAC also argued that Haenisch improperly grouped the defendants together in his pleadings.
In its own memorandum, Momentus argued Monday that many of the purported misstatements are either protected under the Private Securities Litigation Reform Act of 1995’s safe harbor provision or are considered “inactionable corporate puffery, optimism and/or opinion.”
Haenisch failed to plead any materially false or misleading statements, only challenging certain statements in which the defendants describe a 2019 test of Momentus’ technology as “successful,” the company argued.
“Plaintiff’s challenges to those statements fail for numerous reasons, including that Momentus actually achieved (rather than failed) the overall objective of that test by successfully demonstrating its technology’s ability to produce water plasma in space,” Momentus said.
Counsel for Momentus wasn’t immediately available to comment Tuesday, and counsel for Stable Road declined to comment. Counsel for the plaintiffs didn’t immediately respond to a request for comment.
Stable Road announced in October 2020 that it had agreed to merge with private equity-backed Momentus to create a publicly traded entity valued at about $1.2 billion. Momentus’ backers included Prime Movers Lab, Y Combinator, Tribe Capital and Liquid2VC, a venture firm that counts NFL legend Joe Montana among its managing partners.
At the time of the announcement, Momentus shared lofty goals, including being able to have its space vehicles mine the moon and asteroids for water and other materials by 2035. The space cargo company boasted a customer list that included satellite operators, manufacturers, launch providers and defense companies such as Lockheed Martin and NASA.