Discover the Birch Gold Lawsuit

  • The Birch Gold Group LLC has alleged that Tesla falsely claimed that it had made major progress incorporating SolarCity Corp.'s Solar Roof product into its solar business.
  • Tesla has been accused of falsely claiming that it had made major progress incorporating SolarCity Corp.'s Solar Roof product into its solar business.
  • Tesla's plan to merge with SolarCity, announced in 2016, was an attempt to combine two complementary businesses: Elon Musk's electric car company and his cousins' solar panel company.

The Birch Gold Group LLC is a whistleblower and securities fraud law firm, and its founder, David Einhorn, is famously shorting Tesla Inc. (TSLA) stock. The firm alleges that Tesla falsely claimed that it had made major progress incorporating SolarCity Corp.'s (SCTY) Solar Roof product into its solar business. The Solar Roof is a product that Tesla purchased as part of its acquisition of SolarCity.

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What Was the Birch Gold Corporation Fraud Case?

Birch Gold Corporation, which traded under the symbols "BRK-G" and "BGG" on the Nasdaq and NYSE, filed a class action lawsuit against Goldman, Sachs, and other Wall Street firms in December 1997. The suit alleged that the firms had fraudulently concealed the fact that two firms, Hudson City Bancorp and First Boston, had fraudulently inflated the share price of Birch Gold.
The class-action lawsuit claimed that Goldman, Sachs and other Wall Street firms made millions by trading in securities that were themselves fraudulently inflated. The firms had traded in Birch Gold securities that were fraudulently inflated by Hudson City Bancorp and First Boston. Birch Gold shareholders alleged that Goldman, Sachs and other firms were negligent in advising them about the fraud.

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birch gold lawsuit

The Birch Gold Corporation

(NYSE: BIRK) is a precious metals exploration and development company that trades on the NYSE under the ticker symbol BIRK. It explores for gold and other precious metals in Canada, most notably in Quebec's James Bay region.
On Oct. 23, 2014, Birch Gold sued 13 banks for $3.2 billion in punitive damages after discovering that the banks were conspiring to artificially inflate the price of gold.
The conspiracy was discovered when Birch Gold discovered suspicious trading activity that correlated strongly with gold prices. Birch Gold then used statistical and technical analysis to prove that the trading activity was a result of a conspiracy.
The conspiracy began in June 2008, when Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM), Barclays Plc. (BCS), HSBC Holdings Plc. (HSBA), Société Générale (GLE), Deutsche Bank AG (DB), Barclays, and UBS AG (UBS) allegedly began colluding to artificially boost the price of gold.
The conspiracy was uncovered in January 2013, when Credit Suisse Group AG (CS) pleaded guilty to criminal charges for its role in manipulating the London Interbank Offered Rate (LIBOR), a benchmark interest rate.
Birch Gold Corporation's lawsuit alleges that this practice continued through at least 2012, when Goldman Sachs and Barclays admitted to rigging gold prices, and that Barclays' employees were even encouraged to leak confidential information about gold trades.

The Insider Trading Scheme

While Birch Gold Group was publicly trading, an insider trader, Matthew Terry, allegedly gained access to confidential corporate and financial information and used it to trade securities in his personal brokerage accounts.
Terry's alleged scheme involved using a brokerage account that he had opened at Scottrade to trade on information he allegedly received from a Birch Gold Group employee. When Terry allegedly learned of certain corporate developments, including an acquisition, he allegedly bought securities and when that information became public knowledge, he sold them.

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The Criminal Fraud Convictions

Birch Gold Group, LLC, a precious metals investment company, was once a subsidiary of Birch Gold Group, Inc., which was founded in 2010. In 2013, the company's founder, Charlie Bilello, was fired by the board of directors in a boardroom coup, and sued the company for wrongful termination.
Birch Gold Group's defense was that Bilello's firing was a necessary step for the company to avoid criminal charges. According to the U.S. Commodity Futures Trading Commission (CFTC), Birch Gold Group was defrauding its customers and investors by selling them unregistered futures and options contracts.
Bilello was found guilty in 2016 of conspiracy to commit wire fraud, conspiracy to commit commodities fraud, and wire fraud. He was sentenced to 37 months in prison and ordered to pay restitution of $6.6 million and $6.6 million in civil fines.

The Lawsuit

The lawsuit centered on a 1993 agreement between Apollo Management, the founder and owner of Birch Gold Group, and the former shareholders of Birch Gold Group. An affiliate of Apollo Management, Birch Gold Group, Inc., acquired the Birch Gold Group in 1993.
The Birch Gold Group owned 100 percent of the stock and issued 15 million shares to the former shareholders of the company. These shares were valued at $1.75 per share.
In 1995, Birch Gold Group, Inc., went public and the stock began trading at $20 per share. The Birch Gold Group declared a dividend of $0.18 per share, which the company continued to pay until Apollo Management purchased the company.
In 2001, Apollo Management purchased the company for $43.75 per share. Apollo Management then attempted to force the Birch Gold Group into bankruptcy.
However, the former shareholders of the company sued Apollo Management, arguing that the $1.75 per share paid by the Birch Gold Group was undervalued by $4.50 per share.
According to the New York Times, Apollo Management argued that the share price of Birch Gold Group was overvalued when the agreement was signed in 1993, and the company's stock price "fell far below its fair value" in 1995.
Apollo Management also argued that the 1995 dividend should have been declared in 1994, not 1995.

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The Settlement

In 2016, Birch Gold Group, Inc. (BXG), a precious metals dealer, filed a lawsuit against Goldman Sachs Group, Inc. (GS), alleging violations of federal securities laws. The lawsuit was settled for $1.35 million. In 2018, the federal judge overseeing the case ordered Goldman Sachs to make a $500,000 contribution to the settlement.

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The Bottom Line

Birch Gold Group, a precious metals company, sued Morgan Stanley, Morgan Stanley's precious metals broker, and the bank itself for securities fraud.
Birch alleged that Morgan Stanley misrepresented its precious metals market position, leading Birch to invest tens of millions of dollars in precious metals futures contracts without realizing how illiquid the market was.
Birch alleged that Morgan Stanley had "incentivized its employees and agents to misrepresent and downplay the illiquidity of the precious metals market," and that "Morgan Stanley's employees deliberately and systematically concealed and misrepresented the liquidity and volume of the precious metals market."
According to Birch Gold Group, Morgan Stanley's precious metals broker, Monarch Precious Metals, and the bank itself misrepresented the precious metals market on several occasions.