(Bloomberg) — B. Riley Financial Inc. soared as much as 61% after its auditors approved its annual report, while flagging concerns about weak internal controls.
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The audit of the Los Angeles-based specialty investment bank found several material weaknesses in the company’s reporting, and some of the previously reported data was revised, according to regulatory filings. Marcum LLP, which conducted the audit, said weaknesses in internal controls over financial reporting merited an “adverse opinion.”
The bank also expanded its list of risk factors and raised concerns about its involvement with Brian Kahn, a former key client subject to scrutiny by U.S. regulators. The firm said it re-conducted an internal investigation with the help of a new law firm, Winston & Strawn, which reaffirmed that the bank had no connection to any alleged role by Kahn in the collapse of a hedge fund, which triggered a fraud investigation. Still, Riley said the case could trigger other “negative effects on our business.”
“The results of the independent investigation confirmed that the company and its executives were neither involved in nor had knowledge of the alleged misconduct involving Mr. Kahn or any of its affiliates,” B. Riley said in a statement. . The stock was up 37 percent at $29.67 as of 10 a.m. in New York and trading as high as $35.
Kahn has repeatedly denied any wrongdoing and has not been charged with anything by U.S. authorities.
The filing eases some pressure on B. Riley, whose shares plunged after short sellers raised concerns about his dealings with Kahn. At the same time, he provided some support to investors who have criticized the company’s ability to monitor its own finances. B. Riley had not filed its audited results on time in March and needed an extension from its lenders to complete the work.
Read more: B. Riley fails to file audited results as grace period ends
The report did not satisfy some short sellers who were betting against the stock.
“Marcum decided to include new risk factors and label Kahn a related party, which is all the skeptics are saying,” Marc Cohodes said by email. The company still has “misidentified assets and related party transactions that don’t pass the sniff test,” he said.
(Updates with opening stock price, short seller comments, starting in first paragraph.)
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