Fraudster Lied by Saying Virgin Orbit Stock Buy Would Make It 'Cash Flow Positive': SEC

Matthew Brown falsely claimed to have $182 million in his eponymous company’s bank account when he offered to invest $200 million in Virgin Orbit, though the account really had less than one dollar, alleged an SEC Securities Exchange Act lawsuit (docket 4:24-cv-00558) Monday in U.S. District Court for Northern Texas in Fort Worth.

Brown and Matthew Brown Companies in Fort Worth engaged in the fraudulent scheme to “to submit and publicly tout a bogus offer” to buy $200 million of Virgin Orbit stock on March 19, 2023, when the satellite launch services company was “teetering on the brink of bankruptcy,” said the complaint. Four days earlier, CNBC reported the Virgin Galactic spinoff was furloughing nearly all employees and pausing operations for a week as it looked for a "funding lifeline," the complaint said.

To convince Virgin Orbit that the offer was legitimate, Brown made “false and misleading statements and omissions about his investment experience and funds available to make such an offer,” the complaint said. Brown claimed he had previously invested “hundreds of millions of dollars of his 'personal capital,’ primarily in space companies,” it said.

Brown’s “bogus offer” was leaked to the media soon after he made it, causing Virgin Orbit's stock price to jump 33%, the complaint said. Brown appeared on CNBC on March 23, falsely portraying himself as an “experienced venture capitalist with investments 'in over 13 space companies,’” it said. The defendant said he was in “final discussions” with Virgin Orbit and that the parties planned to close on a transaction in the next 24 hours and that his proposed investment would make the struggling company “cash flow positive."

After appearing on the business news channel, Brown tried to profit “from his misconduct” by requesting that Virgin Orbit pay him a “break-up fee” if the proposed investment didn’t close; Virgin Orbit refused to agree to the fee, the complaint said.

Brown “failed to respond” to Virgin Orbit’s due diligence inquiries “and, of course, never funded the offer,” the complaint said. When the stock market learned Brown’s offer had collapsed, Virgin Orbit’s share price dropped, “and the company filed for bankruptcy soon after,” it said.

Brown “had never invested 'over $750mm’ of his personal capital, he had never held any personal investments or positions in any space companies, and he did not have the bandwidth to invest $200 million of his own capital or from any other known source of capital accessible to him at the time” he approached Virgin Orbit via LinkedIn, said the complaint. Around the time of his statements to Virgin Orbit’s CEO, the defendant was “self-employed and, as he later admitted under oath, his net worth was 'negative’ -- none of which he disclosed to Virgin Orbit,” it said.

By representing that his earlier investments were “largely in stealth mode,” Brown created “the false and misleading impression that his alleged investment history was hidden from public view, when, in fact, no such investment history existed,” alleged the complaint. The defendant also represented that he had a law degree from Southern Methodist University when he “had never graduated from college, let alone attended law school,” the complaint said.

The SEC requests a final judgment permanently restraining and enjoining Brown from violating the Securities Exchange Act; from participating in the issuance, purchase, offer, or sale of any security; and from serving as an officer or director of any issuer with a class of securities registered under 15 U.S.C. § 78l. The injunction would not prevent him from purchasing or selling securities for his own personal account, the complaint said. The plaintiff also requests that Brown be ordered to pay a civil penalty.