LAS CRUCES – Virgin Galactic is facing a prospective class-action lawsuit by investors, alleging the company made false and misleading reports about its finances and accounting.
The federal complaint, filed in New York’s Eastern District, states that Virgin Galactic’s stock prices dipped by 9 percent after the company announced on April 30 that it would need to restate its financial results for the first quarter of 2021.
The aerospace company and anchor tenant for New Mexico’s Spaceport America said the restatement was due to guidance issued by the Securities and Exchange Commission on April 12 pertaining to special purpose acquisition, known as SPACs, including Virgin Galactic.
SPACs have also been called “blank check” companies: Entities with no commercial operations that are formed in order to raise capital through an initial public offering and acquire an existing company.
This was how, in October 2019, Virgin Galactic merged with Social Capital Hedosophia to launch Virgin Galactic Holdings as a public company.
Initial investors in SPACs purchase units, which may combine stock shares with warrants, described in the complaint as “instruments that allow investors to buy additional shares at a fixed price.”
The SEC announced that, in some circumstances, warrants should be accounted as liabilities instead of part of a company’s equity.
Days later, Virgin said it would restate its consolidated financial statements due to the accounting of outstanding warrants of Social Capital Hedosophia at the time of the merger. As of April 30, the company reported approximately 2.7 million warrants were outstanding.
For subscribers:After test flight, different views of Spaceport America’s future
Other companies have restated their finances following the new guidance, but this is the first litigation to arise from it.
Investor Shane Levin and other unnamed plaintiffs claim in their complaint that Virgin Galatic CEO Michael Colglazier, former CEO George Whitesides, CFO Doug Ahrens and former CFO Jon Campagna knowingly presented incorrect financial statements to inflate the company’s stock price and entice buyers.
The lawsuit is seeking class-action status and unspecified damages, in addition to legal fees.
The company has not yet filed a response to the complaint. The Sun-News reached out to Virgin Galactic for comment, but received no response.
The historically volatile stock entered a downward trend in the days after Virgin Galactic announced the restatement, hitting a low for 2021 of $15.50 a share on May 13.
Since then, the price has been on the increase, sloping upward sharply after the company’s May 22 successful test flight to space, closing last week at $31.38 per share.