In previous posts I discussed my interest in B. Riley Financial Inc. (NASDAQ: RILY) and some of the risks I saw. Then I updated that post here and here. Now I am looking at RILY from a bearish perspective to better understand why there is so much negativity around this company.
B. Riley Financial Inc. (NASDAQ: RILY) has faced constant scrutiny from investors and regulators, leading to a consistent level of short interest.
This is a chart from Market Beat that shows the short interest for the past year.
| Report Date | Total Shares Sold Short | Dollar Volume Sold Short | Change from Previous Report | Percentage of Float Shorted | Days to Cover | Price on Report Date |
| 2/28/2025 | 9,840,000 shares | $62.88 million | +10.7% | 62.4% | 5 | $6.39 |
| 2/15/2025 | 8,890,000 shares | $36.72 million | +3.3% | 56.4% | 6.1 | $4.13 |
| 1/31/2025 | 8,610,000 shares | $39.69 million | -12.3% | 55.0% | 10.1 | $4.61 |
| 1/15/2025 | 9,820,000 shares | $46.15 million | -2.3% | 62.7% | 9.4 | $4.70 |
| 12/31/2024 | 10,050,000 shares | $46.13 million | +2.2% | 64.6% | 7.1 | $4.59 |
| 12/15/2024 | 9,830,000 shares | $49.54 million | +1.4% | 63.2% | 6.2 | $5.04 |
| 11/30/2024 | 9,690,000 shares | $56.78 million | -5.8% | 62.3% | 5.4 | $5.86 |
| 11/15/2024 | 10,290,000 shares | $48.57 million | +9.8% | 66.2% | 5 | $4.72 |
| 10/31/2024 | 9,370,000 shares | $55.24 million | -16.6% | 60.3% | 2.5 | $5.90 |
| 10/15/2024 | 11,240,000 shares | $55.64 million | +5.1% | 72.3% | 3.1 | $4.95 |
| 9/30/2024 | 10,700,000 shares | $56.18 million | -7.5% | 68.8% | 3.2 | $5.25 |
| 9/15/2024 | 11,570,000 shares | $70.11 million | -4.9% | 74.4% | 3.6 | $6.06 |
| 8/31/2024 | 12,170,000 shares | $59.82 million | -0.3% | 78.3% | 4 | $4.92 |
| 8/15/2024 | 12,210,000 shares | $61.54 million | -0.7% | 78.5% | 4.5 | $5.04 |
| 7/31/2024 | 12,290,000 shares | $235.97 million | +7.2% | 79.0% | 12.9 | $19.20 |
| 7/15/2024 | 11,460,000 shares | $191.04 million | +26.5% | 73.7% | 9.3 | $16.67 |
| 6/30/2024 | 9,060,000 shares | $159.82 million | +10.1% | 58.3% | 7.6 | $17.64 |
| 6/15/2024 | 8,230,000 shares | $169.54 million | +3.5% | 52.9% | 7.3 | $20.60 |
| 5/31/2024 | 7,950,000 shares | $190.48 million | -3.5% | 50.7% | 6.6 | $23.96 |
| 5/15/2024 | 8,240,000 shares | $265.00 million | -8.8% | 52.2% | 5.7 | $32.16 |
| 4/30/2024 | 9,030,000 shares | $310.63 million | -15.1% | 56.4% | 5.8 | $34.40 |
| 4/15/2024 | 10,630,000 shares | $216.00 million | -13.3% | 65.5% | 7.2 | $20.32 |
| 3/31/2024 | 12,260,000 shares | $259.54 million | -1.1% | 75.5% | 9 | $21.17 |
| 3/15/2024 | 12,390,000 shares | $217.82 million | -7.3% | 76.3% | 8.9 | $17.58 |
| 2/29/2024 | 13,370,000 shares | $245.07 million | +18.0% | 80.9% | 8.9 | $18.33 |
| 2/15/2024 | 11,330,000 shares | $200.31 million | +9.2% | 68.5% | 8.1 | $17.68 |
Several factors have contributed to such a high amount of shares sold short. Some challenges like unfilled financial statements, 2025 debt maturities, unknown loan write offs, and breaking liquidity covenants from their lender Nomura have been resolved. Others like large investment write offs, a very complicated and hard to model corporate structure, active SEC investigations, and a looming 2026 debt repayments are still quite worrisome.
