SEC Sues Former Franchise Group CEO Over $350 Million Hedge Fund Fraud

Posted on October 30th, 2025 at 2:32 PM
SEC Sues Former Franchise Group CEO Over $350 Million Hedge Fund Fraud

From the desk of Jim Eccleston at Eccleston Law

The Securities and Exchange Commission (SEC) filed a lawsuit against Brian Kahn, former CEO of Franchise Group Inc., alleging he defrauded investors of more than $350 million in a multi-year investment adviser fraud tied to the collapse of Prophecy Asset Management (Prophecy).

ThinkAdvisor reports that the SEC claims that Kahn, along with Prophecy co-owners Jeffrey Spotts and John Hughes, deceived investors by misrepresenting the fund as a low-risk investment vehicle. Instead, the defendants allegedly used fabricated documents to conceal sham transactions and massive trading losses.

According to the SEC, Prophecy told investors that their capital was allocated to “highly liquid” U.S. equities traded by multiple sub-advisers who maintained cash collateral for losses. In reality, most of the funds allegedly went to Kahn, who suffered “massive trading losses” far exceeding his contributions. According to ThinkAdvisor, Prophecy also invested in illiquid entities controlled by Kahn after performing “little to no due diligence,” the SEC said. Kahn’s alleged role in the scheme triggered broader fallout involving B. Riley Financial Inc. and its chairman, Bryant Riley, who had partnered with Kahn in several ventures, including Franchise Group—a now-bankrupt conglomerate of retail brands. Civil filings claim that Kahn used funds tied to the Prophecy fraud to help finance the company.

According to ThinkAdvisor, Kahn stepped down as CEO of Franchise Group in January 2024 amid the firm’s financial collapse. He has consistently denied wrongdoing, claiming he was also a victim of Prophecy’s failure. Riley and his firm have received civil subpoenas from the SEC, but maintain they did not know about Kahn’s conduct.

 

Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.

Tags: eccleston, eccleston law, sec

Return to Archive

TESTIMONIALS

Previous
Next

If you are being bothered by the Regulators, call Eccleston Law, you won't regret it.

Rick R.

LATEST NEWS AND ARTICLES

November 7, 2025
FINRA Suspends Former Wells Fargo Broker Over Unapproved Real Estate Venture

The Financial Industry Regulatory Authority (FINRA) suspended former Wells Fargo broker George J. Cairnes for four months and fined him $25,000 for engaging in unapproved real estate outside business activity, according to a settlement letter issued.

November 6, 2025
Former Ameriprise Broker Ordered to Pay $2.2 Million for Elder Exploitation

A Financial Industry Regulatory Authority (FINRA) arbitration panel has ordered Eric A. Dupre to pay nearly $2.2 million in damages to his former firm and two customers following allegations of theft and elder exploitation.

November 5, 2025
Former Wells Fargo Representative Suspended for Unauthorized Texting and Obstruction

The Financial Industry Regulatory Authority (FINRA) has suspended former Wells Fargo representative Eyan M. Townsend for one year and fined him $10,000 for using personal text messages to conduct business and attempting to obstruct an internal investigation by deleting those communications.