by And a footnote to the MotoMotion acquisition of Palliser Furniture
WASHINGTON — The beginning of the end for Franchise Group, Badcock Home Furnishings, Conn’s, Buddy Mac and others can be traced back to a nearly $300 million fraud scheme at Prophecy Asset Management that culminated in that fund’s collapse in 2020. We’ve told the story before.
Pleading guilty to charges related to that fraud scheme were Brian Kahn, former CEO at Franchise Group and now in management at Max Home Furnishings/Phonix RBS, and Prophecy co-founder John Hughes. The third “co-conspirator” in the fraud scheme as identified by the SEC, Jeffrey Spotts, who has repeatedly denied any wrongdoing, was due to go to trial this month. Instead, the DOJ abruptly dropped the case without explanation.
Hughes’ sentencing is scheduled for Aug. 4. Kahn’s sentencing follows on Nov. 3. Kahn pleaded guilty in December to conspiring to commit securities fraud at Prophecy. He faces up to five years in prison.
Filed in federal court in New Jersey earlier this month, the DOJ’s motion to dismiss its case against Spotts, which was granted, could clear the way for SEC actions related to the Prophecy scheme to resume. Those civil fraud actions had been paused to clear the way for the DOJ’s criminal prosecution.
Presumably, other litigation bottlenecked by the DOJ criminal case could also now move forward, including BRC Group’s and Bryant Riley’s $735 million lawsuit against Kahn, his wife and the law firm Willkie Farr & Gallagher. BRC Group (formerly B. Riley Financial) claims that Kahn’s deceptions led it to write off nearly half a billion dollars in loans and investments, nearly destroying the 27-year-old boutique bank in the process.
Top Secret
Another factor leading the DOJ to drop its case against Spotts could have been a dispute over classified information, or potentially classified information. Sealed proceedings on how to deal with this information were held, according to court filings. As we reported back in January, as many as 20 classified documents were in question, with the judge reviewing them under the Classified Information Procedures Act.
What national security interests could possibly be implicated in a fraud case involving a hedge fund and, with respect to Kahn’s involvement, a bankrupt company that had subsidiaries selling vitamins, pet supplies and furniture? We speculated in January that it might have something to do with IEC Electronics, a company that won contracts from the Department of Defense, according to public records.
The chairman of IEC in 2020 was Jeremy Nowak, someone with long-standing connections to both Kahn and Riley, including sharing membership with both on the board of Vintage Capital, the major private equity holder of FRG. Vintage Capital also was the major private equity holder for IEC.
Kahn led a $2.6 billion take-private deal at FRG in 2023 supported by B. Riley Financial, now BRC Group. FRG filed for bankruptcy in November 2024 after selling off Badcock to Conn’s, which itself filed for bankruptcy in July 2024.
From Mac to Max
The FRG failure polluted the waters for a lot of businesses, including franchisees of FRG’s Buddy’s Home Furnishings RTO chain. The largest of those franchisees, Buddy Mac Holdings, filed Chapter 11 in December last year, with most of what was left of its operations eventually acquired by Phonix RBS. Phonix is managed by none other than Brian Kahn.
Since the Buddy Mac bankruptcy wound down, Phonix RBS rebranded the remaining Buddy Mac stores as Max Home Furnishings, using a color scheme identical to Buddy’s Home Furnishings. As postings at Indeed.com show, Max is hiring at most of its locations.
And Buddy’s is now nearly five months under its new ownership, Skyline Investors. Also still selling furniture or, more accurately, American First Finance credit plans, is American Freight, which has the same management team as Phonix RBS.
At its height, Texas-based Buddy Mac owned 82 Buddy’s locations across eight states. Cited among the bankruptcy’s reasons was the financial distress associated with FRG, including difficulty getting credit from suppliers, according to the declaration.
Here we go again?
