In the lawsuit, investors accuse Virgin of hyping up its finances when promoting a November 2019 prospectus to buy out a minority shareholder of its Velocity frequent flyer loyalty program.
The acquisition was estimated to cost $700 million, with Virgin offering around $325 million in unsecured notes to Australian investors and a further $US425 million in unsecured notes to investors in the United States. These notes were said to provide buyers with an eight per cent yearly interest rate.
The class action accuses Virgin of lying about the cash it would have after the acquisition, the debt it had available for the transaction and its ability to meet its loan obligations.
Following the completion of the acquisition in December 2019, Virgin experienced financial difficulties in 2020 due to the COVID-19 pandemic. Meetings were held throughout the health crisis where the firm is alleged to have assured investors about its future.
Dr Daniel Fleming, director of the firm heading the class action, Matheson Property Group, says he sank $400,000 into the Virgin notes in November 2019 and a further $49,500 in February 2020.
The airline entered administration in April 2020 and was eventually sold to Bain Capital in September that year.
Investors claim Virgin left out crucial financial information and made misleading remarks when publicising its 2019 prospectus, and that they would not have acquired the notes if they had known the airline's true position.
The investors are seeking compensation for their losses, claiming they sold their notes after the airline's administration at a price that was lower than the actual value.
Chairman Elizabeth Bryan and former CEO Paul Scurrah are also sued in the lawsuit for their alleged involvement in the company's contraventions.
Comment has been sought from Virgin.
