B Riley shares plunge after short seller Wolfpack Research takes aim

(Reuters) -Shares of investment bank B Riley Financial Inc fell about 11% on Wednesday after Wolfpack Research disclosed a short position in the sole book-runner for troubled home goods retailer Bed Bath & Beyond Inc’s $225 million equity offering.

The Los Angeles-based bank had overleveraged to buy speculative assets during the “financial mania” of 2020-21 when the Federal Reserve’s loose monetary policy triggered a wave of risky bets, and lent money to companies that have “degenerated into zombies,” the short seller alleged.

B Riley’s shares fell nearly 11% to $39.31 in morning trade, the biggest intraday percentage decline in more than three months.

The company did not immediately respond to a Reuters request for comment.

Wolfpack said B Riley was not cutting losses on “failing” investments and had continued extending more capital to its distressed clients, including cryptocurrency mining company Core Scientific Inc that filed for bankruptcy in December.

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“RILY’s biggest risk is that much of its loan book appears headed for bankruptcy,” Wolfpack said.

B Riley’s client Bed Bath & Beyond Inc is hoping to avoid bankruptcy with the latest equity offering.

The bank’s balance sheet will take a $175 million hit in the second quarter if B. Riley’s special purpose acquisition company (SPAC) is liquidated, the short seller added.

The SPAC, B Riley Principal 250 Merger Corp, raised $150 million when it went public in May 2021. SPACs typically have two years to acquire a target.

(Reporting by Niket Nishant in Bengaluru; Editing by Maju Samuel and Shinjini Ganguli)