Willkie Farr & Gallagher LLP on Tuesday was accused of aiding a $735 million fraud carried out by an investment manager to secure financing for a 2023 take-private transaction involving Franchise Group Inc., which was then used to pay off the manager's personal debts.

BRC Group Holdings Inc., formerly known as B. Riley Financial Inc., and several of its subsidiaries filed a complaint in New York state court against Willkie and investment manager Brian Kahn, who recently pled guilty to securities fraud. Kahn's wife, Lauren Kahn, is also named as a defendant in the suit.

According to the complaint, in May 2023, Franchise Group, a company led by Kahn, was merged with two other Kahn-controlled companies in a take-private transaction. As part of this deal, BRC committed to investing up to $560 million in the equity of FRG's new holding company, known as Topco, once the merger closed.

In deciding to fund the merger, the complaint states that BRC relied on several representations made by FRG and Kahn, including that FRG had disclosed to its auditors and its board's audit committee any fraud involving FRG's management, and that there had been no governmental investigations or subpoenas of FRG since 2019.

Kahn also represented to BRC that he was not in default on any obligations and that he had "full power and authority" to exchange FRG shares for equity in Topco, according to the complaint.

However, BRC claims in its suit that all of these representations were false, "and Willkie knew it."

In reality, according to the complaint, Kahn, at the time of the merger, was the subject of multiple criminal and civil investigations for his role as a sub-advisor in a $350 million fraud perpetrated by Prophecy Asset Management, and that FRG had received subpoenas from the SEC and DOJ relating to the Prophecy scheme.

BRC also accuses the defendants of failing to disclose that a limited partnership formed for the benefit of the Prophecy Settlement Trust held 2.5 million shares of Kahn's FRG stock that were restricted from sale or transfer and that, by February 2023, Kahn had defaulted on more than $30 million of debt due to the Prophecy Settlement Trust.

"Willkie was aware of all these material misrepresentations and yet allowed them to be made to BRC, a longstanding and current Willkie client," the complaint states.

BRC says Willkie's misconduct was "particularly egregious" because while representing BRC as litigation counsel, the firm also knowingly prepared misleading transaction documents for Kahn, failed to disclose material conflicts of interest, and assisted Kahn in obtaining consent from the Prophecy Settlement Trust, among other things.

Although not named as defendants, the complaint identifies Willkie partners Tariq Mundiya and Russell Leaf. According to BRC, Mundiya was a "trusted legal advisor" to Kahn and was listed, alongside Leaf, as a leader of the take-private deal.

"As Mundiya, Leaf, and Willkie knew, Kahn needed the take-private to dramatically increase the value of his equity stake in FRG so that he could pay off hundreds of millions of dollars in personal liabilities he owed to BRC affiliates and the Prophecy Settlement Trust," the complaint says. "Willkie actively assisted and conspired with Kahn and FRG in defrauding plaintiffs to help Kahn achieve his goal and generate substantial fees for the firm."

In a statement to Law360 on Tuesday, a Willkie spokesperson said: "The facts will make clear that our firm acted appropriately and with integrity at all times, consistent with our values and all ethical obligations. We look forward to defeating these meritless claims and remain committed to upholding the highest standards of ethics and professionalism."

According to BRC, the truth came to light about three months after the take-private deal closed, when one of Kahn's co-conspirators in the Prophecy fraud pled guilty to securities fraud and conspiracy, and the SEC brought parallel civil securities fraud claims against the individual.

At that point, Kahn's role in the fraud became public, according to the complaint. Kahn was forced to resign from Topco's board, and FRG's business plan unraveled due to "Kahn's inability to negotiate and close strategic transactions resulting from his taint as an alleged criminal co-conspirator in securities fraud," the complaint notes.

BRC says that ultimately, FRG collapsed and filed for bankruptcy, causing BRC's equity interests in Topco to become "worthless."

"All told, Kahn and FRG's frauds, perpetrated with Willkie's assistance, caused plaintiffs approximately $735 million in cash losses, plus additional foreseeable consequential damages," the complaint contends.

Kahn pled guilty in December 2025 to one count of securities fraud in connection with his role in the Prophecy fraud.

Counsel for BRC did not immediately respond to requests for comment, and Brian and Lauren Kahn could not immediately be reached.

BRC is battling a related class action in California federal court from investors who claim the company made material misrepresentations about its buyout of FRG and failed to disclose risks related to its dealings with Kahn.

BRC is represented by Paul R. DeFilippo, R. Scott Thompson, Lyndon M. Tretter, Benjamin A. Gianforti and Nicholas A. Servider of Wollmuth Maher & Deutsch LLP.

Counsel information for the defendants was not immediately available.

The case is BRC Group Holdings Inc. et al. v. Willkie Farr & Gallagher LLP et al., case number unavailable, in the Supreme Court of the State of New York, County of New York.