UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-32026
COHEN & COMPANY INC.
(Exact name of registrant as specified in its charter)
Maryland
(State or Other Jurisdiction of
Incorporation or Organization)
Cira Centre
2929 Arch Street, Suite 1703
Philadelphia, Pennsylvania
(Address of principal executive offices)
16-1685692
(I.R.S. Employer
Identification No.)
19104
(Zip Code)
Registrant’s telephone number, including area code: (215) 701-9555
Securities registered pursuant to Section 12(b) of the Act:
Title of class
Common Stock, par value $0.01 per share
Trading Symbol(s)
COHN
Name of each exchange on which registered
NYSE AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files. Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer
☐
☐
Accelerated filer
Smaller Reporting Company ☒
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. Yes ☐ No ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2021, the aggregate market value of the Common Stock held by non-affiliates of the Registrant was approximately
$21.5 million. As of March 7, 2022, there were 1,718,135 shares of Common Stock of Cohen & Company Inc. outstanding.
Portions of the Proxy Statement for the Registrant’s 2021 Annual Meeting of Stockholders are incorporated by reference into Part III of this
DOCUMENTS INCORPORATED BY REFERENCE
Form 10-K.
COHEN & COMPANY INC.
TABLE OF CONTENTS
PART I
Business.
Risk Factors.
Unresolved Staff Comments.
Properties.
Legal Proceedings.
Mine Safety Disclosures.
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Selected Financial Data.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Quantitative and Qualitative Disclosures About Market Risk.
Financial Statements and Supplementary Data.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Controls and Procedures.
Other Information.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Directors, Executive Officers and Corporate Governance.
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Certain Relationships and Related Transactions, and Director Independence.
Principal Accounting Fees and Services.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Exhibit and Financial Statement Schedules.
Form 10-K Summary.
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Forward Looking Statements
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements discuss matters that are not
historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as
“anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,”
“expect,” “predict,” “project,” “forecast,” “potential,” “continue,” negatives thereof or similar expressions. Forward-looking
statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about
the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may
cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or
plans expressed or implied by such forward-looking statements.
These forward-looking statements are found at various places throughout this Annual Report on Form 10-K and include
information concerning possible or assumed future results of our operations, including statements about the following subjects:
• integration of operations;
• business strategies;
• growth opportunities;
• competitive position;
• market outlook;
• expected financial position;
• expected results of operations;
• future cash flows;
• financing plans;
• plans and objectives of management;
• tax treatment of the business combinations;
•
the special purpose acquisition companies (SPACs) of which we are a sponsor including, INSU Acquisition III, a blank check
company that will seek to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar
business combination with one or more businesses;
• our investments in both SPACs and SPAC sponsor entities, including through our SPAC Fund and SPAC Series Funds
• our role as asset manager and sponsor in our SPAC franchise
• fair value of assets; and
• any other statements regarding future growth, future cash needs, future operations, business plans, future financial results, and
any other statements that are not historical facts.
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and
are subject to risks, uncertainties, and other factors. Many of those factors are outside of our control and could cause actual results
to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties
and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at
a different time than we have described. You should consider the areas of risk and uncertainty described above and discussed
under “Item 1A — Risk Factors.” Actual results may differ materially as a result of various factors, some of which are outside our
control, including the following:
•
a decline in general economic conditions or the global financial markets;
•
•
continuation of the COVID-19 pandemic or future outbreaks of COVID-19, the timing and effectiveness of vaccine
distribution, and uncertainty surrounding the length and severity of future impacts on the global economy and on our
business, liquidity, results of operations and financial condition;
economic uncertainty and capital markets disruption which has been significantly impacted by geopolitical instability due to
the ongoing military conflict between Russia and Ukraine;
risks and liabilities due to our investments in the equity interests of SPACs and SPAC sponsor entities including the risk of
increased regulation applicable to SPACs, risks regarding litigation in connection with the SPACs in which we invest and
those which we sponsor, uncertainty of whether the SPACs in which we invest and those we sponsor will consummate a
business combination, adverse impacts of COVID-19 on our SPAC franchise, significant competition for business
opportunities in the SPAC industry, write-downs or write-offs with respect to the securities which we hold subsequent to the
consummation of an initial business combination by the SPACs in which we invest and those which we sponsor, and the
target of a SPAC being an early-stage and financially unstable company;
losses caused by financial or other problems experienced by third parties;
losses due to unidentified or unanticipated risks;
losses (whether realized or unrealized) on our principal investments;
•
•
•
•
•
a lack of liquidity, i.e., ready access to funds for use in our businesses, or the availability of financing at prohibitive rates;
•
•
•
•
the ability to attract and retain personnel;
the ability to meet regulatory capital requirements administered by federal agencies;
the ability to pay dividends;
an inability to generate incremental income from acquired, newly established, or expanded businesses;
• unanticipated market closures due to inclement weather or other disasters;
•
•
•
•
the volume of trading in securities including collateralized securities transactions;
the liquidity in capital markets;
the creditworthiness of our correspondents, trading counterparties, and banking and margin customers;
changing interest rates and their impacts on U.S. residential mortgage volumes;
2
•
•
•
•
competitive conditions in each of our business segments;
the availability of borrowings under credit lines, credit agreements, warehouse agreements, and our credit facilities;
the potential misconduct or errors by our employees or by entities with whom we conduct business; and
the potential for litigation and other regulatory liability.
Our Internet website is www.cohenandcompany.com and we make available on our website our filings with the Securities and
Exchange Commission (“SEC”), including annual reports, quarterly reports, current reports and any amendments to those filings.
The reference to our website address does not constitute incorporation by reference of the information contained therein into this
Form 10-K. We also use our website to disseminate other material information to our investors (on the Home Page and in the
“Investor Relations” section of our website). We also post on our website our press releases and information about our public
conference calls (including the scheduled dates, times and the methods by which investors and others can listen to those calls), and
we make available for replay webcasts of those calls and other presentations for a limited time.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual
Report on Form 10-K. All subsequent written and oral forward-looking statements concerning other matters addressed in this
Annual Report on Form 10-K and attributable to us or any person acting on our behalf are expressly qualified in their entirety by
the cautionary statements contained or referred to in this Annual Report on Form 10-K. Except to the extent required by law, we
undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events,
a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
3
Certain Terms Used in this Annual Report on Form 10-K
In this Annual Report on Form 10-K, unless otherwise noted or as the context otherwise requires, the “Company,” “we,” “us,”
and “our” refer to Cohen & Company Inc. (formerly Institutional Financial Markets, Inc.), a Maryland corporation and its
subsidiaries on a consolidated basis; and “Cohen & Company, LLC” (formerly IFMI, LLC) or the “Operating LLC” refer to the
main operating subsidiary of the Company.
“Cohen Brothers” refers to the pre-merger Cohen Brothers, LLC and its subsidiaries; “AFN” refers to the pre-merger Alesco
Financial Inc. and its subsidiaries; “AFN Merger” refers to the December 16, 2009 closing of the merger of AFN, Alesco Financial
Holdings, LLC, a wholly owned subsidiary of AFN, with and into Cohen Brothers, which resulted in Cohen Brothers becoming a
majority owned subsidiary of the Company.
“JVB Holdings” refers to JVB Financial Holdings, L.P., a wholly owned subsidiary of the Operating LLC; “JVB” refers to J.V.B.
Financial Group, LLC, a wholly owned broker dealer subsidiary of JVB Holdings; “CCFL” refers to Cohen & Company Financial
Limited (formerly known as EuroDekania Management LTD), a wholly owned subsidiary of the Operating LLC formerly
regulated by the Financial Conduct Authority (formerly known as the Financial Services Authority) in the United Kingdom (the
“FCA”); “CCFEL” refers to Cohen & Company Financial (Europe) Limited, a wholly owned subsidiary of the Operating LLC
regulated by the Central Bank of Ireland ( the “CBI”); Cohen & Company Financial Europe Limited S.A. (“CCFESA”), a majority
owned operating subsidiary of the Operating LLC regulated by the Autorite de Controle Prudentiel et de Resolution ("ACPR") ;
and“EuroDekania” refers to EuroDekania (Cayman) Ltd., a Cayman Islands exempted company that was externally managed by
CCFL.
“Securities Act” refers to the Securities Act of 1933, as amended; and “Exchange Act” refers to the Securities Exchange Act of
1934, as amended.
4
ITEM 1. BUSINESS.
Overview
PART I
INFORMATION REGARDING COHEN & COMPANY INC.
We are a financial services company specializing in the fixed income markets and, more recently, in special purpose acquisition
company ("SPAC") markets. We were founded in 1999 as an investment firm focused on small-cap banking institutions but have
grown to provide an expanding range of capital markets and asset management services. Our business segments are Capital
Markets, Asset Management, and Principal Investing. Our Capital Markets business segment consists of fixed income sales,
trading, and matched book repo financing as well as new issue placements in corporate and securitized products and advisory
services, operating primarily through our subsidiaries, JVB in the United States (the “U.S.”) and CCFESA in Europe. Our Asset
Management business segment manages assets through investment vehicles, such as collateralized debt obligations (“CDOs”),
managed accounts, joint ventures, and investment funds (collectively, “Investment Vehicles”). As of December 31, 2021, we had
approximately $2.4 billion of assets under management (“AUM”) in primarily fixed income assets in a variety of asset classes
including U.S. and European bank and insurance trust preferred securities (“TruPS”), debt issued by small and medium sized
European, U.S., and Bermuda insurance and reinsurance companies, and equity interests of SPACs and their sponsor entities. A
significant portion of our AUM, 52.6%, was in CDOs we manage, which were all securitized prior to 2008. The remaining portion
of our AUM is from a diversified mix of other Investment Vehicles most of which were more recently formed. Our Principal
Investing business segment is comprised primarily of investments we hold related to our SPAC franchise and investments that we
have made for the purpose of earning an investment return rather than investments made to support our trading, matched book
repo, or other capital markets business activity.
Capital Markets
Our Capital Markets business segment consists primarily of fixed income sales, trading, and matched book repo financing as well
as new issue placements in corporate and securitized products and advisory services operating primarily through our subsidiaries,
JVB in the U.S. and CCFESA in Europe. JVB is our sole operating U.S. broker-dealer, under our JVB Holdings subsidiary, and is
a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Industry Protection Corporation
(“SIPC”). CCFESA is regulated by the Autorite de Controle Prudentiel et de Resolution ("ACPR").
Cohen & Company Capital Markets, a division of JVB, is our full-service boutique investment banking platform focusing on
SPAC advisory, capital markets advisory, and M&A advisory, with clients primarily in the financial technology (commonly
referred to as "fintech") and SPAC spaces. During 2021, Cohen & Company Capital Markets hired 16 professionals with
substantial industry experience to build a leading boutique capital markets advisory team.
In 2021, we created a commercial real estate lending platform (“CRE Opportunities”), which operates outside of JVB, primarily
focused on multi-family transitional loans. During 2021, we hired eight professionals with extensive origination, underwriting, and
securitization experience in the commercial real estate market.
Our fixed income sales and trading group provides trade execution to corporate investors, institutional investors, mortgage
originators, and other smaller broker-dealers. We specialize in a variety of products, including but not limited to: corporate bonds
and loans, asset-backed securities (“ABS”), mortgage backed securities (“MBS”), commercial mortgage-backed securities
(“CMBS”), residential mortgage-backed securities (“RMBS”), CDOs, collateralized loan obligations (“CLOs”), collateralized
bond obligations (“CBOs”), collateralized mortgage obligations (“CMOs”), municipal securities, to-be-announced securities
(“TBAs”) and other forward agency MBS contracts, U.S. government bonds, U.S. government agency securities, brokered
deposits and certificates of deposit (“CDs”) for small banks, and hybrid capital of financial institutions including TruPS, whole
loans, and other structured financial instruments.
In 2012, we established a trading desk for “to-be-announced” securities, or TBAs, as part of our mortgage group. TBAs are
forward mortgage-backed securities whose exact collateral remains unknown until just prior to the trade settlement, although the
characteristics of the collateral are known. The forward collateral types are exclusively issued by U.S. government agencies, such
as the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”),
and the Government National Mortgage Association (“Ginnie Mae”). One objective of our mortgage group is to provide capital
markets execution services to small and middle market institutional mortgage originators that hedge their mortgage pipelines. In
addition to providing credit for MBS trading lines and execution services, our mortgage group offers trading of specified pools and
financing for qualified originators. Our mortgage group offers a range of solutions for institutional clients seeking to enhance their
mortgage pipeline execution and overall portfolio profitability. In addition, our mortgage group acts as an intermediary between
borrowers and lenders of short-term funds and provides funding for various inventory positions using repurchase agreements.
We have grown our matched book repo business, under which JVB enters into repurchase and reverse repurchase agreements. In
general, JVB lends money to a counterparty after obtaining collateral securities from that counterparty via a reverse repurchase
agreement. JVB also borrows money from another counterparty using those same collateral securities via a repurchase agreement.
JVB seeks to earn net interest income on these transactions. For several years, JVB has operated a matched book gestation repo
program. Gestation repo involves entering into repurchase and reverse repurchase agreements where the underlying collateral
security represents a pool of newly issued mortgage loans. The borrowers ( i.e. the reverse repurchase agreement counterparties)
are generally mortgage originators. The lenders (i.e. the repurchase agreement counterparties) are a diverse group of counterparties
comprised of banks, insurance companies, and other financial institutions. From 2017 through 2021, we also operated a matched
book general collateral funding (“GCF”) repo business as a full netting member of the Fixed Income Clearing Corporation’s
(“FICC”) Government Services Division. Primarily due to reduced spreads in the repo market for GCF collateral, we exited the
GCF business in 2021.
We have been in the Capital Markets business since our inception. Our Capital Markets business segment has transformed over
time in response to market opportunities and the needs of our clients. The initial focus was on sales and trading of listed equities of
small financial companies with a particular emphasis on bank stocks. Early on, a market opportunity arose for participation in a
particular segment of the debt market, the securitization of TruPS. We began assisting small banks in the issuance of TruPS
through CDOs. These Investment Vehicles were structured and underwritten by large investment banks while our broker-dealer
typically participated as a co-placement agent or selling group member. We also participated in the secondary market trading
between institutional clients of the securities issued by these CDOs.
In early 2008, our management team made the strategic decision to restructure our Capital Markets business model from
exclusively focusing on TruPS and structured credit products to a more traditional fixed income broker-dealer platform with more
diversified revenue streams primarily from trading activity. In the ensuing years, we hired many sales and trading professionals
with expertise in areas that complement our core competency in structured credit. In 2011, our acquisitions of JVB and the
PrinceRidge Group (“PrinceRidge”) further expanded our Capital Markets platform. As a result of these acquisitions, offset by
subsequent downsizings and mergers, our Capital Markets staffing increased from six sales and trading professionals at the
beginning of 2008, to over 230 professionals in mid-2011, and decreased to 72 professionals as of December 31, 2021. We
continue to explore opportunities to add complementary distribution channels, hire experienced talent, expand our presence across
asset classes, and bolster the service capabilities of our Capital Markets business segment.
5
Our Capital Markets business segment generates revenue through the following activities: (1) trading activities, which include
execution and brokerage services, matched book repo, riskless trading activities as well as gains and losses (unrealized and
realized), and income and expense earned on securities classified as trading, and (2) new issue and advisory revenue comprised of
(a) origination fees for newly created financial instruments originated by us, (b) revenue from advisory services, and (c) new issue
revenue associated with arranging and placing the issuance of newly created financial instruments. Our Capital Markets business
segment has offices in Boca Raton (Florida), Cold Spring Harbor (New York), Hunt Valley (Maryland), Menlo Park (California),
New York City (New York), Paris (France), and Philadelphia (Pennsylvania).
Trades in our Capital Markets business segment can be either “riskless” or risk based. “Riskless trades” are transacted with a
customer order in hand, resulting in limited risk to us. “Risk-based trades” involve us owning the securities and thus placing our
capital at risk. Such risk-based trading activity may include the use of leverage. In recent years, we began to utilize more leverage
in our Capital Markets business segment. We believe that the prudent use of capital to facilitate client orders increases trading
volume and profitability. Any gains or losses on trading securities that we have classified as investments-trading are recorded in
our Capital Markets business segment, whereas any gains or losses on securities that we classified as other investments, at fair
value are recorded in our Principal Investing business segment.
