Cases & Investigations
B. Riley Financial, Inc. Breach of Fiduciary Duty Litigation

On February 14, 2025, Wolf Popper LLP commenced a derivative action alleging breaches of fiduciary duty against the directors of B. Riley Financial, Inc. (NASDAQ: RILY).  The action arises from the take-private acquisition of Franchise Group, Inc., a company controlled by Brian Kahn, by a management-led consortium including B. Riley.  In connection with the transaction, B. Riley acquired a 31% equity interest in Freedom VCM Holdings, LLC, the indirect parent entity of Franchise Group, valued at the time of the acquisition at $281.1 million.  Prior to the take-private transaction, B. Riley had provided Vintage Capital Management, LLC, a company controlled by Brian Kahn, with a $201 million loan secured by shares of Franchise Group.
 
The 149-page complaint, which follows an investigation into B. Riley’s books and records, alleges, among other things, that Bryant Riley exploited his control of B. Riley and caused B. Riley to enter into the take-private transaction notwithstanding Franchise Group’s deteriorating financial condition.  On August 12, 2024, B. Riley announced that it anticipated reporting a markdown of approximately $330 to $370 million related to its investment in Freedom VCM and that it was suspending payment of its dividend.  On November 3, 2024, Franchise Group filed for bankruptcy.  B. Riley subsequently reported additional impairments of $118 million in the aggregate from its investment in Freedom VCM and its loan receivable from Vintage Capital.  As of September 30, 2024, B. Riley ascribed no value to the Freedom VCM investment.  Accordingly, as a result of Bryant Riley’s and the director-defendants’ alleged misconduct, B. Riley has lost its entire or almost its entire $482.1 million investment in Franchise Group.
 
The case was filed in Delaware Court of Chancery.  Case No. 2025-0164-LWW.
 

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