This Firm is Among the Most Shorted Stocks on Wall Street
In 2023, an investment bank called B. Riley Financial was one of the most shorted stocks on all of Wall Street. The firm enjoyed the unique position of being one of the most profitable shorts of 2023. Now more than halfway through 2024, B. Riley remains one of the top short trades on the open market, and the story just keeps getting worse.
Nailed with an SEC fine during its very first year of opening over 20 years ago, the company is facing continuing waves of short selling in the wake of news earlier this year that the CEO of Vitamin Shoppe parent company Franchise Group, B. Riley’s big new client, took a plea deal after being nabbed for a fraud conspiracy. Now the SEC is back, and they’re asking questions:
B. Riley Financial Collapses 52% Today, -91% in 2.5 Years since Peak Consensual Hallucination.
It dumped on already puking shareholders a surprise disclosure of huge losses that exceed its capital, amid reports of widening SEC investigationhttps://t.co/NzoLHXeKgZ pic.twitter.com/I31UCcH2vM— Wolf Richter (@wolfofwolfst) August 12, 2024
Market researchers and partners at other hedge funds have said, as reported in Institutional Investor:
“There are ‘few clients of this bank that have any legitimate business purpose, or any reason to exist outside of scamming retail investors…The high‐net‐worth channel is financing the bank’s bonds that in turn are used to buy high risk assets.’”
…and that B. Riley Financial acts as…
“a lender of last resort for the dregs of the public market…“(it has) lent money to companies that have degenerated into zombies.”
The Franchise Group CEO Brian Kahn, was accused of taking proceeds obtained through fraud and using them as collateral to get money from investors for a hedge fund that eventually collapsed under the weight of all the trickery.
The scheme required all manner of forgery, phony deals, and other forms of sneakiness. While the CEO of B. Riley Financial, Bryant Riley himself, claims he knew nothing of the fraud, he admits that the two firms have had a close relationship for years. Short sellers are still salivating at the news that there was legal trouble at Franchise just months after B. Riley acquired it.
One report, citing only anonymous “industry sources” (who, speculatively, smell a bit like potential B. Riley insiders trying to stop the onslaught of shorts), called claims that B. Riley is likely implicated as nothing more than a ‘smear campaign’ by greedy shorty sellers seeking to profit by undermining the company. These anonymous sources claimed that predatory hedge funds were spreading lies about employees and engaging in “outrageous personal harassment.”
With massive quarterly losses, the bank has now been forced to pause its dividend. Eyebrows are rising at claims that it is experiencing “delays” in its quarterly reporting to the SEC on the value of its investments and loans. Meanwhile, B. Riley is also being slapped with subpoenas in the Franchise Group case.
In a desperate bid to save the company, Bryant Riley put forth a proposal last Friday to buy his own company at a massive loss, taking it private to the tune of $7 per share — a stark contrast to the $80 per share as recently as 2021, when the company enjoyed a COVID feeding frenzy of cheap assets. The announcement caused an end-of-week rally for the stock, followed by a steady decline:
RILY 5-Day Chart
We’ll see what the rest of this week holds — but judging from the chatter, the all-out short selling assault on B. Riley Financial seems likely to continue.