6
Asset Management
Our Asset Management business segment manages assets within a variety of Investment Vehicles. We earn management fees for
our ongoing asset management services provided to these Investment Vehicles, which may include fees both senior and
subordinate to the securities issued by the Investment Vehicles. Management fees are based on the value of the AUM or the
investment performance of the vehicle, or both. As of December 31, 2021, we had $2.4 billion in AUM, of which 52.6% was in
CDOs we manage. AUM equals the sum of: (1) the gross assets included in the CDOs that we have sponsored and/or manage; plus
(2) the net asset value (“NAV”) or gross assets of the Other Investment Vehicles we manage based on whichever measurement
serves as the basis for the calculation of our management fees. Our calculation of AUM may differ from the calculations of other
asset managers and, as a result, this measure may not be comparable to similar measures presented by other asset managers. This
definition of AUM is not necessarily identical to any definition of AUM that may be used in our management agreements. We do
not receive management fees for assets managed within our SPAC Series Funds as well as our CREO JV prior to completing a
securitization. See discussion below.
Currently, a significant portion of our AUM is in CDOs that we manage. A CDO is a form of secured borrowing. The borrowing is
secured by different types of fixed income assets such as corporate or mortgage loans or bonds. The borrowing is in the form of a
securitization, which means that the lenders are actually investing in notes secured by the assets. In the event of a default, the
lender will have recourse only to the assets securing the loan. We have originated assets for, served as co-placement agent for, and
continue to manage this type of Investment Vehicle, which is generally structured as a trust or other special purpose vehicle. In
addition, we invested in some of the debt and equity securities initially issued by certain CDOs, gains and losses of which
were recorded in our Principal Investing business segment.
These structures can hold different types of securities. Historically, we focused on the following asset classes: (1) U.S. and
European bank and insurance TruPS and subordinated debt; (2) U.S. ABS, such as MBS and commercial real estate loans; (3) U.S.
and European corporate loans; and (4) U.S. obligations of non-profit entities. As of December 31, 2021, our only remaining CDOs
under management were backed by U.S. and European bank and insurance TruPS and subordinated debt.
The credit crisis starting in 2008 caused available liquidity, particularly through CDOs and other types of securitizations, to decline
precipitously. Our ability to accumulate assets for securitization effectively ended with the market disruption. We securitized
$14.8 billion of assets in 16 trusts during 2006, $17.8 billion of assets in 16 trusts during 2007, $400 million of assets in one trust
during 2008, and zero assets in zero trusts since 2009.
We generate asset management revenue for our services as an asset manager. Many of our sponsored CDOs, particularly those
where the assets are bank TruPS and ABS, have experienced asset deferrals, defaults, and rating agency downgrades that reduce
our management fees. In addition, many of the CDOs we manage have experienced high enough levels of deferrals, defaults, and
downgrades to reduce our ongoing subordinated management fees to zero. In a typical structure, any failure of a covenant
coverage test redirects cash flow to pay down the senior debt until compliance is restored. If compliance is eventually restored, the
entity will resume paying subordinated management fees to us, including those that were accrued but remained unpaid during the
period of non-compliance.
As of December 31, 2021, we had two subsidiaries that act as collateral managers and investment advisors to the CDOs that we
manage. These entities are registered investment advisors under the Investment Advisers Act of 1940 (the “Investment Advisers
Act”).
Subsidiary
Product Line
Asset Class
Cohen & Company Financial Management, LLC
(“CCFM”)
Dekania Capital Management, LLC (“DCM”)
Alesco
Bank and insurance TruPS, subordinated debt of primarily U.S.
companies
Dekania Europe Bank and insurance TruPS, subordinated debt of primarily
European companies
The table below shows changes in our AUM by product line for the last five years.
ASSETS UNDER MANAGEMENT
(Dollars in Millions)
Alesco
Dekania Europe
Munda
2021
2020
As of December 31,
2019
2018
2017
$
1,099 $
141
-
1,890 $
167
-
2,044 $
153
-
2,112 $
171
103
2,469
402
246
Total CDO AUM
Other Investment Vehicles
Total AUM
1,240
1,118
2,358 $
2,057
712
2,769 $
2,197
560
2,757 $
2,386
466
2,852 $
3,117
375
3,492
$
7
A description of our CDO product lines that were under management as of December 31, 2021 is set forth below.
Alesco and Dekania. As of December 31, 2021, we managed six Alesco deals and two Dekania Europe deals, which were initially
securitized during 2003 to 2007. CCFM manages our Alesco platform. DCM manages our Dekania Europe platform. During 2014,
we entered into a sub-advisory agreement to employ Mead Park Advisors, LLC to render advice and assistance with respect to
collateral management services to the Alesco portfolios. On March 30, 2017, the sub-advisory agreement with Mead Park
Advisors, LLC was terminated, and we entered into a sub-advisory agreement with another unrelated third-party provider effective
March 30, 2017.
In general, our Alesco and Dekania Europe deals have the following terms. We receive senior and subordinate management fees,
and there is a potential for incentive fees on certain deals if equity internal rates of return are greater than 15%. We can be removed
as manager without cause if 66.7% of the rated note holders voting separately by class and 66.7% of the equity holders vote to
remove us, or if 75% of the most senior note holders vote to remove us when certain over-collateralization ratios fall below 100%.
We can be removed as manager for cause if a majority of the controlling class of note holders or a majority of equity holders vote
to remove us. “Cause” includes unremedied violations of the collateral management agreement or indenture, defaults attributable
to certain actions of the manager, misrepresentations or fraud, criminal activity, bankruptcy, insolvency or dissolution. There was a
non-call period for the equity holders, which ranged from three to six years. Once this non-call period expires, a majority of the
equity holders can trigger an optional redemption as long as the liquidation of the collateral generates sufficient proceeds to pay all
principal and accrued interest on the rated notes and all expenses. In ten years after the closing, an auction call will be triggered if
the rated notes have not been redeemed in full. In an auction call redemption, an appointee will conduct an auction of the
collateral, which will only be executed if the highest bid results in sufficient proceeds to pay all principal and accrued interest on
the rated notes and all expenses. If the auction is not successfully completed, all residual interest that would normally be
distributed to equity holders will be sequentially applied to reduce the principal of the rated notes. Any failure of an over-
collateralization coverage test redirects interest to paying down notes until compliance is restored. The securities mature up to 30
years from closing. An event of default will occur if certain over-collateralization ratios drop below 100%. While an event of
default exists, a majority of the senior note holders can declare the principal and accrued and unpaid interest immediately due and
payable. All of the Alesco and Dekania Europe CDOs that we manage have reached their auction call redemption features, which
means the portfolio of collateral for each CDO is subject to an auction on either a quarterly or bi-annual basis. If an auction is
successful, the management contract related to such CDO will be terminated in connection with the liquidation of the CDO and we
will lose the related management fees.
A description of our other Investment Vehicles that were under management as of December 31, 2021 is set forth below.
CREO JV. In September 2021, we committed to invest up to $15.0 million of equity into a newly formed joint venture (the
“CREO JV”) with an outside investor who committed to invest approximately $435.0 million of equity into the CREO JV. We are
required to invest 7.5% of the total equity of the CREO JV with an absolute limit of $15.0 million. As of December 31, 2021, the
NAV of the CREO JV was $77.7 million, and we had invested $5.8 million of our $15.0 million investment commitment. The
CREO JV is managed by us. The CREO JV was formed for the purposes of investing in primarily multi-family commercial real
estate mortgage-backed loans and below-investment-grade rated tranches in CRE CLOs collateralized by mostly transitional
commercial real estate mortgage-backed loans. “CRE CLO” means any pooling of commercial real estate mortgage-backed loans
into a collateralized loan obligation. The commercial real estate loans that are funded by the CREO JV may be originated by us
and we may earn origination fees in connection with such transactions. In addition, we may earn structuring fees in connection
with structuring and consummating a CRE CLO consisting of a pooling of commercial real estate loans. Any origination fees or
structuring fees earned by us will be in our Capital Markets segment. We will also earn management fees as manager of any CRE
CLOs based on the value of the assets consolidated into a CRE CLO (calculated in accordance with the terms of such CRE CLO),
payable from the proceeds generated by and in accordance with the distribution waterfall of such CRE CLO. The CREO JV has a
repurchase facility to finance its assets until they can be securitized into CRE CLOs. Through December 31, 2021, we have not
yet structured and consummated a CRE CLO, thus no management fees as manager have been earned yet.
PriDe Funds. In July 2014, we, initially through CCFL, then CCFEL, and now through CCFESA, became the investment advisor
of a newly created French investment fund with total commitments of €238 million, and an initial investment period of two years
(which was later extended by two years) and a maturity date of July 2026 (which was later extended until July 2028). In January
2017, the second vintage funds in the series of these funds closed with total commitments of €203.5 million, and an initial
investment period of three years (which was later extended by two years) and a maturity date of January 2032. In July 2020, the
third vintage funds in the series of these funds closed with total commitments of €375.5 million, and an initial investment period of
three years and a maturity date of July 2033. This series of funds is referred to in this Annual Report on Form 10-K as the “PriDe
Funds.” The PriDe Funds earn investment returns by investing in a diversified portfolio of debt securities issued by small and
medium sized European insurance companies that have limited access to capital markets. CCFESA earns investment advisor
regular fees and investment advisor performance fees depending on the level of returns achieved. We have not made an
investment, nor do we expect to make any investment, in the PriDe Funds. AUM of the PriDe Funds was $686.5 million at
December 31, 2021.
U.S. Insurance JV. In May 2018, we committed to invest up to $3.0 million in a newly formed joint venture (the “U.S. Insurance
JV”) with an outside investor who committed to invest approximately $63.0 million of equity in the U.S. Insurance JV. The U.S.
Insurance JV was formed for the purposes of investing in debt issued by small and medium sized U.S. and Bermuda insurance and
reinsurance companies and is managed by DCM. We were required to invest 4.5% of the total equity of the U.S. Insurance JV with
an absolute limit of $3.0 million. The U.S. Insurance JV has a $250 million credit agreement for leverage to grow its assets. As of
December 31, 2021, the NAV of the U.S. Insurance JV was $127.0 million, and we had fulfilled our investment commitment. In
addition, the insurance company debt that will be funded by the U.S. Insurance JV may be originated by us and there may be
origination fees earned in connection with such transactions. We will also earn management fees as manager of the U.S. Insurance
JV. We are entitled to a quarterly base management fee, an annual incentive fee (if certain return hurdles are met), and an
additional incentive fee upon the liquidation of the portfolio (if certain return hurdles are met).
SPAC Fund. In 2018, we invested in and became the investment manager and general partner of a newly formed Delaware limited
partnership and the investment manager for a Cayman Islands exempted company that are feeder funds into a separate Cayman
Islands exempted company that serves as the primary investment vehicle (the “SPAC Fund”). The SPAC Fund was created for the
purpose of investing primarily in the equity interests of SPACs and, in certain circumstances, SPAC sponsor entities including
SPACs sponsored by us, our affiliates, and third parties. As of December 31, 2021, our investment in the SPAC Fund was valued
at $2.0 million. CCFM is the manager of the SPAC Fund and is entitled to a quarterly base management fee based on a percentage
of the NAV of the SPAC Fund and the general partner of the SPAC fund is entitled to an annual incentive allocation based on the
actual returns earned by the general partner of the SPAC Fund. We consolidate the general partner of the SPAC Fund and own 1/3
of the equity of the general partner of the SPAC Fund. As of December 31, 2021, the NAV of the SPAC Fund was $125.4 million.
8
SPAC Series Funds. As a complement to the SPAC Fund, we established and became the managing member and investment
manager to two newly formed umbrella limited liability companies (the “SPAC Series Funds”) that issue a separate series for each
investment portfolio, which typically consists of investments in the sponsor entities of individual SPACs. The investing activity of
the SPAC Series Funds includes purchasing interests in the placement units of certain SPAC sponsor entities that, in addition to
placement units, entitle the SPAC Series Funds to certain amounts of founder shares, for a nominal purchase price. The number of
founder shares allocated to the SPAC Series Funds are not finally determined until the related business combination (if any) is
completed by the applicable SPAC. The amount of founder shares allocable to each SPAC Series Fund is subject to change for two
main reasons. First, if a business combination is not completed by the applicable SPAC within the allowed time frame, the SPAC
Series Funds will forfeit all the founder shares allocated to them for that particular SPAC. Second, even if a business combination
by the applicable SPAC is completed, the economic terms of the combination are subject to negotiation between the target
company and that SPAC. In many cases, the total amount of founder shares to which the sponsor entities are entitled will be
reduced as part of these negotiations. In these cases, any allocation to the SPAC Series Funds will also be reduced. Although we
do not charge a management fee for most of the SPAC Series Funds, nor do we earn a performance fee from most of the SPAC
Series Funds, we and certain of our employees receive a portion of the allocations of founder shares, for a nominal purchase price,
from the SPAC sponsor entities in which the SPAC Series Funds invest. As of December 31, 2021, the SPAC Series Funds had
issued limited liability company interests and invested in 43 SPAC sponsor entities, with an aggregated total net asset carrying
value of $129.9 million. As of December 31, 2021, our investment in the SPAC Series Funds was carried at $5.4 million. As of
December 31, 2021, in our capacity as the asset manager of the SPAC Series Funds, we have received a current allocation of a
total 12.4 million founder shares, for a nominal purchase price, from 36 different SPAC sponsor entities. These allocations will be
worthless if the underlying SPACs fail to complete their business combination and liquidate. Furthermore, even if a business
combination is completed, the founder shares allocable to us may be adjusted significantly downward based on final negotiation
with the business combination counterparty. See below description of our Principal Investments as of December 31, 2021.
Managed Accounts. We provide investment management services to a number of separately managed accounts. Part of our
European CDO team has transitioned to providing investment management or advisory services primarily to European family
offices, high net worth individuals, and asset managers. The investment focus is on CDO and CLO notes and debt instruments
where the investment managers have relevant expertise. For these services, we are paid gross annual base management or advisory
fees of approximately 1.5% plus a gross annual performance fee of 20% of cash-on-cash returns in excess of an 8% hurdle. There
is also an early redemption fee if any of the clients were to terminate their arrangement within the first five years of the
relationship. AUM of these European managed accounts was $34.8 million as of December 31, 2021.
In addition, we have historically received revenue shares from certain asset management businesses that we initially sponsored or
owned, and subsequently sold or spun-off. A description of our only remaining asset management revenue share as of
December 31, 2021 is set forth below.
Infrastructure Finance Business. On March 12, 2012, we entered into an agreement with unrelated third parties whereby we
agreed to assist in the establishment of an international infrastructure finance business (“IIFC”). As consideration for our
assistance in establishing IIFC, we received 8.0% of certain revenues of the manager of IIFC through October 31, 2021, and
effective November 1, 2021, we receive 7.35% of certain revenues of the manager of IIFC. The IIFC revenue share arrangement
expires when we have earned a cumulative $20 million in revenue share payments or with the dissolution of IIFC’s management
company. Also, in any particular year, the revenue share earned by us cannot exceed $2.0 million. In 2021, we earned
$0.6 million from the IIFC revenue share. From inception through 2021, we have earned $3.8 million. See note 22 to our
consolidated financial statements included in this Annual Report on Form 10-K.
9
Principal Investing
Our Principal Investing business segment has historically been comprised of investments in the Investment Vehicles we manage,
as well as investments in certain other structured products, and the related gains and losses that they generate. In 2014, we
refocused our Principal Investing portfolio on products that we do not manage for the purpose of earning an investment return.
More recently, capitalizing on our SPAC expertise, we have become active in multiple aspects of the SPAC market, including as a
sponsor, asset manager, and investor, and as a result we hold various investments related to our SPAC franchise.
