Securities and Exchange Commission v. Kokorich ( 2023 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
v. Civil Action No. 21-1869 (ACR)
MIKHAIL KOKORICH,
Defendant.
MEMORANDUM OPINION AND ORDER
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
1
Defendant has requested oral argument on the pending motion. Given the sufficiency of
the parties’ written submissions to resolve the pending motion, the Court denies this request. See
LCvR 7(f) (stating that allowance of oral hearing is “within the discretion of the Court”).
2
The reader interested in satellite technology may already know that applying Albert
Einstein’s theories of special and general relativity plays an important role in the Global
Positioning System (“GPS”). Perhaps less well known, but equally important to that technology,
are the scientific contributions of Dr. Gladys West, the second African-American woman hired
(in 1956) at the Naval Proving Ground in Virginia. Dr. West “programmed the computer that
calculated Earth’s geoid to sufficient precisions to enable the existence of GPS. [That was] no
small feat; to accomplish this, [she had] to account for variations in all the forces and effects that
can distort the shape of the Earth.” Ethan Siegel, “GPS Only Exists Because of Two People:
Albert Einstein and Gladys West,” Forbes (Feb. 18, 2021), available at
https://www.forbes.com/sites/startswithabang/2021/02/18/gps-only-exists-because-of-two-
people-albert-einstein-and-gladys-west/?sh=6901af125864. For this, and numerous other
accomplishments, Dr. West was inducted into the Air Force Space and Missile Pioneers Hall of
Fame in 2018. See id.
3
Stable Road is a publicly traded special-purpose acquisition company (“SPAC”). Dkt.
1 ¶ 1.
2
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
4
Defendant states that Momentus named the test flight “El Camino Real after a legendary
Spanish medieval road that took about 200 years to build, beginning in the early 1600s.” Dkt. 8-
1 at 6. More specifically, the Camino Real de Tierra Adentro “was the Royal Inland Road, also
known as the Silver Route” and consists of a 2,600-kilometer route “that extends north from
Mexico City to Texas and New Mexico.” It was used primarily as a trade route from the mid-
16th to the 19th centuries. See “Camino Real de Tierra Adentro,” Unesco World Heritage
Convention, available at https://whc.unesco.org/en/list/1351/.
3
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 de-orbit 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
5
In his reply brief, Defendant states that (1) “[t]hree days before the blog post was
published, [the Bureau of Industry and Security (“BIS”)] issued an export license for the test
flight to Astro Digital, the firm that provided the launch vehicle,” and (2) the FCC “issued a
permit the next month”—and the Court may take judicial notice of the BIS license and FCC
permit, even though they “are not mentioned in the Complaint,” because they are official U.S.
government documents. Dkt. at 14 & n.9. Even if the Court were to take judicial notice of these
documents, their contents would not defeat the sufficiency of the SEC’s claims.
6
Defendant argues that “[t]he Complaint also incorrectly reads the email as suggesting that
the proposal for a ‘failure review board’ covered the water propulsion MET system.” Dkt. 8-1 at
8. Because this interpretation is disputed, the Court does not address it on a motion to dismiss.
4
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.
7
A “burn” refers to operating the thruster and producing thrust for a period. See Dkt.
1 ¶ 22.
5
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
6
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,
8
A registration statement is a filing with the SEC making required disclosures in
connection with the registration of a security, a securities offering, or an investment company
under federal securities laws. Dkt. 1 ¶ 53.
9
The SEC also alleges that a June 2021 amended registration statement filed by Stable
Road and Momentus “corrected these false statements and misleading omissions by describing
the actual results of the El Camino Real mission.” Dkt. 1 ¶ 60. Defendant argues this allegation
should be stricken because it discusses “remedial efforts.” See Dkt. 8-1 at 21 n.14. The SEC
counters that Defendant did not take remedial measures and, in any event, evidence related to an
issuer’s corrective disclosures are admissible in securities fraud cases. See Dkt. 11 at 10 n.4. It
is not necessary to resolve this dispute presently, as the Court has not considered the allegation in
its analysis of this motion.
7
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 therefore an important issue. Defendant had been living in the
United States on a work visa. In or around June 2018, however, U.S. Customs and Immigration
Services (“USCIS”) revoked Defendant’s work visa and denied his application for permanent
resident status. Dkt. 1 ¶ 40. To stay in the United States, Defendant subsequently applied for
asylum. Id. ¶¶ 5, 40. The application was not well-received. In August 2019, USCIS informed
Defendant that it had not granted his asylum application but instead referred his case to an
immigration judge for adjudication in removal proceedings, citing “inconsistencies” in
Defendant’s application and testimony “with regard to his political affiliations and activities in
Russia.” Id. ¶ 41 (alterations omitted).
