B. Riley Financial (RILY) stock fell as much as 19% on Monday amid reports of a Securities and Exchange Commission (SEC) investigation into its dealings with a key client linked to securities fraud.
According to Bloomberg News, the SEC has conducted interviews regarding the firm's ties with Brian Kahn, an unnamed co-conspirator in a Department of Justice (DoJ) criminal case related to the 2020 collapse of Prophecy Asset Management hedge fund.
B Riley has denied receiving any communication from the SEC on the matter.
“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,” a spokesperson for B. Riley told Bloomberg News.
“We would welcome an investigation into the outrageous tactics the short sellers have pursued to destroy B. Riley, including the coordinated options trading with zero disclosure obligations,” the statement added.
“The short sellers continue to harass, intimidate, and insult employees and everyone associated with B. Riley, resorting to lies and crude remarks so they can personally profit.”
The SEC is reportedly focusing on Kahn's leadership in the buyout of retail business Franchise Group Inc., a deal facilitated by B Riley last year, with Nomura partly financing the transaction. Some of Kahn's assets were allegedly pledged as collateral.