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SEC probes B. Riley deals with client tied to failed hedge fund – Bloomberg News

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© Reuters. FILE PHOTO: The seal of the U.S. Securities and Exchange Commission (SEC) is seen at its headquarters in Washington, D.C., U.S., May 12, 2021. REUTERS/Andrew Kelly/File Photo

(Reuters) – U.S. authorities are investigating B. Riley Financial’s deals with a client who was linked to a securities fraud, and the use of his assets to help the investment bank obtain a loan from Nomura Holdings (NYSE:), Bloomberg News reported.

The U.S. Securities and Exchange Commission (SEC) has carried out interviews in recent months about B. Riley and its relationship with Brian Kahn, according to the report on Sunday, citing people familiar with the matter.

Kahn is one of two co-conspirators named by co-founder of hedge fund Prophecy Asset Management John Hughes who last year pleaded guilty to securities fraud, Bloomberg had reported earlier.

“At no time during my former business relationship with Prophecy did I know that Prophecy or its principals were allegedly defrauding their investors, nor did I conspire in any fraud,” Kahn has said previously in a statement to Reuters.

SEC officials have been scrutinizing how Kahn led a buyout of Vitamin Shoppe owner Franchise Group (NASDAQ:) last year in a deal arranged by B. Riley, the Bloomberg report said. It added that Nomura partly financed the transaction, with some of Kahn’s assets pledged as collateral.

B.Riley and the SEC did not immediately respond to Reuters’ requests for comment on the report.

Shares of B. Riley have plummeted after it was forced to mark down the value of its investment in the $2.6 billion take-private deal involving Franchise Group after the company reported a decline in revenue and a net loss in the third quarter.

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