Business
SEC probes B. Riley loan to founder, deals with franchise group
B. Riley Financial Inc. received more demands for information from federal regulators about its dealings with now-bankrupt Franchise Group as well as a personal loan for Chairman and co-founder Bryant Riley.
The Los Angeles-based investment firm and Riley each received additional subpoenas in November from the U.S. Securities and Exchange Commission seeking documents and information about Franchise Group, or FRG, the retail company that was once one of its biggest investments before its collapse last year, according to a long-delayed quarterly filing. The agency also wants to know more about Riley’s pledge of B. Riley shares as collateral for a personal loan, the filing shows.
B. Riley previously received SEC subpoenas in July for information about its dealings with ex-FRG chief executive Brian Kahn, part of a long-running probe that has rocked B. Riley and helped push its shares to their lowest in more than a decade. Bryant Riley, who founded the company in 1997 and built it into one of the biggest U.S. investment firms beyond Wall Street, has been forced to sell assets and raise cash to ease creditors’ concerns.
The firm and Riley “are responding to the subpoenas and are fully cooperating with the SEC,” according to the filing. The company said the subpoenas don’t mean the SEC has determined any violations of law have occurred.
Shares in B. Riley jumped more than 25% in New York trading after the company’s overdue quarterly filing gave investors their first formal look at the firm’s performance in more than half a year. The data included a net loss of more than $435 million for the three months ended June 30. The shares through Monday had plunged more than 80% in the past 12 months, trading for less than $4 each.
B. Riley and Kahn — a longstanding client and friend of Riley’s — teamed up in 2023 to take FRG private in a $2.8-billion deal. The transaction soon came under pressure when Kahn was tagged as an unindicted co-conspirator by authorities in the collapse of an unrelated hedge fund called Prophecy Asset Management, which led to a fraud conviction for one of the fund’s executives.
Kahn has said he didn’t do anything wrong, that he wasn’t aware of any fraud at Prophecy and that he was among those who lost money in the collapse. But federal investigations into his role have spilled over into his dealings with B. Riley and its chairman, who have said internal probes found they “had no involvement with, or knowledge of, any alleged misconduct concerning Mr. Kahn or any of his affiliates.”
FRG filed for Chapter 11 bankruptcy in November, a move that led to hundreds of millions of dollars of losses for B. Riley. The collapse made Riley “personally sick,” he said at the time.
One of the biggest financial problems to arise from the FRG deal was a loan that B. Riley made to Kahn for about $200 million, which was secured against FRG shares. With that company’s collapse into bankruptcy in November wiping out equity holders, the value of the remaining collateral for this debt has now dwindled to only about $2 million, the filing shows.
Griffin writes for Bloomberg.
Business
Cookies, Cocktails and Mushrooms on the Menu as Justices Hear Bank Fraud Case
In a lively Supreme Court argument on Tuesday that included references to cookies, cocktails and toxic mushrooms, the justices tried to find the line between misleading statements and outright lies in the case of a Chicago politician convicted of making false statements to bank regulators.
The case concerned Patrick Daley Thompson, a former Chicago alderman who is the grandson of one former mayor, Richard J. Daley, and the nephew of another, Richard M. Daley. He conceded that he had misled the regulators but said his statements fell short of the outright falsehoods he said were required to make them criminal.
The justices peppered the lawyers with colorful questions that tried to tease out the difference between false and misleading statements.
Chief Justice John G. Roberts Jr. asked whether a motorist pulled over on suspicion of driving while impaired said something false by stating that he had had one cocktail while omitting that he had also drunk four glasses of wine.
Caroline A. Flynn, a lawyer for the federal government, said that a jury could find the statement to be false because “the officer was asking for a complete account of how much the person had had to drink.”
Justice Ketanji Brown Jackson asked about a child who admitted to eating three cookies when she had consumed 10.
Ms. Flynn said context mattered.
“If the mom had said, ‘Did you eat all the cookies,’ or ‘how many cookies did you eat,’ and the child says, ‘I ate three cookies’ when she ate 10, that’s a false statement,” Ms. Flynn said. “But, if the mom says, ‘Did you eat any cookies,’ and the child says three, that’s not an understatement in response to a specific numerical inquiry.”
Justice Sonia Sotomayor asked whether it was false to label toxic mushrooms as “a hundred percent natural.” Ms. Flynn did not give a direct response.
The case before the court, Thompson v. United States, No. 23-1095, started when Mr. Thompson took out three loans from Washington Federal Bank for Savings between 2011 and 2014. He used the first, for $110,000, to finance a law firm. He used the next loan, for $20,000, to pay a tax bill. He used the third, for $89,000, to repay a debt to another bank.
