By Manya Saini, Niket Nishant and Saeed Azhar
(Reuters) -Investment bank B. Riley Financial's shares hit their lowest in nearly eight years on Tuesday, after it delayed its quarterly report with the Securities and Exchange Commission, adding to worries over a second-quarter loss.
The tumble highlights the lingering troubles for the Los Angeles-based bank regarding its investment in Vitamin Shoppe-parent Franchise Group (NASDAQ:FRG), which has attracted scrutiny from shareholders and regulators.
Stock was last trading 10% lower at $7.33 after having fallen as low as $6.89. A 52% drop on Monday halved the bank's market value to roughly $247 million after it warned about preliminary losses in the range of $435 million to $475 million for the three months ended June 30.
This compares with a profit of $44 million, or $1.55 per share, a year ago.
"Our second quarter results were negatively impacted by non-cash losses, the overwhelming majority of which relate to performance of our investment in Franchise Group and our Vintage Capital loan receivable," CEO Bryant Riley said in a statement.
He added that the write-down was driven by a confluence of recent events, including the impact of a meaningfully weaker consumer spending environment on Franchise's businesses and its investments.
S&P Global Ratings also called the Franchise's operating results "persistently weak" in a report from July.
Franchise went private last year in a management-led buyout backed by B. Riley. The bank has warned it could report a markdown of $330 million to $370 million in the second quarter related to the investment.
The deal was partly funded by a $600 million loan from a handful of lenders arranged by Japanese investment bank Nomura.
Nomura holds less than 25% share of the credit facility, which is also backed by five other banks. Reuters could not immediately verify the names of the other lenders in the facility.
"Nomura's loan is secured and collateral is significant, with Franchise-related assets comprising a minority," the bank said.
Nearly $474 million of the facility was funded as of March 31, it said.
REGULATORY HEADWINDS
In July, B. Riley and its CEO received subpoenas from the SEC, primarily related to the bank's dealings with Franchise's former CEO, Brian Kahn.
Bloomberg News reported in November that Kahn was a co-conspirator in a securities fraud involving Prophecy Asset Management.
Kahn has denied the allegations made in the report, saying he never knew that Prophecy Asset was allegedly defrauding investors.
An external investigation and an internal review earlier this year cleared B. Riley of any wrongdoing.
"We are confident that the SEC will reach the same conclusion that our own internal investigation, with the assistance of two separate law firms, did – that we had no involvement with or knowledge of any alleged misconduct concerning Brian Kahn or his affiliates," Riley said on a call on Monday.
However, the allegations allowed B. Riley's critics - including Wolfpack Research, which shorted it last year - to renew their attacks on the company.
This week marks the third time the bank has delayed its reports with the SEC this year. It said the hold-up was due to delays it has experienced in finalizing the valuations of certain loans and investments.
Its stock is down roughly 61% so far this year. Short interest has surged to 40.6%, according to LSEG data.
B. Riley is also a major crypto backer, having supported miners like Iris Energy and Core Scientific in the past.