B. Riley Financial Shares Plummet
Shares of B. Riley Financial (NASDAQ: RILY) took a significant hit, trading down 46% as of 10:30 Eastern, following distressing announcements. The investment firm reported a massive expected loss for the latest quarter and the suspension of its dividend, which has investors deeply concerned.
Quarterly Losses and Financial Investigations
The company pre-released its second-quarter results, revealing an anticipated loss of between $14 and $15 per share. This loss is primarily due to a noncash charge relating to its investment in Franchise Group. In a move to stabilize its financial standing, B. Riley has decided to suspend its dividend, focusing instead on reducing debt and strengthening its balance sheet.
Adding to the turmoil is a report from Bloomberg that the Securities and Exchange Commission (SEC) is investigating whether B. Riley adequately disclosed risks linked to certain assets. This investigation is reportedly scrutinizing dealings between Bryant Riley, B. Riley's founder and co-CEO, and Brian Kahn, former CEO of Franchise Group. The SEC's focus is on potential improper insider trading and the management of receivables from retail customers. The civil probes coincide with a federal criminal inquiry into the collapse of Prophecy Asset Management, another entity associated with Kahn.
Bryant Riley has confirmed that both he and B. Riley have received subpoenas from the SEC and are fully cooperating with the investigation.
B. Riley's Struggling Alliance with Franchise Group
For some time, B. Riley's involvement with Franchise Group has been under scrutiny by short sellers. Earlier this year, the company faced a delisting warning for failing to file its financials on time. This history adds to the current apprehensions around the firm's financial health and governance.
Should Investors Consider B. Riley?
Despite the CEO's assertion that internal investigations, aided by two separate law firms, found no misconduct related to Brian Kahn or his affiliates, the looming SEC investigation signifies substantial risk. The decision to suspend dividends casts doubt on the company's immediate stability. Until more information is available, investors are advised to exercise caution and possibly steer clear of B. Riley shares for now.
