Riley Financial (NASDAQ: RILY) said it expects to post a massive loss in its most recent quarter and suspended its dividend. The investment firm is also reportedly in the crosshairs of U.S. government investigators.
On Monday morning, shareholders stampeded for the exits. Shares of B. Riley traded down 46% as of 10:30 Eastern.
Losses and investigations
Riley prereleased second-quarter results, and the numbers are not pretty. The company said it expects to lose between $14 and $15 per share in the quarter due to a noncash charge related to its investment in Franchise Group. B. Riley also said it would suspend its dividend to focus on deleveraging and strengthening its balance sheet.
The announcement follows a Bloomberg report that the Securities and Exchange Commission (SEC) is looking into whether B. Riley properly disclosed risks associated with some of its assets. The regulator is reportedly seeking information about the dealings between Bryant Riley, B. Riley's founder and co-CEO, and Brian Kahn, the former CEO of Franchise Group.
The report said that the probe is focused on potential improper trading among insiders, and the movement between companies of receivables due from retail customers. The civil probes are said to be proceeding along with a federal criminal inquiry into the collapse of another Kahn-affiliated entity, Prophecy Asset Management.
Riley, on a call with investors, confirmed that he and the company had received subpoenas from the SEC and are "fully cooperating."
B. Riley's relationship with Franchise has been the focus of short sellers for some time now. Earlier this year, the company also received a warning that it could be delisted if it does not file its financials promptly.
Is B. Riley a buy?
The CEO went on to say that "we are confident that the SEC will reach the same conclusion that our internal investigation, with the assistance of two separate law firms, did -- that we had no involvement with or knowledge of any alleged misconduct concerning Brian Kahn or his affiliates."
That might turn out to be true. But the government tends not to take on trivial matters, and the dividend suspension is a sign of the risk B. Riley currently faces. Until we learn more, investors should stay away from B. Riley shares.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
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