A SPAC is a shell corporation formed for the sole purpose of raising investment capital through an initial public offering (“IPO”),
which is then used to acquire or merge with one or more unspecified businesses to be identified after the IPO. SPACs are formed
and sponsored by experienced business executives who are confident that their reputation and experience will help them identify a
profitable company to acquire or with which to merge. The sponsors of the applicable SPAC generally provide the starting capital
for that SPAC and such sponsors stand to benefit from a sizeable stake in the post business combination acquired or merged
company (assuming a business combination is consummated by the SPAC which they sponsor). The capital raised in the SPAC's
IPO is placed in an interest-bearing trust account and cannot be disbursed except to complete a business combination or to return
the money to investors (if the SPAC does not complete a business combination within the required time period and must be
liquidated.) A SPAC generally has approximately two years to complete a deal. In return for the capital invested by investors in the
SPAC IPO, investors typically receive units in the SPAC, with each unit often comprising a share of common stock and a warrant
(or fraction thereof) to purchase more stock at a later date. The purchase price per unit of the securities is typically $10.00. After a
SPAC's IPO, the pre-IPO units of the SPAC become separable into shares of common stock and warrants. The purpose of the
warrant is to provide investors with additional compensation for investing in the SPAC. The warrants generally become
exercisable either 30 days after the completion of a business combination or twelve months after the IPO. The fair market value of
the target company must be at least 80% (but generally much more) of the SPAC’s trust assets. Upon successful completion of a
business combination, the sponsors will profit from their stake in the post-business combination acquired or merged company,
while the investors receive an equity interest according to their respective investment amounts The founders of the SPAC generally
purchase founder shares at the initiation of the SPAC, paying nominal consideration for the number of shares that, based on recent
transactions, results in or around a 20% to 25% ownership stake in the outstanding shares after the completion of the IPO.
Since 2018, we have sponsored three SPACs. Our first sponsored SPAC, Insurance Acquisition Corp. (“Insurance SPAC”),
completed its $150.7 million IPO in March 2019, entered into a merger agreement in June 2020, and completed its business
combination in October 2020 with Shift Technologies, Inc. (“Shift”), a car-buying e-commerce platform. When the merger closed
on October 13, 2020, Insurance SPAC changed its name to "Shift Technologies, Inc." and, on October 15, 2020, its trading symbol
on the NASDAQ Capital Market (“NASDAQ”) changed from "INSU" to "SFT." Our second sponsored SPAC, INSU Acquisition
Corp. II (NASDAQ: INAQ) (“Insurance SPAC II”), completed its $250 million IPO in September 2020 and entered into a merger
agreement in November 2020 with Metromile, Inc., a digital insurance platform and pay-by-mile auto insurer ("MetroMile"),
which closed on February 9, 2021. When the merger closed, Insurance SPAC II changed its name to Metromile, Inc. and on
February 10, 2021, its trading symbol on the NASDAQ changed from "INAQ" to "MILE." Our third sponsored SPAC, INSU
Acquisition Corp. III (NASDAQ: IIII) (“Insurance SPAC III”), completed its $218 million IPO in December 2020 and is currently
seeking to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business
combination with one or more businesses that provides insurance or insurance related services but is not required to complete a
business combination with an insurance business. See note 4 to our consolidated financial statements included in this Annual
Report on Form 10-K.
Subject to changes in the overall SPAC market which are evolving rapidly, we anticipate continuing to grow our SPAC franchise
and capitalizing on opportunities in the space. In addition to our sponsored SPACs, we receive founder shares and purchase
placement units and IPO units in various SPACs sponsored by third parties and affiliates, through our SPAC Fund, our SPAC
Series Funds, and our Principal Investing portfolio. The amount of founder shares allocated to us are not finally determined until
the related business combination is completed. The amount of founder shares allocable to us are subject to change for two main
reasons. First, if a business combination is not completed by the applicable SPAC within the allowed time frame, we will forfeit all
the founder shares allocated to us for that particular SPAC. Second, even if a business combination is completed by the applicable
SPAC, the economic terms of the combination are subject to negotiation between the target company and that SPAC. In many
cases, the total amount of founder shares to which the sponsor entities are entitled to will be reduced as part of these negotiations.
In these cases, any allocation of founder shares to the us will also be reduced.
We also invest in SPAC sponsor entities that we do not consolidate because we are not the managing member of such sponsor
entity or otherwise do not have the power to direct the sponsor entity's most important activities. In these cases, we treat our
investment in the SPAC sponsor entity as an equity method investment. Furthermore, because of the difficulty of determining the
fair value of such an investment during the applicable SPAC's pre-business combination period, we generally have not elected fair
value option. If a SPAC completes a business combination and we have an equity method investment in the associated sponsor
entity, the sponsor entity will record income equal to the difference between the fair value of the restricted and unrestricted shares
it receives and the carrying value of its equity method investment in the SPAC. We will recognize our share of this gain as income
from equity method affiliates. The sponsor entity will continue to mark its investment in the SPAC to market after the business
combination and we will recognize our share of the change in fair value as income or loss from equity method affiliates. Once the
sponsor entity distributes to us our share of the SPAC shares it owns, we will reclassify our investment from investment in equity
method affiliate to other investments, at fair value as we will then hold the SPAC shares directly (rather than through an equity
method investee). We will then record principal transactions income and loss until the SPAC shares themselves are liquidated.
10
As of December 31, 2021, our Principal Investing portfolio included other investments, at fair value, which were valued at $53.5
million, and investments in equity method affiliates, which were carried at $48.2 million. A description of our Principal
Investments as of December 31, 2021 is set forth below.
(Dollars in millions.)
Investment
Sponsored SPACs:
Post-Business Combination
Pre-Business Combination
Non-Sponsored SPACs:
Post-Business Combination
Pre-Business Combination
Other Investments:
Other
Investments,
Ticker
at fair value
Investments in
Equity
Method
Affiliates
Shift Technologies, Inc.
Metromile, Inc.
SFT
MILE
$
5.8 $
5.5
11.3
-
-
-
Insurance SPAC III
IIII
-
4.5
Payoneer Inc.
Parella Weinberg Partners
REE Automotive
Archer Aviation Inc.
Wejo Group Ltd.
Heliogen, Inc.
Other
PAYO
PWP
REE
ACHR
WEJO
HLGN
Various
CREO JV
US Insurance JV
Dutch Real Estate
SPAC Funds
SPAC Series Funds
Other Investments
2.3
-
5.2
-
6.8
-
1.3
15.6
13.5
5.8
3.4
-
2.0
-
1.9
13.1
-
1.1
-
0.7
2.0
28.4
-
32.2
0.5
-
-
5.6
-
5.4
-
11.0
48.2
Total Principal Investing Portfolio
$
53.5 $
Investment in Sponsored SPACs, Post-Business Combination. As of December 31, 2021, our investment in the post-business
combination public equities of Shift and Metromile was valued at $11.3 million, which was included as a component of other
investments, at fair value in our consolidated balance sheet. Our investment in Shift is the result of our sponsorship of Insurance
SPAC and our investment in Metromile is the result of our sponsorship of Insurance SPAC II. Certain of the shares are subject to
restrictions on transfer until certain threshold trading prices are met. See notes 4 and 9 to our consolidated financial statements
included in this Annual Report on Form 10-K.
Investment in Sponsored SPACs, Pre-Business Combination. As of December 31, 2021, our investment in Insurance SPAC III
public equity was carried at $4.5 million, which was included as a component of investment in equity method affiliates in our
consolidated balance sheet. Partially offsetting this amount was non-controlling interest of $4.8 million, which was included as a
component of non-controlling interest in our consolidated balance sheet. Therefore, the net carrying value of our investment in
Insurance SPAC III was negative $0.3 million as of December 31, 2021. Our investment in Insurance SPAC III is the result of our
sponsorship of INSU Acquisition Corp. III. If Insurance SPAC III closes a business combination, certain of the shares that we will
be entitled to receive will be subject to restrictions on transfer until threshold trading prices are met. See notes 4 and 9 to our
consolidated financial statements included in this Annual Report on Form 10-K.
Investment in Non-Sponsored SPACs, Post-Business Combination. An investment in non-sponsored SPACs, post-business
combination is classified as other investments, at fair value after we receive our allocation of the post-business combination
publicly traded company shares. During the period between a closing of the business combination and receiving our allocation of
shares in the post-business combination publicly traded company, an investment in non-sponsored SPACs, post-business
combination is classified as an investment in equity method affiliates, representing an investment in the sponsor of the SPAC,
entitling us to an eventual allocation of post-business combination public company shares. As of December 31, 2021, our
investment in the public equity of non-sponsored SPACs, post-business combination was valued at $15.6 million as a component
of other investments, at fair value, partially offset by non-controlling interests of $6.5 million, resulting in a net carrying value of
$9.1 million. As of December 31, 2021, our investment in the sponsors entitling us to public equity of non-sponsored SPACs, post-
business combination had a carrying value of $32.2 million as a component of investment in equity method affiliates, partially
offset by non-controlling interests of $18.6 million, resulting in a net carrying value of $13.6 million. These investments are
primarily a result of allocations of founder shares to us and certain of our employees, for a nominal purchase price, from the SPAC
sponsor entities in which the SPAC Series Funds invest. Certain of the shares are subject to restrictions on transfer until threshold
trading prices are met. See notes 4 and 9 to our consolidated financial statements included in this Annual Report on Form 10-K.
11
Investment in Non-Sponsored SPACs, Pre-Business Combination. An investment in non-sponsored SPACs, pre-business
combination is classified as other investments, at fair value if we purchase shares of publicly traded SPACs directly in the open
market. An investment in non-sponsored SPACs, pre-business combination is classified as an investment in equity method
affiliates if the investment is in the sponsor of a SPAC and entitles us to an eventual allocation of public company shares from a
SPAC sponsor, if a SPAC successfully completes a business combination. As of December 31, 2021, our investment in the public
equity of non-sponsored SPACs, pre-business combination was valued at $13.5 million as a component of other investments, at
fair value, which represents investment in the public equity of nine non-sponsored SPACs, pre-business combination. Three of
these equity positions, valued at an aggregate $9.8 million, are in SPACs sponsored by related parties – see notes 4 and 31 to our
consolidated financial statements included in this Annual Report on Form 10-K. All nine of these publicly traded SPACs have
completed an IPO but have not yet consummated a business combination, and only two have signed a merger agreement with a
potential business combination target. As of December 31, 2021, our investment in the sponsors entitling us to public equity of
non-sponsored SPACs, pre-business combination had a carrying value at $0.5 million as a component of investment in equity
method affiliates, partially offset by non-controlling interests of $0.1 million, resulting in a net carrying value of $0.4 million. We
expect to continue to invest additional capital in non-sponsored SPAC equity, directly and through sponsors, as opportunities arise.
Investment in CREO JV. In September 2021, we co-established and committed to invest up to $15.0 million in CREO JV. As of
December 31, 2021, we had invested $5.8 million of our $15.0 million investment commitment. As of December 31, 2021, our
investment in CREO JV was valued at $5.8 million, which was included as a component of other investments, at fair value in our
consolidated balance sheet, and the NAV of the CREO JV was $77.7 million.
Investment in U.S. Insurance JV. During 2018, we co-established and committed to invest up to $3.0 million in the U.S.
Insurance JV. As of December 31, 2021, we had fulfilled our investment commitment, our investment in the U.S. Insurance JV
was valued at $3.4 million, which was included as a component of other investments, at fair value in our consolidated balance
sheet, and the NAV of the U.S. Insurance JV was $127.0 million.
Investment in Dutch Real Estate. In December 2019, we acquired a 45% interest in CK Capital Partners B.V. (“CK Capital”), a
private company incorporated in the Netherlands, which provides asset and investment advisory services relating to real estate
holdings, as well as a 10% interest in a related real estate holding company. In December 2021, we invested an additional $2.4
million in the related real estate holding company. As of December 31, 2021, our investment in these Dutch Real Estate entities
was carried at $5.6 million, $0.4 million in CK Capital and $5.2 million in the real estate holding company, which was included as
a component of investment in equity method affiliates in our consolidated balance sheet.
Investment in the SPAC Fund. In August 2018, we established and invested $0.6 million in the SPAC Fund. As of December 31,
2021, our investment in the SPAC Fund was valued at $2.0 million, which was included as a component of other investments, at
fair value in our consolidated balance sheet, and the NAV of the SPAC Fund was $125.4 million.
Investment in the SPAC Series Funds. In 2020, as a complement to the SPAC Fund, we established and became the managing
member and investment manager to the SPAC Series Funds that issue a separate series for each investment portfolio, which
typically consists of investments in the sponsor entities of individual SPACs. As of December 31, 2021, our investment in the
SPAC Series Funds was carried at $5.4 million, which was included as a component of investment in equity method affiliates in
our consolidated balance sheet. We expect to continue to invest additional capital in the SPAC Series Funds as opportunities arise.
Investment in Other Securities. We have invested in various original issuance securities that we have originated and certain other
securities that we have not originated. As of December 31, 2021, our investments in these other securities were valued at
$1.9 million, which included private equity, public equity, and real estate loans.
12
Employees
As of December 31, 2021, we employed a total of 118 full time professionals and support staff. This number includes 64
employees of our JVB subsidiary, 8 employees of our CRE Opportunities group, 11 employees of our Principal Investing business
segment, 14 employees of our U.S. Asset Management business segment, 6 employees of our European Asset Management
business segment, 14 employees of our U.S. support services group, and 1 employee of our European support services group. We
consider our employee relations to be good and believe that our compensation and employee benefits are competitive with those
offered by other financial services firms that we compete with for personnel. None of our employees is subject to any collective
bargaining agreements. Our core asset is our professionals, their intellectual capital, and their dedication to providing the highest
quality services to our clients. Prior to joining us, members of our management team held positions with other leading financial
services firms, accounting firms, law firms, investment firms, or other public companies. Lester R. Brafman, Daniel G. Cohen, and
Joseph W. Pooler, Jr. are our executive operating officers, and biographical information relating to each of these officers is
incorporated by reference in “Part III — Item 10 — Directors, Executive Officers and Corporate Governance” to the Company’s
Proxy Statement, to be filed in connection with the Company’s 2022 Annual Meeting of Stockholders.
Competition
All areas of our business are intensely competitive, and we expect them to remain so. We believe that the principal factors
affecting competition in our business include economic environment, quality and price of our products and services, client
relationships, reputation, market focus, and the ability of our professionals.
Our competitors are other public and private asset managers, investment banks, brokerage firms, merchant banks, and financial
advisory firms. We compete globally and on a regional, product and niche basis. Many of our competitors have substantially
greater capital and resources than we do and offer a broader range of financial products and services. Certain of these competitors
continue to raise additional amounts of capital to pursue business strategies that may be similar to ours. Some of these competitors
may also have access to liquidity sources that are not available to us, which may pose challenges for us with respect to investment
opportunities. In addition, some of these competitors may have higher risk tolerances or make different risk assessments than we
do, allowing them to consider a wider variety of investments and establish broader business relationships.
In recent years, there has been substantial consolidation and convergence among companies in the financial services industry,
including among many of our former competitors. In particular, a number of large commercial banks have established or acquired
broker-dealers or have merged with other financial institutions. Many of these firms have the ability to offer a wider range of
products than we offer, including loans, deposit taking, and insurance. Many of these firms also offer more comprehensive
investment banking services, which may enhance their competitive position. They also have the ability to support investment
banking and securities products with commercial banking and other financial services revenue in an effort to gain market share,
which could result in pricing pressure in our business. This trend toward consolidation and convergence has significantly increased
the capital base and geographic reach of our competitors.
Competition is intense for the recruitment and retention of experienced and qualified professionals. The success of our business
and our ability to continue to compete effectively will depend significantly upon our continued ability to retain and motivate our
existing professionals and attract new professionals. See “Item 1A — Risk Factors."
Regulation
Certain of our subsidiaries, in the ordinary course of their business, are subject to extensive regulation by government and self-
regulatory organizations both in the U.S. and abroad. As a matter of public policy, these regulatory bodies are responsible for
safeguarding the integrity of the securities and other financial markets. The regulations promulgated by these regulatory bodies are
designed primarily to protect the interests of the investing public generally and thus cannot be expected to protect or further the
interests of our company or our stockholders and may have the effect of limiting or curtailing our activities, including activities
that might be profitable.
As of December 31, 2021, our regulated subsidiaries include: JVB, a registered broker-dealer regulated by FINRA and subject to
oversight by the U.S. Securities and Exchange Commission (the “SEC”); CCFESA, a French company regulated by the ACPR;
CCFEL, an Irish company regulated by the CBI; and CCFM and DCM, each of which is a registered investment adviser regulated
by the SEC under the Investment Advisers Act. Since our inception, our businesses have been operated within a legal and
regulatory framework that is constantly developing and changing, requiring us to be able to monitor and comply with a broad
range of legal and regulatory developments that affect our activities.
