B. Riley client misses payment to investors in collapsed fund
Brian Kahn, whose role in the collapse of a US hedge fund has drawn scrutiny from prosecutors and battered shares of B. Riley Financial Inc., has been accused of defaulting on parts of a settlement meant to help repay investors who lost hundreds of millions of dollars.
The claim by a trustee overseeing the settlement is the latest twist in the failure of Prophecy Asset Management, where Kahn allegedly ran up massive losses before the fund collapsed in 2020. He is also a longstanding client of B. Riley, the Los Angeles-based investment bank, and the two have worked on multiple deals together, including a buyout of Kahn’s retail company Franchise Group Inc. in August.
To compensate Prophecy’s investors, Kahn agreed to pay more than $200 million, including cash and shares in Franchise Group, according to people familiar with the matter. But Kahn has failed to pay $1.5 million in cash or turn over $5 million in shares due by a Jan. 31 deadline, according to a Feb. 13 trustee’s letter that was reviewed by Bloomberg News. He also didn’t hand over shares that he’d pledged in a separate agreement, according to the letter written by trustee Ted Gavin.
In the letter, Gavin said he contacted the American Arbitration Association to “begin the process of litigating the trust’s rights and remedies.”
The default notice adds tothe pressure on Kahn and B. Riley. Their relationship has drawn attacks from short sellers that contributed to a more than 50% plunge for the firm’s shares in the past 12 months. Waves of investors betting against the stock have claimed that B. Riley’s ties to Kahn could embroil it in the Prophecy matter and impair the investment bank’s own holdings in Franchise Group.
B. Riley categorically rejects the entire
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