Description
Due diligence should address, at a minimum, the following 15 areas: legal, accounting, tax, information technology, risk and insurance, environmental, sales, operations, property, intellectual assets, finance, cross-border issues, human resources, culture, and ethics. From the article, answer the following questions.(10 pts) In one short paragraph—and in your own words—summarize what this article is about, naming the players involved and what each did or did not do. (5 pts) Who is Gary Gensler and what did he have to say about who is responsible for due diligence? (5 pts) Who was found to have failed to do proper due diligence? (5 pts) What punishments and penalties did Momentus, Stable Road, Kabot, and SRC-NI receive? What punishments and penalties is Kokorich facing in court? (20 pts) Based upon the article and Appendix 8.1 in your text, state which of the 15 due diligence areas were most likely areas of failed—or at least inadequate—due diligence. Make sure to identify at least three areas and explain your rationale for each in detail. (5 pts) Proper grammar, full sentences, correct spelling and punctuation, and a neat and professional format with clearly labeled answers are required.Attached is the article.
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United States: SEC Charges SPAC, Sponsor,
Merger Target, and CEOs for Misleading
Disclosures Ahead of Proposed Business
Combination
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The Securities and Exchange Commission today announced charges against special purpose acquisition
corporation Stable Road Acquisition Company, its sponsor SRC-NI, its CEO Brian Kabot, the SPAC’s proposed
merger target Momentus Inc., and Momentus’s founder and former CEO Mikhail Kokorich for misleading claims
about Momentus’s technology and about national security risks associated with Kokorich. The SEC’s litigation is
proceeding against Kokorich, against whom the SEC filed a complaint in the U.S. District Court for the District of
Columbia. All other parties are settling with the SEC, with terms including total penalties of more than $8 million,
tailored investor protection undertakings, and the SPAC sponsor’s forfeiture of founder’s shares it stands to receive if
the merger, currently scheduled for August 2021, is approved.
According to the SEC’s settled order, Kokorich and Momentus, an early-stage space transportation company,
repeatedly told investors that it had successfully tested its propulsion technology in space when, in fact, the
company’s only in-space test had failed to achieve its primary mission objectives or demonstrate the technology’s
commercial viability. The order finds 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. In addition, the order finds that Stable Road repeated Momentus’s misleading statements
in public filings associated with the proposed merger and failed its due diligence obligations to investors. According
to the order, while Stable Road claimed to have conducted extensive due diligence of Momentus, it never reviewed
the results of Momentus’s in-space test or received sufficient documents relevant to assessing the national security
risks posed by Kokorich. The order finds that Kabot participated in Stable Road’s inadequate due diligence and in
filing its inaccurate registration statements and proxy solicitations. The SEC’s complaint against Kokorich includes
factual allegations that are consistent with the findings in the order.
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, said SEC Chair Gary Gensler. Stable Road, a
SPAC, and its merger target, Momentus, both misled the investing public. The fact that Momentus lied to Stable
Road does not absolve Stable Road of its failure to undertake adequate due diligence to protect shareholders.
Today’s actions will prevent the wrongdoers from benefitting at the expense of investors and help to better align the
incentives of parties to a SPAC transaction with those of investors relying on truthful information to make investment
decisions.
Our enforcement team worked with incredible speed, efficiency, and creativity to file today’s actions so that investors
will have the benefit of complete and accurate information when voting on the proposed merger, said Melissa R.
Hodgman, Acting Director of the SEC’s Division of Enforcement. Today’s settlement will deter future misconduct in
the SPAC market without inhibiting capital formation, while also allowing for the distribution of monetary relief to
harmed investors.
Momentus’s former CEO is alleged to have engaged in fraud by misrepresenting the viability of the company’s
technology and his status as a national security threat, inducing shareholders to approve a merger in which he stood
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to obtain shares worth upwards of $200 million, said Anita B. Bandy, Associate Director of the SEC’s Division of
Enforcement. Our litigation against Kokorich demonstrates our commitment to holding individuals accountable for
their statements to investors, which are of particular concern when they are aimed at improperly capitalizing on
public interest in popular investment vehicles such as SPACs.
The SEC’s order finds that Momentus violated scienter-based antifraud provisions of the federal securities laws and
caused certain of Stable Road’s violations. It also finds that Stable Road violated negligence-based antifraud
provisions of the federal securities laws as well as certain reporting and proxy solicitation provisions. The order finds
that Kabot violated provisions of the federal securities laws related to proxy solicitations and that Kabot and SRC-NI
caused Stable Road’s violation of Section 17(a)(3) of the Securities Act of 1933. Without admitting or denying the
SEC’s findings, Momentus, Stable Road, Kabot, and SRC-NI consented to an order requiring them to cease and
desist from future violations. Momentus, Stable Road, and Kabot will pay civil penalties of $7 million, $1 million, and
$40,000, respectively. Momentus and Stable Road have also agreed to provide PIPE (private investment in public
equity) investors with the right to terminate their subscription agreements prior to the shareholder vote to approve
the merger; SRC-NI has agreed to forfeit 250,000 founders’ shares it would otherwise have received upon
consummation of the business combination; and Momentus has agreed to undertakings requiring enhancements to
its disclosure controls, including the creation of an independent board committee and retention of an internal
compliance consultant for a period of two years.
The SEC’s complaint against Kokorich alleges that Kokorich violated antifraud provisions of the securities laws and
aided and abetted Momentus’s violations of the same provisions. The complaint seeks permanent injunctions,
penalties, disgorgement plus prejudgment interest, and an officer-and-director bar against Kokorich.
The SEC’s investigation was conducted by Matthew Spitzer, Sharan Custer, Ernesto Amparo, and Robert Nesbitt,
and was supervised by D. Mark Cave and Ms. Bandy. The litigation against Kokorich will be handled by Melissa
Armstrong and Fernando Campoamor and will be supervised by Thomas Bednar.
(U.S. Securities and Exchange Commission)
DETAILS
Subject:
Violations; Shareholder voting; National security; Stockholders; Enforcement; Proxy
solicitation; Acquisitions &mergers; Fines &penalties; Due diligence; Business
combinations; Litigation
Business indexing term:
Subject: Shareholder voting Stockholders Proxy solicitation Acquisitions &mergers
Due diligence Business combinations
Location:
United States–US
Company / organization:
Name: Securities &Exchange Commission; NAICS: 926150
Publication title:
Asia News Monitor; Bangkok
Publication year:
2021
Publication date:
Jul 26, 2021
Section:
Business News
Publisher:
Thai News Service Group
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Place of publication:
Bangkok
Country of publication:
Thailand, Bangkok
Publication subject:
General Interest Periodicals–Philippines, General Interest Periodicals–Vietnam,
General Interest Periodicals–Thailand
Source type:
Newspaper
Language of publication:
English
Document type:
News
ProQuest document ID:
2554825680
Document URL:
https://devry.idm.oclc.org/login?url=https://www.proquest.com/newspapers/unitedstates-sec-charges-spac-sponsor-merger/docview/2554825680/se2?accountid=44759
Copyright:
Copyright Thai News Service Group Jul 26, 2021
Last updated:
2022-10-17
Database:
ABI/INFORM Collection
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