B. Riley Shareholder Lawsuit: Franchise Group Allegations

A shareholder derivative lawsuit alleges that executives at broker-dealer firm B. Riley & Financial breached their fiduciary duties and failed to disclose material facts relating to the company’s relationship with the former CEO of another company called Franchise Group, according to a January 2026 report by InvestmentNews.

As the report explains, the lawsuit concerns the firm’s relationship with Brian Kahn, with whom it allegedly had a two-decade relationship while it “provided funding and support to Franchise Group and various entities under Kahn’s control.” This included the $2.8 billion management buyout of franchise group in August 2023, which the firm facilitated by “securing financing from Nomura Holdings to allow Kahn and senior management to acquire the 64 percent stake they did not already own.”

In 2024, the Wall Street Journal reported “reported a longer and closer relationship between B. Riley and Kahn than previously known,” according to InvestmentNews, which adds: “A July 2023 Nomura presentation revealed a series of undisclosed loans to Kahn, with principal balances reaching $154 million by mid-2023. The firm also lent $201 million to Kahn’s investment firm, secured by Franchise Group shares.”

As the Los Angeles Times reported in January 2025, the SEC has subpoenaed B. Riley for information about its relationship with Mr. Kahn, who was allegedly “a longstanding client and friend” of the firm’s CEO. When the firm and Mr. Kahn embarked on the Franchise Group buyout, the deal reportedly “came under pressure” when Mr. Kahn was named “as an unindicted co-conspirator by authorities in the collapse of an unrelated hedge fund called Prophecy Asset Management, which led to a fraud conviction for one of the fund’s executives.” When Franchise Group filed for bankruptcy in November 2024, B. Riley suffered the loss of hundreds of millions. The firm had made a loan of roughly $200 million to Mr. Kahn, “secured against FRG shares,” with equity holders wiped out by the firm’s bankruptcy filing and “the value of the remaining collateral for this debt… now dwindled to only about $2 million.”

According to InvestmentNews, the shareholder lawsuit against B. Riley alleges “violations of Section 14(a) of the Securities Exchange Act for allegedly misleading proxy statements, breach of fiduciary duties, unjust enrichment, and waste of corporate assets.” More information is available via the publication.

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