One more note on the FRG fallout. Just last week, a handful of law firms announced class action lawsuits against Badcock & Wilcox Enterprises and certain of its officers. B&W manufactures energy, environmental technologies and steam generation systems, including boilers, emissions control equipment, carbon capture systems and hydrogen generation technologies for utility and industrial facilities. So, the lawsuits wouldn’t normally make news in our sector except that the largest shareholder of B&W is none other than BRC Group.
Pomerantz LLP is one of the law firms soliciting claimants, filing its suit in U.S. District Court for the Northern District of Ohio. The case asserts that on Nov. 4, 2025, B&W announced an agreement for a project to deliver power for Applied Digital AI Factory campuses, a deal B&W touted as being over $2.4 billion.
But, B&W’s counterparty isn’t Applied Digital, but rather Base Electron, a new company backed by BRC Group. In fact, 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.
Plaintiffs in the Pomerantz-represented case claim that defendants did not disclose any involvement on the part of BRC Group, chiefly that BRC Group has significant interests on both sides of the deal. The press release for the deal from B&W doesn’t mention BRC Group backing.
The rub here is stock valuation. When the Applied Digital announcement was made in early November, B&W stock traded at $3.74. After the announcement, the share price jumped nearly 200%. BRC Group then disclosed in February that it had sold its entire directly held position in B&W common stock, a position valued at approximately $10.4 million given B&W’s stock price at that time of $9 per share.
The Pomerantz complaint alleges, among other things, that B&W made false and/or misleading statements and/or failed to disclose that its largest shareholder, BRC, stood on both sides of the contract and had close ties to B&W’s counterparty, Base Electron. Curious.
‘Just act natural’
Finally, a footnote to the MotoMotion acquisition of Palliser Furniture.
Peter Tielmann, president and CEO of Palliser’s parent company, Palliser Holdings, won’t speak directly with reporters, choosing instead to issue public statements and letters to dealers. In one of these statements, he describes the transaction as “the natural progression of a long-standing partnership,” one that “creates new opportunities to strengthen and grow the Palliser brand.”
While this is a lovely sentiment for the Hallmark movie version, the deal would be a “natural progression” only for, say, Charles Darwin. For anyone else, including and especially the government of Manitoba, Canada, this buyout is anything but “natural.”
And if Tielmann genuinely believes relinquishing control of a company owned and operated by the DeFehr family since its founding in 1944 to be a natural progression, and I don’t for a second think that he does, he has at least one more letter to write to Michael Jack, deputy minister responsible for business, mining, trade and job creation for Manitoba.
In August last year, Manitoba’s government extended a $15 million loan guarantee to a company controlled by Art DeFehr, whose family founded Palliser, to allow Palliser to repay its bank. Then, in February, Palliser cut 20 jobs, which not surprisingly brought the ire of the government officials who had authorized the loan guarantee.
To make matters worse, Tielmann complained to the deputy minister at the time that not enough was being done to protect Canada’s domestic furniture industry from unfair trade practices in Asia.
Asia rather prominently includes China. And China is home to MotoMotion.
“The loss of Manitoba-based manufacturing jobs and the layoff of employees from operations that are benefiting from the loan guarantee agreement is unacceptable to Manitoba,” Jack wrote to Tielmann in February. (The letter was reported by CBC News in Canada.) Jack also instructed Tielmann to restore the jobs.
Tielmann responded: “Despite strong and sustained advocacy from our industry, the Government of Canada has not taken sufficiently robust action to protect domestic furniture manufacturers from unfair trade practices originating in jurisdictions such as China and Vietnam.” (Tielmann’s letter, too, was reported by CBC News.)
Jack wrote again, this time requesting concrete action. Tielmann responded by assuring the minister that the company was “actively working toward” rebuilding its Manitoba workforce. Not mentioned in the letter was anything about a deal to sell the company to a Chinese conglomerate.
Tielmann is married to Tara DeFehr-Tielmann, the daughter of Palliser’s founder, Abram Albert DeFehr, and sister to Art DeFehr.
