Sec. & Exch. Comm'n v. Kokorich

663 F.Supp.3d 63

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Mikhail KOKORICH, Defendant.

Civil Action No. 21-1869 (ACR)

United States District Court, District of Columbia

Signed March 23, 2023

Melissa Jane Armstrong, Michelle A. Zamarin, Fernando Campoamor-Sanchez, Securities and Exchange Commission, Enforcement Division, Washington, DC, for Plaintiff.

Thomas O. Gorman, Erica F. Andrews, Dorsey & Whitney, LLP, Washington, DC, for Defendant.

MEMORANDUM OPINION AND ORDER

ANA C. REYES, United States District Judge

Plaintiff Securities and Exchange Commission ("SEC") brings this action against Defendant Mikhail Kokorich under the Securities Act of 1933, 15 U.S.C. § 77a et seq. ("Securities Act"), and the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. ("Exchange Act"). It concerns an alleged fraud committed by Defendant, a Russian citizen and the co-founder and former Chief Executive Officer of a privately-owned space industry startup, Momentus, Inc. ("Momentus"). See Dkt. 1 ¶¶ 1-2. The SEC alleges in its Complaint that Defendant made misrepresentations, false statements, and material omissions regarding: (1) the success, or, rather, lack thereof, of Momentus's single in-space test of its key technology; and (2) several adverse national security determinations against Defendant, which impaired Momentus's ability to participate in U.S.-based rocket launches. Defendant has moved to dismiss, contending primarily that each challenged statement was true and that it was not false by omission because he had no duty to disclose additional information. See Dkt. 8-1 at 1.¹

For the reasons set forth below, the Court denies the motion to dismiss.

BACKGROUND

Founded in 2017, Momentus is a space infrastructure company that hopes to provide, among other things, satellite-positioning services. See Dkt. 1 ¶ 16.² The SEC alleges that Defendant committed fraud to secure and promote a merger agreement between Momentus and Stable Road Acquisition Corp. ("Stable Road"),³ which, if successful, would effectively have taken Momentus public and infused it with nearly $350 million in investor funds. See id. ¶ 1. Defendant stood to benefit from Momentus's success, even more so if Momentus merged with Stable Road. Id. ¶¶ 21, 47. For its part, Momentus acknowledged publicly that it was "highly dependent" on Defendant, who was a driver to the company's success. Id. ¶ 66.

I. Momentus's Water Plasma Technology

During times relevant to this action, Momentus touted its "cornerstone" technology: a propulsion system using microwave electro-thermal ("MET") water plasma thrusters. Id. ¶ 18. Large commercial satellite launch providers offer launch services to satellite owners, but with a significant limitation. Id. They can drop off the satellites only in a limited range of orbits. Id. Momentus hoped to provide a more robust delivery system, one which would put the satellite into a custom orbit. Id. Its public business plans and revenue projections were premised on starting U.S.-based launches using MET thruster technology in December 2020. Id. ¶ 8. The catch, however, was that no such technology had ever been used in space commercially. Id. ¶ 20. Indeed, by early 2019, Momentus lacked any in-space flight experience with the MET thruster. Id. ¶ 21.

Momentus planned a mission for 2019, code-named "El Camino Real,"⁴ to test its MET water propulsion thruster technology in space, help market the company, and attract investors. Id. ¶¶ 21-22. In a public filing dated September 12, 2018, Momentus told the Federal Communications Commission ("FCC") that the El Camino Real mission would be "a commercial demonstration" of Momentus's propulsion system that would show its "reliability, longevity, performance, and utility." Id. ¶ 24. In a January 2019 blog post on its website, Momentus stated that the mission would give investors "absolute confidence" that its service would be "on time, safe and reliable." Id. ¶ 23.⁵ The blog post added that Momentus would "be able to run the thruster long enough to fully characterize its performance in space with dozens of stop start cycles and to then safely deorbit the vehicle." Id. (alterations omitted).

By this criterion, the El Camino Real mission was unsuccessful. Defendant was copied on emails in November 2019 between Momentus's Chief Technology Officer and its Chief Engineer discussing creation of a "failure review board" to study the El Camino Real mission, due to the company's inability to obtain useful data from the mission. Id. ¶ 30.⁶ In addition, a Momentus engineer observed in a document sent to Defendant in February 2020 that Momentus did not obtain "any useful mission results" from the launch. Id. And according to a former Momentus officer, the mission yielded "no data to suggest that that thruster would deliver an impulse of any commercial significance." Id. ¶ 29. Worse still, Momentus acknowledged internally that the mission could not have established the thruster's commercial viability, even if it had met the internal criterion for success. Id. ¶ 25. That was so because the thruster was "too small, too inefficient, too low in specific impulse, too low in total impulse." Id. ¶ 25 (alterations omitted).

