Franchise Group Bankruptcy Costs B Riley Clients

Silver Law Group is investigating B Riley’s recommendation that investors purchase shares of Franchise Group as late as 2023.

Following reports of Franchise Group Inc.’s (FRG) bankruptcy filing in Delaware, B. Riley chairman Bryant Riley sent an email to the firm’s employees stating that he felt “personally sick” in the aftermath. The bankruptcy came just over one year after Riley assisted with the formation of FRG, and the $2.8 billion he helped to arrange for the buyout. The newly formed FRG became a key holding of B. Riley. Shares of B. Riley fell 12% in New York trading following the announcement on Sunday.

FRG’s Chapter 11 bankruptcy filing drained the firm’s shareholders and means losses of $120 million for B. Riley. This follows an announcement of write-downs of as much as $370 million prior to the filing.

In the email included with B. Riley’s regulatory filings, Riley said, “This is not the outcome we ever envisioned. I feel personally sick about this result.” Riley is one of FRG’s “one of the most significant individual investors,” and is also the firm’s largest shareholder.

“The investment was devastated by the precipitous decline in consumer spending in the markets served by the FRG brands, and the fallout and uncertainty from the Prophecy scandal and the related federal investigation into Brian Kahn,” Riley continued.

Brian Kahn is the co-founder and former CEO of B. Riley who is the subject of a criminal investigation into his involvement with the now-defunct Prophecy Asset Management hedge fund. Kahn has denied any involvement and has also stated that he himself was also defrauded. That investigation is ongoing.

“OUR FIRM WILL MOVE PAST THIS AND THRIVE,” Riley also wrote. “Despite the negative headlines, we are in far better shape than folks give us credit for.” He apologized for “enormous pressure” that B. Riley employees were facing.

Under the proposed plan, FRG’s lenders will take over operations of some of the businesses, including Vitamin Shoppe. However, FRG will wind down operations of American Freight, a furniture and appliance retailer with stores in 41 states. This follows B. Riley’s sale of furniture retailer W.S. Badcock to Conn’s, the Texas-based furniture and appliance store chain. Following the acquisition, Conn’s still filed for bankruptcy and began closing its stores. The last remaining 10 Conn’s stores are located in Arizona and Florida, and are selling their remaining stock in a final “going out of business” sale.

Did You Invest With Franchise Group, Inc. (FRG)?

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