Virgin Galactic Investors Can Continue Richard Branson Suit, Judge Rules

A New York federal judge ruled Richard Branson must face a shareholder suit alleging he concealed safety problems with Virgin Galactic Holdings Inc.’s space program.

Virgin Galactic made headlines in July 2021, when it launched Branson into space along with two pilots and three other passengers. (Bloomberg)

A New York federal judge ruled Richard Branson must face a shareholder suit alleging he concealed safety problems with Virgin Galactic Holdings Inc.'s space program and sold hundreds of millions of dollars of shares.

While most of the claims in the suit were dismissed, US District Judge Allyne Ross in Brooklyn said the shareholders can proceed in trying to prove Virgin Galactic and its founder, Branson, defrauded them into overpaying shares of the space tourism company. They now trade at 90% below their peak in February 2021.

Ross ruled shareholders could proceed with their claim that Virgin made false or misleading statements, including that test flights “had overcome a substantial number of the technical hurdles required to make the company a viable and profitable commercial service.”

The judge ruled this was a “materially misleading” statement because Virgin had grounded its Unity spacecraft to address safety issues. Ross said Virgin didn't disclose the problem in US Securities and Exchange Commission filings. The issues were disclosed by the Washington Post in a February 2021 article.

However, Ross ruled the plaintiffs “fail to address defendants' point that Virgin Galactic disclosed the risk that an accident could cause a material adverse effect on its business.” The judge added, “This is the exact risk plaintiffs contend was not disclosed to the market.”

Virgin Galactic made headlines in July 2021, when it launched Branson into space along with two pilots and three other passengers. The flight came nine days before the company's rival, Blue Origin, launched its billionaire founder, Jeff Bezos, to space with three fellow passengers.

In October 2021, Virgin Galactic announced in it would be delaying the start of commercial spaceflights to the fourth quarter of 2022, citing the need for further physical inspection of its hardware. The company has repeatedly pushed back the target for commercial operations since then, in part due to labor constraints and supply chain issues. It's now targeting the second quarter of 2023.

Jeff Michael, a spokesman for Virgin, declined to comment.