Commission’s Latest Offering Fraud Action: Tied to Space

Offering fraud actions typically center on the proposed sale of securities tied to a fraud. The type of fraud varies from cases to case. Typically, however, there is an issuer and there are securities, although neither may have much value. The Commission’s most recent action in this area differs perhaps only by degree – it centers on an offer which was a complete sham. SEC v. Brown, Civil Action No. 4:24-cv-00558 (N.D. Tx. Filed June 17, 2024).

Named as defendants in the action are: Matthew Brown and Mathew Brown Companies, LLC. Mr. Brown is believed to reside in the Dallas-Fort Worth area, although it is not clear. Defendant Matthew Brown Companies is a Delaware limited liability company based in Fort Worth, that was created in April 2020 and operated by Defendant Matthew Brown.

This action centers on Virgin Group which spun off newly formed Virgin Orbit from Virgin Galactic Holdings, Inc. (“Virgin Galactic”) in 2017. The former was involved primarily with space tourism services. The latter provided commercial satellite launch services. Virgin Orbit began trading publicly on the Nasdaq after it the spinoff.

In March 2023 Mr. Brown sent an unsolicited message to Virgin Orbit executives. It offered to invest $200 million in Virgin Orbit. At the time Virgin Orbit was on the verge of bankruptcy. Defendant Brown offered a series of statements regarding his investment experience and personal financial situation. For example, he claimed to have invested “hundreds of millions of dollars” of his “personal capital” primarily in space companies. He also sent the executives what appeared to be a screen shot of his personal bank account showing a balance of over $182 million. The claims were false; the bank account balance was less than $1.

The media began publishing the claims. The share price for Virgin Orbit rose over 30%; Mr. Brown was asked to, and did, appear on CNBC. During his appearance Mr. Brown discussed his so-called investment experience and over 13 space companies as well as the legitimacy of his $200 million offer. Subsequently, Defendant Brown demanded a “break-up fee” from Virgin Orbit when the firm made inquiries. The deal never moved forward. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 26031 (June 17, 2024).