Certain of our businesses are also subject to compliance with laws and regulations of U.S. federal and state governments,
foreign governments, their respective agencies and/or various self-regulatory organizations or exchanges relating to, among other
things, the privacy of client information and any failure to comply with these regulations could expose us to liability and/or
reputational damage. Additional legislation, changes in rules promulgated by financial authorities and self-regulatory organizations
or changes in the interpretation or enforcement of existing laws and rules, either in the U.S. or abroad, may directly affect our
mode of operation and profitability.
The U.S. and foreign government agencies and self-regulatory organizations, as well as state securities commissions in the U.S.,
are empowered to conduct periodic examinations and initiate administrative proceedings that can result in censure, fine, the
issuance of cease-and-desist orders, and/or the suspension or expulsion of a broker-dealer or its directors, officers, or employees.
See “Item 1A — Risk Factors” beginning on page 17.
13
U.S. Regulation. As of December 31, 2021, JVB was registered as a broker-dealer with the SEC and was a member of and
regulated by FINRA. JVB is subject to the regulations of FINRA and industry standards of practice that cover many aspects of its
business, including initial licensing requirements, sales and trading practices, relationships with customers (including the handling
of cash and margin accounts), capital structure, capital requirements, record-keeping and reporting procedures, experience and
training requirements for certain employees, and supervision of the conduct of affiliated persons, including directors, officers, and
employees. FINRA has the power to expel, fine, and otherwise discipline member firms and their employees for violations of these
rules and regulations. JVB is also registered as a broker-dealer in certain states, requiring us to comply with the laws, rules, and
regulations of each state in which JVB is registered. Each state may revoke the registration to conduct a securities business in that
state and may fine or otherwise discipline broker-dealers and their employees for failure to comply with such state’s laws, rules,
and regulations.
The SEC, FINRA, and various other regulatory agencies within and outside of the U.S. have stringent rules and regulations with
respect to the maintenance of specific levels of net capital by regulated entities. Generally, a broker-dealer’s net capital is net
worth plus qualified subordinated debt less deductions for certain types of assets. The net capital rule under the Exchange Act
requires that at least a minimum part of a broker-dealer’s assets be maintained in a relatively liquid form. The SEC and FINRA
impose rules that require notification when net capital falls below certain predefined criteria. These rules also dictate the ratio of
debt to equity in the regulatory capital composition of a broker-dealer and constrain the ability of a broker-dealer to expand its
business under certain circumstances. If a firm fails to maintain the required net capital, it may be subject to suspension or
revocation of registration by the applicable regulatory agency, and suspension or expulsion by these regulators could ultimately
lead to a firm’s liquidation. Additionally, the net capital rule under the Exchange Act and certain FINRA rules impose
requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing capital and requiring prior
notice to the SEC and FINRA for certain capital withdrawals.
If these net capital rules are changed or expanded, or if there is an unusually large charge against our net capital, our operations
that require the intensive use of capital would be limited. A large operating loss or charge against our net capital could adversely
affect our ability to expand or even maintain current levels of business, which could have a material adverse effect on our business
and financial condition.
Our investment adviser subsidiaries, CCFM and DCM, are registered with the SEC as investment advisers and are subject to the
rules and regulations of the Investment Advisers Act. The Investment Advisers Act imposes numerous obligations on registered
investment advisers including record-keeping, operational and marketing requirements, disclosure obligations, limitations on
principal transactions between an adviser and its affiliates and advisory clients, and prohibitions on fraudulent activities. The SEC
is authorized to institute proceedings and impose sanctions for violations of the Investment Advisers Act, ranging from fines and
censure to termination of an investment adviser’s registration. Investment advisers are also subject to certain state securities laws
and regulations.
We are also subject to the U.S.A PATRIOT Act of 2001 (the “Patriot Act”), which imposes obligations regarding the prevention
and detection of money-laundering activities, including the establishment of customer due diligence, customer verification, and
other compliance policies and procedures. These regulations require certain disclosures by, and restrict the activities of, broker-
dealers, among others. Failure to comply with these new requirements may result in monetary, regulatory and, in the case of the
Patriot Act, criminal penalties.
In July 2010, the federal government passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank
Act”). The Dodd-Frank Act significantly restructures and intensifies regulation in the financial services industry, with provisions
that include, among other things, the creation of a new systemic risk oversight body (i.e., the Financial Stability Oversight
Council), expansion of the authority of existing regulators, increased regulation of and restrictions on OTC derivatives markets and
transactions, broadening of the reporting and regulation of executive compensation, expansion of the standards for market
participants in dealing with clients and customers, and regulation of fiduciary duties owed by municipal advisors or conduit
borrowers of municipal securities. In addition, Section 619 of the Dodd-Frank Act (known as the “Volker Rule”) and section 716
of the Dodd-Frank Act (known as the “swaps push-out rule”) limit proprietary trading of certain securities and swaps by certain
banking entities. Although we are not a banking entity and are not otherwise subject to these rules, some of our clients and many
of our counterparties are banks or entities affiliated with banks and will be subject to these restrictions. These sections of the
Dodd-Frank Act and the regulations that are adopted to implement them could negatively affect the swaps and securities markets
by reducing their depth and liquidity and thereby affect pricing in these markets. Further, the Dodd-Frank Act as a whole and the
intensified regulatory environment will likely alter certain business practices and change the competitive landscape of the financial
services industry, which may have an adverse effect on our business, financial condition, and results of operations. To date, we
have adapted successfully to the applicable legislative and regulatory requirements of Dodd-Frank.
In June 2018, in response to the uncertainty surrounding Brexit, we created a new subsidiary, Cohen & Company Financial
(Europe) Limited (“CCFEL”) in Ireland, for the purpose of seeking to become regulated to perform asset management and capital
markets activities in Ireland and the European Union. In April 2019, CCFEL received authorization from the Central Bank of
Ireland (“CBI”) under the European Union (Markets in Financial Instruments) Regulations 2017 to provide Financial
Instruments. The services for which CCFEL received authorization include the receipt and transmission of orders in relation to
Financial Instruments, the execution of orders on behalf of clients, portfolio management, investment advice and investment
research, and financial analysis. In addition, CCFEL applied for approval of a French branch, which approval was granted by the
CBI and the branch was authorized by the French regulators in April 2019. Following authorization of the French Branch of
CCFEL, various contracts originally entered into by Cohen & Company Financial Limited (“CCFL”), formerly regulated by the
Financial Conduct Authority in the United Kingdom, were novated to the French Branch of CCFEL. The novation of contracts was
completed on July 1, 2019. In order to finalize our Brexit plans and to increase the efficiency of our activity in Europe (and as all
the regulated activity of CCFEL was carried out by its French branch), we later created a new subsidiary, CCFESA, in France, for
the purpose of taking over our regulated European activities under one regulated entity. In October 2021, CCFESA received
authorization from the French banking regulator (“ACPR”) to act as Investment Firm under the European Union (Markets in
Financial Instruments) Regulations 2017 to provide Financial Instruments. The services for which CCFESA received
authorization include the receipt and transmission of orders in relation to Financial Instruments, the execution of orders on behalf
of clients, portfolio management, investment advice and investment research, and financial analysis. Following authorization of
CCFESA, various contracts originally entered into by CCFL and CCFEL were novated to CCFESA. The novation of contracts was
completed on November 1, 2021. Further to such novation, both CCFL and CCFEL have stopped carrying out any regulated
activity and are the process of liquidating.
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French Regulation. Our French subsidiary, Cohen & Company Financial (Europe) S.A. (“CCFESA”) is an investment services
provider authorized and regulated by the French Prudential Supervision and Resolution Authority (Autorité de Contrôle Prudentiel
et de Résolution, the “ACPR”). CCFESA is subject to the ACPR’s rules and guidance, but also to the rules of the French Financial
Markets Authority (Autorité des Marchés Financiers, the “AMF”) and the relevant provisions of the French Monetary and
Financial Code and the AMF’s general regulations. CCFESA’s license by the ACPR covers the following activities: (1) order
reception and transmission for third parties; (2) order execution for third parties; (3) investment advice; (4) portfolio management
for third parties; and (5) research and financial analysis. An overview of key aspects of France’s regulatory regime, which apply
to CCFESA, is set out below.
Ongoing regulatory obligations. As a French regulated entity, CCFESA is subject to ongoing regulatory obligations, which cover
the following wide-ranging aspects of its business. The ACPR sets conditions that all French authorized investment firms,
including CCFESA, must satisfy in order to become and remain authorized by the ACPR. These relate to the firm’s initial capital
and appropriate financial resources for the proposed activities, the identity and status of direct and indirect shareholders, a
management that has the knowledge, experience and fitness of investment firms and is located in France and has a program of
operations for each of the proposed services approved by the AMF.
CCFESA is expected to comply with the ACPR’s regulatory frameworks. Consequently, the ACPR imposes overarching
responsibilities on the directors and senior management of a regulated firm. Key requirements in this context include the need to
have adequate systems and controls in relation to: (1) senior management arrangements and general organizational requirements;
(2) compliance, internal audit, and financial crime prevention; (3) outsourcing; (4) record keeping; (5) risk management; and (6)
managing conflicts of interest.
CCFESA permitted activity is to deal only with eligible counterparties and professional clients as defined under Schedule 2 of the
MIFID II Regulations in relation to the regulated activities it conducts. The level with which CCFESA must comply is dependent
on the categorization of its clients, which should be considered in the context of the regulated activity being performed. These
rules include requirements relating to the type and level of information that must be provided to clients before business is
conducted with or for them, the regulation of financial promotions, procedures for entering into client agreements, obligations
relating to the suitability and appropriateness of investments, and rules about managing investments and reporting to clients.
Reporting. All authorized firms in France are required to report to the ACPR and to the AMF on a periodic basis. CCFESA’s
reporting requirements are based on the scope of its license. The ACPR will use the information submitted by CCFESA to monitor
it on an ongoing basis. There are also high-level reporting obligations, whereby CCFESA is required to engage with the AMF in
an open and co-operative way and to disclose appropriately anything relating to its activity and which would affect its business
plan, activity or any relevant information submitted to the regulators in the context of its license application.
Enforcement powers. The ACPR has a wide range of disciplinary and enforcement tools that it can use should a regulated firm fail
to comply with its regulatory obligations. However, this primary jurisdiction does not exclude that of the AMF with regard more
specifically to any failure by persons placed under its supervision (and therefore within investment firms) to fulfil their
professional obligations. In addition, the AMF has the option of delegating its power of control, in particular to market operators
and clearing houses and to the ACPR. For its part, the ACPR can also delegate its power of control, in particular to the AMF.
A wide range of tools can be used to take action against regulated entities and/or individuals which fall short of our expected
standards of behavior including:
● issuance of a warning
● issuance of a rebuke
● prohibition, for a maximum period of 10 years, from carrying out certain operations and any other limitations in the exercise of
its activity
● temporary suspension or compulsory resignation, for a maximum period of 10 years, of one or more managers, with or without
the appointment of a provisional administrator
● partial or total withdrawal of approval or removal from the list of authorized persons, with or without the appointment of a
liquidator
● temporary or definitive withdrawal of the professional card, temporary ban on trading for their own account, temporary or
definitive ban on the exercise of all or part of the activities or the exercise of management functions within the relevant entity;
● imposition of a fine.
With regard to the pecuniary sanctions which may be imposed by the ACPR and/or the AMF instead of or in addition to the
aforementioned sanctions, such fines cannot exceed 100 million euros (or ten times the amount of the benefit derived from such
breach if this can be determined) or 15% of net annual turnover for breaches specifically referred to in the French Monetary and
Financial Code. Fines issued against individuals under the authority or acting on behalf of an investment firm cannot exceed 15
million euros (or ten times the amount of the benefit derived from the breach if this can be determined).
In addition to the general sanctions regime as described above, a specific regime is provided for breaches of the provisions of the
CRR Regulation and the CRD IV Directive, which establish in particular the capital and liquidity requirements, as well as the rules
of governance to which investment firms are subject.
Financial Resources. As part of the firm regulatory requirements under the ACPR it must maintain adequate financial resources as
set out in the European Union Regulation (EU) 2019/2033, also known as the Investment Firms Regulation (IFR), and Directive
(EU) 2019/2034, also known as the Investment Firms Directive (IFD). The IFR and the IFD apply to investment firms deemed
sufficiently small and non-interconnected (so called “class 3” firms); “Class 3” firms are subject to lighter requirements;
specifically, the capital requirement for a class 3 firm is equal to the higher of (1) €75k of permanent minimum capital requirement
(PMR); or (2) a quarter of its fixed overheads requirements. CCFESA is classified as a class 3 firm. This means that it would be
subject to a base regulatory tangible capital requirement of €480k . In addition, this base capital will be reviewed on an annual
basis. The Company's capital will also be reviewed in the event of a material change in the Company's business since the
preceding year.
Anti-money Laundering Requirements. A French financial institution is subject to additional client acceptance requirements, which
stem from anti-money laundering and terrorist financing legislation that requires a firm to identify its clients before conducting
business with or for them and to retain appropriate documentary evidence of this process. Relevant anti-money laundering
legislation in France is derived from EU Directives and more particularly EU Directive 2015/849 of 20 May 2015 (also known as
the “Fourth Directive”) and EU Directive 2018/843 of 30 May 2018 (also known as the “Fifth Directive”). The fight against
money laundering and terrorist financing (AML-CFT) is one of the AMF’s main supervisory priorities. The ACPR is also
responsible for protecting the customers of the supervised institutions and ensuring the fight against money laundering and the
financing of terrorism. It also has resolution powers.
15
The obligations derived from the Fourth Directive were implemented into the French Monetary and Financial Code and include:
● Risk assessment
● Identification and verification of the identity of clients and their beneficial owners
● Due diligence measures upon entry and throughout the business relation
● Obligation to file suspicious transaction reports to TRACFIN
● Internal audit and reporting to the AMF
● Implementation of asset freezing measures
The Fifth Directive has been implemented into French law at the beginning of 2020. It sets out a series of measures to fight against
terrorist financing more effectively and guarantee improved transparency of financial transactions.
Changes in Existing Laws and Rules. Additional legislation and regulations, changes in rules promulgated by the government
regulatory bodies, or changes in the interpretation or enforcement of laws and regulations may directly affect the manner of our
operation, our net capital requirements, or our profitability. In addition, any expansion of our activities into new areas may subject
us to additional regulatory requirements that could adversely affect our business, reputation, and results of operations.
Available Information
Our internet website address is www.cohenandcompany.com. We make available through our website, free of charge, our Annual
Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and any amendments to those
reports that we file or furnish pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we
electronically file such information with, or furnish such information to, the SEC.
Our filings can also be obtained for free on the SEC’s Internet site at http://www.sec.gov. The reference to our website address
does not constitute incorporation by reference of the information contained on our website in this filing or in other filings with the
SEC, and the information contained on our website is not part of this filing.
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ITEM 1A. RISK FACTORS.
You should carefully consider the risks and uncertainties described below and elsewhere in this Annual Report on Form 10-K. If
any of these risks actually occur, our business, financial condition, liquidity and results of operations could be adversely affected.
The risks and uncertainties described below constitute all of the material risks of the Company of which we are currently aware;
however, the risks and uncertainties described below may not be the only risks the Company will face. Additional risks and
uncertainties of which we are presently unaware, or that we do not currently deem to be material, may become important factors
that affect us and could materially and adversely affect our business, financial condition, results of operations and the trading price
of our securities. Investing in the Company’s securities involves risk and the following risk factors, together with the other
information contained in this report and the other reports and documents filed by us with the SEC, including Forms ADV filed by
CCFM and DCM, should be considered carefully.
Summary of Risk Factors
The following summary highlights some of the principal risks that could adversely affect our business, financial condition or
results of operations. This summary is not complete and the risks summarized below are not the only risks we face.
Risks Related to Our Business and Our Industry:
● Difficult market conditions have adversely affected our business and may continue to do so.
●
Economic slowdown, market volatility, a recession and increasing interest rates may impair investments and
operating results.
● We may experience write downs of financial instruments and other losses due to the volatile and illiquid market
conditions.
● We have incurred losses for certain periods covered by this report and in the recent past and may incur losses in the
future.
● Continued difficulties in our Capital Markets segment due to intense competition has resulted in significant strain on
our administrative, operational and financial resources and these difficulties may continue in the future.
The incurrence of additional debt could adversely effect on our financial condition and results of operation.
●
● Our gestation repo business serves a narrow market and is likely subject to highly volatile demand.
● Our mortgage group’s revenue is highly dependent on the U.S. housing market, generally.