Later, and notwithstanding these adverse determinations, Defendant told Stable Road’s
CEO that he was confident his asylum application would be approved. Id. ¶ 66. In Momentus’s
contributions to Stable Road’s initial and amended S-4 registration statements, which Defendant
reviewed and approved, the company stated that it believed Defendant’s asylum application
would be granted. Id. ¶ 79. However, in neither situation did Defendant or Momentus disclose
8
that USCIS had earlier raised specific concerns with the application and refused to grant it. Id.
¶¶ 67–68, 79.
Momentus also began to feel the effects of Defendant’s status as a national security
concern. In 2017, Momentus applied for an export control license for Defendant, which would
have allowed him to access export-controlled technology. Id. ¶ 35. It fared even worse than the
asylum application. In March 2018, the BIS, a bureau of the Department of Commerce, after
consulting with the Departments of Defense and State, rejected this application outright. Id.
¶¶ 34–35. The BIS found that Defendant was not an “acceptable recipient” of the technology
“for national security reasons.” Id. ¶ 35. 10 Momentus applied again for an export control license
for Defendant in February 2020. Id. ¶ 69. In April 2020, Momentus learned its application had
been placed on hold by the BIS reviewer. Id. On October 23, 2020, before the filing of the
initial S-4 registration statement, Momentus learned that the BIS’s Operating Committee had
decided to deny the license, with the possibility of internal appeal. Id. ¶¶ 66, 69. Then, on
November 9, 2020, before the filing of the amended S-4 registration statement, the BIS formally
notified Momentus by letter of its intent to deny the license without internal appeal. Id. ¶ 70.
Defendant did not share the extent of these national security issues during his merger
communications with Stable Road. Id. ¶ 68. And, despite these determinations, in the “Risk
Factors” subsection of Momentus’s contributions to the initial and amended S-4 registration
10
Separately, in June 2018, Committee on Foreign Investment in the United States
(“CFIUS”) representatives told Defendant’s attorneys that his full divestiture from a different
space technology company was necessary to mitigate national security concerns. See Dkt. 1
¶¶ 36–39.
9
statements, which Defendant reviewed and approved, the company disclosed that Defendant had
not “yet” obtained an export control license. Id. ¶ 80. The statement did not disclose that the
BIS had denied Defendant’s first application in 2018 because of national security issues; that at
the time of the initial S-4 statement, the BIS had placed the 2020 application on hold; or that at
the time of the amended S-4 statement, the BIS had formally communicated its intent to deny the
2020 application for national security reasons. Id.
By letter dated January 21, 2021, the Department of Defense informed Momentus that it
posed a risk to national security due to Defendant’s ownership and control of the company. Id.
¶ 73. Four days later, Defendant stepped down as the company’s CEO and placed his shares of
its stock into a voting trust. Id. Later that year, Momentus and Defendant entered into a
National Security Agreement with CFIUS by which, among other actions to be taken by
Momentus, Defendant agreed to fully divest from the company. Id. ¶ 77.
LEGAL STANDARD
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the
“complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that
is plausible on its face.” Wood v. Moss, 572 U.S. 744, 757–58 (2014) (quoting Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009)). A claim is facially plausible when the plaintiff pleads factual content
that is more than “‘merely consistent with’ a defendant’s liability,” and “allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S.
at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007)); see also Rudder v.
Williams, 666 F.3d 790, 794 (D.C. Cir. 2012).
10
“Under Federal Rule of Civil Procedure 9(b), which applies in cases of fraud, a plaintiff
‘must state with particularity the circumstances constituting fraud,’ though scienter may still be
pled generally.’” U.S. Sec. & Exch. Comm’n v. e-Smart Techs., Inc., 31 F. Supp. 3d 69, 82
(D.D.C. 2014) (quoting Fed. R. Civ. P. 9(b)); see also Sec. & Exch. Comm’n v. RPM Int’l, Inc.,
282 F. Supp. 3d 1, 12–13 (D.D.C. 2017). This heightened pleading standard is designed to
“discourage the initiation of suits brought solely for their nuisance value, and safeguard[]
potential defendants from frivolous accusations of moral turpitude,” as well as “guarantee all
defendants sufficient information to allow for preparation of a response.” United States ex rel.
Williams v. Martin-Baker Aircraft Co., 389 F.3d 1251, 1256 (D.C. Cir. 2004) (cleaned up). “In
addition, because fraud encompasses a wide variety of activities, the complaint must be
particular enough to guarantee all defendants sufficient information to allow for preparation of a
response.” U.S. ex rel. Heath v. AT&T, Inc., 791 F.3d 112, 123 (D.C. Cir. 2015) (cleaned up).
