B. Riley Financial Inc. (RILY) shares have been hammered this week, tumbling over 50% on Monday and continuing their downward trajectory on Tuesday. This dramatic decline is directly linked to the company’s announcement that it is delaying its quarterly financial results, a move prompted by an ongoing investigation by the U.S. Securities and Exchange Commission (SEC).
The SEC is probing whether B. Riley adequately disclosed risks associated with certain assets, casting a shadow of doubt over the company’s financial practices. The agency’s investigation specifically delves into B. Riley’s investment in Franchise Group Inc. (FRG), one of B. Riley’s largest holdings. The SEC is reportedly seeking information on communications between B. Riley founder Bryant Riley and Brian Kahn, the former CEO of FRG, regarding a buyout deal. B. Riley reportedly advised Kahn on the deal and subsequently acquired a 31% stake in FRG.
The SEC’s investigation isn’t the only challenge B. Riley is facing. Short sellers, investors who profit when a stock price falls, have intensified their attacks on the company. Notably, prominent short seller Marc Cohodes took to X (formerly Twitter) to label B. Riley a “liar and fraud,” further exacerbating the negative sentiment surrounding the company. Another short seller, Muddy Waters Research, chimed in, congratulating WolfPack Research for being the first to raise concerns about B. Riley’s financial transparency.
Adding to the woes, B. Riley on Monday released preliminary results for the second quarter, revealing a significant impact from non-cash losses. The company expects to report a non-cash markdown of $330 to $370 million related to its investment in Freedom VCM, the indirect parent of FRG. This has led to a projected net loss of $435 million to $475 million for the quarter.
The combination of the SEC investigation, short seller criticism, and disappointing financial results has left B. Riley’s stock in a precarious position. The stock is now down about 86% over the past year. As the SEC’s investigation unfolds and the company addresses its financial challenges, the future of B. Riley Financial remains uncertain.
