SEC Investigates B. Riley Financial’s Alleged Ties to Defunct Hedge Fund Co-Conspirator

The Securities and Exchange Commission has launched an inquiry into B. Riley Financial’s (NASDAQ:RILY) dealings with a client allegedly linked to securities fraud. Additionally, the SEC is investigating the use of the client’s assets to secure a loan from Nomura Holdings (NMR).

According to a Bloomberg report citing sources familiar with the matter, the SEC has conducted interviews in recent months regarding B. Riley (RILY) and its ties to Brian Kahn, an individual identified as a co-conspirator in a Justice Department criminal case stemming from the collapse of the Prophecy Asset Management hedge fund in 2020.

One aspect under scrutiny is Kahn’s involvement in orchestrating a buyout of a retail business, Franchise Group Inc., with B. Riley (RILY) and others last year, as noted in the report. In response to the developments, a spokesperson for B. Riley stated in an email to Bloomberg, “We have not received anything from the SEC on this matter and to the extent the SEC makes an inquiry, we would fully cooperate as we have done in the past on all regulatory inquiries.”

The report also mentioned a Nomura (NMR) representative declining to comment, while news of the investigation surfaced amid a 42% decline in B. Riley (RILY) shares since early November following fraud allegations and connections to Kahn revealed in a previous Bloomberg report. This decline accelerated on November 13, dropping 14% after S&P downgraded Franchise Group’s credit rating and referred to the Kahn situation as “unresolved” and potentially disruptive to the company’s strategy.

Furthermore, a previous Bloomberg report stated that Franchise Group denied any association with Prophecy Asset Management following a review, asserting that the company had no ties to the investment firm connected to a securities fraud case.

Notably, B. Riley (RILY) has also faced scrutiny from short-sellers, with its short interest reaching 68%.