Investors sue Babcock & Wilcox over allegedly inflated $2.4B AI deal

A class action lawsuit accuses Babcock and Wilcox of misleading investors about a $2.4 billion AI power deal while its largest shareholder cashed out. 

The suit, filed April 14 in federal court in Ohio (Cho v. Babcock & Wilcox Enterprises, Inc., Case No. 5:26-cv-00886, N.D. Ohio), alleges the NYSE-listed energy company and two senior executives painted an overly rosy picture of a massive power generation contract, all while keeping investors in the dark about who was really on the other side of the deal. 

According to the lawsuit, Babcock and Wilcox announced in November 2025 that it had signed a preliminary agreement to deliver one gigawatt of power for an artificial intelligence data center operated by Applied Digital Corporation. The company valued the project at over $1.5 billion, with Chairman and CEO Kenneth M. Young calling its impact "profound" and claiming it added over $3 billion to the company's pipeline. 

The stock surged. Within days, the company launched an at-the-market stock offering and raised $67.5 million. By February 2026, shares had climbed more than 198 percent. 

Then came the full contract. In March 2026, Babcock and Wilcox announced it had received full notice to proceed on a $2.4 billion design-build agreement with Base Electron, described as a newly formed independent power producer backed by Applied Digital. The company's reported backlog jumped 470 percent. Shares rose another 45 percent in a single session. 

But the lawsuit alleges the company left out critical details. BRC Group Holdings, formerly B. Riley Financial and Babcock and Wilcox's largest shareholder, allegedly had close ties to Base Electron. The filing claims BRC's co-CEO and chairman, Bryant R. Riley, was a director of Base Electron, whose registered address matched BRC's headquarters, not Applied Digital's. Base Electron itself was not incorporated until seven weeks after the preliminary deal was first announced. 

Meanwhile, the lawsuit alleges BRC sold its entire directly held stake in Babcock and Wilcox for roughly $10.4 million, at a price 140 percent above where shares traded before the initial announcement. 

The situation unraveled on March 12, 2026, when short seller Wolfpack Research published a report questioning the deal's legitimacy, suggesting its ultimate purpose may have been to provide exit liquidity for BRC. Wolfpack also alleged that Applied Digital's existing data centers had already secured power through conventional grid agreements, raising doubts about whether the contract would ever generate real revenue. Making matters worse, the filing notes Applied Digital could walk away from its guarantee of Base Electron's obligations for as little as $50 million. 

Shares dropped 11.59 percent that day. 

For wealth managers and investment professionals, the case is a sharp reminder that headline-grabbing contract values deserve scrutiny, especially when the parties involved share overlapping interests. No final determination has been made in the case, and the allegations remain unproven.