(Bloomberg) — B. Riley Financial Inc. is facing more scrutiny from authorities, with the company disclosing that the Financial Industry Regulatory Authority is looking into the firm’s wealth management business.
The so-called cause exam by Finra, Wall Street’s self-regulatory watchdog, was disclosed by B. Riley Wealth Management in a filing submitted earlier this month with the US Securities and Exchange Commission. Finra typically launches such probes based on customer complaints or regulatory tips.
Depending on what’s uncovered, these exams sometimes lead to sanctions or fines, but the existence of a probe doesn’t necessarily mean there’s been any wrongdoing. Finra declined to comment.
“The filing references a routine inquiry that B. Riley Wealth Management receives on a regular basis from Finra for additional information,” according to an emailed statement from Los Angeles-based B. Riley. “The firm has responded to and complied with the request, as it does with each one it receives. We do not provide details on any specific request.”
The document cited a Finra arbitration involving seven claimants against B. Riley Securities who are seeking compensation for alleged securities law violations tied to Franchise Group, or FRG, the now-bankrupt retail company that was once one of B. Riley’s biggest investments. The filing said B. Riley intends to defend itself “vigorously.”
The company also said it was named in an arbitration demand filed by a private investor in the August 2023 management-led buyout of FRG who claims they were fraudulently induced by B. Riley Financial to invest in the transaction.
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B. Riley’s stock price has lost more than 90% of its value in the past 12 months amid three years of losses, soured investments, delayed financial reports and revelations that the SEC had been investigating whether the firm gave shareholders an accurate picture of its health. That has spurred attacks from short sellers and class-action plaintiffs. Throughout the turmoil, B. Riley has said there’s been no wrongdoing and that it’s cooperating with investigators as it tries to craft a turnaround.
The firm disclosed back in January that the SEC sent subpoenas seeking information about B. Riley’s dealings with FRG, whose holdings included furniture stores and retail chains such as the Vitamin Shoppe. B. Riley played a central role in financing the leveraged buyout of FRG, whose subsequent collapse led to massive writedowns for B. Riley. It remains overdue on filing audited 2024 results with the SEC, citing delays in compiling other late financial reports and the need for more time to analyze potential impairments.