Riley ‘Baby Bond’ Investors Take Action Amid Heavy Losses

Investment firm B. Riley is reportedly being scrutinized after recently warning of its biggest-ever quarterly loss.

As Bloomberg News reported Wednesday (Aug. 21), retail investors are bearing the brunt of the company’s troubles.

Based in Los Angeles, B. Riley bills itself as the leading firm when it comes to so-called “baby bonds,” or fixed-income securities handed out in denominations small enough to entice everyday investors instead of institutions.

According to Bloomberg, the company is suffering substantial write-downs on its investments in risky properties while also dealing with maturities on its debt load. Last week, B. Riley warned of losses as it reduced the value of its stake in Franchise Group Inc. and a related loan receivable, saying it is expecting a non-cash markdown of about $330 million to $370 million.

Robert Van De Veire, a securities lawyer and partner at Kurta Law, told Bloomberg he is representing numerous investors who were sold B. Riley baby bonds by financial advisers.

“When you have speculative risks that plant themselves into an asset class viewed as safe, it can create a situation that can be disastrous for a retail investor,” he said.

The Bloomberg report notes that B. Riley baby bonds are unsecured, and thus not backed by a specific asset or collateral. That makes them more of a risk for investors, who have placed their faith in the firm’s creditworthiness.

If B. Riley went bankrupt, the report adds, it has at least $600 million of secured debt it would need to pay back before baby bond holders would be restored.

In other related news, this month saw a significant downturn in the cryptocurrency market, one driven by investors selling off risky assets. During that downturn, bitcoin, the world’s largest cryptocurrency, hit its lowest level since February while Ether, the native token of the Ethereum blockchain, erased its gains for the year.

A report by CNBC at the time noted there were several factors leading to the plunge, such as a slide in equities across Asia-Pacific markets having a negative impact on investor sentiment, as well as a drop in the tech-heavy Nasdaq index, which saw its worst three-week stretch since September 2022, dampening market confidence even more.

“Furthermore, disappointing earnings, a weaker-than-expected jobs report, higher unemployment, and a declining manufacturing sector in the United States influenced the recent drop in stocks,” PYMNTS wrote. “The U.S. Federal Reserve’s decision to hold its benchmark rate steady and not promise a rate cut in September also impacted market expectations.”