Head of a private space company from the United States was sued for fraud with shares

(ORDO NEWS) — The emergence of many commercial players in the global astronautics brought not only the long-awaited progress of the industry, but also problems.

For example, it turned out that it is more difficult to explain why the deadlines for the implementation of plans are being delayed for many private investors than for several state customers.

And the enthusiasm of the founder of a space company always works as a “signal” for the stock market and runs the risk of looking like a scam if optimistic forecasts are destroyed by the harsh reality of engineering problems.

According to Reuters , a class action lawsuit by Virgin Galactic shareholders against the company’s management was accepted by the court of the Eastern District of New York.

After reviewing the case, Judge Allyne Ross dismissed most of the claims in the document. However, she left the main thing – the requirement to return $ 301 million in losses due to sharply depreciating stocks (ticker SPCE ).

To do this, the plaintiffs must prove that the head of Virgin Galactic really hid the technical problems of the SpaceShipTwo spaceplane from the public..

And also to find confirmation that his optimistic statements about overcoming engineering difficulties in the development of the ship were a deliberate deception to raise the value of the company’s securities.

The case lists two major claims by shareholders against British billionaire founder and key public figure Richard Branson.

Since his words affect the image, as well as the public’s perception of the company’s activities and prospects, they have a particularly strong influence on the value of SPCE shares.

Both claims are related to technical problems that were identified during the landmark flights of the VSS Unity spaceplane – in 2019 and 2021.

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Richard Branson (center) and other crew members of SpaceShipTwo’s first “full” tourist flight into space

In February 2019, VSS Unity flew for the first time not only with two pilots, but also with a passenger on board (Beth Moses, the company’s chief astronaut instructor).

The mission itself went flawlessly, the spaceplane climbed to an altitude of 89.9 kilometers and reached a speed of Mach 3.04.

According to Branson, this was a major achievement on the way to the provision of regular suborbital space tourism services.

However, later, information about serious damage to the aircraft appeared, which has not yet been confirmed by representatives of Virgin Galactic .

The incident was described by New Yorker journalist Nicholas Schmidle in his book Test Gods: Virgin Galactic and the Making of a Modern Astronaut.

To prepare it, he worked inside the Branson company for four years and witnessed not only engineering victories, but also, allegedly, some questionable practices.

It is alleged that after the landing of VSS Unity on February 22, 2019, the spaceplane went for more than a year of revision for a reason.

Damage was found in its right tail stabilizer that could lead to the complete destruction of the complex plumage.

The problem was hidden in incorrect pre-flight preparation – contrary to the instructions, the technicians did not check the ventilation holes.

As a result, when rising to a height, the air enclosed inside the structure did not leave it, and the materials could not withstand the load.

Moreover, it was decided not to report problems publicly at the highest level, so as not to spoil the company’s image.

The court will test this version – all the details about the damage and the methodology for their further prevention, as expected, were received by the US Federal Aviation Administration ( FAA). During the litigation, just one request will be enough to receive the department’s report.

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SpaceShipTwo spaceplane attached to White Knight Two. Photo of 2009, that is, this is the VSS Enterprise that has never flown at that time

Another incident is much less serious, although it also raises questions. In 2021, Branson personally tested the VSS Unity – it was the first flight with a full load (although the spaceplane is designed for six passengers, there were only four seats).

During the descent back to the spaceport, the ship deviated from the trajectory for several seconds and left the pre-designated safety zone.

This did not pose any threat, however, it raised questions from the FAA and a temporary ban on flights.

The agency demanded from Virgin Galacticfind out what caused the deviation and either fix the problems or continue to request a larger security zone. Shareholders’ complaint is that Branson called that mission “flawless,” although it is clear that there were flaws.

How the trial will end is an interesting question. Lawyers on both sides have yet to comment.

And the prospects for the claim are vague, since there are many assumptions in its known details and the accusatory party will have to prove a number of key details.

Moreover, apparently, apart from indirect evidence, no others can be found. At the same time, Virgin Galactic certainly cannot be called a company that hides any of its mistakes.

Examples are the explosion during testing in 2007 and the crash of VSS Enterprise . But it is definitely not completely correct working with the public.

An additional lesson that all participants in the so-called new space race can learn from this story is not to become a public company until all the main technical solutions have been worked out.

Better yet, stay private. Like Elon Musk’s SpaceX , which depends very little on the mood of investors, since their number is limited to a few companies, funds and individuals.

In the event of some failures or controversial statements by the head of the company, its shares do not begin to jump in price, which does not lead to the need to urgently cover the negative so as not to go bankrupt.

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