Thread by @FriendlyBearSA

THREAD: (1/n) $FRG appears to be the fruit of stolen money and the management buyout of $FRG was an apparent ploy to obstruct justice / interfere with forfeiture statutes. $RILY has aided and abetted Kahn. Kahn likely used the $201MM $RILY loan to further his ongoing scheme.

(2/n) Lyonross (unsealed 2022) is the most significant complaint involving Kahn. The key allegation is that Kahn misappropriated almost 200MM to build his controlling stake in $FRG back in 2019-2020. In 2020, he admitted he "owed" Prophecy money for his massive $FRG stake.

(3/n) Kahn siphoned off over $200MM into secret accounts to build a massive illiquid $FRG position. When Prophecy LPs redeemed, he held them hostage because of the illiquidity / change of control provision. He is running the same playbook with the $RILY buyout of $FRG.

(4/n) In 2022, Kahn hired Douglas Brooks in the Lyonross civil case. Brooks is a white collar criminal defense lawyer. Brooks remains criminal counsel for Kahn. It's inconceivable that Kahn was not already aware of the DOJ investigation by 2022. Therefore $RILY should have known.

(5/n) This means Kahn's entire FRG stake belongs to Prophecy victims (INCLUDING any gains). The only asset at Prophecy of any value turned out to be Kahn's stake in $FRG which at the time was completely illiquid (and conveniently is now even MORE illiquid) thanks to $RILY

(6/n) When $RILY closed its buyout of $FRG, Kahn and his affiliates still owned over 12mm shares of $FRG. So Kahn walked away with essentially all of the shares he bought with misappropriated Prophecy money (we believe ~2mm went to non-Prophecy LPs)

(7/n) Vantage Consulting was the largest victim in Prophecy and recently disclosed in a Form ADV that they entered some type of settlement with Prophecy but were still awaiting payment. As of 3/31/23, Vantage valued the Prophecy settlement at 0.6x NAV $RILY

(8/n) The only party that would be able to "settle" the Vantage claim is Brian Kahn. We doubt it is coincidental that $RILY has a $201MM loan out to Kahn - this approximates the amount that he allegedly agreed to settle with based on the Vantage disclosure and emails we found...

(9/n) According to emails we got unsealed, Kahn owed Prophecy $385MM! 0.6 * 385 is 231MM which is almost equal to the $201MM loan $RILY has out to Kahn as of the close of the $FRG deal. Did Bryant really not know what Kahn planned to do with the $201MM? Come on!

(10/n) The most obvious problem for $RILY so far is that Kahn doesn't even own his shares in $FRG. They belong to Prophecy. So $RILY has a $201M loan to Kahn and there is no collateral backing it. Kahn owes Prophecy the shares he pledged to $RILY

(11/n) $RILY did not disclose the related party loan to Kahn in the 9/30/23 10Q. But they did add NEW language in the credit agreement to treat the Vintage (Kahn's fund) loan as an $FRG loan. $RILY deceived Nomura because Vintage doesn't even own the $FRG shares. Prophecy does.

(12/n) So $RILY made a secret loan without any collateral behind it. The loan appears to be designed to help Kahn pay back Prophecy victims (without ceding control of $FRG). We suspect that Kahn tried to avoid prosecution through this "settlement" agreement with Prophecy victims

(13/n) Developments since the John Hughes guilty plea suggest that Brian Kahn's strategy has failed. But the take private accomplished two goals - both of which look like possible obstruction of justice $RILY

(14/n) First, Kahn was able to borrow $201MM from $RILY and almost kept it a secret - this would have been much harder in a public company setting. Kahn was using the money to strong-arm Prophecy victims into settling for an unjust discount - WHILE maintaining his control of $FRG

(15/n) Second, federal charges come with a forfeiture requirement. Courts have consistently held that asset appreciation is subject to forfeiture. In this case, Kahn bought around 15MM shares of $FRG with misappropriated money at $10/sh. The $RILY take private was at $30.

(16/n) Kahn significantly muddied the waters with $RILY's help. In a public company, the government could have just seized his shares for forfeiture. But now his holdings are commingled AND double pledged making it harder to take his stake. Either way, $FRG is a crime scene.

(17/n) Our conclusion is that Kahn has been under criminal investigation since at least 2022 and has tried impede the DOJ probe by coercing Prophecy victims to accept discounted settlements while maintaining control of $FRG. $RILY has been helping him through loans and the LBO.

(18/n) $RILY is invested in Vintage, interacts with Kahn daily, shares staff, so almost certainly knew of Kahn's criminal probe. They loaned him $201MM to help him try to make the DOJ probe disappear. Then they assisted his LBO to help make a DOJ asset forfeiture more complicated

(19/n) It is inconceivable that $RILY did not receive a subpoena from either a grand jury or from the SEC in connection with Kahn and the buyout of $FRG. $RILY had to have known of his issues. The fact they hid their loan to Kahn points to $RILY being complicit in the cover-up.

(20/n) Last thought - why did Kahn name the take private vehicle of $FRG "Freedom VCM Holdings". This seems consistent with our "get out of jail" theory. Kahn engineered the take private to interfere with the DOJ probe and buy himself "Freedom" (and $RILY helped)

(21/n) CONCLUSION: why is $RILY aiding and abetting Kahn in covering up his criminal wrongdoings? Is Kahn extorting Bryant? Or is Bryant just another victim of Kahn? Either way, $RILY has either knowingly or unwittingly assisted Kahn in advancing his criminal activities.

(22/n) APPENDIX: why did so many involved miss these documents? Overall it's inexcusable. But many of these lawsuits were sealed until 2022. And Prophecy, Kahn, and the victims handled major cases secretly in arbitration. None of the stakeholders wanted to air their dirty laundry