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(Update of shares in paragraph 1, addition of expected impairment charge in paragraph 2)
B. Shares of Riley Financial
RILY.O plunged nearly 13% in Monday afternoon after Franchise Group, a bank-backed retailer, filed for bankruptcy.
The bank also said it may have to record an additional $120 million in writedowns related to Franchise-related investments and loans. It had previously warned of a loss for the three months ending June 30, due to retailer-related markdowns.
B. Riley has come under scrutiny for his exposure to the company after supporting a management buyout of Franchise last year.
“This is not the outcome we envisioned. I feel personally sickened by this outcome,” co-founder and co-CEO Bryant Riley said in a memo to staff that was disclosed in a filing.
Bloomberg News reported in November last year that Franchise's former chief executive, Brian Kahn, was a co-conspirator in a securities fraud. Mr. Kahn has denied the allegations.
An external investigation () and an internal review () completed earlier this year cleared B. Riley of any wrongdoing. However, the bank's shares have lost nearly 73% of their value since the start of the year.
“I hate that B. Riley has been, so far, distilled by many people outside the company into one investment,” Bryant Riley said Monday.
He added that Franchise's investment was “devastated” due to a confluence of events involving a decline in consumer spending and uncertainty related to the federal investigation into Kahn.
“It is likely that there will be no recovery of equity for all shareholders who participated in the transaction,” he said.
The bank did not respond to a Reuters request for comment outside of business hours. Its stock last traded at $4.95.
It has sought to strengthen its balance sheet and stem the decline in shares through sales of non-essential units.