In considering a motion to dismiss for failure to plead a claim on which relief can be
granted, the court must consider the complaint in its entirety, accepting all factual allegations in
the complaint as true, “even if doubtful in fact.” Twombly, 550 U.S. at 555; see also Harris v.
D.C. Water & Sewer Auth., 791 F.3d 65, 68 (D.C. Cir. 2015). Courts may “ordinarily examine”
other sources “when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents
incorporated into the complaint by reference, and matters of which a court may take judicial
notice.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007).
11
DISCUSSION
I. Securities Fraud (Counts I and II)
The SEC claims that Defendant committed primary violations of Section 10(b) of the
Exchange Act, codified at 15 U.S.C. § 78j(b); and Section 17(a) of the Securities Act, codified at
15 U.S.C. § 77q(a). See Dkt. 1 ¶¶ 87, 91. His alleged violations involve participating in the
creation or delivery of false or misleading statements in merger discussions with Stable Road’s
CEO; presentations to PIPE investors, institutional investors, and analysts; a Form 8-K publicly
filed with the SEC; an interview with the industry media outlet Space News; and initial and
amended S-4 registration statements publicly filed with the SEC. See, e.g., id. ¶¶ 31–32, 52, 85,
89. These statements related to Momentus’s El Camino Real mission and to Defendant’s
immigration and national security issues. Id. ¶¶ 85, 89. In his motion to dismiss, Defendant
argues that his statements were true and that they were not false by omission because he had no
duty to provide further information. See Dkt. 8-1 at 1.
Section 10(b) of the Exchange Act prohibits securities fraud:
It shall be unlawful for any person, directly or indirectly, by the use of
any means or instrumentality of interstate commerce or of the mails, or
of any facility of any national securities exchange . . . [t]o use or
employ, in connection with the purchase or sale of any security
registered on a national securities exchange or any security not so
registered, or any securities-based swap agreement[,] any manipulative
or deceptive device or contrivance in contravention of such rules and
regulations as the Commission may prescribe as necessary or
appropriate in the public interest or for the protection of investors.
15 U.S.C. § 78j(b). The primary rule that the SEC has prescribed to implement Section 10(b) is
Rule 10b-5:
12
It shall be unlawful for any person, directly or indirectly, by the use of
any means or instrumentality of interstate commerce, or of the mails or
of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to
state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they were
made, not misleading, or
(c) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.
17 C.F.R. § 240.10b-5. As many courts have noted, “Rule 10b-5 encompasses only conduct
already prohibited by § 10(b).” SEC v. Familant, 910 F. Supp. 2d 83, 91 (D.D.C. 2012) (quoting
Stoneridge Inv. Partners v. Scientific–Atlanta, Inc., 552 U.S. 148, 157 (2008)).
Section 17(a) of the Securities Act also prohibits securities fraud:
It shall be unlawful for any person in the offer or sale of any securities
(including security-based swaps) or any security-based swap agreement
. . . by the use of any means or instruments of transportation or
communication in interstate commerce or by use of the mails, directly or
indirectly[:] (1) to employ any device, scheme, or artifice to defraud[;] or
(2) to obtain money or property by means of any untrue statement of a
material fact or any omission to state a material fact necessary in order to
make the statements made, in light of the circumstances under which they
were made, not misleading; or (3) to engage in any transaction, practice,
or course of business which operates or would operate as a fraud or deceit
upon the purchaser.
15 U.S.C. § 77q(a).
“Sections 17(a)(1) and 10(b) and Rule 10b–5 essentially have the same elements.” SEC
v. Milan Grp., Inc., 962 F. Supp. 2d 182, 191 (D.D.C. 2013), aff’d in part, vacated in part on
other grounds, 595 F. App’x 2 (D.C. Cir. 2015); see also SEC v. Monarch Funding Corp., 192
F.3d 295, 308 (2d Cir. 1999). The SEC must show that a defendant “‘(1) made a material
13
misrepresentation or a material omission as to which he had a duty to speak, or used a fraudulent
device; (2) with scienter; (3) in connection with the purchase or sale of securities.’” SEC v.
Familant, 910 F. Supp. 2d 83, 92 (D.D.C. 2012) (quoting Monarch Funding Corp., 192 F.3d 295at 308). 11 “Sections 17(a)(2) and (a)(3) require [the] SEC to show essentially the same elements,
with one exception: they do not require a showing of scienter.” Milan Grp., 962 F. Supp. 2d at
191. “Instead, proof of negligence is sufficient to establish a violation of these provisions.” Id.(cleaned up and quotations omitted).
