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

Investors sue Babcock & Wilcox over allegedly inflated $2.4B AI deal
A $2.4B contract sent the stock soaring 198%. Then a short seller dug deeper.
APR 15, 2026

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. 

Related Topics:
Investors sue Oracle, allege executives dumped $1.87B amid AI hype SEC charges unregistered advisor with fraud over fake credentials, false AI trading claims

Latest News

SEC bars NY advisor who allegedly defrauded elderly client of $2.4 million
SEC bars NY advisor who allegedly defrauded elderly client of $2.4 million

U.S. seniors lose $28.3 billion annually as a result of financial exploitation, according to a 2023 AARP study.

Cerity Partners adds Bay Area, Minneapolis firms in latest double-deal
Cerity Partners adds Bay Area, Minneapolis firms in latest double-deal

Cornerstone Capital and Echo Wealth Management add about $1.7 billion as RIA M&A heads for a record year.

AI financial advice lifts demand for human advisors, says Vanguard
AI financial advice lifts demand for human advisors, says Vanguard

As Robinhood and Schwab roll out AI agents and assistants, a new survey finds advisors still edge out chatbots in terms of client trust.

Which technology providers stood out in 2026?
Which technology providers stood out in 2026?

See which platforms and providers earned 5-Star recognition this year

Advisor moves: $1.3B advisor team joins Wells Fargo FiNet practice in Ohio
Advisor moves: $1.3B advisor team joins Wells Fargo FiNet practice in Ohio

Meanwhile, a multigenerational Cambridge team has hopped to LPL in Michigan, and Cetera's run of Commonwealth recruitment continues in New Jersey.

SPONSORED In the Age of AI, Trust Becomes the Advisor's Greatest Asset

As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor

SPONSORED Direct indexing webinar targets tax-loss harvesting amid market swings

Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains