Chris Christie joins Brian Kahn’s defense in investigation into failed fund

(Bloomberg) — Former New Jersey Gov. Chris Christie is helping defend Brian Kahn, a former major client of B. Riley Financial Inc., in an ongoing criminal investigation into the collapse of hedge fund Prophecy Asset Management.

Christie, who once served as a U.S. attorney in New Jersey and later ran for president, has met with prosecutors who are nearing a decision on whether to prosecute Kahn over the fund’s failure, according to people familiar with the matter to be charged in 2020. Kahn worked as an asset manager at Prophecy. Chris Porrino, a former attorney general in New Jersey, is also defending him, said the people, who asked not to be identified speaking privately.

Prosecutors have convened a grand jury in Newark, New Jersey, to gather evidence and consider additional criminal charges related to the Prophecy case. Prophecy co-founder John Hughes pleaded guilty to conspiracy to commit securities fraud last November and is cooperating with investigators, court records show. The confidential proceedings could end without charges being filed.

As Bloomberg reported, prosecutors at their trial described Kahn as an unindicted co-conspirator in their case against Hughes. Kahn, the former CEO of Franchise Group Inc., has not been charged and has categorically denied wrongdoing.

Still, his role as money manager for Prophecy has led to accusations from some investors that he improperly used the hedge fund to gain control of Franchise Group (FRG). Kahn also worked with B. Riley on its $2.8 billion acquisition of FRG in August 2023. That deal has since resulted in massive writedowns and a falling stock price for B. Riley.

Neither Kahn nor Christie, who now runs a consulting and crisis management firm, responded to requests for comment. Porrino declined to comment. A spokesman for U.S. Attorney Philip Sellinger, an attorney for Hughes and a BRD representative also did not respond to requests for comment. A spokesman for Los Angeles-based B. Riley declined to comment.

In Germany there are retailers such as Vitamin Shoppe and Pet Supplies Plus. B. Riley helped Kahn finance the management buyout of FRG last year. The takeover made FRG one of B. Riley’s key holdings, but poor performance has led to talks of debt restructuring with FRG’s lenders, and B. Riley has said the company will face write-downs of up to £370 million US dollars. B. Riley now wants to sell assets to strengthen his own finances.

The U.S. Securities and Exchange Commission is investigating whether B. Riley gave investors an accurate picture of its financial condition and is seeking information about interactions between co-founder Bryant Riley and Kahn.

Bryant Riley said an internal investigation cleared him of wrongdoing. In August, he told investors that he expected the SEC to conclude “that we had no involvement in or knowledge of any alleged misconduct involving Brian Kahn or its affiliates.”

The Prophecy case involves a fund that promised a low-risk opportunity to invest with a number of investment advisors who would provide collateral to protect against losses. Bloomberg reported that Kahn was one of those asset managers. According to the SEC and criminal proceedings against Hughes, who pleaded guilty to a $294 million securities fraud conspiracy, Kahn allegedly racked up “massive” trading losses that Prophecy failed to disclose to investors.

Some investors filed a lawsuit in 2020, claiming that Kahn took their money to help underwrite FRG. Kahn, who resigned as FRG CEO in January, agreed to return more than $200 million to investors, including cash and shares in Franchise Group, Bloomberg reported.

Prosecutors say Prophecy once managed $360 million in assets and Kahn was awarded 86% of it. Kahn, referred to by the Justice Department in court filings as “Co-Conspirator 2,” allegedly covered his losses by using fabricated and forged documents, sources said.

That’s not true, Kahn said. “At no time during my previous relationship with Prophecy did I know that Prophecy or its principals were allegedly defrauding their investors, nor did I conspire to commit any fraud,” he said in a November statement.

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