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The investigation focuses on the accuracy of B. Riley’s statements concerning Franchise Group (“FRG”).
On Aug. 28, 2023, B. Riley announced it invested $216.5 million in an equity financing to facilitate the $2.8 billion management-led acquisition of FRG, which was completed on Aug. 21, 2023.
Questions about B. Riley’s FRG investment began to arise on Nov. 2, 2023, when the DOJ announced that co-founder of hedge fund Prophecy Asset Management John Hughes had pled guilty to conspiring to defraud dozens of victim investors out of $294 million. Bloomberg later reported that FRG’s CEO Brian Kahn is one of two co-conspirators and Reuters reported that Hughes named Kahn as a co-conspirator.
Then, on Nov. 8, 2023, B. Riley revealed that it was forced to mark down the value of its investment in FRG after the company reported a decline in revenue and a net loss in the third quarter. That markdown resulted in B. Riley reporting a net loss of $75.8 million in Q3 2023, compared with a profit of $45.8 million a year earlier.
Most recently, on Nov. 10, 2023, S&P Global Ratings downgraded FRG’s credit rating, dropping it further down in junk status to “B-“ from “B” with a negative outlook, citing its weak performance. S&P also said it was monitoring legal developments relating to FRG’s Chief Executive Brian Kahn, who led the August take-private deal.
These events have caused the price of RILY shares to decline sharply.