The mission also did not meet internal criterion for success. In an internal presentation, Momentus defined "mission success" as including "100 individual burns of 1 minute of more." Id. ¶ 22.⁷ Yet, Momentus attempted only 23 firings and only three hot firings produced plasma. Id. ¶ 26. No firing lasted a full minute or generated measurable thrust. Id. Momentus lost contact with the satellite approximately three months into the planned six-month mission. Id. It was therefore never able to attempt the remaining 77 firings it had planned, much less achieve any of the "100 individual burns of 1 minute or more." Id.

Even though Defendant knew that the El Camino Real mission did not demonstrate commercial viability or meet internal criterion for success, he told the industry periodical Space News the opposite. The outlet's September 25, 2019, article, titled "Momentus reports success in testing water plasma propulsion," quoted Defendant as stating, "Water plasma propulsion is now technologically mature enough to be baselined for operational in-space transportation missions." Id. ¶ 31. In other words, it could be used commercially. Id. Defendant also repeated the claim from Momentus's January 2019 blog post that "the purpose of the El Camino Real mission was to flight demonstrate our core propulsion technology so customers, investors and stakeholders can have absolute confidence that Momentus will deliver their payloads to a given orbit." Id.

II. Momentus's Need to Raise Funds

By late 2019, Momentus was facing financial difficulties. It had no revenue and needed additional capital to fund its growth. Id. ¶ 44. In mid-2020, the company therefore engaged an investment bank to help it find a suitable SPAC candidate for a merger. Id. Two SPACs declined to move forward, but Stable Road was interested. Id. ¶ 45.

In June 2020—after the El Camino Real mission had concluded—Defendant and the CEO of Stable Road began to discuss a possible merger. Id. ¶ 46. Over the next several months, Defendant participated in merger negotiations with Stable Road and made presentations to Private Investment in Public Equity ("PIPE") investors, who committed to purchase shares of the post-merger company if shareholders approved the transaction. Id. ¶¶ 6-7, 46, 51. Momentus and Stable Road announced their merger on October 7, 2020, subject to shareholder approval. Id. ¶ 7.

During merger discussions, Defendant told Stable Road's CEO that the El Camino Real mission had been a success and that it was a great achievement for Momentus to have fired the thruster and tested its propulsion technology in space. Id. ¶ 48. He did not, however, inform the CEO of any of the failures or problems with the mission. Id. ¶ 49. In presentations to PIPE investors, institutional investors, and analysts, Defendant continued to assert that the testing had been successful. Id. ¶ 51-52. A portion of the slides prepared by Defendant and Momentus, presented to investors and analysts, and publicly filed with the SEC on a Form 8-K, claimed that Momentus "successfully tested water-based propulsion technology on a demo flight launched mid-2019 - [and it] is still operational today." Id. In scripted comments, Defendant publicly stated that Momentus had "successfully tested [its] groundbreaking thruster in space." Id. ¶ 52.

The claimed "success" of the El Camino Real mission continued in S-4 registration statements.⁸ Stable Road filed a S-4 registration statement regarding the merger in November 2020 and an amended one in December 2020. Id. ¶¶ 53-54. The S-4 registration statements each contained a subsection titled, "Information about Momentus," that Momentus drafted with Defendant's input, review, and approval. Id. ¶ 54-55. In this subsection of each registration statement, Momentus stated that it "successfully tested our water plasma propulsion technology in space." Id.⁹

III. Defendant's Immigration and National Security Issues

During this same period, Defendant became aware that various federal agencies determined that he posed a national security risk. This assessment created a heightened risk to Defendant's immigration status. It also put Momentus in a quandary. Momentus likely could not secure necessary licenses while Defendant remained at the helm; on the other hand, Momentus was "highly dependent on Mikhail Kokorich, its co-founder and chief executive officer. Mr. Kokorich invented the majority of Momentus's inventions and remain[ed] deeply involved in Momentus's business." Id. ¶ 66 (quoting Momentus's November 2020 and December 2020 S-4 registration statements). Defendant himself highlights that the November 2020 S-4 described him as "a talented physicist and businessman who became the driving force behind Momentus." Dkt. 8-1 at 4.

Defendant's status was...