A. Material Misrepresentations or Omissions
“An actionable misstatement or omission . . . must be both false or misleading and
material.” Plymouth Cnty. Ret. Ass’n v. Advisory Bd. Co., 370 F. Supp. 3d 60, 75–76 (D.D.C.
2019) (emphasis omitted). “A statement or omission is misleading if a reasonable investor,
reading the statement fairly and in context, would be misled.” Id. at 76. “In addition, the
statement or omission must have been misleading at the time it was made; liability cannot be
imposed on the basis of subsequent events.” Id. (quotations omitted).
“An omitted fact is material if there is a substantial likelihood that a reasonable
shareholder would consider it important.” SEC v. Steadman, 967 F.2d 636, 643 (D.C. Cir. 1992)
(quoting TSC Indus. v. Northway, Inc., 426 U.S. 438, 449 (1976)) (alterations omitted). For an
11
Defendant does not challenge the second and third elements, other than a brief discussion
in his reply brief. See Dkt. 13 at 2–4. Although issues raised for the first time on reply are
typically deemed waived, see Novak v. Cap. Mgmt. & Dev. Corp., 570 F.3d 305, 316 n.5 (D.C.
Cir. 2009); Latson v. Holder, 82 F. Supp. 3d 377, 388 n.4 (D.D.C. 2015) (listing cases), the
Court addresses these elements for the sake of completeness.
14
omitted fact to be material, “there must be a substantial likelihood that the disclosure of the
omitted fact would have been viewed by the reasonable investor as having significantly altered
the ‘total mix’ of information made available.” Basic Inc. v. Levinson, 485 U.S. 224, 231–32
(1988) (quotations omitted). The court must look to “the context in which [the statement] was
made, according to the allegations in the complaint” to determine how a reasonable investor
would have “plausibly understood” it. In re Harman Int’l Indus., Inc. Sec. Litig., 791 F.3d 90,
109 (D.C. Cir. 2015). 12
“[S]tatements of reasons, opinions, or beliefs regarding material facts can be actionable,
even if these statements contain conclusory terms like ‘high,’ ‘value,’ and ‘fair’ because these
terms, when used in a commercial context, are reasonably understood to rest on a factual basis
that justifies them as accurate, the absence of which renders them misleading.” Howard v.
Liquidity Servs., Inc., 177 F. Supp. 3d 289, 304 (D.D.C. 2016) (quoting and citing In re Harman,
791 F.3d at 108–09) (cleaned up). In contrast, “statements that are too general to cause a
reasonable investor to rely upon them are immaterial and inactionable.” In re Harman, 791 F.3d
at 109 (cleaned up and quotations omitted).
12
Although In re Harman did not involve an action brought by the SEC, the court’s
discussion of the materiality standard there, as in other private litigation cases, applies to this
SEC enforcement action. See U.S. Sec. & Exch. Comm’n v. Nielson, 2020 WL 9439395, at *15
(D.D.C. Feb. 13, 2020), report and recommendation adopted, 2020 WL 9439363 (D.D.C. July
30, 2020) (citing In re Harman for materiality standard); see also RPM Int’l, Inc., 282 F. Supp.
3d at 23 (citing cases brought by private plaintiffs for materiality standard in SEC enforcement
action).
15
After carefully reviewing Defendant’s statements, and viewing them together with the
information the SEC alleges that Defendant knew and did not disclose, “[i]t is impossible to say”
that they “are so palpably unimportant that they are immaterial as a matter of law; whether, in the
end, they are material is a question of fact not properly resolved on a motion to dismiss.” In re
Newbridge Networks Sec. Litig., 767 F. Supp. 275, 279 (D.D.C. 1991); see also In Re Stable Rd.
Acquisition Corp., 2022 WL 2762213, at *8 (C.D. Cal. July 13, 2022). 13
i. Momentus’s 2019 El Camino Real Mission
The SEC alleges that Defendant’s claims that Momentus “successfully tested” its MET
water propulsion thruster technology in the 2019 El Camino Real mission were false or
misleading because the mission’s results failed to meet Momentus’s internal goals and did not
align with Momentus’s public statements about the mission. See Dkt. 1 ¶¶ 51–52, 55, 57, 59, 62.
The Court cannot conclude as a matter of law that these statements and omissions were
immaterial. 14
13
In a related class action, a district court denied in part a motion to dismiss a complaint
that included similar allegations related to Momentus’s technology and Defendant’s national
security issues. See In Re Stable Rd., 2022 WL 2762213, at *4–6, *8–11. To the extent those
allegations overlap with the SEC’s allegations here, the Court finds the reasoning of In Re Stable
Road persuasive. Specifically, for the reasons explained below, although the Court “has not
discussed every alleged statement or omission in detail, the Court is unable to conclude as a
matter of law at the pleading stage that any of the alleged statements or omissions were not
material or misleading.” Id. at 9 n.13.
