Caption: In re B. Riley Financial, Inc. Securities Litigation.
Case No.: 2:24-cv-00662-SPG-AJR
Jurisdiction: U.S. District Court, Central District of California
Judge: Hon. Sherilyn Peace Garnett
Summary
On December 12, 2025, Judge Sherilyn Peace Garnett granted in part and denied in part defendants’ motion to dismiss in the securities class action against B. Riley Financial, Inc. The Court allowed Section 10(b) and Rule 10b-5 claims to proceed against the Company and its Chairman and Co-Chief Executive Officer, Bryant R. Riley. The Court dismissed Section 10(b) claims against the Company’s Chief Financial Officer and its other Co-Chief Executive Officer for failure to plead scienter.
Allegations Against B. Riley Financial, Inc.
Plaintiffs alleged that B. Riley Financial and certain executives made materially false or misleading statements concerning the Company’s financial exposure arising from its business relationship with Brian Kahn. The complaint focused on disclosures related to the Franchise Group, Inc. buyout and the Company’s investments and loans connected to that transaction. Plaintiffs claimed the Company failed to disclose the scope and structure of loans made to Kahn-related entities, which allegedly understated the Company’s true risk exposure.
Defendants’ Motion to Dismiss
The Company and individual defendants moved to dismiss on the grounds that the complaint failed to plead actionable misstatements, scienter, or loss causation under Section 10(b). They argued that the challenged statements reflected, at most, corporate mismanagement or poor risk assessment rather than securities fraud. The individual defendants further contended that the complaint did not plausibly allege they acted with intent or deliberate recklessness.
Plaintiffs’ Opposition
Plaintiffs countered that the Company’s disclosures concerning the Franchise Group buyout were misleading because they omitted the existence and magnitude of a contemporaneous loan that materially increased the Company’s financial exposure. Plaintiffs argued that the timing, size, and terms of the loan supported a strong inference of scienter, at least as to Bryant Riley. They also asserted that subsequent disclosures revealed the truth and caused investor losses.
Court’s Ruling
The Court denied the motion to dismiss as to the Section 10(b) claim against B. Riley Financial and Bryant Riley. The Court granted the motion as to the Section 10(b) claims against Philip J. Ahn and Thomas J. Kelleher, finding the complaint did not adequately plead scienter as to those defendants. The Court allowed control-person claims to proceed to the extent they were predicated on surviving primary violations.
Court’s Rationale
Falsity: The Court held that plaintiffs plausibly alleged that disclosures concerning the Franchise Group buyout were misleading because they suggested the Company’s exposure was limited to its equity investment, while omitting a large, related loan that significantly increased risk.
Scienter: The Court found scienter adequately pleaded as to Bryant Riley, citing his close relationship with Brian Kahn, his personal involvement in the transaction, and the size and terms of the undisclosed loan. The Court found no strong inference of scienter as to Ahn or Kelleher.
Loss Causation: The Court concluded that plaintiffs plausibly alleged that partial disclosures, including the later revelation of the loan, contributed to stock price declines, satisfying loss causation at the pleading stage.
Case Status
The case continues in part. Section 10(b) claims against B. Riley Financial, Inc. and Bryant Riley remain pending, while claims against the other individual defendants have been dismissed at the pleading stage. The dismissed claims were dismissed with leave to amend, allowing plaintiffs one additional opportunity to cure the deficiencies identified in the order.