● Our matched book repo financing is facilitated through JVB which is subject to various broker-dealer regulations.
● We may not be successful in achieving our strategic goals with respect to our matched book repo business.
● Our Capital Markets segment depends significantly on a limited group of customers.
●
Failure to retain senior management and qualified personnel may result in our not being able to execute our business
strategy.
Payment of severance could strain our cash flow.
If additional cash is not available, our business and financial performance will be significantly harmed.
Failure to obtain or maintain adequate capital and funding would adversely affect the growth and results of our
operations.
The lack of liquidity in certain investments may adversely affect our business, financial condition and results of
operations.
If we are unable to manage the risks of international operations effectively, our business could be adversely affected.
The securities settlement process exposes us to risks that may adversely affect our business.
●
●
● We are exposed to the risk that third parties that are indebted to us will not perform their obligations.
● We are exposed to various risks related to margin requirements under repurchase agreements and securities financing
●
●
●
●
arrangements and are highly dependent on our clearing relationships.
Pricing and other competitive pressures may impair the revenues and profitability of our brokerage business.
Increase in capital commitments in our trading business increases the potential for significant losses.
● We have market risk exposure from unmatched principal transactions entered into by our brokerage desks.
●
●
● Our principal trading and investments expose us to risk of loss.
● Our principal investments are subject to various risks and expose us to a significant risk of capital loss.
●
● Historical returns of our funds and managed accounts may not be indicative of their future results.
●
● Asset management clients generally may redeem their investments, which could reduce our asset management fee
There is increasing regulatory supervision of alternative asset management companies.
Transition away from LIBOR may adversely affect our business.
●
revenues.
The investment management business is intensely competitive, which could have a material adverse impact on our
business.
●
●
Poor performance of our investment funds’ and separately managed accounts’ investments could result in a decline
in our asset management revenue and earnings and investors terminating our management agreements.
If the investments we have made on behalf of our CDOs perform poorly, we will suffer a decline in our asset
management revenue and earnings and the investors in our CDOs may seek to terminate our management
agreements.
● Our investments in SPAC Sponsor Entities are speculative, subject to total loss, and illiquid prior to business
combination.
● Our investments in post-business combination SPACs are carried at fair value but are subject to sale restrictions
which could result in significant losses to our business.
● Our strategic relationship with Fintech Masala, LLC could result in conflicts of interest and a termination of such
relationship could result in losses to our business.
● Our management may allocate some portion of their time to the business of the SPAC, which may create conflicts of
interest.
● Any agreement to indemnify a SPAC against certain claims could negatively affect our financial results.
● We may make future loans to SPACs which may not be repaid.
●
If our risk management systems for our businesses are ineffective, we may be exposed to material unanticipated
losses.
Failures in our information and communications systems could significantly disrupt our business.
●
● We may not be able to keep pace with continuing changes in technology.
●
Failure to protect client data or prevent breaches of our information systems could expose us to liability/reputational
damage.
● We are largely dependent on Pershing LLC to provide clearing services and margin financing.
● Our substantial level of indebtedness could adversely affect our financial health and ability to compete.
● Changes in accounting interpretations or assumptions could adversely impact our financial statements.
● Any change of our investment strategy, hedging strategy, asset allocation and operational policies may result in
riskier investments and adversely affect the market value of our Common Stock.
● Maintenance of our Investment Company Act exemption imposes limits on our operations.
●
The soundness of other financial institutions and intermediaries affects us.
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● We operate in a highly regulated industry and may face increasing restrictions on, and examination of, the conduct of
our operations.
Substantial legal liability or significant regulatory action could materially affect our business.
●
● Highly competitive markets could have a material adverse effect on our business.
●
Employee misconduct or error could harm our business.
Risks Related to Our Organizational Structure and Ownership of Our Common Stock:
● We are dependent on distributions from the Operating LLC as a holding company.
● Daniel G. Cohen’s significant ownership interests in the Operating LLC and other entities could create conflicts of
interest.
● As a “controlled company,” our other stockholders may lose certain corporate governance protections.
● Redemptions of our outstanding LLC Units may cause substantial dilution to our existing stockholders.
● We may not fully realize our deferred tax asset.
●
The Maryland General Corporation Law and our charter and bylaws may prevent potentially beneficial takeover
attempts.
Risks Related to General and Global Factors:
●
The COVID-19 pandemic has caused severe disruptions in the U.S. and global economy and is expected to continue
to impact our business, financial condition and results of operations.
● We may incur losses as a result of unforeseen events, including further spread of the COVID-19 pandemic, cybersecurity
incidents and events, terrorist attacks, climate-related incidents, or other natural disasters.
● We are currently operating in a period of economic uncertainty and capital markets disruption, which has been
significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine. Our
business, financial condition and results of operations may be materially adversely affected by any negative impact on
the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.
● Repurchases of our Common Stock could adversely affect our business.
●
Future sales of our Common Stock could lower the price of our Common Stock and harm our future securities
offerings.
● Our stockholders’ percentage ownership in the Company may be diluted in the future.
●
If we fail to control our costs effectively, our business could be disrupted and adversely affected.
● We may need to offer new investment strategies and products in order to continue to generate revenue.
● Our failure to deal appropriately with conflicts of interest could damage our reputation and adversely affect our
business.
Insurance may be inadequate to cover risks facing the Company.
●
● We depend on third-party software licenses and the loss of key licenses could adversely affect our brokerage
●
●
services.
Failure to maintain effective internal control over financial reporting and disclosure controls could harm our
business.
The market price of our Common Stock may be volatile and may be affected by market conditions beyond our
control.
● Our Common Stock may be delisted, which may have a material adverse effect on the liquidity and our Common
Stock value.
18
Risks Related to Our Business and Our Industry
Difficult market conditions have adversely affected our business in many ways and may continue to adversely affect our
business in a manner which could materially reduce our revenues.
Our business has been and may continue to be materially affected by conditions in the global financial markets and economic
conditions. The financial markets continue to be volatile and continue to present many challenges such as the level and volatility of
interest rates, investor sentiment, the availability and cost of credit, the status of the U.S. mortgage and real estate markets,
consumer confidence, unemployment and geopolitical issues.
A prolonged economic slowdown, volatility in the markets, a recession, and increasing interest rates could impair our
investments and harm our operating results.
Our investments are, and will continue to be, susceptible to economic slowdowns, recessions and rising interest rates, which may
lead to financial losses in our investments and a decrease in revenues, net income and asset values. These events may reduce the
value of our investments, reduce the number of attractive investment opportunities available to us and harm our operating results,
which, in turn, may adversely affect our cash flow from operations.
Our ability to raise capital in the long-term or short-term debt capital markets or the equity markets, or to access secured lending
markets, has been and could continue to be adversely affected by conditions in the U.S. and international markets and the
economy. Global market and economic conditions have been, and continue to be, disrupted and volatile. In particular, the cost and
availability of funding have been and may continue to be adversely affected by illiquid credit markets and wider credit spreads and
volatility of interest rates (including overnight repo). As a result of concern about the stability of the markets generally and the
strength of counterparties specifically, many lenders and institutional investors have reduced and, in some cases, ceased to provide
funding to borrowers. Continued turbulence in the U.S. and international markets and economy may adversely affect our liquidity
and financial condition and the willingness of certain counterparties to do business with us.
In addition, global macroeconomic conditions and U.S. financial markets remain vulnerable to the potential risks posed by
exogenous shocks, which could include, among other things, political and financial uncertainty in the U.S. and the European
Union (the “EU”), continued spread of the global novel coronavirus (“COVID-19”) pandemic, renewed concern about China’s
economy, cybersecurity incidents and events, climate-related incidents, complications involving terrorism and armed conflicts
around the world, or other challenges to global trade or travel. More generally, because our business is closely correlated to the
macroeconomic outlook, a significant deterioration in that outlook or an exogenous shock would likely have an immediate
negative impact on our overall results of operations.
We may experience write downs of financial instruments and other losses related to the volatile and illiquid market conditions.
The credit markets in the U.S. experienced significant disruption and volatility from mid-2007 through early 2009, and challenging
conditions have continued since that time. Although financial markets have become more stable and have generally improved
since 2009, there remains a certain degree of uncertainty about a global economic recovery. Available liquidity also declined
precipitously during the credit crisis and remains significantly depressed. The disruption in these markets generally, and in the U.S.
and European markets in particular, impacted and may continue to impact our business. Furthermore, the asset management
revenues we derive from CDOs are based on the outstanding performing principal balance of those investments. Therefore, as
adverse market conditions result in defaults within these CDOs, our management fees have declined and may continue to decline.
We have exposure to these markets and products, and if market conditions continue to worsen, the fair value of our investments
and our management fees could further deteriorate. In addition, market volatility, illiquid market conditions and disruptions in the
global credit markets have made it extremely difficult to value certain of our securities. Subsequent valuations, in light of factors
then prevailing, may result in significant changes in the values of these securities, and when such securities are sold, it may be at a
price materially lower than the current fair value. Any of these factors could require us to take further write downs in the fair value
of our investment portfolio or cause our management fees to decline, which may have an adverse effect on our results of
operations in future periods.
We have incurred losses for certain periods covered by this report and in the recent past and may incur losses in the future.
The Company recorded net loss of $3.6 million for the year ended December 31, 2019. We may incur additional losses in future
periods. If we are unable to finance future losses, those losses may have a significant effect on our liquidity as well as our ability to
operate our business.
In addition, the Company has incurred and may continue to incur significant expenses in connection with initiating new business
activities or in connection with any expansion or reorganization of our businesses. We may also engage in strategic acquisitions
and investments for which we may incur significant expenses. Accordingly, we may need to increase our revenue at a rate greater
than our expenses in order to achieve and maintain our profitability. If our revenue does not increase sufficiently, or even if our
revenue does increase but we are unable to manage our expenses, we will not achieve and maintain profitability in future periods.
We have experienced difficulties in our Capital Markets segment over the past several years due to intense competition in our
industry, which has resulted in significant strain on our administrative, operational and financial resources. These difficulties
may continue in the future.
The financial services industry and all of our businesses are intensely competitive, and we expect them to remain so. We compete
with commercial banks, brokerage firms, insurance companies, sponsors of mutual funds, hedge funds and other companies
offering financial services in the U.S., globally, and through the internet. We compete on the basis of several factors, including
transaction execution, capital or access to capital, products and services, innovation, reputation, risk appetite and price. Over time,
certain sectors of the financial services industry have become more concentrated as institutions involved in a broad range of
financial services have been acquired by or merged into other firms or have declared bankruptcy. These developments could result
in our competitors gaining greater capital and other resources such as a broader range of products and services and geographic
diversity. We have experienced and may continue to experience pricing pressures in our Capital Markets segment as a result of
these factors and as some of our competitors may seek to increase market share by reducing prices.
Both margins and volumes in certain products and markets within the fixed income brokerage business have decreased materially
as competition has increased and general market activity has declined. Further, we expect that competition will increase over time,
resulting in continued margin pressure. These challenges have materially adversely affected our Capital Markets segment’s results
of operations and may continue to do so.
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We intend to focus on improving the performance of our Capital Markets segment, which could place additional demands on our
resources and increase our expenses. Improving the performance of our Capital Markets segment will depend on, among other
things, our ability to successfully identify groups and individuals to join our firm and our ability to successfully grow our existing
business lines and platforms and opportunistically expand into other complementary business areas. It may take more than a year
for us to determine whether we have successfully integrated new individuals, lines of business and capabilities into our operations.
During that time, we may incur significant expenses and expend significant time and resources toward training, integration and
business development. If we are unable to hire and retain senior management or other qualified personnel, such as salespeople and
traders, we will not be able to grow our business and our financial results may be materially and adversely affected.
There can be no assurance that we will be able to successfully improve the operations of our Capital Markets segment, and any
failure to do so could have a material adverse effect on our ability to generate revenue and control expenses.
Our gestation repo business serves a narrow market and is likely subject to highly volatile demand.
We operate a matched gestation repo program. Gestation repo involves entering into repo and reverse repo where the underlying
collateral security represents a pool of newly issued mortgages. Our reverse repo counterparties are mortgage originators. This
type of financing would only be of interest to mortgage originators. Therefore, demand for gestation repo financing is narrow and
volumes will therefore be more volatile.
Mortgage and U.S. Housing Market-Related Risks
In recent years, our mortgage group has become an increasingly important component of our Capital Markets segment and the
Company overall. The mortgage group primarily earns revenue by providing hedging execution, securities financing, and trade
execution services to mortgage originators and other investors in mortgage backed securities. Therefore, this group’s revenue is
highly dependent on the volume of mortgage originations in the U.S. Origination activity is highly sensitive to interest rates, the
U.S. job market, housing starts, sale activity of existing housing stock, as well as the general health of the U.S. economy. In
addition, any new regulation that impacts U.S. government agency mortgage backed security issuance activity, residential
mortgage underwriting standards, or otherwise impacts mortgage originators will impact our business. We have no control over
these external factors and there is no effective way for us to hedge against these risks. Our mortgage group’s volumes and
profitability will be highly impacted by these external factors.
Our Capital Markets segment depends significantly on a limited group of customers.
From time to time, based on market conditions, a small number of our customers may account for a significant portion of the
revenues earned in our Capital Markets segment. None of our customers is obligated contractually to use our services.
Accordingly, these customers may direct their activities to other firms at any time. The loss of or a significant reduction in demand
for our services from any of these customers could have a material adverse effect on our business, financial condition and
operating results.
20
If we do not retain our senior management and continue to attract and retain qualified personnel, we may not be able to
execute our business strategy.
The members of our senior management team have extensive experience in the financial services industry. Their reputations and
relationships with investors, financing sources and members of the business community in our industry, among others, are critical
elements in operating and expanding our business. As a result, the loss of the services of one or more members of our senior
management team could impair our ability to execute our business strategies, which could hinder our ability to achieve and sustain
profitability. The Company has various employment arrangements with the members of its senior management team, but there can
be no assurance that the terms of these employment arrangements will provide sufficient incentives for each of the members of the
senior management team to continue employment with us.
We depend on the diligence, experience, skill and network of business contacts of our senior management team and our employees
in connection with (1) our Capital Markets segment, (2) our asset management operations, (3) our investment activities, (4) the
evaluation, negotiation, structuring and management of new business opportunities, and (5) our SPAC franchise, including our
investments in SPACs and SPAC sponsors and our serving as the asset manager for certain SPAC Funds. Our business depends on
the expertise of our personnel and their ability to work together as an effective team and our success depends substantially on our
ability to attract and retain qualified personnel. Competition for employees with the necessary qualifications is intense, and we
may not be successful in our efforts to recruit and retain the required personnel. The inability to recruit and retain qualified
personnel could affect our ability to provide an acceptable level of service to our clients and funds, attract new clients, and develop
new lines of business, each of which could have a material adverse effect on our business.
Payment of severance could strain our cash flow.
Certain members of our senior management team have agreements that provide for substantial severance payments. Should several
of these senior managers leave our employ under circumstances entitling them to severance, or become disabled or die, the need to
pay these severance benefits could put a strain on our cash flow.
Our business will require a significant amount of cash, and if it is not available, our business and financial performance will
be significantly harmed.
We require a substantial amount of cash to fund our investments, pay our expenses and hold our assets. More specifically, we
require cash to:
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meet our working capital requirements and debt service obligations;
make incremental investments in our Capital Markets segment;
make investments in our growing asset management business;
make investments supporting our SPAC franchise, including in pre- and post-business combination SPAC public
companies and in SPAC sponsor entities;
hire new employees; and
meet other needs.
Our primary sources of working capital and cash are expected to consist of:
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revenue from operations, including net trading revenue, asset management revenue, new issue and advisory
revenue, interest income and dividends from our investment portfolio and potential monetization of principal
investments;
interest income from temporary investments and cash equivalents;
sales of assets; and
proceeds from future borrowings or any offerings of our equity or debt securities.
We may not be able to generate a sufficient amount of cash from operations and investing and financing activities in order to
successfully execute our business strategy.
Failure to obtain or maintain adequate capital and funding would adversely affect the growth and results of our operations and
may, in turn, negatively affect the market price of our Common Stock.
Liquidity is essential to our businesses. We depend upon the availability of adequate funding and capital for our operations. In
particular, we may need to raise additional capital in order to significantly grow our business. In recent years, we have engaged in
a number of capital raising transactions with Daniel G. Cohen, Chairman of the Board and President and Chief Executive of
European operations, and/or persons or entities controlled by or close to Mr. Cohen because the terms of such transactions have
been more favorable than terms available from unrelated third parties. Our liquidity could be substantially adversely affected by
our inability to raise funding in the long-term or short-term debt capital markets or the equity capital markets or our inability to
access the secured lending markets. Factors that we cannot control, such as continued or additional disruption of the financial
markets, or negative views about the financial services industry generally, have limited and may continue to limit our ability to
raise capital. In addition, our ability to raise capital could be impaired if lenders develop a negative perception of our long-term or
short-term financial prospects or if Mr. Cohen becomes unwilling to continue to fund the Company’s operations. Lenders could
develop negative perceptions if we incur large trading losses, we suffer a decline in the level of our business activity, we suffer
material litigation losses, regulatory authorities take significant action against us, or we discover significant employee misconduct
or illegal activity, among other reasons. Sufficient funding or capital may not be available to us in the future on terms that are
acceptable, or at all. If we are unable to raise funding using the methods described above, we would likely need to finance or
liquidate unencumbered assets, such as our investment and trading portfolios, in order to meet our maturing liabilities. We may be
unable to sell some of our assets, or we may have to sell assets at a discount from market value, either of which could adversely
affect our results of operations and cash flows. If we are unable to meet our funding needs on a timely basis, our business would
be adversely affected and there may be a negative impact on the market price of our Common Stock.
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Our investments in the equity interests of SPACs and SPAC Sponsor Entities may expose us to increased risks and liabilities.
We have and are likely to continue to invest in the equity interests of SPACs and SPAC sponsor entities, including SPACs
sponsored by us, our affiliates, and third parties. There are numerous risks associated with investing in the equity interests of
SPACs and SPAC sponsor entities, including: (i) because a SPAC is raised without a specifically-identified acquisition target, it
may never, or only after an extended period of time, be able to find and execute a suitable business combination, during which
period the capital which we have invested in or committed to the SPAC will not be available to us for other uses; (ii) investments
made by us in a SPAC and SPAC sponsor entities may be entirely lost or otherwise decline in value if the SPAC does not timely
execute a business combination; (iii) SPACs typically invest in single assets and not diversified portfolios, and investments therein
are therefore subject to significant concentration risk; (iv) SPACs incur substantial fees, costs and expenses related to their initial
public offerings, being a public company and in connection with pursuing a business combination (in some cases, regardless of
whether, or when, the SPAC ultimately consummates a business transaction); (v) the use of SPACs as an investment tool has
recently become more widespread, which has resulted in increased competition in seeking and identifying viable targets for
potential business combinations; and (vi) there remains substantial uncertainty regarding the viability of SPAC investing on a
large scale, the supply of desirable transactions relative to the pace at which SPACs are currently being formed and whether
regulatory, tax or other authorities will implement additional or adverse policies relating to SPACs and SPAC investing. We
expect regulatory scrutiny of SPACs and other blank check companies to increase and the regulations regarding SPACs may
change. Our investments in the equity interests of SPACs and SPAC sponsor entities may also subject us to the risk of litigation by
third parties, including fund investors dissatisfied with the performance or management of SPAC Funds, public investors in
SPACs and a variety of other potential litigants. Any losses relating to these developments could adversely impact our business,
results of operations and financial condition, as well as harm our professional reputation.
As the number of SPACs evaluating targets increases, attractive targets may become scarcer and there may be more
competition for attractive targets. This could increase the cost of the business combinations of the SPACs of which we are the
sponsors.
In recent years, the number of SPACs that have been formed has increased substantially. Many potential targets for SPACs have
already entered into an initial business combination, and there are still many SPACs seeking targets for their initial business
combination, as well as many such companies currently in registration. As a result, at times, fewer attractive targets may be
available, and it may require more time, more effort and more resources to identify suitable targets and to consummate business
combinations. In addition, because there are more SPACs seeking to enter into initial business combinations with available targets,
the competition for available targets with attractive fundamentals or business models may increase, which could cause target
companies to demand improved financial terms. Attractive deals could also become scarcer for other reasons, such as economic or
industry sector downturns, geopolitical tensions, or increases in the cost of additional capital needed to close business
combinations or operate targets post-business combination. This could increase the cost of, delay or otherwise complicate or
frustrate the ability of the SPACs of which we are sponsors to find and consummate business combinations, and may result in such
SPACs inability to consummate business combinations.
Our investments in SPAC Sponsor Entities are highly speculative, subject to total loss, and completely illiquid prior to business
combination.
The Company invests in the sponsor entities of SPACs and these investments are highly speculative. Generally, SPAC sponsor
entities are LLC’s that pool their members’ interests and invest in the private placement of a SPAC. The SPAC will also raise
funds in a public offering and seek to complete a business combination within an agreed upon timeframe. The SPAC will use the
proceeds of the private placement to pay transaction and operating expenses during the period it is seeking a business
combination. The proceeds of the public offering are placed in an interest-bearing trust and can only be used to complete the
business combination. Typically, the public investors must approve any business combination prior to its effectiveness. If a
business combination is not completed within the agreed upon timeframe, the SPAC will liquidate and return the funds to the
public investors. If there are funds remaining after liquidation, the sponsor entities may receive some portion of their investment
back, but will likely suffer a total loss of investment. Accordingly, our investments in SPAC sponsor entities is subject to a total
loss of our investment and such losses may adversely affect our business, financial condition and results of operations.
During the period prior to the distribution of our interests in the SPAC sponsor entity, the Company includes its investment as a
component of investment in equity method affiliates. As of December 31, 2021, of the Company’s $48.2 million balance of
investment in equity method affiliates, $42.6 million represents direct or indirect investments in SPAC sponsor entities. These
investments are subject to transfer restrictions (as described in greater detail below), are completely illiquid and could be worthless
if the underlying sponsor entities liquidate without completing a business combination.
Our investments in post-business combination SPACs are carried at fair value but are subject to sale restrictions which could
result in significant losses to our business.
We hold securities in public companies that were merger partners with the SPACs in which we invested or sponsored and we
intend to continue to invest in SPACs and SPAC sponsor entities in the future. A significant portion of the securities in the post-
business combination SPACs are and will be restricted for sale and may require the securities to trade above a certain price level
for a certain period of time prior to becoming transferable. It is possible that the securities which we hold in post-business
combination SPACs never trade at the applicable price levels for the requisite period of time and, in turn, the transfer restrictions
thereon are never lifted. In such event, such restricted securities may be completely illiquid and this could significantly reduce
their value, if not render them completely worthless. Further, investments in post-business combination SPAC securities may not
be transferable until such securities are registered for sale with the SEC. The Company could suffer significant mark-to-market
losses on these restricted securities prior to being able to sell them. In some cases, we hedge these positions by entering into short
options trades on the underlying unrestricted equity. However, we are limited in our ability to enter into these because of capital
and financing requirements associated with such trades.
As of December 31, 2021, of our $56.0 million reported as other investments, at fair value, $19.4 million represented restricted
shares of post-business combination SPACs that were subject to transfer restrictions and could not be sold. If these securities do
not trade at the applicable per share price levels for the requisite periods of time and, in turn, the transfer restrictions thereon are
never lifted, we could suffer significant losses and these securities could be rendered illiquid and even worthless, which could
result in significant harm to our business and results of operations.
Our strategic relationship with Fintech Masala, LLC (“Fintech Masala”) could terminate, which could adversely affect the
growth and viability of our SPAC franchise, which, in turn would negatively affect our results of our operations, and our
strategic relationship with Fintech Masala could also result in conflicts of interest which could negatively affect our SPAC
franchise and our business.
Fintech Masala, an entity of which Daniel G. Cohen and his mother, Betsy Cohen, are members, is a fintech investing platform and
the sponsor of third party SPACs. We have entered into consulting agreements with FinTech Masala pursuant to which Betsy
Cohen and other Fintech Masala representatives have provided and will continue to provide consulting services to us regarding our
SPAC franchise and the SPAC entities of which we are sponsors. We anticipate that we will continue to enter into consulting
arrangements with Fintech Masala in connection with the SPACs which we sponsor in the future. In the event that our strategic
relationship with Fintech Masala is terminated, the loss of the services of Fintech Masala’s personnel could significantly impair
our SPAC franchise's ability to continue to succeed, which could hinder our ability to achieve and sustain profitability.
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In addition, certain of our employees also provide consulting and other SPAC-related services to Fintech Masala pursuant to
contractual arrangements with the SPACs of which Fintech Masala is a sponsor. Pursuant to these contractual relationships, our
employees may be incentivized to identify and consummate potential SPAC business combinations on behalf of Fintech Masala
rather than for us. Further, these contractual relationships could result in our competing with Fintech Masala for potential SPAC
business combination targets and other opportunities. All of the foregoing could result in lost opportunities for our SPAC
franchise, which could have negative impacts on our SPAC franchise and business as a whole.
If we are unable to manage the risks of international operations effectively, our business could be adversely affected.
We currently provide services and products to clients in Europe, through offices in Dublin and Paris. There are certain additional
risks inherent in doing business in international markets, particularly in the regulated brokerage and asset management industries.
These risks include:
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additional regulatory requirements;
difficulties in recruiting and retaining personnel and managing the international operations;
potentially adverse tax consequences, tariffs and other trade barriers;
adverse labor laws; and
reduced protection for intellectual property rights.
If we are unable to manage any of these risks effectively, our business could be adversely affected.
In addition, our current international operations expose us to the risk of fluctuations in currency exchange rates generally and
fluctuations in the exchange rates for the Euro and the British Pound Sterling in particular. Although we may hedge our foreign
currency risk, we may not be able to do so successfully and may incur losses that could adversely affect our financial condition or
results of operations.
The securities settlement process exposes us to risks that may adversely affect our business, financial condition and results of
operations.
We provide brokerage services to our clients in the form of “matched principal transactions” or by providing liquidity by
purchasing securities from them on a principal basis. In “matched principal transactions” we act as a “middleman” by serving as a
counterparty to both a buyer and a seller in matching reciprocal back-to-back trades. These transactions, which generally involve
bonds, are then settled through clearing institutions with which we have a contractual relationship. There is no guarantee that we
will be able to maintain existing contractual relationships with clearing institutions on favorable terms or that we will be able to
establish relationships with new clearing institutions on favorable terms, or at all.
In executing matched principal transactions, we are exposed to the risk that one of the counterparties to a transaction may fail to
fulfill its obligations, either because it is not matched immediately or, even if matched, one party fails to deliver the cash or
securities it is obligated to deliver upon settlement. In addition, some of the products we trade or may trade in the future are in less
commoditized markets which may exacerbate this risk because transactions in such markets may not settle on a timely basis.
Adverse movements in the prices of securities that are the subject of these transactions can increase our risk. In addition,
widespread technological or communication failures, as well as actual or perceived credit difficulties, or the insolvency of one or
more large or visible market participants, could cause market-wide credit difficulties or other market disruptions. These failures,
difficulties or disruptions could result in a large number of market participants not settling transactions or otherwise not
performing their obligations.
We are subject to financing risk in these circumstances because if a transaction does not settle on a timely basis, the resulting
unmatched position may need to be financed, either directly by us or through one of our clearing organizations at our expense.
These charges may not be recoverable from the failing counterparty. Finally, in instances where the unmatched position or failure
to deliver is prolonged or widespread due to rapid or widespread declines in liquidity for an instrument, there may also be
regulatory capital charges required to be taken by us which, depending on their size and duration, could limit our business
flexibility or even force the curtailment of those portions of our business requiring higher levels of capital. Credit or settlement
losses of this nature could adversely affect our financial condition or results of operations.
In the process of executing matched principal transactions, miscommunications and other errors by our clients or by us can arise
whereby a transaction is not completed with one or more counterparties to the transaction, leaving us with either a long or short
unmatched position. If the unmatched position is promptly discovered and there is a prompt disposition of the unmatched position,
the risk to us is usually limited. If the discovery of an out trade is delayed, the risk is heightened by the increased possibility of
intervening market movements prior to disposition. Although out trades usually become known at the time of, or later on the day
of, the trade, it is possible that they may not be discovered until later in the settlement process. When out trades are discovered, our
policy will generally be to have the unmatched position disposed of promptly, whether or not this disposition would result in a loss
to us. The occurrence of unmatched positions generally rises with increases in the volatility of the market and, depending on their
number and amount, such out trades have the potential to have a material adverse effect on our financial condition and results of
operations.
From time to time, we may also provide brokerage services in the form of agency transactions. In agency transactions, we charge a
commission for connecting buyers and sellers and assisting in the negotiation of the price and other material terms of the
transaction. After all material terms of a transaction are agreed upon, we identify the buyer and seller to each other and leave them
to settle the trade directly. We are exposed to credit risk for commissions we bill to clients for agency brokerage services.
Participation in matched principal, principal, or agency transactions subjects us to disputes, counterparty credit risk, lack of
liquidity, operational failure or other market wide or counterparty specific risks. Any losses arising from such risks could adversely
affect our financial condition or results of operations. In addition, the failure of a significant number of counterparties or a
counterparty that holds a significant amount of derivatives exposure, or that has significant financial exposure to, or reliance on,
the mortgage, asset-backed or related markets, could have a material adverse effect on the trading volume and liquidity in a
particular market for which we provide brokerage services or on the broader financial markets.
We have policies and procedures to identify, monitor and manage these risks, through reporting and control procedures and by
monitoring credit standards applicable to our clients. These policies and procedures, however, may not be fully effective. Some of
our risk management methods will depend upon the evaluation of information regarding markets, clients or other matters that are
publicly available or otherwise accessible by us. That information may not, in all cases, be accurate, complete, up-to-date or
properly evaluated. If our policies and procedures are not fully effective or we are not always successful in monitoring or
evaluating the risks to which we may be exposed, our financial condition or results of operations could be adversely affected. In
addition, we may not be able to obtain insurance to cover all of the types of risks we face and any insurance policies we do obtain
may not provide adequate coverage for covered risks.
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We are exposed to the risk that third parties that are indebted to us will not perform their obligations.
Credit risk refers to the risk of loss arising from borrower, counterparty or obligor default when a borrower, counterparty or
obligor does not meet its obligations. We incur significant credit risk exposure through our Capital Markets segment. This risk
may arise from a variety of business activities, including but not limited to extending credit to clients through various lending
commitments; providing short or long-term funding that is secured by physical or financial collateral whose value may at times be
insufficient to fully cover the loan repayment amount; entering into swap or other derivative contracts under which counterparties
have obligations to make payments to us; and posting margin and/or collateral to clearing houses, clearing agencies, exchanges,
banks, securities firms and other financial counterparties. We incur credit risk in traded securities and loan pools whereby the
value of these assets may fluctuate based on realized or expected defaults on the underlying obligations or loans.
There is a possibility that continued difficult economic conditions may further negatively impact our clients and our current credit
exposures. Although we regularly review our credit exposures, default risk may arise from events or circumstances that are
difficult to detect or foresee.
We are exposed to various risks related to margin requirements under repurchase agreements and securities financing
arrangements and are highly dependent on our clearing relationships.
We maintain repurchase agreements with various third-party financial institutions and other counterparties. Under those
repurchase agreements we act as both a buyer and a seller of the subject securities. Our business related to these repurchase
agreements is predominantly matched, meaning that we do not purchase or sell securities unless there is another institution
prepared to simultaneously purchase or sell securities to or from us, as applicable. There are limits to the amount of securities that
may be transferred pursuant to these agreements, and available lines both for us and our counterparties for whom we purchase
securities are approved on a case-by-case basis after each counterparty has gone through a credit review process. The repurchase
agreements we execute with our counterparties include substantive provisions other than those covenants and other customary
provisions contained in standard master repurchase agreements. However, while these additional provisions may work to mitigate
some of the risks related to repurchase agreement transactions, these additional substantive provisions do not guarantee the
performance of a counterparty or alleviate all of the potential risks we could face from entering into repurchase agreement
transactions.
The repurchase agreements generally require a seller under a repurchase agreement to transfer additional securities to the
counterparty who is acting as the buyer under the repurchase agreement in the event that the value of the securities then held by the
buyer falls below specified levels. Each repurchase agreement contains events of default in cases where a counterparty breaches its
obligations under the agreement. When we are acting in the capacity of a seller under these agreements, we receive margin calls
from time to time in the ordinary course of business, and no assurance can be given that we will be able to satisfy requests from
our counterparties to post additional collateral in the future. Similarly, when we are acting in the capacity of a buyer under these
agreements we make margin calls from time to time to our seller counterparties in the ordinary course of business and no
assurance can be given that our counterparties will have adequate funds or collateral to satisfy such margin call requirements.