14
Throughout the Complaint, the SEC refers to alleged “misrepresentations of material fact
and misleading omissions.” See Dkt. 1 at 13, 17 (capitalization altered). The Court construes the
allegations and Defendant’s argument as the parties do—either misrepresentations and/or
misrepresentations by omission.
16
Defendant contends that his “statements regarding the successful firing of the new MET
propulsion system are, in and of themselves, correct – it fired in space for the first time.” Dkt. 8
at 16 (emphasis added); see also id. at 7 (citing Dkt. 1 ¶ 22). It may well have fired in space for
the first time. 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. The question is
not what the mission accomplished initially, it is whether the Defendant’s public statements and
omissions materially misrepresented the ultimate outcome. Here, the Complaint alleges that the
system firing in space for the first time failed to meet both the public and internal goals that
Momentus set for the mission. See Dkt. 1 ¶¶ 26–30. In other words, the mission was not
successful. Yet, Defendant stated publicly, more than once, that the mission had been a success.
See, e.g., id. ¶¶ 31–32.
Defendant’s argument that he had no duty to provide more information about the
mission’s success, see Dkt. 8-1 at 16, is also unavailing. Rule 10b-5 and Section 17(a) both
establish that a defendant has a duty to speak if he made statements that, without more
information, would be misleading to investors, because both forbid the omission “to state a
material fact necessary in order to make the statements made, in light of the circumstances under
which they were made, not misleading . . . .” 170 C.F.R. § 240.10b-5(b); 15 U.S.C. § 77q(a)(2).
Here, Defendant spoke. And when he spoke, he had a duty to speak further under Rule
10b-5 and Section 17(a) because his statements, “in the light of the circumstances under which
they were made,” made the disclosure of “a material fact necessary in order to make the
17
statements made . . . not misleading.” 170 C.F.R. § 240.10b-5(b); 15 U.S.C. § 77q(a)(2). 15
Thus, even crediting Defendant’s argument that he correctly identified one successful aspect of
the mission, he failed to provide necessary context for a reasonable investor to understand the
limited nature of that success.
The Court further rejects Defendant’s argument that the Complaint does not cite a
consistent “metric[] . . . designed as a kind of scorecard for the test flight.” Dkt. 8-1 at 9. A
statement does not need to “contain its own metric” to be actionable. In re Harman, 791 F.3d at
110. That said, here the Complaint cited two different scorecards—Defendant’s publicly-stated
“commercial viability” metric and the company’s own internal criterion. Dkt. 1 at ¶¶ 23, 29.
Momentus met neither. 16
15
Defendant’s citations to Chiarella v. United States, 445 U.S. 222, 228 (1980), and to
Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 152–53 (1972), for the proposition
that “[o]ne must possess an affirmative duty to disclose omitted facts,” see Dkt. 8-1 at 13–14, are
inapposite. Those cases did not involve affirmative statements made without sufficient context,
but silence and allegedly deceptive conduct. See Chiarella, 445 U.S. at 226 (explaining that the
“case concerns the legal effect of the [defendant’s] silence”); Affiliated Ute Citizens, 406 U.S. at
153 (explaining that the case “involve[es] primarily a failure to disclose”).
16
Defendant also argues that two of his statements should receive protection under the
bespeaks-caution doctrine, see Dkt. 15 at 2, but that doctrine—which “applies only to statements
that are forward-looking,” e-Smart Techs., Inc., 31 F. Supp. 3d at 84 (quotations omitted)—is
inapposite. Even if the doctrine applies to SEC enforcement actions, a question the Court need
not address here, the two statements about Momentus cited by Defendant are not forward-
looking. One statement—that “the El Camino Real mission had been a success,”—refers to a
past event. Dkt. 1 ¶ 48 (emphasis added). The other statement cited by Defendant—that
“[w]ater plasma propulsion is now technologically mature enough to be baselined for operational
in-space transportation missions”—refers to the present. Id. ¶ 31 (emphasis added).
18
ii. Defendant’s Immigration and National Security Issues
The SEC alleges that Defendant’s claims that he had not “yet” obtained an export control
license 17 and that he believed his asylum application would be granted could plausibly be false
or misleading because he did not disclose information about his immigration and national
security issues that significantly undermined those beliefs. Id. ¶¶ 79–80.
