The feds have widened a probe of financial irregularities at B. Riley, sources told The Post — even as the struggling Wall Street firm suspended its dividend and warned on profits Monday, sending its stock tumbling more than 50%.

Short sellers in June and July continued to deliver information on B. Riley to the Securities and Exchange Commission — and the SEC has asked them for additional material in a continuing probe, according to emails and texts reviewed by The Post.

SEC investigators are interested in loans B. Riley may have guaranteed for its former business partner Brian Kahn, a source with direct knowledge of the situation said. In January, Kahn resigned as CEO of the Franchise Group, which owns Vitamin Shoppe and Sylvan Learnings tutoring centers.

Kahn stepped down after news reports linked him to Prophecy Asset Management, an investment firm that collapsed in March 2020 which prosecutors have alleged hid Kahn’s trading losses. Khan has not been charged and he has denied wrongdoing.

B. Riley said its second-quarter results were slammed by a writedown of its stake in Franchise Group, partly blaming weak consumer spending. B. Riley suspended its dividend and projected a $14 to $15 a share loss in the second quarter.

On a Monday morning call with investors, B. Riley’s co-CEO Bryant Riley confirmed that the SEC’s investigation is continuing. He responded to a Monday Bloomberg story that said the SEC had expanded its probe of B. Riley.

Bloomberg reported that the SEC was probing whether B. Riley accurately disclosed the risks of its Franchise Group loans and about possible improper trading by insiders. It also said the SEC was focusing on communications between Riley and Kahn.

“The company and I received subpoenas in July from the SEC,” Riley said. “We are fully cooperating.”

Earlier this year, B. Riley hired law firm Winston & Strawn to conduct an investigation of its relationship with Kahn. In April, the law form concluded that B. Riley had no involvement or knowledge of Kahns alleged misconduct.

B. Riley’s shares on Monday closed down 52% to $8.15.

Prophecy reportedly collapsed when it was supposed to invest with diverse money managers and instead allegedly invested mainly with one, suspected to be Kahns Vintage Capital, which lost all its money, roughly $300 million.

The co-founder of Prophecy John Hughes pled guilty to a conspiracy to commit securities fraud in 2023 and his sentencing was recently postponed to Feb. 5, 2025, according to court records.

There is speculation he is cooperating with prosecutors.

Hughes actively led clients to believe they were investing responsibly, putting their money into low-risk funds, Richard Langham, Acting Special Agent in Charge of the FBIs Philadelphia Division, said in a Nov. 2 press release.

As these lies continued and the losses mounted, he engaged in a cover-up, trying to conceal the staggering fraud.”

The SEC declined to comment. Kahn did not return a request for comment.

Kahn, meanwhile, claims he himself was a victim.

“At no time during my former business relationship with Prophecy did I know that Prophecy or its principals were allegedly defrauding their investors, nor did I conspire in any fraud,” Kahn said in a November statement to Reuters.

Kahn allegedly invested much of the Prophecy money to buy Franchise Group shares before leading a B. Riley-backed buyout of the company.

B. Riley backed Kahns $2.6 buyout in 2023 of the Franchise Group including lending his Vintage Capital $201 million against Vintage’s stake in the company.

Riley said in the Monday morning call, We are confident that the SEC will reach the same conclusion that we found in our own investigations that we were unawareof Kahn’s allegedfraud.

B. Rileys close relationship with Kahn included backing him with equity and debt when his firm Vintage Capital reached a $1.4 billion agreement in 2018 to buy Rent-A-Center that then fell apart.

B. Riley is a broker/dealer which invests and lends to small cap companies. The company is also known for liquidating assets. It had $26 billion in assets under management as of March 31, according to public filings.

The Los Angeles-based firm was riding high a few years ago when it helped save troubled companies like AMC Entertainment stay out of bankruptcy. B. Riley was skilled at raising money from small investors instead of institutional investors.

Now, B. Riley is financially exposed due to its Franchise Group loans.

Credit rating agency Moodys on July 22 lowered The Franchise Groups corporate rating from B3 to Caa1, meaning its debt is at a very high risk of default.

B. Riley also loaned furniture retailer Conns roughly $100 million to buy Franchise Group brand W.S. Badcock. Conns on July 23 filed for bankruptcy.

Short sellers have made B. Riley a favorite believing the company will collapse.