A Virgin Galactic stockholder is taking the company’s execs to task, saying their penchant for covering up major failures encountered during tests of its Unity spaceplanes have tanked investors’ chances of winning big in the commercial space race.
In a new lawsuit filed Monday in Delaware district court, stockholder Yousef Abughazaleh claims that the spaceflight company, its execs, and its billionaire founder Richard Branson lied about just how good and safe its spaceplanes were, all in order to inflate the company’s stock price and let execs cash out in more than $1.3 billion of common stock. The suit was filed on behalf of Virgin Galactic Holdings Incorporated.
In the lawsuit, Abughazaleh claims that Virgin Galactic, along with its executives, caused the company to “misrepresent and conceal significant mishaps and setbacks during test flights.” The defendants “concealed this information in order to enter the public markets” and “sold hundreds of millions of dollars of Virgin Galactic shares before” the company’s deficiencies were exposed. Word eventually got out, causing the company’s “stock price [to] decline significantly,” states the lawsuit.
The whole 52-page lawsuit reads like an extended history of all of Virgin Galactic’s supposed failings, from its 2007 rocket engine explosion that left three workers dead, to the 2014 SpaceShipTwo failed test flight that killed one pilot and left a co-pilot injured (although the National Transportation Safety Board blamed that tragedy on pilot error). However, the suit itself hinges on the company’s 2019 and 2021 Unity suborbital spaceplane flights, and whether the company concealed several system failures from the public eye.
Last November, a federal judge opened the door for shareholders to go after the company over statements made in 2019 and 2021 about how it was making “great progress” on its commercial spaceflight program. The company initially claimed that its February 2019 launch of its SpaceShipTwo VSS Unity was a successful. That same year, reporter Nicholas Schmidle wrote that one of the suborbital spacecraft’s stabilizers malfunctioned, according to Unity‘s then-test pilot and the company’s former VP of safety.
In 2021, Branson touted the success of his 50-mile-high flight aboard his Virgin Galactic Unity rocket plane that was meant to further the company’s goal of creating a luxury experience for suborbital travelers. Shortly after the flight, Schmidle published a scathing article in The New Yorker, prompting the Federal Aviation Administration to step in and investigate that launch, which experienced major issues that took the flight outside its assigned airspace.
Branson has been called out for his grandstanding ways, such as when reports showed him faked the promotional bike ride he supposedly took to the botched 2021 flight. The FAA eventually allowed SpaceShipTwo flights to resume, but only after Virgin Galactic performed the prescribed corrective measures. That said, the company’s stock price has fallen steadily from mid-2021 onwards, and Virgin Galactic has not performed a suborbital launch since Branson went to space. By late 2022, the company’s stock price was down more than 90% below its February 2021 peak. The company’s stock price is still way, way down from those highs as of the time of reporting.
The stockholder is asking the courts to force the execs to put the millions of dollars of stock sales back into the company, and otherwise do better in communicating the company’s failings.
“We believe the allegations are without merit and we stand by the safety of our vehicles,” a Virgin Galactic spokesperson told Gizmodo in an email statement. “We will vigorously defend ourselves in the appropriate forum.”
Virgin Galactic finally put its spaceplane launcher, the VMS Eve, back in the air for a Wednesday test flight. The return of the 2008 carrier vessel did do a little bit to help the company’s struggling stock price, but it still hasn’t been enough to get over the many other struggles Branson’s other space-focused companies have recently faced. Virgin Orbit, which focuses on satellite launches, has experienced cash flow issues since the end of last year. Last month, Virgin Orbit’s LauncherOne rocket that was supposed to deploy several satellites in low orbit crashed back down to Earth. The company blamed a faulty filter for the botched launch.
Virgin Galactic is set to share its fourth quarter and 2022 year-in results Feb. 28.