Brian Kahn, the former head of Franchise Group Inc, has been charged with conspiracy to commit securities fraud in connection with the collapse of Prophecy Asset Management, a hedge fund prosecutors say defrauded investors out of $294m, according to a report by Bloomberg.
The report cites a filing unsealed in federal court in Trenton, New Jersey, as showing that Kahn is the third person charged over what the US Justice Department has described as “a multi-year investment adviser fraud.” Prosecutors allege Kahn used Prophecy investor money to gain control of Franchise Group — which later went bankrupt — while misleading investors about how their capital was deployed.
The case follows a guilty plea from Prophecy co-founder John Hughes, with prosecutors noting Kahn’s charges stem from “the same events” outlined in Hughes’s plea. A criminal information was filed against Kahn — a move typically preceding a plea deal — suggesting additional guilty pleas may follow.
Kahn’s ties to B Riley Financial have drawn significant scrutiny. B Riley had been a major FRG investor and helped finance the company’s 2023 management buyout before its bankruptcy a year later. While B Riley denies involvement in the Prophecy fraud, its shares have suffered amid ongoing litigation and investor concern.
Kahn also faces a separate SEC lawsuit, which alleges that Prophecy falsely claimed to invest in liquid US equities when in reality, most funds were diverted into illiquid entities Kahn controlled, generating “massive trading losses”.
Adding to his legal woes, Kahn was recently hit with a $309m arbitration award requiring him to reimburse Prophecy investors. Court documents allege Kahn pledged the same 2.5 million FRG shares both to Prophecy’s litigation trust and to his FRG buyout deal — a move that left investors with nothing after the company’s bankruptcy.
Kahn, who previously lived on a multimillion-dollar Florida estate, has denied wrongdoing, with his lawyers claiming he was himself a victim of Prophecy’s collapse.