He made a single payment on the loans, for $390 in 2012. The bank, which did not press him for further payments, went under in 2017.
When the Federal Deposit Insurance Corporation and a loan servicer it had hired sought repayment of the loans plus interest, amounting to about $270,000, Mr. Thompson told them he had borrowed $110,000, which was true in a narrow sense but incomplete.
After negotiations, Mr. Thompson in 2018 paid back the principal but not the interest. More than two years later, federal prosecutors charged him with violating a law making it a crime to give “any false statement or report” to influence the F.D.I.C.
He was convicted and ordered to repay the interest, amounting to about $50,000. He served four months in prison.
Chris C. Gair, a lawyer for Mr. Thompson, said his client’s statements were accurate in context, an assertion that met with skepticism. Justice Elena Kagan noted that the jury had found the statements were false and that a ruling in Mr. Thompson’s favor would require a court to rule that no reasonable juror could have come to that conclusion.
Justices Neil M. Gorsuch and Brett M. Kavanaugh said that issue was not before the court, which had agreed to decide the legal question of whether the federal law, as a general matter, covered misleading statements. Lower courts, they said, could decide whether Mr. Thompson had been properly convicted.
Justice Samuel A. Alito Jr. asked for an example of a misleading statement that was not false. Mr. Gair, who was presenting his first Supreme Court argument, responded by talking about himself.
“If I go back and change my website and say ‘40 years of litigation experience’ and then in bold caps say ‘Supreme Court advocate,’” he said, “that would be, after today, a true statement. It would be misleading to anybody who was thinking about whether to hire me.”
Justice Alito said such a statement was, at most, mildly misleading. But Justice Kagan was impressed.
“Well, it is, though, the humblest answer I’ve ever heard from the Supreme Court podium,” she said, to laughter. “So good show on that one.”
Business
Starbucks Reverses Its Open-Door Policy for Bathroom Use and Lounging
Starbucks will require people visiting its coffee shops to buy something in order to stay or to use its bathrooms, the company announced in a letter sent to store managers on Monday.
The new policy, outlined in a Code of Conduct, will be enacted later this month and applies to the company’s cafes, patios and bathrooms.
“Implementing a Coffeehouse Code of Conduct is something most retailers already have and is a practical step that helps us prioritize our paying customers who want to sit and enjoy our cafes or need to use the restroom during their visit,” Jaci Anderson, a Starbucks spokeswoman, said in an emailed statement.
Ms. Anderson said that by outlining expectations for customers the company “can create a better environment for everyone.”
The Code of Conduct will be displayed in every store and prohibit behaviors including discrimination, harassment, smoking and panhandling.
People who violate the rules will be asked to leave the store, and employees may call law enforcement, the policy says.
Before implementation of the new policy begins on Jan. 27, store managers will be given 40 hours to prepare stores and workers, according to the company. There will also be training sessions for staff.
This training time will be used to prepare for other new practices, too, including asking customers if they want their drink to stay or to go and offering unlimited free refills of hot or iced coffee to customers who order a drink to stay.
The changes are part of an attempt by the company to prioritize customers and make the stores more inviting, Sara Trilling, the president of Starbucks North America, said in a letter to store managers.
“We know from customers that access to comfortable seating and a clean, safe environment is critical to the Starbucks experience they love,” she wrote. “We’ve also heard from you, our partners, that there is a need to reset expectations for how our spaces should be used, and who uses them.”
The changes come as the company responds to declining sales, falling stock prices and grumbling from activist investors. In August, the company appointed a new chief executive, Brian Niccol.
Mr. Niccol outlined changes the company needed to make in a video in October. “We will simplify our overly complex menu, fix our pricing architecture and ensure that every customer feels Starbucks is worth it every single time they visit,” he said.
The new purchase requirement reverses a policy Starbucks instituted in 2018 that said people could use its cafes and bathrooms even if they had not bought something.
The earlier policy was introduced a month after two Black men were arrested in a Philadelphia Starbucks while waiting to meet another man for a business meeting.
Officials said that the men had asked to use the bathroom, but that an employee had refused the request because they had not purchased anything. An employee then called the police, and part of the ensuing encounter was recorded on video and viewed by millions of people online, prompting boycotts and protests.
In 2022, Howard Schultz, the Starbucks chief executive at the time, said that the company was reconsidering the open-bathroom policy.
Business
'TikTok refugees' unexpectedly turn to Chinese alternative as ban looms
TAIPEI, Taiwan — TikTok users concerned about a looming ban are finding solace in a strange place.
Days ahead of a Supreme Court decision that could determine whether the popular short-video app shuts down starting Sunday, a number of users appear to be turning to an app called RedNote — more commonly known to its majority-Chinese audience by its Chinese name, Xiaohongshu.