The stock price reflects both the high short interest and the many reasons behind them. On March 17, 2025 the price was $4.46 and has fallen from its 52 week high of $40.09. The traders who sold this stock short when it was at $40 were spectacularly right and have made a lot of money. I don’t really understand why they are still short when the price is at $4. It can only go down 4 more dollars. With many of the issues resolving themselves and the low price, hasn’t the risk shifted to the upside now?
Let’s look a little more carefully at some of the outstanding problems with RILY and see if a resolution is foreseeable.
Challenges with 2026 Bond Maturities
B. Riley Financial has announced that they have sufficient cash flow from operations to meet all their continuing expenses in 2025. However, they face significant obligations with its bonds maturing in 2026. It is very unlikely that they will be able to generate enough cash to fully pay off those maturities.
This doesn’t mean B. Riley doesn’t have any options and that they are definitely going out of business. They could continue to sell portions or large swaths of their many investments. They own quite a few non-core businesses that are held as assets on their balance sheet that could be available to flip for some cash. RILY could also refinance the bonds by selling a new batch with longer dated expiration dates. Afterall, the at its core B. Riley Financial is an investment bank that is good at this exact type of financing activity for their clients.
I don’t think I would be comfortable owning any of RILY’s debt. I like to know where the money is coming from when it is time to pay me back. But, I do believe that there is a decent chance that they are able to monetize their assets or finance their way to making their bond payments.
SEC Investigations into Franchise Group Dealings
The Securities and Exchange Commission (SEC) has intensified its scrutiny of B. Riley’s transactions, particularly those involving the now-bankrupt Franchise Group, which owns brands like Vitamin Shoppe and Pet Supplies Plus. In January 2025, B. Riley disclosed receiving additional information requests from federal regulators concerning its dealings with Franchise Group.
This investigation has contributed to investor unease and increased short interest but will it cause the stock price to fall more? RILY has already completely written off all of the FRG investment. It was a complete disaster financially and has resulted in a total loss. We know that already.
The company appears to be very confident that they didn’t make any legal mistakes with the FRG investment. They delayed filling their statements at the beginning of last year so they could allow an independent investigation to complete. That investigation didn’t find any wrong doing.
If the SEC comes out and announces the worst case that RILY didn’t disclose risks correctly or the FRG investment was a giant fraud, I am not sure how that changes anything within B. Riley. They have already lost all the money. Maybe they get fined? Maybe they arrest leadership? Either way, I am not sure if that hurts the company more than being out from under SEC scrutiny.
Underperforming Subsidiaries
Several of B. Riley’s subsidiaries have underperformed, exacerbating the company’s financial woes. They recently estimated a loss from continued operations of 180 million dollars. I wish they put that number out in a 10K so we had more color around what went into the losses. If they were caused by goodwill and depreciation that is a lot better than if they were caused by less sales or shrinking margins.
B. Riley’s intricate business model, encompassing a wide array of financial services and investments, has made it challenging for investors and analysts to assess the company’s true financial position. This complexity has contributed to valuation difficulties and delayed financial reporting, further eroding investor confidence. In August 2024, the company struggled to value its assets amid ongoing SEC scrutiny, leading to a 52% one-day stock plunge.
Complex Business Structure
This company is hard to model. They don’t tell you the name of their privately held companies, they don’t give much color on their business initiatives, and their subsidiaries operate in vastly different industries. I don’t think this is going to change any time soon. In itself, this isn’t a problem for the business. It is a problem for the stock price though. Some shorts have hypothesized that the business structure makes it difficult for large investors to justify investing in a company they don’t fully understand. I think that is correct, but it caused the stock to fall from 40 to 4 rather than causing the stock to go from 4 to 0.
Conclusion
The convergence of looming debt maturities, regulatory investigations, underperforming subsidiaries, and a convoluted corporate structure has heightened investor skepticism toward B. Riley Financial. These factors have collectively contributed to an increase in short positions, reflecting market anticipation of potential declines in the company’s stock value. But, I believe that they aren’t enough to cause RILY to go to 0. Addressing these challenges transparently and effectively is crucial for B. Riley to restore investor confidence and stabilize its financial standing.
What did I get wrong? Please let me know! dkallevig@gmail.com
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