by Kahn hangover, however, continues
Is the glass half-full or half-empty? It depends on whether you are drinking or pouring, right?
B. Riley Financial, which re-branded as BRC Group Holdings in January, reported a rebound of sorts in its second-quarter 10-Q, a filing remarkable mostly because it was made on time. Net income was $21.6 million for the second quarter, down from $141 million for the same period a year ago. But, net income year to date (or six months) nearly doubled to $243.8 million on total revenues of $591 million, a 44% increase over 2025’s revenues for the same period.
The company reported profit available to common shareholders of $18.5 million for the quarter, down from $137 million during the same period in 2025, an 87% drop explained mainly as a result of discontinued operations.
“The best core operating quarter in nearly three years,” Bryant Riley, chairman and co-CEO described it on the earnings call late last week, citing $66 million in operating adjusted EBITDA. For Riley, the BRC Group glass is wondrously half-full.
Obscured in the celebratory tone, however, is a company still working through the wreckage of its entanglement with Franchise Group and its disgraced CEO Brian Kahn. Also in the background is the decision to keep stiffing preferred shareholders while the company sorts out how to refinance $306 million in looming debt.
The Kahn hangover
You could think of BRC Group’s relationship with Kahn as having a house guest who trashed the place, got arrested down the street, then left the homeowner to try to put the house back in order. In 2023, a BRC Group subsidiary loaned an affiliate of Kahn’s Vintage Capital Management roughly $200 million to help finance Kahn’s take-private buyout of FRG, a loan secured by Kahn’s equity in Freedom VCM, the holding company atop FRG.
That collateral evaporated when FRG and Freedom VCM filed for Chapter 11 in November 2024. Then, in June 2025, a bankruptcy court confirmed a plan that wiped out Freedom VCM’s equity. The SEC sued Kahn for securities fraud tied to a separate entity, Prophecy Asset Management, in September, and by December he had pleaded guilty to conspiracy to commit securities fraud. (Oddly, the story on the SEC’s lawsuit against Kahn resurfaced in news feeds last week as if it had just occurred.)
BRC Group managed to claw back a mere $1.9 million of that loan by selling what little collateral remained, the equivalent of a rounding error against the roughly $225 million it was owed.
The fallout for BRC Group has subsequently metastasized into what looks like a rather robust court docket. I count eight active legal actions listed in the 10-Q, including stockholder derivative suits from Adrian Rubio, Joel Friedman, James Smith and Michael Marchner (the Marchner suit dismissed, but on appeal to the Delaware Supreme Court). All of them allege that the BRC Group board breached its fiduciary duties by continuing to entangle itself with Kahn, which is to say for failing to kick him out of the house before he trashed the place.
Also active and, therefore, mentioned in the 10-Q are a securities class action led by Mike Coan and a Kamholz family trust; a separate class action by FRG’s original shareholders that names Freedom VCM and Kahn; and an arbitration demand from investors in the special purpose vehicle that funded the FRG buyout. The 10-Q also discloses a securities class action filed by Ted Donaldson on behalf of investors alleging concealment of Kahn’s “illicit business activities.”
Both the company and Riley also remain under active SEC subpoena, with the agency summoning current and former employees for testimony as recently as June this year, according to the 10-Q.
None of this came up on the earnings call, which included nearly 40 minutes of prepared remarks and what I would regard as softball questions from analysts that touched on capital markets, wealth management, telecom cash flows and debt pay down.
BRC Group asserts that two internal investigations cleared its executives of any knowledge of Kahn’s misconduct, and it repeatedly states it intends to fight every claim. These assertions are like a ritornello in the section that catalogs the litigation.
But, the 10-Q also concedes in its risk disclosures that “unasserted claims” tied to Kahn could still surface, which is the legal equivalent of waiting for the other shoe to drop when you’re unsure how many feet there might be.
The debt wall
Helpful, however, was color the call provided on a question the 10-Q only sketches, which is how BRC plans to handle $306 million in senior notes coming due before year end. This total includes $142 million due on Sept. 30 and $164 million due on Dec. 31. Pressed by Raymond James analyst Kirk Ludtke on whether the company would lean on exchanges or new equity raises, BRC Group CFO Scott Yessner pointed instead to the balance sheet. With $723 million in securities and other investments and more than $150 million in cash, he said, “We can clear the bar fairly comfortably.”
Riley was more expansive, noting that net debt has fallen from a peak of roughly $1.2 billion to $285 million as of the end of the second quarter, against trailing 12-month EBITDA of $180 million. Asked directly whether the company would rule out an exchange or a capital raise, he declined to commit to cash and asset sales.
“We’re not going to eliminate anything,” Riley said. “I wouldn’t eliminate or over-speculate on any of those things.”
In the same answer was a more pointed disclosure that BRC Group is choosing not to prioritize its preferred shareholders. For them, this glass is (still) half-empty.
“We appreciate that we are behind on those dividends; we understand that,” Riley told analysts. “At this point, we’re going to utilize our capital where we think we’re just going to have higher returns on that capital for now.”
Conflict of interest?
The 10-Q also shows BRC Group owning a 19% voting stake in Babcock & Wilcox Enterprises, which is down from 25% at the end of 2025 and an all-time high of more than 30%. Carried at $387 million, the stake is now the single largest position in BRC Group’s securities portfolio. In fact, in its own 10-Q that published this past Monday, B&W cites as a potential risk, “the significant influence of B. Riley over us.”
And while BRC Group’s stake helped inflate its balance sheet, it was a drag on Q2 trading results, an effect mitigated by the fact that BRC Group’s subsidiary earned $12.5 million in the first half of 2026 in underwriting and advisory fees from B&W’s capital-raising activities, and it guaranteed up to $150 million of B&W’s bank debt through an arrangement that paid BRC Group a 2% fee on B&W’s credit line.
As we reported back in June, a couple of law firms announced class action lawsuits against B&W and certain of its officers asserting that B&W made false and/or misleading statements. At least one of these actions accuses B&W for failing to disclose that BRC Group, its largest shareholder, stood on both sides of a big AI data center contract and had close ties to B&W’s counterparty for that project, Base Electron. (Base Electron has the same address as BRC Group headquarters, and BRC Chairman Bryant Riley is a director, according to information published by Wolfpack Research, a short-selling firm founded by Dan David.)
This all a bit confusing, but the takeaway is that BRC Group is B&W’s largest single investor, appears to be its partner through Base Electron for a data center deal that lifted B&W’s stock price just before BRC sold off B&W shares, served as the lead book runner for B&W’s equity raising efforts in May, and in its role as investment adviser supported its own stock holdings by issuing a “Buy” recommendation on B&W stock. Not the arm’s length one might hope for dealings by and among public companies.
(As a footnote, B. Riley purchased nearly 11 million B&W shares in 2021 from . . . wait for it . . . Brian Kahn, through Vintage Capital. He’s still in the guesthouse!)
What furniture stores?
“Hey, you haven’t even mentioned furniture.”
No, I haven’t, because in the 53,000-word 10-Q, “furnishings” is mentioned only twice, and neither the filing nor the earnings call ever mentioned Buddy’s Home Furnishings, which went bankrupt along with the rest of FRG. BRC Group is a Buddy’s franchisee.
Even bebe stores, which once was a chain of clothing shops and now is the BRC subsidiary that operates its 40 or so Buddy’s stores, gets almost no attention in the 10-Q. Unlike Capital Markets or Wealth Management, which enjoy their own segment tables, bebe is a footnote tucked into a catchall “Corporate and All Other” section.
To make matters worse, or perhaps to underline the impression that BRC Group is putting furniture in the rearview mirror, the 10-Q states that bebe operates its Buddy’s stores as a franchisee of Freedom VCM. This statement is probably a mistake, perhaps a cut-and-paste from last year’s second-quarter 10-Q or, more likely, the year before that, because Freedom VCM doesn’t operate anything anymore.
Careless? Yes. Ironic? Absolutely, because presumably an impetus for the re-brand and certainly a through line for the 10-Q’s narrative is that BRC Group is unshackling itself from the detritus that was FRG and Freedom VCM.
