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Item 3. Legal Proceedings

2025-09-19 compared with 2024-04-24 · 59 added, 14 removed, 8 unchanged (90% of the section changed)

1 unchanged sentence

The Company is subject to certain legal and other claims that arise in the ordinary course of its business.

In particular, the Company and its subsidiaries are named in and subject to various proceedings and claims arising primarily from our securities business activities, including lawsuits, arbitration claims, class actions, and regulatory matters.

In particular, the Company and its subsidiaries are named in and subject to various proceedings and claims arising primarily from the Company’s securities business activities, including lawsuits, arbitration claims, class actions, and regulatory matters.

Some of these claims seek substantial compensatory, punitive, or indeterminate damages.

The Company and its subsidiaries are also involved in other reviews, investigations, and proceedings by governmental and self-regulatory organizations regarding our business, which may result in adverse judgments, settlements, fines, penalties, injunctions, and other relief.

In view of the number and diversity of claims against our company, the number of jurisdictions in which litigation is pending, and the inherent difficulty of predicting the outcome of litigation and other claims, we cannot state with certainty what the eventual outcome of pending litigation or other claims will be.

Notwithstanding this uncertainty, the Company does not believe that the results of these claims are likely to have a material effect on its financial statements.

The Company and its subsidiaries are also involved in other reviews, investigations, and proceedings by governmental and self-regulatory organizations regarding the Company’s business, which may result in adverse judgments, settlements, fines, penalties, injunctions, and other relief.

In addition to such legal and other claims, reviews, investigations, and proceedings, the Company and its subsidiaries are subject to the risk of unasserted claims, including, among others, as it relates to matters related to Mr.

Kahn and our investment in Freedom VCM.

For example, in light of Mr.

Kahn’s alleged involvement with the alleged misconduct concerning Prophecy Asset Management LP, the Company can provide no assurances that it will not be subject to claims asserting an interest in the Freedom VCM equity interests owned by Mr.

Kahn, including those that collateralize the Amended and Restated Note.

If a claim were successful, it would diminish the value of the collateral which could impact the carrying value of the loan.

If such claims are made, however, the Company believes it has valid defenses from any such claim and any such claim would be without merit.

On July 11, 2025, the Company’s subsidiary, BRS, received a demand letter from certain parties that invested in a special purpose entity (the “SPV”) that in turn invested in the going private transaction (the “Transaction”) in August 2023 of FRG.

The letter alleges that BRS failed to disclose certain material facts regarding FRG and the Transaction in violation of certain securities and other laws.

Such investors seek rescission of the aggregate investment amount of $37.5 million.

The Company believes such claims are meritless and intends to defend such claims.

On February 14, 2025, a stockholder derivative complaint was filed by Michael Marchner in the Delaware Chancery Court on behalf of the Company and against the members of the Company’s Board of Directors.

The complaint alleges that certain of the Company's officers and the board of directors (i) breached their fiduciary duties related to the Company’s involvement with Brian Kahn and subsequent legal issues, (ii) engaged in misconduct, and (iii) wasted corporate assets, including the approval of improper compensation.

The Company believes that these claims are meritless and intends to defend this action.

On January 22, 2025, a stockholder derivative complaint was filed by James Smith in the Superior Court for Los Angeles County against the Company, certain of the Company’s executive officers and the members of the Company’s Board of Directors.

The complaint alleges that certain of the Company's officers and directors (i) breached their fiduciary duties related to the Company’s involvement with Brian Kahn and subsequent legal issues, (ii) engaged in a waste of corporate assets, and (iii) received unjust enrichment.

The Company believes that these claims are meritless and intends to defend this action.

On July 9, 2024, a putative class action was filed by Brian Gale, Mark Noble, Terry Philippas and Lawrence Bass in the Delaware Chancery Court against Freedom VCM, Mr.

Kahn, Andrew Laurence, Matthew Avril and the Company.

This complaint alleges that former shareholders of FRG suffered damages due to alleged breaches of fiduciary duties by officers, directors and other participants in the August 2023 management-led take private transaction of FRG and that the Company aided and abetted those alleged breaches of fiduciary duties.

The claim seeks an award of unspecified damages, rescissory damages and/or quasi-appraisal damages, disgorgement of profits, attorneys’ fees and expenses, and interest thereon.

The Company believes these claims are meritless and intends to defend this action.

On July 3, 2024, each of the Company and Bryant Riley, Chairman and Co-Chief Executive Officer, received a subpoena from the U.S.

Securities and Exchange Commission (the “SEC”) requesting the production of certain documents and other information primarily related to (i) the Company’s business dealings with Brian Kahn, (ii) certain transactions in an unrelated public company’s securities, and (iii) the communications and related compliance and other policies and procedures of certain of its regulated subsidiaries.

On November 22, 2024, each of the Company and Mr.

Riley received an additional SEC subpoena requesting the production of certain additional documents and information relating to Franchise Group, Inc.

(including its holding company, Freedom VCM Holdings, LLC) as well as Mr.

Riley’s personal loan and his pledge of shares of the Company’s common stock as collateral for such loan.

As previously disclosed on April 23, 2024, the Audit Committee of the Company’s Board of Directors, with the assistance of Sullivan & Cromwell LLP, the Company’s legal counsel, conducted an internal review, and separately the Audit Committee retained Winston & Strawn LLP, independent legal counsel, to conduct an independent investigation, to review transactions among Mr.

