Item 3. Legal Proceedings
Item 3. LEGAL PROCEEDINGS
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 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 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. 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. The Company has not accrued for any such contingent liabilities, but such contingent liabilities could be realized which could have a material adverse impact on the Company’s financial condition.
In addition to the matters disclosed in “Note 30 – Commitments and Contingencies – (a) Legal Matters” in the accompanying consolidated financial statements, the following new legal proceedings were commenced by, or against, the Company and are disclosed pursuant to Item 103 of Regulation S-K:
On February 2, 2026, a stockholder derivative complaint was filed by Adrian Rubio in the U.S. Federal District Court, Central District of California on behalf of the Company and against the members of the Company’s Board of Directors and
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certain of the Company’s executive officers. The complaint alleges that certain of the Company’s officers and the board of directors substantially damaged the Company by filing false and misleading statements that omitted material adverse facts regarding Brian Kahn's involvement in the Prophecy fraud and the regulatory scrutiny that the Company would face because of its entanglements with Kahn and Franchise Group. Claims include breach of fiduciary duties and unjust enrichment. The Company believes that these claims are meritless and intends to defend this action.
On January 20, 2026, the Company, along with co-Plaintiffs B. Riley Principal Investments, LLC, B. Riley Private Shares 2023-2 QC, LLC, B. Riley Private Shares 2023-2 QP, LLC, BRF Finance Co., LLC and B. Riley Commercial Capital, LLC (together with the Company, the “Plaintiffs”) filed a complaint (the “Complaint”) against Willkie Farr & Gallagher LLP (“Willkie”), Brian Kahn (“Kahn”) and Lauren Kahn (together with Kahn, the “Kahns”) in the Supreme Court of the State of New York, New York County. The Complaint asserts causes of action against (i) Willkie for aiding and abetting fraud, civil conspiracy to defraud and breach of fiduciary duty, (ii) Kahn for common law fraud, fraudulent inducement, and civil conspiracy to defraud and (iii) the Kahns for breach of contract, in connection with their activities related to the take-private transaction of Franchise Group, Inc. in August 2023 (the “Transaction”). The Complaint seeks over $735 million in compensatory damages, punitive damages and disgorgement of all fees Willkie received in connection with the Transaction.
On January 16, 2026, the Company received a pre-suit litigation letter from purported stockholders requesting that the Company’s Board of Directors investigate and pursue potential claims against certain current and former officers and directors relating to matters previously disclosed by the Company, including the Company’s prior business relationship with Brian Kahn and transactions involving Franchise Group, Inc. The demand seeks monetary recovery and corporate governance reforms and does not quantify any alleged damages. Previously, on July 19, 2024, the Company received a books and records demand from the same parties pursuant to Section 220 of the Delaware General Corporation Law relating to certain transactions involving Franchise Group, Inc. and the related take-private transaction in 2023. The Company is evaluating the letter in accordance with Delaware law. At this time, the Company is unable to predict the outcome of this matter or reasonably estimate a range of possible loss, if any.
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.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.