Yahoo Finance ‘Bogus Offer’ for Virgin Orbit by Investor Triggers SEC Suit
(Bloomberg) -- The Securities and Exchange Commission sued a self-proclaimed venture capitalist for making a “bogus offer” of $200 million to acquire Richard Branson’s now-defunct Virgin Orbit Holdings Inc.
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Matthew Brown “made false and misleading statements and omissions about his investment experience and funds available to make such an offer,” the SEC said in the lawsuit filed Monday in a federal court in Texas. The regulator claimed Brown sent Virgin Orbit a fabricated screenshot of his company’s bank account, claiming it held $182 million when in reality it had a balance of less than $1.
Brown intends to fight the allegations. “The SEC’s complaint is filled with egregious errors, fabrications and biased allegations that undeniably favor the culprit, Virgin Orbit’s Management,” according to a statement from a representative for Brown and his companies. Virgin Orbit produced a non-binding letter of intent, but “during our due diligence, we decided not to invest,” according to the statement.
Brown made the allegedly fictitious offer in March 2023, days after Virgin Orbit paused operations to seek new funding options. The company had been reeling since a rocket malfunctioned two months earlier, failing to reach orbit on its first launch out of the UK. The company eventually filed for bankruptcy.
On March 23, 2023, Brown made an appearance on a CNBC show wearing a Texas Christian University hat and said he was in final discussions on a deal that would give him control of the British billionaire’s struggling satellite company.
“We are in active discussions to inject enough capital to make them cash-flow positive,” said Brown, 34, who claimed to have invested in 13 space companies.
The sudden appearance of this unknown white-knight investor led to a surge in Virgin Orbit shares but also prompted news stories that raised questions about Brown.
In its complaint, the SEC accused Brown of misleading the investing public during his television appearance because he “falsely portrayed himself as an experienced venture capitalist” and acted like his offer to buy Virgin Orbit was legitimate.
But afterward, Brown failed to respond to Virgin Orbit’s due diligence requests and never funded the deal, according to the regulator. Brown also demanded, but never received, a breakup fee from the company if the deal didn’t go through, the SEC said.
A spokesperson for Virgin Group declined to comment.
Dan Hart, the former chief executive officer of Virgin Orbit, said the Brown bid was “an unneeded distraction” when the leadership team was “trying to find a path forward for the company.”
“It was a time when we had a number of investment leads popping up as well as sunsetting. And so the adrenaline is just running all the time. And then exhaustion sets in and then another call comes up, and the adrenaline hits. And so that’s kind of what we were living at the time.”
Branson, who has faced challenges with his space business venture, pumped $1 billion into Virgin Orbit, which was a Virgin Galactic offshoot that aimed to send small satellites to space on its LauncherOne rocket.
In January 2023, the rocket malfunctioned, causing the loss of all nine satellites on board and dealing a significant blow to the company. A few months later, the business was on the verge of collapsing.
On March 15, 2023, Virgin Orbit announced that it would pause operations while it conducted “discussions with potential funding sources.” Almost a week later, Brown appeared on CNBC to discuss his plans to inject $200 million into the company. Virgin Orbit’s stock rebounded as much as 74% for its biggest intraday gain after facing steep declines.
Deal talks quickly fell apart and the stock plummeted. Virgin Orbit had to stop operations, filed for bankruptcy and cut 85% of its staff.
The case is SEC v. Brown, 4:24-cv-558, US District Court, Northern District of Texas (Fort Worth).
--With assistance from Madlin Mekelburg and Loren Grush.
(Updates with statement on behalf of Brown in third paragraph.)
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