Analysis SRAC

SEC announces aggressive enforcement action on a SPAC

, Bloomberg Law

In a recent aggressive and ground-breaking decision, the SEC announced enforcement actions against Stable Road Acquisition Company; its sponsor, the CEO of SRAC; the target company; and the target company’s former CEO. This represents the very first time that the SEC has sanctioned a SPAC, its sponsor, and the target company before a shareholder vote on the merger. All parties reached a settlement with the SEC with the exception of the target’s former CEO, who continues to litigate the matter.

The SPAC transaction at issue involved a proposed merger between SRAC and a space infrastructure company. According to the SEC and unbeknownst to SRAC, the proposed target allegedly misrepresented having “successfully tested” its propulsion system in space and omitted or made misstatements concerning the U.S. government’s national security concerns relating to its former CEO.

The SEC further stated that, although SRAC had engaged a space technology consulting firm to conduct due diligence, the firm allegedly failed to investigate claims regarding the testing of the propulsion system in space. The SEC contended that SRAC failed to independently investigate the national security concerns despite allegedly knowing that the government had required the same CEO to divest from a similar company.

SRAC agreed to pay a penalty of $1 million, it’s CEO a penalty of $40,000, and the target company a penalty of $7 million.

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