It’s a surprising choice since Xiaohongshu is Chinese-owned, and such ties are the reason U.S. lawmakers moved to ban TikTok in the U.S., citing privacy and national security concerns.
Also Xiaohongshu is dominated by Chinese language, and its content is subject to censorship by Chinese government officials, something alien to most U.S. users.
But by embracing a Chinese social media and lifestyle app similar to Instagram, some U.S. TikTok users say they are protesting what they believe is the unfair ban of the ubiquitous app.
“I think America is trying to bully China into selling to an American owner. A lot of us just don’t want to give in to them,” said Samantha Manassero, a 39-year-old nurse in L.A. who downloaded Xiaohongshu on Sunday night after watching content creators on TikTok pitch it as a comparable app. “I think some of it is literally just pettiness.”
Last year, Congress passed a bill that requires TikTok’s owner, Bytedance, to sell the app to a U.S.-approved owner or face a nationwide ban. As soon as Wednesday, the Supreme Court is expected to uphold the legality of the ban.
It was unclear whether Xiaohongshu, which was started in 2013, would become a viable alternative to TikTok or if the recent migration to the Chinese platform accounts for a significant share of TikTok’s 170 million U.S. users.
But a surge in new users made Xiaohongshu the top free download on Apple’s App Store this week. No. 2 on the charts was another social media app developed by Bytedance, Lemon8. It’s unclear whether either app will be subjected to the same U.S. government scrutiny as TikTok.
It is also difficult to determine exactly how many U.S. TikTok users have created accounts on Xiaohongshu or how many will stay on it. While many Xiaohongshu regulars have welcomed the influx of Americans identifying themselves as “TikTok refugees,” the app’s interface is largely in Chinese, making it difficult to navigate for non-native speakers.
Chinese apps are subject to stringent censorship on discussions that the Chinese government deems politically sensitive. These topics can range from illegal activities to LGBTQ+ rights to Winnie the Pooh, images of which have been used to mock Chinese President Xi Jinping.
The Chinese version of TikTok, called Douyin, has different content restrictions and is only available for mobile download in China. Bytedance has argued that TikTok, which is used by the rest of the world, is a separate entity from Douyin and not beholden to the Chinese Communist Party.
That did not stop President-elect Donald Trump from proposing a ban of TikTok in 2020, or President Biden from signing it into law in 2024.
The legality of such a ban has been questioned several times. Last month, in an about-face, Trump, who has 14.8 million followers on TikTok, filed a legal brief requesting to stay the ban so he can negotiate a deal once he takes office.
As TikTok faces an uncertain future, Xiaohongshu’s latest arrivals were eager to try out the new app despite its foreign nature.
Manassero, who posts videos about healthcare and power lifting to about 7,000 followers on TikTok, said she already has a much larger audience of 26,000 on Instagram. However, she was motivated to create an account on Xiaohongshu partly out of frustration at the U.S. government’s determination to outlaw TikTok.
“I don’t know what I’m doing, I don’t know what I’m reading, I’m just pressing buttons,” Manassero said in her first video post. The next morning, her account had received 5,000 views and 3,500 new followers. By Tuesday, the hashtag “Tiktok refugee” had received more than 90 million views and 2 million comments.
TikTokers sought each other out with introductions, follow requests and shared tips on how to navigate the app’s Chinese functions. On Monday, more than 190,000 viewers joined a live chat named “TikTok Refugees Club,” and held discussions in English about what a TikTok ban would mean and future plans for social media content. In the comments, users greeted new arrivals and lamented they could not understand each other.
“Maybe you can learn how to speak Chinese,” one user wrote in English.
“Where’s the translator?” another viewer asked in Chinese.
On Tuesday, the Wall Street Journal reported that Chinese officials had discussed the possibility of selling TikTok to a trusted non-Chinese party such as Elon Musk, who already owns social media platform X. However, analysts said that Bytedance is unlikely to agree to a sale of the underlying algorithm that powers the app, meaning the platform under a new owner could still look drastically different.
Manassero and other TikTokers expressed distaste at the prospect of migrating to U.S. tech platforms such as Instagram or X that could benefit from an influx of users if TikTok shuts down.
“We don’t want to turn around and make a bunch of billionaires even more rich,” she said. “I would honestly rather the app get shut down than be owned by Elon Musk.”
Though she is still trying to figure out how to use Xiaohongshu and message people back, Manassero said she would likely stay on the Chinese lifestyle app regardless of whether the TikTok ban goes through.
“The response has been so friendly and nice. It’s good energy,” she said. “This feels like the early TikTok days: a little more organic, so it’s fun.”
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