Written by Manya Saini, Nikit Nishant and Saeed Azhar
(Reuters) – Shares of investment bank B. Riley Financial fell to their lowest level in nearly eight years on Tuesday after the company delayed filing its quarterly report with the Securities and Exchange Commission, adding to concerns about a second-quarter loss.
The move highlights ongoing issues facing the Los Angeles-based bank over its investment in Franchise Group (NASDAQ:), the parent company of Vitamin Shoppe, which has drawn scrutiny from shareholders and regulators.
The stock had fallen 10% in late trading to $7.33 after falling to $6.89. A 52% plunge on Monday halved the bank’s market value to about $247 million after it warned of preliminary losses of between $435 million and $475 million for the three months ended June 30.
That compares with a profit of $44 million, or $1.55 per share, a year ago.
“Our second quarter results were negatively impacted by non-cash losses, the vast majority of which were related to the performance of our investments in Franchise Group and our outstanding loan from Vintage Capital,” CEO Bryant Riley said in a statement.
He added that the decline in value was the result of a combination of recent events, including the impact of a significantly weaker consumer spending environment on the franchise business and its investments.
Standard & Poor’s, the global credit rating agency, also described the franchise’s operating results as “consistently weak” in a report issued in July.
The franchise company went private last year in a management buyout backed by B. Riley. The bank warned it could report a second-quarter impairment charge of between $330 million and $370 million in connection with the investment.
The deal was partly financed by a $600 million loan from a group of lenders, arranged by Japanese investment bank Nomura.
Nomura owns less than 25% of the credit facility, which is also backed by five other banks. Reuters was not immediately able to verify the names of the other lenders in the facility.
“Nomura’s loan is secured and the collateral is substantial, with the assets associated with the franchise forming a minority,” the bank said.
The company said it had raised about $474 million in financing for the facility as of March 31.
Regulatory Headwinds
In July, B. Riley and its CEO received subpoenas from the SEC, primarily related to the bank’s dealings with the franchise’s former CEO, Brian Kahn.
Bloomberg News reported in November that Kahn was a conspirator in a securities fraud scheme involving Prophecy Asset Management.
Khan denied the allegations in the report, saying he never knew that Prophecy Asset was defrauding investors.
External investigations and internal reviews conducted earlier this year determined that B. Riley had committed no wrongdoing.
“We are confident that the SEC will reach the same conclusion as our internal investigation, assisted by two separate law firms, that we did not engage in or know of any alleged misconduct involving Brian Kahn or his affiliates,” Riley said in a phone call Monday.
However, the allegations have allowed critics of B. Riley — including Wolfpack Research, which shorted its shares last year — to renew their attacks on the company.
This week marks the third time the bank has delayed filing its reports with the Securities and Exchange Commission this year. The bank said the delay was due to delays in completing evaluations of some loans and investments.
Its shares are down about 61% so far this year. Short interest has risen to 40.6%, according to London Stock Exchange data.
B. Riley is also a big supporter of cryptocurrencies, having backed mining companies like Iris Energy and Core Scientific in the past.
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