Brian Kahn is stepping down as chief executive of Franchise Group Inc., just months after a leveraged buyout aided by B. Riley Financial Inc., as regulators look into his ties to the collapse of a hedge fund.
Andy Laurence, FRG’s current executive vice president, was named to replace Kahn immediately, according to a person familiar with the matter, who asked not to be identified because the decision hasn’t been publicly announced. FRG held a call with lenders to inform them of the departure, the person said.
Kahn’s exit has been in the works for some time, the person said, before a report this weekend by Bloomberg that the Securities and Exchange Commission was looking into some of Kahn’s business deals with B. Riley.
The boutique investment bank, catering to smaller publicly traded firms, helped Kahn finance his buyout of FRG last year, and it holds a stake in the company, which owns retail brands such as Vitamin Shoppe and Sylvan Learning.
Bloomberg reported in November that Kahn was regarded by prosecutors as a co-conspirator in a securities fraud case tied to the collapse of Prophecy Asset Management. Kahn denies wrongdoing and hasn’t been charged. A message to his attorney seeking comment wasn’t immediately returned.
“At no time during my former business relationship with Prophecy did I know that Prophecy or its principals were allegedly defrauding their investors, nor did I conspire in any fraud,” Kahn said in a November statement. “Like many other investors, my relationship with Prophecy was costly, including economically, and I ceased doing business with Prophecy several years ago. In no way, shape or form has this previous relationship impacted Franchise Group.”
Shares of B. Riley fell 5.5% in extended trading at 5:18 p.m. in New York. The company declined to comment on Kahn’s departure. B. Riley said in a statement this weekend it wasn’t aware of an SEC probe but would cooperate with any regulatory inquiry, and it cited short sellers for sowing falsehoods about the company.
“We would welcome an investigation into the outrageous tactics the short sellers have pursued to destroy B. Riley, including the coordinated options trading with zero disclosure obligations,” B. Riley said in its statement. “The short sellers continue to harass, intimidate, and insult employees and everyone associated with B. Riley, resorting to lies and crude remarks so they can personally profit.”
Rajesh Markan earlier this year pleaded guilty to one count of criminal fraud related to his sale of fake investments to 10 clients totaling $2.9 million.
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