B. Riley (RILY) debt securities taking a hit...
- Thread starter BMK
- Start date
So the head of FRG commited fraud at another hedge fund and not this one. So why did RILY write down losses for the FRG buy?
It still looks bad for the RILY leadership to do no due diligence on a fraud. Where were the compliance people? Looks like they were asleep at the wheel.
I am going to admit that I have not had time to review their financial statements. I looked at them briefly, and found them difficult to interpret. And I am a tax advisor.
We bought RILY notes and preferred stock based on recommendations in two different subscription newsletters, both of which generally have a good track record.
I rarely do my own in-depth research on individual stocks.
Right now we are holding, and even added a little bit to our position in the preferred shares and notes. And I established a bullish options position with a January expiration. But our total exposure remains low, around 3% of the portfolio.
Can anyone figure out what percentage of Riley's assets or income is represented by its interest in FRG?
For some reason, it seems like a very simple question, but I have not seen this kind of data in any of the articles or discussions about this whole affair.
According to Wikipedia, revenue for FY 2022 was $1.08 billion. What percentage of that came from FRG?
2022 total assets were $6.11 billion, and total equity was $505.89 million. Again what percentage of those figures is FRG?
I am naive for thinking that this could be very useful information? I mean, if FRG is a large part of Riley's assets and income, like, say, I dunno, 17% or something, that's very different from a world in which FRG represents only three-fourths of one percent of Riley's assets and income.
I don't understand why no one is talking about these ratios.
Is there any evidence that they did not perform due diligence??
What would they have discovered? What did they not look at?
Okay, obviously someone is going to say, "Well, ummm, the guy in charge of FRG was involved in fraud over at Prophecy, so maybe it's a bad idea to buy a stake in FRG."
Fair enough, but how would they have known this back when they were buying FRG?
There is no publicly available evidence that Kahn was involved in the fraud at Prophecy. The media has reported that "someone familiar with the case" has said that the guy at Prophecy who pleaded guilty to fraud named Kahn as a co-conspirator. But the media source is anonymous, and no one has independently confirmed or corroborated the allegation.
And this ephemeral claim was first repoted by the media around November 2.
The FRG deal closed back in August.
How would Riley have uncovered that information when they were evaluating FRG??
Well... let's see... maybe they knew or should have known that the CEO of FRG used to work at a hedge fund that had imploded due to fraud...
But if they knew that and looked into it, and found no reason to believe that Kahn was involved...
I dunno, man, the whole thing seems really far-fetched
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Things like Magic Jack, Net Zero...There is not one recommendation on Yahoo Finance for this company.
Twenty years ago I would read Kiplinger News...I have not trusted them for A LONG TIME!! You have chosen the WRONG sources...They may get kickbacks to spread their lies.
Where there is smoke...
"found them difficult to interpret. And I am a tax advisor".
What good is preferred stock, if there isn't a dividend coming (or reduced).
Lay out the situations to your clients (apologize), get out, and move on...
Twenty years ago I would read Kiplinger News...I have not trusted them for A LONG TIME!! You have chosen the WRONG sources...They may get kickbacks to spread their lies.
Where there is smoke...
"found them difficult to interpret. And I am a tax advisor".
What good is preferred stock, if there isn't a dividend coming (or reduced).
Lay out the situations to your clients (apologize), get out, and move on...
Usually a safe rule of thumb when stocks are involved.
@BMK --- I agree, their finanacials are tough to understand. I think that $217M was fresh money they put in, and if that's the case, with total annual revenue around a billion... that's a big chunk of change.
It does look like there were substantial insider buys this month (Nov) though.
https://www.nasdaq.com/market-activity/stocks/rily/sec-filings
I'll dig deeper later.
Seeking Alpha ran a news story that the CEO of RILY had to sell a huge chunk of stock because of a margin call LOL
And I'm sure that actually happened, because it's in SEC filings.
But the whole scandal seems to be based on some pretty weak speculation. The only concrete fact that seems at all relevant is that apparently Brian Kahn worked at Prophecy Asset Management during the time the fraud was taking place. This makes the rumor that he was involved in the fraud plausible, but it my view it does not make it credible.
That rumor started when someone, who was somehow associated with the Prophecy fraud case, told a Bloomberg reporter that Hughes, the guy at Prophecy who pleaded guilty to fraud, had named Kahn as a co-conspirator.
I don't think that claim has been independently verified or corroborated by anyone, anywhere, and the reporter's source is almost certainly anonymous.
I think this is a bunch of hype that is getting pumped by short sellers and also by securities lawyers who are looking to bring a class action case on behalf of Riley shareholders.
But Kahn has not been indicted, and, almost equally noteworthy, no class action case has been filed.
When there are real, operative facts available, the lawyers rush to file the case because the earliest to file often gets to be the lead, and the initial plaintiffs get a bonus settlement. With this kind of litigation, you take the thinnest shred of evidence, shoot from the hip, and file the case. You ask questions later. Lots of questions, using subpoenas and depositions. You need those tools to develop the case.
You can't get enough evidence to win the case, or force a settlement, until after you have filed the case. You need the power of discovery to build the case.
But you can't file the case on pure speculation, or it will be deemed frivolous, and you will not be allowed to conduct discovery. There is a quantum of evidence needed to start the lawsuit. You don't need enough evidence to win, but you need something.
The fact that no case has been filed means they don't have that something.
If they did, a suit would have already been filed.
I wouldn't be shocked if the claim that Kahn was involved is completely false. A short seller might have paid off a reporter to write that stuff. Or paid someone else, who really is involved in the case somehow, to feed that false information to a reporter. Would that be illegal? Of course. Is it possible? Absolutely.
Maybe the feds will announce the indictment of Brian Kahn on Monday morning.
But right now, there's simply nothing there to support all this except an unsubstantiated rumor.
And even if Kahn is indicted for his alleged role in the Prophecy fraud, it simply does not follow that this would spell disaster for Franchise Group.
And even if it did become a disaster for the performance of Franchise Group...
I am still not convinced that this would impair Riley to a degree that it would default on the baby bonds.
Cut the common stock dividend? Sure, that could certainly happen. Eliminate the common stock dividend altogether? Less likely, but certainly possible. Suspend dividends on preferred stock? Even less likely.
Default on debt instruments? That's tantamount to bankruptcy. I just don't see that happening to B. Riley, even if FRG crashes and burns.
This almost destroyed a stock I own...
https://www.google.com/url?sa=t&rct...usg=AOvVaw0nlgEPIeFj16TfvSjvjdcb&opi=89978449