US authorities probe B. Riley and Nomura in securities fraud case

US authorities have launched an investigation into the business dealings of investment bank B. Riley with Brian Kahn, a figure involved in a criminal case related to securities fraud, according to a recent report by Bloomberg.

This probe, still in its preliminary stages, explores the bank’s relationship with Kahn and uses his assets to secure a loan from Nomura Holdings Inc., a major Japanese financial group. While the specifics of the investigation are under wraps, it’s known that the U.S. Securities & Exchange Commission (SEC) has conducted interviews regarding B. Riley’s connection with Kahn, a key client linked to the 2020 collapse of the Prophecy Asset Management hedge fund.

B. Riley released a statement saying that it has no knowledge of any investigation from the U.S. Securities and Exchange Commission (SEC). However, the firm also stated that it would fully cooperate if an investigation were to occur.

According to the statement, the report repeats unfounded accusations made by short sellers who have tried to harm the firm for several months.

Impact on B. Riley and market reactions

The ongoing probe has had a noticeable impact on B. Riley. The Los Angeles-based firm’s shares have seen a significant downturn, attributed partly to concerns over its association with Kahn. Additionally, the situation has attracted short-sellers attention, betting on further declines in the stock. This controversy not only affects B. Riley but also casts a shadow on Nomura, one of its primary lenders. Nomura is attempting to rebuild its risk management reputation after incurring substantial losses from the Archegos Capital Management collapse in 2021. Despite the investigations and market reactions, B. Riley maintains sufficient liquidity to meet its needs, as reported in its November quarterly filing with the SEC.

Details of the B. Riley-Kahn-Nomura connection

The focal point of the investigation is the intricate relationship between B. Riley, Brian Kahn, and Nomura. In a significant transaction orchestrated last year, B. Riley assisted Kahn in leading a management buyout of Franchise Group Inc., a retail company based in Delaware, Ohio. For this takeover, Nomura led a $600 million lending syndicate, with Kahn’s assets partially pledged as collateral. B. Riley, founded in 1997 and known for its comprehensive services for smaller publicly traded clients, has faced allegations regarding its association with Kahn.

These allegations, stemming from a series of legal troubles involving Kahn and his former business, Prophecy Asset Management, have raised questions about the integrity of the assets used as collateral for the Nomura loan.