In response, Defendant argues primarily that “the January 13, 2021 DoD letter was a
game changer,” Dkt. 8-1 at 2, because until then, he was not aware of the government’s national
security concerns. This argument does not comport with the Complaint’s alleged timeline,
which the Court must construe as true at this time. The game was already well afoot by January
13, 2021, with numerous notifications to Defendant of the government’s national security
concerns. In March 2018, when BIS denied the application for an export control license, it cited
“national security reasons” in the rejection notice sent to Momentus. Dkt. 1 ¶ 35. In June 2018,
CFIUS informed Defendant’s counsel “that a full divestiture of Kokorich’s participation in [a
different] space technology company was necessary to mitigate the national security concerns.”
Id. ¶ 37; see id. at ¶ 36. Defendant’s attorneys responded in a letter two days later, copying
Defendant, and stated “they understood that CFIUS had deemed [him] a national security risk.”
Id. ¶ 38; see also id. at ¶ 39. Further, drawing reasonable inferences in favor of the SEC,
USCIS’s communications with Defendant in June 2018 (revoking his work visa and denying his
17
An export control license would let Defendant access Momentus’s export-controlled
technology. Dkt. 1 ¶ 35. If Momentus or its launch partners could not obtain the necessary
licenses, Momentus may have been unable to execute its business plan, conduct additional test
missions, or ultimately offer commercial satellite placement services. Id. ¶ 64.
19
application for permanent resident status) and August 2019 (not granting his asylum application
and referring his case to an immigration judge), id. ¶¶ 40–41, provided him with additional
notice of his national security risk. 18 Therefore, the Court cannot accept Defendant’s argument
that January 13, 2021, was somehow a watershed moment that drastically changed his
understanding of the government’s assessment of his security risk.
Defendant’s more specific contentions fare no better. Momentus’s public statements that
Defendant had not “yet” obtained an export control license implied to investors that there was
reason to believe Defendant could obtain an export control license in the future. The denial of
his 2017 application and impending denial of his 2020 application undermine any rationale for
such optimism, as do his failure to receive asylum from USCIS and forced divestiture from a
prior space technology company. See id. ¶¶ 35, 37–38, 41, 69–70. Yet, Defendant did not
disclose any of these developments. Again, the Court cannot conclude as a matter of law that a
reasonable investor would have considered these adverse determinations to be immaterial.
Momentus’s statements that it was “highly dependent” on Defendant, id. ¶ 66, provide
further support for the Court’s conclusion. A reasonable investor perhaps may not consider the
immigration status or national security standing of every company employee to be material. But
it is a plausible allegation that a reasonable investor would consider those issues to be material
concerning the company’s co-founder and CEO, particularly in light of Momentus highlighting
18
This inference is reasonable, in part, because on or around the same date Defendant was
referred to removal proceedings, “multiple government agencies, including the FBI, the U.S.
Department of Homeland Security, and the BIS’s Office of Export Enforcement, arrived
unannounced at Momentus’s headquarters” to question employees “about possible export control
violations by Kokorich as well as improper technology transfers.” Dkt. 1 ¶ 42.
20
his importance. Because Defendant reviewed and approved the pertinent statements, 19 the SEC
states a plausible claim that he is liable for these misrepresentations or misleading omissions of
material fact.
As to the asylum claim, Defendant counters that USCIS’s decision to not grant him
asylum was immaterial because an immigration judge would be legally obligated to make a de
novo determination. See Dkt. 8-1 at 20. 20 This argument is not persuasive. While the
immigration judge would make a de novo determination, the underlying facts would remain
largely, if not entirely, the same. Based on its review of the evidence, USCIS had revoked
Defendant’s work visa, denied his application for permanent resident status, and declined to
grant him asylum. Dkt. 1 ¶¶ 5, 40–41. And numerous federal agencies had raised national
security concerns about Defendant. Id. ¶ 79. Defendant provides no basis to conclude that an
immigration judge would have access to different evidence or would review the available
evidence any differently than had USCIS and numerous other federal agencies regarding
19
Defendant highlights that the S-4 filings were reviewed by, among others, “a cadre of
attorneys.” Dkt. 8-1 at 9. He provides no support for this assertion. In any event, the Court
cannot consider that alleged fact—which is found nowhere in the Complaint—at this time.
20
Defendant argues that his statements regarding his asylum application “look to the
future” and “should at least be given deference under the bespeaks-caution doctrine.” Dkt. 15 at
3. Even if the doctrine applied here, Defendant does not argue that he used cautionary language
to limit the scope of his asylum statements.
21
Defendant’s national security status. The Court cannot conclude as a matter of law that a
reasonable investor would have considered these adverse determinations to be immaterial. 21
Therefore, as with his statements about the El Camino Real mission’s test results,
Defendant’s statements through himself and Momentus about his ability to obtain an export
control license and asylum application may have been misrepresentative of a material fact or
misleading by omission of a material fact to reasonable investors. Under these circumstances,
the Complaint plausibly alleges that Defendant directly misrepresented a material fact or
possessed and breached a duty to disclose a material fact in order to make his statements not
misleading.
