B. Riley Financial (NASDAQ:RILY) experienced a 10% drop in its stock price intra-day today amid reports that the Securities and Exchange Commission (SEC) is investigating the firm’s connections with a client involved in securities fraud.

Bloomberg News reported that the SEC is looking into B. Riley’s relationship with Brian Kahn, who is implicated as an unnamed co-conspirator in a Department of Justice (DoJ) case. This case relates to the 2020 collapse of the Prophecy Asset Management hedge fund. However, B Riley has stated that it has not received any official communication from the SEC regarding this investigation.

A spokesperson for B. Riley, in response to Bloomberg News, asserted the company’s readiness to cooperate with any SEC inquiries, as it has done previously with regulatory matters. The spokesperson also expressed openness to an investigation into the alleged destructive tactics employed by short sellers against B. Riley. These tactics reportedly include coordinated options trading without disclosure obligations and personal attacks on the firm’s employees for profit motives.

The SEC’s investigation is said to be particularly focused on Kahn’s role in the acquisition of retail company Franchise Group Inc., a transaction that B Riley facilitated last year with partial financing from Nomura. It is believed that some of Kahn’s assets were used as collateral in this deal.

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