Kahn (and his affiliates) and the Company (and its affiliates).

The review and the investigation both confirmed that the Company and its executives, including Mr.

Riley, had no involvement with, or knowledge of, any alleged misconduct concerning Mr.

Kahn or any of his affiliates.

The receipt of subpoenas is not an indication that the SEC or its staff has determined that any violations of law have occurred.

Both the Company and Mr.

Riley are responding to the subpoenas and are fully cooperating with the SEC.

On May 2, 2024 a putative class action was filed Ted Donaldson in the Superior Court for the State of California, County of Los Angeles on behalf of all persons who acquired the Company’s senior notes pursuant to the shelf registration statement filed with the SEC on Form S-3 dated January 28, 2021, and the prospectuses filed and published on August 4, 2021 and December 2, 2021 (the “Offerings”).

The action asserts claims under §§ 11, 12, and 15 of the Securities Act of 1933 against the Company, some of the Company's current and former officers and directors, and the financial institutions that served as underwriters and book runners for the Offerings.

An amended complaint was filed on September 27, 2024.

The amended complaint alleges that the offering documents failed to advise investors that Brian Kahn and/or one or more of his controlled entities was engaged in illicit business activities, that the Company, despite the foregoing, continued to finance transactions for Kahn, eventually enabling him and others to take FRG private, and that the foregoing was reasonably likely to draw regulatory scrutiny and reputational harm to the Company.

The Company believes these claims are meritless and intends to defend this action.

On January 24, 2024, a putative securities class action complaint was filed by Mike Coan in U.S.

Federal District Court, Central District of California, against the Company, Bryant Riley, Tom Kelleher, and Phillip Ahn (“Defendants”).

Federal District Court, Central District of California, against the Company, Mr.

Riley, Tom Kelleher and Phillip Ahn.

The purported class includes persons and entities that purchased shares of the Company’s common stock between May 10, 2023 and November 9, 2023.

The complaint alleges that (a) the Company failed to disclose to investors that (i) Brian Kahn, had been implicated in a conspiracy to defraud third party investors, and (ii) the Company financed Brian Kahn and others in connection with a going private transaction involving FRG, and (b) as a result of the foregoing, the Company engaged in securities fraud in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

A second putative class action lawsuit was filed on March 15, 2024 by the KL Kamholz Joint Revocable Trust (“Kamholz”).

This complaint asserts similar allegations as the Coan complaint and covers an alleged class period between February 28, 2022 and November 9, 2023.

The Kamholz complaint further alleges that Defendants knew or should have known that Brian Kahn was engaged in illegal activities, including a conspiracy to commit fraud, and nonetheless proceeded with the FRG going-private transaction.

The Company believes these claims are meritless and intends to defend this action.

On September 21, 2023, we received a demand alleging that certain payments in the aggregate amount of approximately $32.2 million made by Sorrento Therapeutics, Inc.

(“Sorrento”), a chapter 11 debtor in U.S.

Bankruptcy Court, Southern District of Texas, to B.

Riley Commercial Capital, LLC (“BRCC”), pursuant to that certain Bridge Loan Agreement dated September 30, 2022 between Sorrento and BRCC, are avoidable as preferential transfers.

The Company believes the Sorrento Unsecured Creditors Committee’s preference claims lack merit, and the Company intends to assert its statutory defenses to defeat the claim.

On August 8, 2024, this matter was consolidated with the Kamholz matter and an amended complaint was then filed on April 21, 2025.

The amended complaint alleges that the Company failed to disclose to investors material financial details concerning a going private transaction involving FRG, and that the Company made false or misleading statements concerning the Company’s lending practices, its high concentration of risk in transactions involving Mr.

Kahn and his affiliates, the condition and composition of the Company’s loan portfolio, the Company’s due diligence and risk management procedures, and the Company’s level of concern and internal scrutiny concerning Mr.

Kahn after it learned he was potentially implicated in a fraud involving an unrelated third party.

The amended complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

The Company cannot estimate the amount of potential liability, if any, that could arise from these matters and believes these claims are meritless and intends to defend these actions.

On September 21, 2023, the Company’s wholly owned subsidiary, B.

Riley Commercial Capital, LLC (“BRCC”), received a demand alleging that certain payments to BRCC in the aggregate amount of approximately $32.2 million made by Sorrento Therapeutics, Inc.

(“Sorrento”), a chapter 11 debtor in the Bankruptcy Court, pursuant to that certain Bridge

Loan Agreement dated September 30, 2022 between Sorrento and BRCC, are avoidable as preferential transfers (the “Alleged Preferences”).

On June 16, 2025, the liquidating trustee on behalf of the Sorrento Liquidating Trust filed a complaint with the Court in an adversary proceeding seeking to avoid and recover the Alleged Preferences.

On September 12, 2025, the Court denied BRCC’s motion to dismiss.

The Company believes that the liquidating trustee’s claims lack merit and intends to continue to assert its statutory defenses to defeat such claims.

In light of the significant factual issues to be resolved with respect to the asserted claims and other proceedings described above and uncertainties regarding unasserted claims described above, at the present time reasonably possible losses cannot be estimated with respect to the asserted and unasserted claims described in the preceding paragraphs.

MINE SAFETY DISCLOSURES

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 3. Legal Proceedings