SEC Investigates B. Riley’s Clients and Transactions Involving Failed Hedge Funds

© Reuters. FILE PHOTO: The seal of the U.S. Securities and Exchange Commission (SEC) is seen at its headquarters in Washington, D.C., May 12, 2021. REUTERS/Andrew Kelly/File Photo

(Reuters) – U.S. authorities are investigating allegations that B. Riley Financial dealt with a client involved in securities fraud and whose assets were used by the investment bank to obtain loans. Nomura Holdings (NYSE:), Bloomberg News reported.

The U.S. Securities and Exchange Commission (SEC) has interviewed B. Reilly about his relationship with Brian Kahn in recent months, according to reports Sunday, citing people familiar with the matter.

Khan is one of two co-conspirators whose co-founder of hedge fund Prophecy Asset Management, John Hughes, pleaded guilty to securities fraud charges last year, Bloomberg reported.

“During my previous business relationship with Prophecy, I was not aware that Prophecy or any of its entities were defrauding investors, and I was not complicit in any fraud,” Kahn previously said in a statement to Reuters.

SEC officials have been closely examining how Kahn led the acquisition of Vitamin Shoppe Owner Franchise Group (NASDAQ:) in a deal arranged by B. Riley last year, a Bloomberg report said. Nomura added that it partially financed the deal by pledging some of Khan’s assets as collateral.

B. Riley and the SEC did not immediately respond to Reuters’ request for comment on the report.

B. Riley’s stock plunged after the company reported lower revenue and a net loss in the third quarter and was forced to lower the value of its investment in a $2.6 billion private deal involving its franchise group.