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B. Riley Financial (NASDAQ:RILY) dropped 6.5% in after-hours trading after a report that Brian Kahn is stepping down as CEO of Franchise Group months after B. Riley helped with a leveraged buyout of the firm.
Andy Laurence, FRG’s current executive vice president, was named to replace Kahn, according to a Bloomberg report on Monday, which cited a person familiar with the matter. FRG disclosed the news on a call with lenders.
The news comes after Bloomberg reported on Sunday that the Securities and Exchange Commission is investigating B. Riley’s (RILY) dealings with a client linked to alleged securities fraud. The SEC has carried out interviews in recent months about B. Riley (RILY) and its relationship with Franchise Group CEO Kahn.
Officials have been evaluating how Kahn led a buyout of a retail business, Franchise Group Inc., in a deal arranged last year by B. Riley (RILY), according to the report. In August, Franchise Group Kahn, with help from B. Riley (RILY) and others, led a management-led buyout of Franchise Group for about $2.8 billion.
Kahn is said to be an unidentified co-conspirator in a Justice Department criminal case prompted by the 2020 demise of the Prophecy Asset Management hedge fund, according to a Bloomberg report in November.
“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 said in a November statement.
Bloomberg reported last month that Franchise Group said a probe into its relationship with Prophecy Asset Management found it had no ties to the investment firm whose co-founder is involved in a securities fraud case. Franchise Group said the review found no evidence that a former relationship between its CEO, Brian Kahn, and Prophecy had impacted B. Riley, according to the Bloomberg report, which cited a statement to lenders.
The recent share drop in B. Riley (RILY), which has plunged 53% since the Nov. 6 Bloomberg report, also comes as the firm was the target of some short-seller reports last year. B. Riley’s short interest is 68%.