Generally, if there was an event of default under a repurchase agreement, such event of default would provide the non-defaulting
counterparty with the option to terminate all outstanding repurchase transactions with us and make all amounts due from the
defaulting counterparty immediately payable. However, there can be no assurance that any such defaulting counterparty will have
the funds or collateral needed to fully satisfy any such margin call or other amount due. Generally, repurchase obligations are full
recourse obligations and if we were to default under a repurchase obligation, the counterparty would have recourse to our other
assets if the collateral was insufficient to satisfy our obligation in full.
In addition, our clearing brokers provide securities financing arrangements including margin arrangements and securities
borrowing and lending arrangements. These arrangements generally require us to transfer additional securities or cash to the
clearing broker in the event that the value of the securities then held by the clearing broker in the margin account falls below
specified levels and contain events of default that would be triggered if we were to breach our obligations under such agreements.
An event of default under a clearing agreement would give the clearing broker the option to terminate the clearing arrangement
and any amounts owed to the clearing broker would be immediately due and payable. These obligations are full recourse to us.
Furthermore, we are highly dependent on our relationships with our clearing brokers. Any termination of our clearing
arrangements whether due to a breach of the agreement by us or a default, bankruptcy or reorganization of a clearing broker would
result in a significant disruption to our business as we clear all trades through these entities. Any such termination would have a
significant negative impact on our dealings and relationship with our customers and there is no guarantee we would be able to
replace any such clearing broker on similar terms.
We have market risk exposure from unmatched principal transactions entered into by our brokerage desks, which could result
in substantial losses to us and adversely affect our financial condition and results of operations.
We allow certain of our brokerage desks access to limited amounts of capital to enter into unmatched principal transactions in the
ordinary course of business for the purpose of facilitating clients’ execution needs for transactions initiated by such clients or to
add liquidity to certain illiquid markets. As a result, we have market risk exposure on these unmatched principal transactions. Our
exposure will vary based on the size of the overall positions, the terms and liquidity of the instruments brokered, and the amount of
time the positions will be held before we dispose of the positions.
We do not track our exposure to unmatched positions on an intra-day basis. These unmatched positions are intended to be held
short-term, however, due to a number of factors, including the nature of a position and access to the market on which we trade, we
may not be able to match each position or effectively hedge our exposure and often may be forced to hold a position overnight that
has not been hedged. To the extent any unmatched positions are not disposed of intra-day, we mark those positions to market.
Adverse movements in the securities underlying the positions or a downturn or disruption in the markets for the positions could
result in our sustaining a substantial loss. In addition, any principal gains and losses resulting from these positions could, from time
to time, have a disproportionate positive or negative effect on our financial condition and results of operations for a particular
reporting period.
Pricing and other competitive pressures may impair the revenues and profitability of our brokerage business.
In recent years, we have experienced significant pricing pressures on trading margins and commissions, primarily in debt trading.
In the fixed income market, regulatory requirements have resulted in greater price transparency, leading to increased price
competition and decreased trading margins. The trend toward using alternative trading systems is continuing to grow, which may
result in decreased commission and trading revenue, reduce our participation in the trading markets and our ability to access
market information, and lead to the creation of new and stronger competitors. Additional pressure on sales and trading revenue
may impair the profitability of our brokerage business. We believe that price competition and pricing pressures in these and other
areas will continue as institutional investors continue to reduce the amounts they are willing to pay, including reducing the number
of brokerage firms they use, and some of our competitors seek to obtain market share by reducing fees, commissions or margins.
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Increase in capital commitments in our trading business increases the potential for significant losses.
We may enter into transactions in which we commit our own capital as part of our trading business. The number and size of these
transactions may materially affect our results of operations in a given period. We may also incur significant losses from our trading
activities due to market fluctuations and volatility from quarter to quarter. We maintain trading positions in the fixed income
markets to facilitate client-trading activities. To the extent that we own security positions, in any of those markets, a downturn in
the value of those securities or in those markets could result in losses from a decline in value. Conversely, to the extent that we
have sold securities we do not own in any of those markets, an upturn in those markets could expose us to potentially unlimited
losses as we attempt to acquire the securities in a rising market. Moreover, taking such positions in times of significant volatility
can lead to significant unrealized losses, which further impact our ability to borrow to finance such activities.
Our principal trading and investments expose us to risk of loss.
A significant portion of our revenue is derived from trading in which we act as principal. The Company may incur trading losses
relating to the purchase, sale or short sale of corporate and asset-backed fixed income securities and other securities for our own
account and from other principal trading. In any period, we may experience losses as a result of price declines, lack of trading
volume, general market conditions, employee inexperience, errors or misconduct, or illiquidity. From time to time, we may engage
in a large block trade in a single security or maintain large position concentrations in a single security, securities of a single issuer,
or securities of issuers engaged in a specific industry. In general, any downward price movement in these securities could result in
a reduction of our revenues and profits.
In addition, we may engage in hedging transactions and strategies that may not properly mitigate losses in our principal positions.
If the transactions and strategies are not successful, we could suffer significant losses.
Our principal investments are subject to various risks and expose us to a significant risk of capital loss, which may materially
and adversely affect our results of operations and cash flows.
We use a portion of our own capital in a variety of principal investment activities, each of which involves risks of illiquidity, loss
of principal and revaluation of assets. As of December 31, 2021, we had $56.0 million in other investments, at fair value.
We may use our capital, including on a leveraged basis, for principal investments in both private and public company securities
that may be illiquid and volatile. The equity securities of any privately held entity in which we make a principal investment are
likely to be restricted as to resale and may otherwise be highly illiquid. In the case of fund, SPAC-related or similar investments,
our investments may be illiquid until such investment vehicles are liquidated. We expect that there will be restrictions on our
ability to resell any such securities that we acquire for a period of time after we acquire such securities. Thereafter, a public market
sale may be subject to volume limitations or be dependent upon securing a registration statement for an initial, and potentially
secondary, public offering of the securities. Even if we make an appropriate investment decision, we cannot be assured that general
market conditions will not cause the market value of our investments to decline. For example, an increase in interest rates, a
general decline in the equity markets, or other market and industry conditions adverse to the type of investments we make and
intend to make could result in a decline in the value of our investments or a total loss of our investment.
There are no regularly quoted market prices for a number of the investments we make. The value of our investments is determined
using fair value methodologies described in valuation policies, which may take into consideration, among other things, the nature of
the investment, the expected cash flows from the investment, bid or ask prices provided by third parties for the investment, the
trading price of recent sales of securities (in the case of publicly traded securities), restrictions on transfer, and other recognized
valuation methodologies. The methodologies we use in valuing individual investments are based on estimates and assumptions
specific to the particular investments. Therefore, the value of our investments does not necessarily reflect the prices that would
actually be obtained by us when such investments are sold. Realizations at values significantly lower than the values at which
investments have been previously held would result in loses of potential incentive income and principal investments.
In addition, in our principal investment activities, our concentrated holdings, illiquidity and market volatility may make it difficult
to value certain of our investment securities. Subsequent valuations, in light of factors then prevailing, may result in significant
changes in the values of these securities in future periods. In addition, at the time of any sales and settlements of these securities,
the price we ultimately realize will depend on the demand and liquidity in the market at that time and may be materially lower than
current fair value of such securities. Any of these factors could require us to take write-downs in the value of our investment and
securities portfolio, which may have an adverse effect on our results of operations in future periods. If we are unable to manage
any of these risks effectively, our results of operations and cash flows could be materially and adversely affected.
Transition away from LIBOR as a benchmark reference for interest rates may affect the cost of capital and may require
amending or restructuring existing debt instruments and related hedging arrangements for us, our investment funds and our
separately managed accounts, and may impact the value of floating rate securities based on LIBOR we, our investment funds
or our separately managed accounts hold or may hold in the future, which may result in additional costs or adversely affect
our, our funds’ or our separately managed accounts’ liquidity, results of operations and financial condition.
We currently have $48,125 of par value debt which incurs interest based on the London interbank offered rate (“LIBOR”). In
addition, we have a $25,000 line of credit pursuant to which amounts drawn bear interest based on LIBOR. As of December 31,
2021, there were no amounts drawn under this line of credit. The U.K. Financial Conduct Authority (the authority that regulates
LIBOR) announced that it will cease publication of the most commonly used U.S. dollar LIBOR tenors after June 30, 2023, though
the less commonly used tenors will cease publication after December 31, 2021. U.S. federal banking agencies have issued
guidance to strongly encourage institutions to cease entering into contracts that reference LIBOR by December 31, 2021. Central
banks and regulators in the U.S. and other jurisdictions are working to implement the transition to suitable replacements for
LIBOR. As an alternative to LIBOR, for example, the U.S. Federal Reserve, in conjunction with the Alternative Reference Rates
Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with
the Secured Overnight Financing Rate (“SOFR”), a new index calculated by short-term repurchase agreements, backed by
Treasury securities. Although there have been a few issuances utilizing SOFR or the Sterling Over Night Index Average, an
alternative reference rate that is based on transactions, it is unknown whether any of these alternative reference rates will attain
market acceptance as replacements for LIBOR. There is currently no definitive successor reference rate to LIBOR and various
industry organizations are still working to develop workable transition mechanisms. As such, it is not possible to predict all
potential effects of these changes on U.S. and global credit markets.
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The administrator of LIBOR announced its intention to extend the publication of U.S. dollar LIBOR (except for the one-week and
two-month tenors) until June 30, 2023, subject to a consultation process, and the Federal Reserve Board, the Alternative Reference
Rates Committee and the International Swaps and Derivatives Association also issued concurrent statements agreeing with such
announcement. Our investments funds and our separately managed accounts may need to amend or restructure our existing
LIBOR-based debt instruments and any related hedging arrangements that extend beyond June 30, 2023, which may be difficult,
costly and time consuming. In addition, from time to time our investment funds and separately managed accounts invest in floating
rate loans and investment securities whose interest rates are indexed to LIBOR. Uncertainty as to the nature of alternative
reference rates and as to potential changes or other reforms to LIBOR, or any changes announced with respect to such reforms,
may result in a sudden or prolonged increase or decrease in the reported LIBOR rates and the value of LIBOR-based loans and
securities, including those of other issuers we or our funds currently own or may in the future own, and may impact the availability
and cost of hedging instruments and borrowings, including potentially, an increase to our and our funds’ and separately managed
accounts’ interest expense and cost of capital. Any increased costs or reduced profits as a result of the foregoing may adversely
affect our liquidity, results of operations and financial condition.
The historical returns of our funds and managed accounts may not be indicative of the future results of our funds and managed
accounts.
The historical returns of our funds and managed accounts should not be considered indicative of future results expected from such
fund and managed accounts or from any future funds we may raise or managed accounts we may open. Our rates of return reflect
unrealized gains, as of the applicable measurement date, which may never be realized due to changes in market and other
conditions not in our control that may adversely affect the ultimate valuation of the investments in a fund. The returns of our funds
may have also benefited from investment opportunities and general market conditions that may not repeat themselves, and there
can be no assurance that our current or future funds will be able to avail themselves of profitable investment opportunities.
Furthermore, the historical and potential future returns of the funds we manage also may not necessarily bear any relationship to
potential returns on our shares.
There is increasing regulatory supervision of alternative asset management companies.
As noted above, in the past several years, the financial services industry has been the subject of heightened scrutiny by regulators
around the globe. In particular, the SEC and its staff have focused more narrowly on issues relevant to alternative asset
management firms, forming specialized units devoted to examining such firms and, in certain cases, bringing enforcement actions
against the firms, their principals and employees. In the last few years, there were a number of enforcement actions within the
industry. The SEC announced that the 2020 examination priorities for the Office of Compliance Inspections and Examinations
include such items as market infrastructure, information security, and anti-money laundering programs, but the SEC also signaled
its intention to examine firms in emerging risk areas, such as robo-advice, digital assets, cybersecurity, SPACs, and new rules
under the Investment Advisers Act of 1940, as amended and interpretations on standards of care. It is unclear, however, whether
the SEC and its staff will increase the level of enforcement if, in the future, there is an effort on the part of the federal government
to increase restrictions on business conduct, which could result in significant changes in, and uncertainty with respect to,
legislation, regulation and government policy.
Some of our asset management clients generally may redeem their investments, which could reduce our asset management fee
revenues.
Our asset management fund agreements generally permit investors to redeem their investments with us after an initial “lockup”
period, during which redemptions are restricted or penalized. However, any such restrictions may be waived by us. Thereafter,
redemptions are permitted at quarterly or annual intervals. If the return on the assets under our management does not meet
investors’ expectations, investors may elect to redeem their investments and invest their assets elsewhere, including with our
competitors. Our management fee revenues correlate directly with the amount of assets under our management; therefore,
redemptions may cause our fee revenues to decrease. Investors may decide to reallocate their capital away from us and to other
asset managers for a number of reasons, including poor relative investment performance, changes in prevailing interest rates that
make other investments more attractive, changes in investor perception regarding our focus or alignment of interest, dissatisfaction
with changes in or a broadening of a fund’s investment strategy, changes in our reputation, and departures or changes in
responsibilities of key investment professionals. For these and other reasons, the pace of redemptions and corresponding reduction
in our assets under management could accelerate. In the future, redemptions could require us to liquidate assets under unfavorable
circumstances, which would further harm our reputation and results of operations.
The investment management business is intensely competitive, which could have a material adverse impact on our business.
We have been working to grow our asset management business and we compete as an investment manager for both fund investors
and investment opportunities. The investment management business is highly fragmented, with our competitors consisting
primarily of sponsors of public and private investment funds, real estate development companies, SPACs, BDCs, investment
banks, commercial finance companies and operating companies acting as strategic buyers of businesses. We believe that
competition for fund investors is based primarily on:
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investment performance;
investor liquidity and willingness to invest;
investor perception of investment managers’ drive, focus and alignment of interest;
business reputation;
the quality of services provided to fund investors;
pricing;
fund terms (including fees); and
the relative attractiveness of the types of investments that have been or will be made.
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We believe that competition for investment opportunities is based primarily on the pricing, terms and structure of a proposed
investment and certainty of execution. A number of factors serve to increase our competitive risks:
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our competitors may have greater financial, technical, marketing and other resources and more personnel than we
do, and, in the case of some asset classes or geographic regions, longer operating histories, more established
relationships, greater expertise or a better reputation;
fund investors may materially decrease their allocations in new funds due to their experiences following an
economic downturn, the limited availability of capital, regulatory requirements or a desire to consolidate their
relationships with investment firms;
certain of our competitors may have agreed to terms with respect to their investment funds or products that are
more favorable to investors than our funds or products, such as lower management fees, greater fee sharing or
higher performance hurdles for carried interest and, therefore, we may be forced to match or otherwise revise our
terms to be less favorable to us than they have been in the past;
certain of our funds may not perform as well as competitors’ funds or other available investment products;
our competitors have raised or may raise significant amounts of capital, and many of them have similar investment
objectives and strategies to our funds, which may create additional competition for investment opportunities and
may reduce the size and duration of pricing inefficiencies that many alternative investment strategies seek to
exploit;
certain of our competitors may have a lower cost of capital and access to funding sources that are not available to
us, which may create competitive disadvantages for us with respect to investment opportunities;
certain of our competitors may have higher risk tolerances, different risk assessments or lower return thresholds,
which could allow them to consider a wider variety of investments and to bid more aggressively than us for
investments;
certain of our competitors may be subject to less regulation or less regulatory scrutiny and accordingly, may have
more flexibility to undertake and execute certain businesses or investments than we do and/or bear less expense to
comply with such regulations than we do;
there are relatively few barriers to entry impeding the formation of new funds, including a relatively low cost of
entering these businesses, and the successful efforts of new entrants into our various lines of business, including
major commercial and investment banks and other financial institutions, have resulted in increased competition;
certain fund investors may prefer to invest with an investment manager that is not publicly traded, is larger or
manages more investment products; and
other industry participants will from time to time seek to recruit our investment professionals and other employees
away from us.
