Brian Kahn, former head of Franchise Group Inc. — Bloomberg
NEW YORK: Brian Kahn, the former head of Franchise Group Inc, was charged with conspiracy to commit securities fraud in the collapse of a hedge fund that prosecutors say cost investors US$294mil.
Kahn is the third person accused of crimes stemming from the failure of Prophecy Asset Management, which US prosecutors have characterised as “a multi-year investment adviser fraud,” according to an Aug 12 filing made public last week in federal court in Trenton, New Jersey.
Kahn was charged over “the same events that form the basis” of a guilty plea by John Hughes, a Prophecy co-founder, according to the Justice Department letter informing the court clerk about the developments.
Investors have been watching the case amid accusations in a civil lawsuit that Kahn used Prophecy money to acquire control of Franchise Group, or FRG, which subsequently went bankrupt.
FRG was one of the biggest investments of B. Riley Financial Inc, whose shares plummeted as FRG unravelled.
Prosecutors charged Kahn through criminal information, a document that typically precedes a guilty plea. A prosecutor said at a hearing last month that more people will plead guilty over the Prophecy collapse.
An attorney for Kahn didn’t immediately respond to a request for comment.
Another Kahn lawyer previously said that Kahn didn’t do anything wrong and that he was a victim of Prophecy’s demise in 2020.
The charging document had not been publicly filed by midday on Monday.
Kahn is represented by a private attorney appointed under the Criminal Justice Act, which covers indigent defendants.
Kahn has lived outside Orlando on a two-acre estate that once belonged to baseball superstar Ken Griffey Jr.
On Sept 11, he listed the mansion for sale for US$13mil. It includes an Olympic-sized swimming pool, a 912-bottle wine cellar and sweeping views of Lake Louise, according to a listing by Zillow.
Kahn headed FRG as a public company before its management-led buyout in 2023 for US$2.8bil. Weeks later, Hughes pleaded guilty and prosecutors deemed Kahn an unindicted co-conspirator, touching off a scandal that forced him to step down as chief executive.
FRG, a collection of furniture chains, vitamin stores and pet supplies, filed for bankruptcy in November 2024.
The turmoil engulfed B. Riley, whose chairman Bryant Riley had been Kahn’s partner in several business ventures.
Riley helped Kahn form and finance FRG, and its bankruptcy erased much of B. Riley’s market value. B. Riley has said it wasn’t involved in the Prophecy episode, nor has it been mentioned in the criminal filings.
Bryant Riley told Bloomberg News in a September interview that he feels betrayed and is angry at his old partner, Kahn.
“I don’t like saying his name, honestly,” he said.
B. Riley didn’t immediately respond to a message seeking comment.
The firm has been dogged by short-sellers who claim B. Riley failed to fully disclose the nature of its relationship with Kahn. — Bloomberg
