The company based in Las Cruces, New Mexico said on April 30 that it would need to restate its 2020 results due to accounting guidelines from regulators for Special Purpose Acquisition Companies, or SPACs. On the following trading day, its shares fell 9%. The company associated with Social Capital Hedosophia, led by former Facebook executive Chamath Palihapitiya, and went public in October 2019.
the The Securities and Exchange Commission presented news indications in April that the warrants, which are issued to early investors in the transactions, may not qualify as equity instruments and may instead be liabilities for accounting purposes. In a SPAC, early investors buy units, which typically consist of a common share and a fraction of a warrant to buy more shares at a later date. They are considered a sweetener for lenders and many companies have treated them as equity instruments for accounting purposes.
Investor Shane Lavin said in the lawsuit filed Friday in federal court in Brooklyn, New York, that Virgin Galactic and its executives knew the results they were reporting were wrong. They are seeking class action status for their legal action. Many other PSPCs have made or are considering similar restatements due to the accounting treatment of warrants.
Virgin Galactic’s stock has been volatile. Since May 3, the day Lavin’s continued price decline, its shares have climbed 55%.
Representatives for Virgin Galactic did not immediately respond to a request for comment.
L’affaire est Lavin v. Virgin Galactic Holdings Inc., 21-cv-03070, US District Court, Eastern District of New York (Brooklyn).