B. Riley (RILY) debt securities taking a hit...

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John Hughes at Prophecy Asset Management pleads guilty to defrauding investors of $294 million.

News reports from Reuters and Bloomberg suggest that Brian Kahn, CEO of Franchise Group (FRG) is a co-conspirator in the Hughes case.

B. Riley (RILY) recently acquired a massive stake in Franchise Group.

B. Riley common stock drops ten percent in five days.

Preferred shares and baby bonds have also taken a significant hit.

We are holding RILYG, RILYK, RILYL, and RILYZ across multiple accounts. One retirement account has 4.4% of its value in RILYG. In our other accounts, it amounts to less than 2%.

Is this drop in value an overreaction?

Just how large of a stake in FRG does B. Riley have?

The lawyers are circling for a shareholder derivative action for RILY shareholders:

https://tinyurl.com/bbbbriley
 
Looks like they could be in trouble. They wrote down $76+M out of a $217M investment in FRG where both founders pretty much admitted to fraud. I wonder if the rest of their investment is actually worth anything? They are down to $109M in cash on hand.

From the Gobe Newswire from yesterday:

Questions about B. Riley's FRG investment began to arise on Nov. 2, 2023, when the DOJ announced that co-founder of hedge fund Prophecy Asset Management John Hughes had pled guilty to conspiring to defraud dozens of victim investors out of $294 million. Bloomberg later reported that FRG's CEO Brian Kahn is one of two co-conspirators and Reuters reported that Hughes named Kahn as a co-conspirator.

Then, on Nov. 8, 2023, B. Riley revealed that it was forced to mark down the value of its investment in FRG after the company reported a decline in revenue and a net loss in the third quarter. That markdown resulted in B. Riley reporting a net loss of $75.8 million in Q3 2023, compared with a profit of $45.8 million a year earlier.

Most recently, on Nov. 10, 2023, S&P Global Ratings downgraded FRG's credit rating, dropping it further down in junk status to "B-" from "B" with a negative outlook, citing its weak performance. S&P also said it was monitoring legal developments relating to FRG's Chief Executive Brian Kahn, who led the August take-private deal.
 

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nitrene said:
They wrote down $76+M out of a $217M investment in FRG where both founders pretty much admitted to fraud.
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One of the founders of FRG, John Hughes, pleaded guilty to fraud. I have not read anything about another co-founder.

And the fraud that he admitted to occurred at a hedge fund called Prophecy Asset Management.

Yes, there are reports that he has somehow identified Brian Kahn as a participant in that fraud, and Brian Kahn is the CEO of FRG.

But I have not seen any evidence of fraud at FRG. And even if there is fraud at FRG, and even FRG is headed for serious trouble, e.g., bankruptcy...

I'm not convinced that that will lead to serious trouble for RILY.

They had a $217M investment that is now worth only $141M?

What portion of B. Riley's overall portfolio of assets is that?

It may hurt earnings for several quarters. Might even cause them to cut the dividend on their common stock.

But will it really impair their ability to continue paying dividends on preferred stock? Or interest payments on notes?

Somehow I don't see the trouble at FRG as an existential threat to RILY.
 
You may be right about it not being a existential threat, however it does seem to bring into question the decision skills of the B. Riley leaders doesn't it? Where were the compliance people on this FRG buy. On the other hand they haven't lowered their dividend so maybe they think it will all blow over soon enough.

I did buy some of the distressed Office REITs near the bottom after the SVB collapse and Vornado Realty completely stopped their dividend and the stock actually rose. I also bought Boston Properties & SL Green but they kept their dividends and so far they have done okay. SL Green seems to be the best of the lot.

Seems like days where the 10 year rate goes up or bad retail sales data seems to always bring down these type of stocks even B. Riley which was down heavy today on no news I saw.
 
Fantastic. It dropped from 60 to 20 in just 4 months.

There was a very significant trading volume on 13 Nov 2023.
If you were to short it on 13 or 14 Nov 2023, it would be too late to short it.
 
Do you trust their audits?? Do you trust the value of their commercial property??

If no to either, then you have a problem...Attorneys circling??
 
maxinger said:
Fantastic. It dropped from 60 to 20 in just 4 months.

There was a very significant trading volume on 13 Nov 2023.
If you were to short it on 13 or 14 Nov 2023, it would be too late to short it.
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But you'd have had your "confirmation" on the chart and you could get in for the last .0001% move. :p
 
Looks overdone to me. The fraud as was said was at some unrelated hedge fund run by the FRG CEO, not at FRG. He was part of the going private deal for FRG and kept his shares, along with other insiders, rather than getting cashed out which is a pretty weird thing to do if you run the company and know it’s got big problems.

I like the RILY stock as well as the debt.
 
MoreLeverage said:
Looks overdone to me. The fraud as was said was at some unrelated hedge fund run by the FRG CEO, not at FRG. He was part of the going private deal for FRG and kept his shares, along with other insiders, rather than getting cashed out which is a pretty weird thing to do if you run the company and know it’s got big problems.

I like the RILY stock as well as the debt.
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No fraud on Rily's part, but the $ hit on their balance sheet... that's what worries me.
I don't own any, but I've followed/traded it for years.
 
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