What happened

As we've seen recently with Elon Musk and Twitter, the moves of high-profile leaders can have quite an impact on the companies they represent. That was the dynamic behind space tourism and transportation company Virgin Galactic's (SPCE -14.59%) 4% decline on Tuesday.

So what

A federal judge in New York ruled that a class action lawsuit against Virgin Galactic and affiliated parties such as founder Richard Branson could proceed after the entrepreneur's legal team attempted to have it dismissed. The parties are accused of concealing problems in the company's operations and improperly selling shares, among other transgressions.

In her decision, Judge Allyne Ross said that the space company made a "materially misleading" statement regarding its test flights. It claimed that it had surmounted numerous technical challenges preventing it from offering a viable service that made a profit for its investors. Yet this followed the grounding of Virgin's Unity spacecraft in order to address safety concerns. According to Ross, this was not disclosed in regulatory filings.

Ross's ruling also cleared the way for the plaintiffs to sue over the more than $300 million worth of stock Branson sold after his space flight on Unity in July 2021. He described the event as "flawless," although the craft at one point actually flew outside of its assigned airspace.

Now what

Virgin Galactic and Branson's lawyers have not commented on the ruling, nor has the company itself. The accusations are troubling, even considering Branson's well-deserved reputation for hyperbole. No one likes when a legal cloud hangs over a company they're invested in; to get investors heading sharply skyward again, Virgin Galactic/Branson either has to beat the lawsuit, make more progress with its operations, or both.