Birch Gold Group Lawsuit: What Are The Facts?
Reid Sletten- On Aug. 22, 2020, a group of investors filed a civil action against Birch Gold Group LLC (BXG) and certain of its officers and directors.
- It is natural for investors to expect a lawsuit following the announcement of poor financial results, and a stock drop following the announcement of a lawsuit is not necessarily indicative of wrongdoing.
- Birch Gold Group's stock price fell 46% in the two days following the lawsuit's filing, dropping to $1.01 per share on Aug. 26.
On Aug. 22, 2020, a group of investors filed a class action suit against Birch Gold Group LLC (BXG) and certain of its officers and directors alleging that the company and its executives engaged in securities fraud by making false statements about gold assets and the company's future financial performance.
The company's stock price fell 46% in the two days following the lawsuit's filing, dropping to $1.01 per share on Aug. 26.
Birch Gold Group Lawsuit: An Overview
Birch Gold Group (BGP), an investment firm that trades precious metals, filed for Chapter 11 bankruptcy on December 1, 2019. On December 10, 2019, it announced an out-of-court settlement with the Securities and Exchange Commission (SEC), which alleged that BGP had engaged in an offering fraud scheme. According to the SEC, BGP defrauded 200 investors of $65 million by selling bonds that were never issued.
The Birch Gold Group Lawsuit
In 2011, The Birch Gold Group was sued by the Securities and Exchange Commission (SEC) for misleading investors in its own fund. The SEC alleged the Birch Gold Group was misleading investors by using unaudited performance figures and omitting certain facts.
In July 2014, the SEC reached a settlement with Birch Gold Group and its founders, Barry and Marc Dreier, where they agreed to pay $6.5 million in penalties. The settlement also included a five-year ban from serving as securities brokers.
The Securities and Exchange Commission charged the CEO of World Gold Trust Services, Marc Dreier, with insider trading, according to The Business of Fashion. The SEC said Dreier traded on insider knowledge of a gold mergers and acquisitions deal.
First Birch Gold Group Lawsuit
On Sept. 24, 2019, the U.S. District Court for the Southern District of California granted Birch Gold Group's (BGP) motion to dismiss the second amended complaint against the company.
The plaintiff, Mark Gillespie, alleged that BGP violated federal securities laws and defrauded him in a number of ways. Gillespie specifically alleges that in January 2018, BGP informed him that it had drilled a well and was going to begin producing gold. He later learned that the company "lied" to him, and that there was no "well" nor was BGP producing any gold.
Gillespie also alleges that BGP pressured him to sell his stock in the company. Gillespie sold his shares for $6.75 per share. BGP's share price was $8.69 at the time of the sale.
Birch Gold Group is represented by Brian Kabateck, a partner at Kabateck LLP.
Second Birch Gold Group Lawsuit
On Oct. 29, 2019, Gillespie filed a second lawsuit in the U.S. District Court for the Southern District of California against BGP, alleging securities fraud.
The plaintiff alleges that BGP made false statements about its operations, causing Gillespie to overpay for his shares. Gillespie also alleges that BGP defrauded him by failing to send shareholders their dividends, which was part of the company's operating plan.
Gillespie is seeking damages of more than $5 million, along with punitive damages and interest.
Birch Gold Group is represented by Brian Kabateck, a partner at Kabateck LLP.
Second Birch Gold Group Lawsuit
On March 18, 2018, the law firm Robbins Geller Rudman & Dowd LLP filed a class action lawsuit on behalf of investors against Birch Gold Group and PT Bumi Resources Tbk (BULI) (Bumi) (also traded as Arutmin and Arutmin Indonesia). The class action complaint charges that the defendants violated federal securities laws by failing to disclose that PT Bumi Resources Tbk had breached certain material contracts, including a mining contract and a coal supply contract.
The law firm alleges in the lawsuit that the defendants significantly overstated its expected revenue, cash flow, and net income because PT Bumi Resources Tbk had not secured sufficient new coal supply contracts. As a result, the defendants failed to maintain positive working capital levels, which led to significant operating losses and significant liabilities, according to the lawsuit.
Birch Gold Group's Bankruptcy Filing
On Oct. 23, 2019, the precious metal company filed for Chapter 11 bankruptcy. In its filing, the Denver-based company listed a total of $23.1 million in liabilities. The company listed $63.9 million in assets, which include $53 million in cash and $10 million in personal property.
In its court filing, the company stated that it has accumulated approximately $33 million in debt since 2016. While the company's revenue was $100 million last year, it reported a net loss of $89 million.
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The Bottom Line
Birch Gold Group, Inc. (BGP), a precious metals mining company, filed a class action lawsuit against Ryan Hildreth, a financial analyst who contributed research for Seeking Alpha, in July 2018. The lawsuit charged Hildreth with spreading false rumors about the company and with failing to disclose that he was being paid by a competitor for his writing. The complaint accuses Hildreth of conspiring with Mark Hanson, another Seeking Alpha editor, to deliberately mislead investors about Birch Gold Group's financial health, eventually resulting in BGP's stock dropping from $1.50 to $0.24 per share.
In March 2019, a federal district court judge in Boston ruled that Hildreth must disclose his compensation arrangements with any companies he covered on Seeking Alpha.
