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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

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