A shareholder filed a lawsuit accusing the Virgin Galactic founder Richard Branson and former chair board Chamath Palihapitiya of insider trading. The suit is possibly making investors nervous, as the stock is down by 8.9%. The suit not only alleges Branson and Palihapitiya but other several insiders. Stated that these people sold stock in space tourism despite knowing that some of the company’s ships has certain durability issues. It accuses because these details weren’t revealed publicly and the insiders took part in insider trading.
The durability issues were first disclosed in October 2021 which pushed back the company’s start to provide commercial services. It also impacted the company’s share price. Before the problem came to the limelight, Virgin Galactic’s stock was roughly $24 a share. Which fell by 17% after announcing the durability issues. On Monday, the shares closed at $9.42, which is about 60% down than in mid-October levels.
Branson currently holds about 31 million or 12% of the company shares through Virgin Investment Limited. It is down from the initial investment in 2021 for about 62 million shares. Meanwhile Palihapitiya hold more than 3.7 million shares in Virgin Galactic, and he was holding 10 million shares in the year 2020. He exited the position by the first quarter of 2021 and bought more stock in the third quarter of the same year.
While the data may indicate some suspicious activity, there are no details about whether there was insider trading. Palihapitiya was the head of a special purpose acquisition company, that merged with Virgin Galactic in 2019. This deal was crucial for the space company, as it became a publicly-traded company.
The lawsuit
The investor lawsuit was filed on February 21 by the Virgin Galactic Shareholder Thomas Spiteri. Through the lawsuit, Spiteri seeks damages from the company’s directors and others in the management. The derivative action alleges that Palihapitiya took advantage of his role and sold 10 million shares, worth $315 million based on insider information. Meanwhile, it alleges that Branson sold 16 million shares worth $458 million based on the same reason as to why Palihapitiya sold.
The investor lawsuit alleges that prototype designs for Virgin’s Eve and Unity spacecraft, which the company has promoted for space tourism, were “severely flawed and nowhere near flightworthy.”
“In fact, the prototypes were not meant to be taken into the air. Rather, they were meant to provide a starting design point for the company to create its own commercial-grade vehicle that was safe and flightworthy — two things Eve and Unity certainly were not,” it said. Branson and Palihapitiya were aware — “or were highly reckless in not knowing” — of the safety problems in the Eve and Unity spacecraft, yet failed to openly disclose these to the public, the complainant said.