The hedge fund investor at the heart of a scandal that damaged B. Riley Financial has been charged with criminal fraud as the West L.A. company continues efforts to dig out from under the debacle.

Brian Kahn, 52, who led a disastrous management buyout of a retail holding company partly financed with $600 million in B. Riley debt, has been charged with conspiracy to commit securities fraud in a related case, according to a recent court filing.

Kahn was an investor advisor for hedge fund Prophecy Asset Management, which collapsed in 2020. He was accused by the Securities and Exchange Commission in September in a civil action of participating in a fraud that lost investors more than $350 million while earning millions in management fees.

The criminal indictment handed down in August but was not disclosed until a filing last week in federal court in New Jersey. Details about the indictment were not available in the court file, except that prosecutors said it was linked to the collapse of Prophecy Asset Management, which has offices in New York and elsewhere.

Kahn and two co-owners of the fund have been accused of hiding the losses, while an investor suit accused Kahn of funneling some of the fund's money to Franchise Group, the retail holding company financed by B. Riley. One of the fund's owners has pleaded guilty to criminal charges but the other has denied them.

Kahn has previously denied any wrongdoing in the matter, but could not be reached for comment. His attorney also could not be reached for comment.

The U.S. attorney's office in New Jersey said it was unable to comment on any matters unrelated to the federal shutdown.

Kahn, who has a home in suburban Orlando, Fla., had done deals with B. Riley founder Bryant Riley before convincing the L.A. businessman to help finance a $2.8-billion management buyout of Franchise Group, a Delaware holding company Kahn had assembled.

B. Riley provided the $600 million through debt raised from a bank and other lenders. It also took its own 31% stake and lent Kahn's investment fund $201 million, largely secured with shares of Franchise Group, whose holdings included Vitamin Shoppe and Pet Supplies Plus.

However, the 2023 deal didn't work out amid fallout from the hedge fund scandal and slowing sales as pandemic stimulus checks ran out. Franchise Group filed for bankruptcy in November 2024.

B. Riley has disclosed in regulatory filings that the firm and Riley have received SEC subpoenas regarding its dealings with Kahn, Franchise group and other matters.

Riley, 58, the firm's chairman and co-chief executive, has denied knowledge of any wrongdoing at Prophecy, and an outside law firm hired by his firm reached the same conclusion. The company did not respond to requests for comment this week.

The failed deal pummeled B. Riley's stock, which had approached $90 in 2021 but fell to less than $3 earlier this year, though it has since gained some ground. It closed at $5.59 on Wednesday.

The company has marked down hundreds of millions of dollars of its Franchise Group investment, and has spent the last year paring debt through refinancing, selling off parts of its business and other steps, including cutting expenses by closing offices.

Among the major moves it has taken was the October 2024 sale of a majority stake in its Great American appraisal and liquidation business, which earned the company about $203 million in cash.

That same month it sold off its interests in its apparel and Brookstone brands for about $236 million, segments of a diversified business model that is not typical for a firm whose core business is providing small cap and middle market companies with financial services.

This year it unloaded its GlassRatner professional advisory services firm for $118 million and carved out its B. Riley Securities investment bank into a separate publicly traded company in which it retains a majority stake.

The firm announced this week it was changing its name to BRC Group Holdings, which Riley in a press release said "reflects our evolution over the last three decades from a financial services platform to a portfolio of diverse, distinct companies, each operating with its own dedicated management team and strategic focus."

The name change, which takes effect in January, distances the company from its association with Kahn, Prophecy Asset Management and Franchise Group.

Still, B. Riley has been targeted by short sellers, who bet a stock will decrease in value.

That bearish sentiment has mirrored the company's struggles to file its 2025 quarterly earnings reports after its strategic moves and a change in auditors. It is now facing delisting from the Nasdaq over the late filings.

The company said in a regulatory filing Wednesday that it expects to report a third quarter profit.

©2025 Los Angeles Times. Visit at latimes.com. Distributed by Tribune Content Agency, LLC.