B. Riley Reportedly Face Regulatory Scrutiny Amid Controversial Dealings With Key Client Linked To Securities Fraud; Stock Tanks

B. Riley Financial Inc RILY is reportedly facing a probe by U.S. authorities over its dealings with Brian Kahn, a key client linked to securities fraud, and the utilization of his assets to secure a loan from Nomura Holdings Inc NMR. 

The U.S. Securities & Exchange Commission (SEC) has reportedly conducted interviews regarding B. Riley and its association with Kahn, reportedly identified as one of the two co-conspirators by John Hughes, the co-founder of Prophecy Asset Management, who has been implicated in a securities fraud case. 

This information was reported by Bloomberg, which previously covered John Hughes’ guilty plea in the same case last year.

The investigation explores Kahn’s role in orchestrating the buyout of retail business Franchise Group last year, partly financed by Nomura. Some of Kahn’s assets were pledged as collateral, contributing to the scrutiny by regulators.

The controversy also implicates Nomura, one of B. Riley’s major lenders, seeking to restore its risk management reputation after significant losses in 2021, Bloomberg noted. The SEC’s scrutiny does not imply wrongdoing, and Nomura is not the focus of the investigation.

Monday, B. Riley issued a statement and said the report is “parroting baseless allegations that have been publicly made for months by short sellers intent on harming the Firm and upon which the article notes the SEC declined to comment.” 

“B. Riley Financial is not aware of any such SEC investigation regarding any of these matters and, in the event one were to materialize, would cooperate fully with it,” the company added.

“As B. Riley stated in November 2023, when it first learned of the Prophecy investigation, B. Riley Financial had no involvement with, or knowledge of, any of those matters. The short sellers continue to disseminate false information for their own profit to the detriment of the Firm’s clients and customers,” the company commented. 

In a separate development, investigators from the SEC’s Los Angeles office are examining dealings between B. Riley and bebe stores inc., a women’s clothing chain controlled by the bank and associated with Kahn, as per the Bloomberg report.

Price Action: RILY shares are down 10.9% at $17.99, and NMR shares are up 2.02% at $5.05 during the premarket session on the last check Monday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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