by David Voreacos
Bryant Riley, the co-chief executive officer of B. Riley Financial Inc., failed to accurately disclose how many of his own shares he pledged to get a loan for himself from Axos Bank.
Riley previously reported in company filings that he pledged 4,389,553 shares to support a loan with approval of the company under its insider trading policy, according to a B. Riley regulatory filing Wednesday. The shares provide collateral for a $45 million revolving credit line set up in March 2019, according to a separate filing.
“Riley later pledged additional shares for which he did not receive approval under that policy,” the company said, bringing his total to 5,804,124 shares. This resulted in several inaccurate proxy statements and annual reports, with some dating as far back as 2020, the company said.
The amount of collateral posted for such debts can be crucial information to short sellers, who have been tracking B. Riley’s falling share price this year. Such investors stand to profit if a stock declines so severely that a lender seizes and sells shares backing a loan, potentially pushing the price down even further. That dynamic could motivate a borrower to overstate their collateral to avoid attracting bears.
“There have been shorts whose sole goal is to get my shares sold out, so underreporting collateral and my balance, which is down 45%, is clearly not in my best interest,” Bryant Riley said in an email after the company’s disclosure Wednesday. “That aside, I own the mistake.”
The disclosure comes while B. Riley Financial is selling assets to raise cash to cut its own debt load, and while the investment firm remains long overdue on filing its financial results for the second quarter. The Securities and Exchange Commission has been investigating some aspects of the company’s business, with subpoenas issued to Riley and the company.
Riley and his firm have said there’s been no wrongdoing and that they’re cooperating with the SEC.
The company’s audit committee investigated Riley’s pledges and related disclosures with help from a law firm and recommended “certain remedial and personnel actions” to ensure that Riley follows company policies and that the reports of his holdings are accurate, the filing on Wednesday shows.
The firm didn’t specify the nature of those actions. A spokesman for Los Angeles-based B. Riley didn’t have an immediate comment. Axos didn’t immediately respond to a request for comment. Winston & Strawn led the internal probe, and Riley cooperated, according to the filing.
Riley filed an amendment to his SEC filing with the revised number of shares late Wednesday. The shares he pledged are only a portion of the collateral backing the credit agreement, which matures on April 1, according to his filing.
As of Wednesday, Riley owed $21.4 million under the credit agreement, his filing shows.
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