The U.S. Securities and Exchange Commission has sued Brian Kahn, former head of Franchise Group Inc. over his role in the collapse of Prophecy, a hedge fund he helped manage. Federal prosecutors have separately brought criminal charges against two other executives tied to the fund.
Court papers filed Monday in Trenton, N.J. allege Kahn and other executives orchestrated a multi-year investment adviser fraud that cost investors more than $350 million.
John Hughes, an official at Prophecy, has pleaded guilty in the criminal case and is cooperating with prosecutors. Jeffrey Spotts, another Prophecy official, also faces criminal charges.
The SEC's civil lawsuit against Kahn seeks financial penalties and bars on future activity in the securities industry. The criminal charges against Hughes and Spotts carry potential prison sentences.
Hughes' cooperation with prosecutors suggests further details about the fraud's mechanics and scope may emerge as proceedings continue.