B. Scienter
To prove scienter, the SEC must show that Defendant acted with “intent to deceive,
manipulate, or defraud.” Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 (1976). “Extreme
recklessness can satisfy this scienter requirement.” Dolphin & Bradbury, Inc. v. SEC, 512 F.3d
634, 639 (D.C. Cir. 2008) (cleaned up). Extreme recklessness goes beyond “a should have
known standard” and involves conduct that “presents a danger of misleading buyers or sellers
21
Reasonable investors can perhaps be expected to appreciate that litigation outcomes are
subject to inherent uncertainty. The Court will allow the SEC to take discovery on the asylum
allegation because of the sufficiency of the SEC’s allegations that Defendant did not tell the
complete story on his asylum application. See In re CBL & Assocs. Properties, Inc. Sec. Litig.,
2022 WL 1405415, at *6–7 (E.D. Tenn. May 3, 2022), opinion clarified on other grounds, 2022
WL 1714484 (E.D. Tenn. May 25, 2022) (holding that plaintiffs pleaded materiality of
company’s statements about litigation because despite the uncertainties of litigation they
“allege[d] facts demonstrating that [the company] chose to speak about the . . . litigation but did
not do so truthfully”).
22
that is either known to the defendant or is so obvious that the actor must have been aware of it.”
Id. (cleaned up). For purposes of pleading, the SEC may show scienter by alleging “facts to
show that defendants had both motive and opportunity to commit fraud or . . . facts that
constitute strong circumstantial evidence of conscious misbehavior or recklessness.” Stevens v.
InPhonic, 662 F. Supp. 2d 105, 115 (D.D.C. 2009) (cleaned up).
The SEC has pled such facts. The alleged motive is predictable. 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. See Dkt. 1
¶¶ 21–22, 47. The opportunity was plentiful. Defendant made statements about the mission’s
results to Stable Road’s CEO, PIPE investors, institutional investors, analysts, industry press,
and the public. See, e.g., id. ¶¶ 85, 89. Moreover, Defendant’s omission of the mission’s
unencouraging results when discussing its apparent success, id. ¶¶ 26–30, indicate that
Defendant acted consciously or recklessly to mislead investors with respect to the results of the
El Camino Real mission.
The same holds true for the statements concerning the export control license and
Defendant’s asylum application. Obtaining an export control license would let Defendant access
certain Momentus technologies that were otherwise restricted for national security purposes, and
Defendant obtaining asylum would have allowed him to remain and work in the United States.
Id. ¶¶ 5, 35. The motive, again, was financial. Immigration-status and national security
clearances would have aided the success of Momentus, which in turn would result in a lucrative
financial gain for Defendant. Id. ¶¶ 21–22, 47. The opportunity was the same. As the CEO of
23
Momentus, Defendant was able to speak to Stable Road’s CEO about his asylum application
during merger negotiations and he helped draft, reviewed, and approved Momentus’s
contributions to the initial and amended S-4 registration statements. Id. ¶¶ 54, 66. Allegations
of further circumstantial evidence of conscious misbehavior or recklessness include Defendant’s
discussion of the potential success of his asylum application and the necessary clearances, while
omitting the substantial problems he knew about each issue.
C. In Connection with the Purchase or Sale of Securities
The SEC must also support the allegation that the misrepresentations and omissions were
made “in connection with” the purchase or sale of securities. “The Supreme Court has held that
the ‘in connection with’ element is a broad and flexible standard and that any activity ‘touching
the sale of securities’ will suffice.” SEC v. Levine, 671 F. Supp. 2d 14, 31 (D.D.C. 2009)
(quoting Superintendent of Ins. v. Bankers Life & Cas. Co., 404 U.S. 6, 12–13 (1971)) (cleaned
up). “It has been held that this requirement is satisfied whenever it may reasonably be expected
that a publicly disseminated document will cause reasonable investors to buy or sell securities in
reliance thereon . . . .” SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1171 (D.C. Cir. 1978); see also
e-Smart Techs., Inc., 31 F. Supp. 3d at 82.
Defendant’s alleged misrepresentations were made in public SEC and FCC filings, Dkt. 1
¶¶ 53–54; slides and statements from presentations to PIPE investors, institutional investors, and
analysts, id. ¶¶ 51–52; communications to industry media, id. ¶ 31; and communications to
Stable Road’s CEO that were allegedly incorporated into Stable Road’s negotiations with
Momentus and communications to investors, id. ¶ 50. These are all sources of information on
24
which investors may reasonably be expected to rely, particularly the claims that made their way
into public filings and into investor and analyst presentations. Therefore, the Complaint alleges
sufficient facts to establish this element.
