Key takeaways:
- B. Riley Financial faces SEC scrutiny for transactions tied to securities fraud
- Despite denials, questions arise about B. Riley’s involvement in bitcoin mining investments and past management buyouts
In a recent development, US authorities are reportedly investigating B. Riley Financial Inc.’s transactions with a key client who has alleged connections to securities fraud.
The investigation revolves around the use of the client’s assets to secure a loan from Nomura Holdings Inc., according to anonymous sources familiar with the matter.
The US Securities and Exchange Commission (SEC) has conducted interviews in recent months, focusing on B. Riley’s association with Brian Kahn, an unnamed co-conspirator in a criminal case related to the collapse of the Prophecy Asset Management hedge fund in 2020.
While B. Riley claimed to be unaware of any SEC investigation, the financial firm stated that it would fully cooperate if such an inquiry were to materialize. The company dismissed the report as “parroting baseless allegations” made by short sellers aiming to harm the firm.
Notably, B. Riley Financial has made significant investments in the bitcoin mining space in recent times. In September 2023, the firm signed a deal with bitcoin miner Iris Energy (IREN) to purchase up to $100 million in equity.
Moreover, in March 2023, a federal judge overseeing the Chapter 11 bankruptcy process of bitcoin miner Core Scientific (CORZ) approved a $70 million loan from B. Riley Commercial Capital to assist the company in its recovery efforts.
B. Riley responded to the allegations, stating, “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 scrutiny comes several months after the closure of a deal involving Franchise Group (FRG), where a Kahn associate named John Hughes pleaded guilty in a securities fraud case.
The report suggests that Kahn, a “longstanding client” of B. Riley, received support from the bank in leading a management buyout of FRG, a retail company based in Delaware, Ohio.
Nomura, a major Japanese financial group, played a significant role by leading a $600 million lending syndicate to help finance Kahn’s takeover, utilizing some of Kahn’s assets as collateral, according to loan documents.
Bloomberg’s report indicates that the SEC is investigating Kahn’s role in orchestrating the buyout of Franchise Group, which owns Vitamin Shoppe. B. Riley’s involvement in facilitating the deal and Nomura’s provision of partial financing using Kahn’s assets as collateral are now under regulatory scrutiny. The situation remains fluid, and B. Riley expresses its willingness to cooperate with any SEC inquiry, as it has done in the past with regulatory investigations.
