Short sellers targeting B. Riley in smear campaign, sources say

investmentnews.com:

Speculative traders intent on driving down the price of shares of B. Riley Financial Inc. have attempted to undermine the company’s credibility through a smear campaign, industry sources say, that includes spreading lies about individual employees and questioning the firm’s financial health.

The campaign by short sellers, or traders looking to profit from the decline in the company’s stock price, has been particularly intense over the past few months. In November, it was first reported that the head of the Franchise Group, a company B. Riley had invested $216.5 million in over the summer as part of a management buyout, was linked to a hedge fund manager who pleaded guilty of fraud.

“The shorts were putting rumors out that B. Riley would not get internal audits done or get financial statements out in time,” said one senior industry executive who spoke anonymously. Another industry source, also speaking off the record, said the short sellers have also contacted industry recruiters and B. Riley competitors as part of the effort.

B. Riley Financial, a boutique investment bank that has recently been expanding into wealth management and financial advice, has been working its own campaign to bolster investors, which have seen the company’s share price fall from $60.72 in July to $16.66 in Thursday afternoon trading.

In December, the company moved up an Investor Day presentation rather than waiting until January to reassure shareholders. And on Thursday, the company released a statement that said outside counsel had cleared the firm and found it was not involved and had no knowledge of any misconduct at the hedge fund, Prophecy Asset Management, which had been linked to Brian Kahn, the CEO of the Franchise Group.

“Over the