In sum, the Complaint alleges sufficient factual matter against Defendant to establish all
elements of securities fraud under Section 10(b) of the Exchange Act and Section 17(a) of the
Securities Act. Therefore, the Complaint alleges sufficient factual matter to state a claim to
relief that is plausible on its face, with respect to Counts I and II.
II. Aiding and Abetting Securities Fraud (Counts III and IV)
The SEC also alleges that Defendant participated in creating, editing, and approving
investor presentations and publicly filed registration statements in which Momentus knowingly
or recklessly made material misrepresentations, in violation of Section 20(e) of the Exchange
Act, codified at 15 U.S.C. § 78t(e), and Section 15(b) of the Securities Act, codified at 15 U.S.C.
§ 77o(b). See Dkt. 1 ¶¶ 95, 99. These two provisions are “substantially identical.” Milan Grp.,
962 F. Supp. 2d at 192. Both state that “‘any person that knowingly or recklessly provides
substantial assistance to another person . . . shall be deemed to be in violation . . . to the same
extent as the person to whom such assistance is provided.’” Id. (quoting 15 U.S.C. § 78t(e) and
15 U.S.C. § 77o(b)).
“[T]hree principal elements are required to establish liability for aiding and abetting a
violation of [S]ection 10(b) and Rule 10b-5: (1) that a principal committed a primary violation;
(2) that the aider and abettor provided substantial assistance to the primary violator; and (3) that
the aider and abettor had the necessary ‘scienter’—i.e., that [he] rendered such assistance
25
knowingly or recklessly.” Graham v. SEC, 222 F.3d 994, 1000 (D.C. Cir. 2000) (surveying law
of other circuits); see also SEC v. May, 648 F. Supp. 2d 70, 78 (D.D.C. 2009). “A secondary
violator may act recklessly, and thus aid and abet an offense, even if he is unaware that he is
assisting illegal conduct.” Howard v. SEC, 376 F.3d 1136, 1143 (D.C. Cir. 2004). Scienter
“may be found if the alleged aider and abettor encountered ‘red flags,’ or ‘suspicious events
creating reasons for doubt’ that should have alerted him to the improper conduct of the primary
violator.” Id. (quoting Graham, 222 F.3d at 1006); see also Milan Grp., Inc., 962 F. Supp. 2d at
192. Because of the close similarity between Section 10(b) and Section 17(a) and their
respective aiding and abetting provisions noted above, see Milan Grp., Inc., 962 F. Supp. 2d at191–92, the Court conducts the same analysis of the three elements.
The Court holds that the Complaint alleges facts that plausibly satisfy all three elements.
First, Momentus plausibly committed a primary violation because it drafted portions of Stable
Road’s registration statements that were misleading to investors. These include: (1) Momentus
has “successfully tested [its] water plasma propulsion technology in space,” see Dkt. 1 ¶ 55; (2)
Defendant had not “yet” obtained an export control license, id. ¶ 80; and (3) Momentus believed
Defendant’s asylum application would be granted, id. ¶ 79. As discussed above, these claims are
plausibly misrepresentative of a material fact or misleading by omission of a material fact under
Section 10(b) of the Exchange Act, Rule 10b-5 thereunder, and Section 17(a) of the Securities
Act. Momentus was the “maker” of these misrepresentations in the registration statements
because “attribution within a statement or implicit from surrounding circumstances is strong
26
evidence that a statement was made by—and only by—the party to whom it is attributed.” Janus
Cap. Grp., Inc. v. First Derivative Traders, 564 U.S. 135, 142–43 (2011).
Second, Defendant provided substantial assistance to Momentus. He helped draft, edit
and review, and ultimately approved these statements prepared by Momentus for Stable Road’s
registration statements. See Dkt. 1 ¶ 54–55. That conduct constitutes substantial assistance. See
SEC v. Brown, 740 F. Supp. 2d 148, 168 (D.D.C. 2010) (allegations that CFO prepared,
reviewed, and approved proxy statements were adequate to allege substantial assistance of
company’s primary violation based on misstatements therein).
Third, as discussed above, Defendant possessed the necessary scienter because he had
both motive and opportunity to assist in Momentus’s alleged fraud, and there is strong
circumstantial evidence of his conscious misbehavior or recklessness.
As a result, the Complaint alleges sufficient factual matter to state a claim to relief that is
plausible on its face, with respect to Counts III and IV.
CONCLUSION
For the foregoing reasons, it is ORDERED that Defendant’s Motion to Dismiss the
Complaint, Dkt. 8, is DENIED.
_____________________________
ANA C. REYES
United States District Judge
Date: March 23, 2023
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