B. Riley Financial Inc. soared as much as 61% after its auditors signed off on its annual report, while flagging concerns about weak internal controls.
The Los Angeles-based boutique investment bank's audit cited multiple material weaknesses in the company's reporting, and some of the previously reported data was revised, according to regulatory filings. Marcum LLP, which handled the audit, said the weaknesses in internal controls over financial reporting merited an "adverse opinion."
The bank also expanded its list of risk factors and noted concerns about its involvement with Brian Kahn, a former key client who has come under scrutiny by US regulators. The firm said it redid an internal investigation with the help of a new law firm, Winston & Strawn, which reaffirmed that the bank has no ties to any alleged role of Kahn in the collapse of a hedge fund, which triggered a fraud investigation. Still, B. Riley said the matter may trigger further "adverse effects on our business."
"The results of the independent investigation confirmed that the company and its executives had no involvement with, or knowledge of, any of the alleged misconduct concerning Mr. Kahn or any of his affiliates," B. Riley said in a statement. The stock was up 37% to $29.67 at 10 a.m. in New York and traded as high as $35.
Kahn has repeatedly denied wrongdoing and hasn't been charged with anything by U.S. authorities.
The filing eases some pressure on B. Riley, whose stock had plunged after short sellers aired concerns about its relationship with Kahn. At the same time, it provided some support to investors who've criticized the firm's ability to monitor its own finances. B. Riley had failed to file its audited results on time in March and needed an extension from its lenders to finish the job.
The report didn't satisfy some of the short sellers who've been betting against the stock.
"Marcum decided to enclose new risk factors and call Kahn a related party, which is everything the skeptics have been saying," Marc Cohodes said by email. The firm still has "mismarked assets and related-party dealings that don't pass the sniff test," he said.
