The Securities and Exchange Commission is conducting an investigation into the operations of Los Angeles based investment firm B. Riley Financial Inc., reports Advisor Hub.
Specifically, the probe is focusing on whether B. Riley sufficiently revealed the risk embedded in some of its assets. The SEC is also seeking information about engagements between founder and CEO Bryant Riley and his long-time business partner Brian Kahn, who served as chief executive officer of Franchise Group, Inc. until resigning in January. Franchise Group is one of the larger investment holdings of B. Riley.
The SEC is looking into loans B. Riley may have guaranteed for Kahn, who resigned after reports linked him to Prophecy Asset Management, an investment firm that collapsed in March 2020 which prosecutors have alleged hid Kahn’s trading losses. Bloomberg News reported that Kahn was a co-conspirator in a securities fraud involving Prophecy Asset Management. Kahn has denied the allegations made in the report, saying he never knew that Prophecy Asset was allegedly defrauding investors.
Investors were informed during a call last week that B. Riley had been served with subpoenas from the SEC in search of information about interactions the firm had with Kahn. B. Riley has denied involvement with Kahn’s actions at Prophecy.
“We are responding to the subpoenas and are fully cooperating with the SEC,” Bryant Riley said during the call. “We are confident that the SEC will reach the same conclusion that our own internal investigation, with the assistance of two separate law firms, did — that we had no involvement with or knowledge of any alleged misconduct concerning Brian Kahn or his affiliates.”
The SEC’s investigation also includes a review of possible improper trading by other insiders. News of the SEC inquiry caused B. Riley’s stock to drop by about half their value on Aug. 12. The investment firm also suspended its dividend and announced its biggest-ever quarterly loss
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