We may lose investment opportunities in the future if we do not match investment prices, structures and terms offered by
competitors. Our competitors that are corporate buyers may be able to achieve synergistic cost savings in respect of an investment,
which may provide them with a competitive advantage in bidding for an investment. Alternatively, we may experience decreased
investment returns and increased risks of loss if we match investment prices, structures and terms offered by competitors.
Moreover, as a result, if we are forced to compete with other investment firms on the basis of price, we may not be able to
maintain our current fund fee, carried interest or other terms. There is a risk that fees and carried interest in the alternative
investment management industry will decline, without regard to the historical performance of a manager. Fee or carried interest
income reductions on existing or future funds, without corresponding decreases in our cost structure, could materially and
adversely affect our revenues and profitability.
In addition, if interest rates were to rise or if market conditions for competing investment products become or are more favorable
and such products begin to offer rates of return superior to those achieved by our funds, the attractiveness of our funds relative to
investments in other investment products could decrease. This competitive pressure could materially and adversely affect our
ability to make successful investments and limit our ability to raise future funds, either of which could adversely impact our
business, results of operations and cash flow.
If the investments we have made or make on behalf of our investment funds and separately managed accounts perform poorly,
we will suffer a decline in our asset management revenue and earnings because some of our fees are subject to the credit
performance of the portfolios of assets. In addition, the investors in our investment funds and our separately managed accounts
may seek to terminate our management agreements based on poor performance. Any of these results could adversely affect our
results of operations and our ability to raise capital for future investment funds and separately managed accounts.
Our revenue from our asset management business is partially derived from management fees paid by the investment funds and
separate accounts we manage. In the case of the investment funds and separately managed accounts, our management fees are
based on the equity of and net income earned by the vehicles, which is substantially based on the performance of the securities in
which they invest.
In addition, investment performance is one of the most important factors in retaining existing investors and competing for new
asset management business. Investment performance may be poor as a result of current or future difficult market or economic
conditions, including changes to interest rates or inflation, terrorism or political uncertainty, our investment style, the particular
investments that we make, and other factors beyond our control. In the event that our investment funds or separately managed
accounts perform poorly, our asset management revenues and earnings will suffer a decline. We may be unable to raise capital for
new investment funds or separately managed accounts to offset any losses we may experience. In addition, our management
contracts may be terminated for various reasons.
If the investments we have made on behalf of our CDOs perform poorly, we will suffer a decline in our asset management
revenue and earnings because some of our fees are subject to the credit performance of the portfolios of assets. In addition, the
investors in our CDOs may seek to terminate our management agreements based on poor performance. We could lose
management fee income from the CDOs we manage or client assets under management as a result of the triggering of certain
structural protections built into such CDOs.
Our revenue from our asset management business is also derived from fees earned for managing our CDOs. Our CDOs generate
three types of fees: (1) senior fees that are generally paid to us before interest is paid on any of the securities in the capital
structure; (2) subordinated fees that are generally paid to us after interest is paid on securities in the capital structure; and
(3) incentive fees that are generally paid to us after a period of years in the life of the CDO and after the holders of the most junior
CDO securities have been paid a specified return. In the event that our CDOs perform poorly, our asset management revenues and
earnings will suffer a decline. Our CDO contracts may be terminated for various reasons.
The CDOs we manage generally contain structural provisions including, but not limited to, over-collateralization requirements
and/or market value triggers that are meant to protect investors from deterioration in the credit quality of the underlying collateral
pool. In certain cases, breaches of these structural provisions can lead to events of default under the indentures governing the
CDOs and, ultimately, acceleration of the notes issued by the CDOs and liquidation of the underlying collateral. In the event of a
liquidation of the collateral underlying a CDO, we will lose client assets under management and therefore management fees, which
could have a material adverse effect on our earnings. In addition, all of the CDOs we manage have reached their auction call
redemption features which means the portfolio of collateral for each CDO is subject to an auction on either a quarterly or bi-annual
basis. If an auction is successful, the management contract related to such CDO will be terminated in connection with the
liquidation of the CDO and we will lose the related management fees.
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Any agreement to indemnify a SPAC against certain claims could negatively affect our financial results.
In connection with our investments in SPACs in which we sponsor, we have agreed to and may continue to agree in the future to,
indemnify the SPAC for all claims by third parties for services rendered or products sold to the SPAC, or claims by any
prospective target business with which the SPAC discusses entering into a transaction agreement, subject to certain
limitations. Our indemnification of the SPAC with respect to any such claims could negatively affect our financial results. In
addition, if the SPAC liquidates, we may be liable to the SPAC under these indemnification obligations.
We may in the future make loans to the SPACs in which we sponsor, which may not be repaid, in which event our financial
results could be adversely affected.
We have made loans to the SPACs in which we have sponsored to fund the SPAC’s operating expenses following its IPO and may
continue to do so in the future. These loans generally bear no interest and, if a SPAC consummates a business combination in the
required time frame, we would expect the loan to be repaid from the funds held in the SPAC’s trust account. If a SPAC to which
we have loaned funds does not consummate a business combination in the required time frame, no funds from the SPAC’s trust
account will be available to repay any loan we have made to such SPAC. If these loans are not repaid, our financial results could
be adversely affected. As of December 31, 2021, we have $0.5 million of SPAC loans receivable. In addition, we made further
advances of $0.3 million in 2022.
Our executive officers and members of our senior management team may allocate some portion of their time to the business of
the SPACs of which we are a sponsor and to the SPACs of third party entities, which may create conflicts of interest in their
determination as to how much time to devote to our affairs and may have a negative impact on our business.
Our executive officers and members of our senior management team serve key roles in the SPACs of which we are a sponsor. For
example, John Butler, our Managing Director of U.S. Insurance Strategy, serves as the Chief Executive Officer and President of
the Insurance SPAC III and Joseph Pooler, our Chief Financial Officer, serves as the Chief Financial Officer of the Insurance
SPAC III. We also anticipate that our executive officers and members of our senior management team will serve as key
employees for future SPACs of which we are the sponsors. If our executive officers’ and members of our senior management
team’s involvement in the business affairs of the SPACs of which we are a sponsor require any of them to devote substantial
amounts of time to such affairs, it could limit their ability to devote time to our business affairs, which may have a negative impact
on our business.
Daniel G. Cohen is a member of Fintech Masala, a fintech investing platform and the sponsor of third party SPACs. Mr. Cohen’s
involvement in Fintech Masala could also limit his ability to devote time to our business affairs, which may have a negative impact
on our business. In addition, Joseph Pooler, our Chief Financial Officer and Douglas Listman, our Chief Accounting Officer serve
as Chief Financial Officer of certain SPACs sponsored by Fintech Masala.
If our risk management systems for our businesses are ineffective, we may be exposed to material unanticipated losses.
We seek to manage, monitor, and control our operational, legal and regulatory risk through operational and compliance reporting
systems, internal controls, management review processes and other mechanisms, and may not fully mitigate the risk exposure of
our businesses in all economic or market environments or protect against all types of risk. Further, our risk management methods
may not effectively predict future risk exposures, which could be significantly greater than the historical measures indicate. In
addition, some of our risk management methods are based on an evaluation of information regarding markets, clients, and other
matters that are based on assumptions that may no longer be accurate. A failure to adequately manage our growth, or to effectively
manage our risk, could materially and adversely affect our business and financial condition. In addition, we are deploying our own
capital in our funds and in principal investments, and limitations on our ability to withdraw some or all of our investments in these
funds or liquidate our investment positions, whether for legal, reputational, illiquidity or other reasons, may make it more difficult
for us to control the risk exposures relating to these investments.
We are highly dependent on information and communications systems. Systems failures could significantly disrupt our
business, which may, in turn, negatively affect our operating results.
Our business will depend, to a substantial degree, on the proper functioning of our information and communications systems and
our ability to retain the employees and consultants who operate and maintain these systems. Any failure or interruption of our
systems, due to systems failures, staff departures or otherwise, could result in delays, increased costs or other problems which
could have a material adverse effect on our operating results. A disaster, such as water damage to an office, an explosion or a
prolonged loss of electrical power, could materially interrupt our business operations and cause material financial loss, regulatory
actions, reputational harm or legal liability. In addition, if security measures contained in our systems are breached as a result of
third-party action, employee error, malfeasance or otherwise, our reputation may be damaged, and our business could suffer. We
have developed a business continuity plan, however, there are no assurances that such plan will be successful in preventing, timely
and adequately addressing, or mitigating the negative effects of any failure or interruption.
There can be no assurance that our information systems and other technology will continue to be able to accommodate our
operations, or that the cost of maintaining the systems and technology will not materially increase from the current level. A failure
to accommodate our operations, or a material increase in costs related to information systems and technology, could have a
material adverse effect on our business.
We may not be able to keep pace with continuing changes in technology.
Our market is characterized by rapidly changing technology. To be successful, we must adapt to this rapidly changing environment
by continually improving the performance, features, and reliability of our services. We could incur substantial costs if we need to
modify our services or infrastructure or adapt our technology to respond to these changes. A delay or failure to address
technological advances and developments or an increase in costs resulting from these changes could have a material and adverse
effect on our business, financial condition and results of operations.
Failure to protect client data or prevent breaches of our information systems could expose us to liability or reputational
damage.
The secure transmission of confidential information over public networks is a critical element of our operations. We are dependent
on information technology networks and systems to securely process, transmit and store electronic information and to
communicate among our locations and with our clients and vendors. As the breadth and complexity of this infrastructure continue
to grow, the potential risk of security breaches and cyber-attacks increases. As a financial services company, we may be subject to
cyber-attacks and phishing scams by third parties. In addition, vulnerabilities of our external service providers and other third
parties could pose security risks to client information. Such breaches could lead to shutdowns or disruptions of our systems and
potential unauthorized disclosure of confidential information and violations of privacy laws and regulations.
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In providing services to clients, we manage, utilize and store sensitive and confidential client data, including personal data. As a
result, we are subject to numerous laws and regulations designed to protect this information, such as U.S. federal and state laws
and foreign regulations governing the protection of personally identifiable information. These laws and regulations are increasing
in complexity and number, change frequently and sometimes conflict. If any person, including any of our employees, negligently
disregards or intentionally breaches our established controls with respect to client data, or otherwise mismanages or
misappropriates that data, we could be subject to significant monetary damages, regulatory enforcement actions, fines and/or
criminal prosecution in one or more jurisdictions. Unauthorized disclosure of sensitive or confidential client data, whether through
systems failure, employee negligence, fraud or misappropriation, could damage our reputation and cause us to lose
clients. Similarly, unauthorized access to or through our information systems, whether by our employees or third parties, including
a cyber-attack by computer programmers and hackers who may deploy viruses, worms or other malicious software programs,
could result in negative publicity, significant remediation costs, legal liability, financial responsibility under our security guarantee
to reimburse clients for losses resulting from unauthorized activity in their accounts and damage to our reputation and could have a
material adverse effect on our results of operations. Further, the General Data Protection Regulation (“GDPR”) requires entities
processing the personal data of individuals in the European Union to meet certain requirements regarding the handling of that data.
Failure to meet GDPR requirements could result in substantial penalties and materially adversely impact our financial results. The
occurrence of any of these incidents could result in reputational damage, adverse publicity, loss of consumer confidence, reduced
sales and profits, complications in executing our growth initiatives and regulatory and legal risk, including criminal penalties or
civil liabilities. In addition, our liability insurance might not be sufficient in type or amount to cover us against claims related to
security breaches, cyber-attacks, phishing scams and other related breaches.
We are largely dependent on Pershing LLC to provide clearing services and margin financing.
Our broker-dealer relies on Pershing LLC to provide clearing services, as well as other operational and support functions that
cannot be provided for internally. In addition, currently all of our margin financing is obtained from Pershing LLC. As of
December 31, 2021, our total margin loan payable to Pershing LLC is $160.9 million. If our relationship with Pershing LLC is
terminated, there can be no assurance that the functions and margin loan financing previously provided could be replaced on
comparable economic terms.
Our substantial level of indebtedness could adversely affect our financial health and ability to compete. In addition, our failure
to satisfy the financial covenants in our debt agreements could result in a default and acceleration of repayment of the
indebtedness thereunder.
Our balance sheet includes approximately $67.6 million par value of recourse indebtedness. Our indebtedness could have
important consequences to our stockholders. For example, our indebtedness could:
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make it more difficult for us to pay our debts as they become due during general adverse economic and market
industry conditions because any related decrease in revenues could cause our cash flows from operations to
decrease and make it difficult for us to make our scheduled debt payments;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate
and consequently, place us at a competitive disadvantage to our competitors with less debt;
require a substantial portion of our cash flow from operations to be used for debt service payments, thereby
reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other
general corporate purposes;
limit our ability to borrow additional funds to expand our business or alleviate liquidity constraints, as a result of
financial and other restrictive covenants in our indebtedness; and
result in higher interest expense in the event of increases in interest rates since some of our borrowings are and
will continue to be, at variable rates of interest.
Under the junior subordinated notes related to the Alesco Capital Trust, we are required to maintain a total debt to capitalization
ratio of less than 0.95 to 1.0. Also, because the aggregate amount of our outstanding subordinated debt exceeds 25% of our net
worth, we are unable to issue any further subordinated debt. As of December 31, 2021, we have a substantial amount of debt with
variable interest rates. We may experience material increases in our interest expense as a result of increases in general interest rate
levels. In addition, our indebtedness imposes restrictions that limit our discretion with regard to certain business matters, including
our ability to engage in consolidations and mergers and our ability to transfer and lease certain of our properties. Such restrictions
could make it more difficult for us to expand, finance our operations and engage in other business activities that may be in our
interest. Our ability to comply with these and any other provisions of such agreements will be affected by changes in our
operating and financial performance, changes in business conditions or results of operations, adverse regulatory developments or
other events beyond our control. The breach of any of these covenants could result in a default, which could cause our
indebtedness to become due and payable. If the maturity of our indebtedness were accelerated, we may not have sufficient funds to
pay such indebtedness. Any additional indebtedness we may incur in the future may subject us to similar or even more restrictive
conditions.
Accounting rules for certain of our transactions are highly complex and involve significant judgment and assumptions.
Changes in accounting interpretations or assumptions could adversely impact our financial statements.
Accounting rules for transfers of financial assets, income taxes, compensation arrangements including share-based compensation,
securitization transactions, consolidation of variable interest entities, determining the fair value of financial instruments and other
aspects of our operations are highly complex and involve significant judgment and assumptions. These complexities could lead to
delay in preparation of our financial information. Changes in accounting interpretations or assumptions could materially impact
our financial statements.
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We may change our investment strategy, hedging strategy, asset allocation and operational policies without our stockholders’
consent, which may result in riskier investments and adversely affect the market value of our Common Stock.
We may change our investment strategy, hedging strategy, asset allocation and/or operational policies at any time without the
consent of our stockholders. A change in our investment or hedging strategy may increase our exposure to various risks including
interest rate and exchange rate fluctuations. Furthermore, our board of directors will determine our operational policies and may
amend or revise our policies, including polices with respect to our acquisitions, growth, operations, indebtedness, capitalization
and distributions, or our board may approve transactions that deviate from these policies without a vote of, or notice to, our
stockholders. Operational policy changes could adversely affect the market value of our Common Stock.
Maintenance of our Investment Company Act exemption imposes limits on our operations, and loss of our Investment
Company Act exemption would adversely affect our operations.
We seek to conduct our operations so that we are not required to register as an investment company under the Investment
Company Act. Section 3(a)(l)(C) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), defines
an “investment company” as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning,
holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value
of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Excluded from the
term “investment securities,” among other things, are securities issued by majority-owned subsidiaries that are not themselves
investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(l)
or Section 3(c)(7) of the Investment Company Act.
We are a holding company that conducts our business primarily through the Operating LLC as a voting-controlled subsidiary.
Whether or not we qualify under the 40% test is primarily based on whether the securities we hold in the Operating LLC are
investment securities. If we were required to register as an investment company under the Investment Company Act, we would
become subject to substantial regulation with respect to our capital structure (including our ability to use leverage), management,
operations, transactions with affiliated persons (as defined in the Investment Company Act) and other matters. Such limitations
could have a material adverse effect on our business and operations. As of December 31, 2021, we are in compliance with and
meet the Section 3(a)(1)(C) exclusion.
The soundness of other financial institutions and intermediaries affects us.
We face the risk of operational failure, termination or capacity constraints of any of the clearing agents, exchanges, clearing houses
or other financial intermediaries that we use to facilitate our securities transactions. As a result of the consolidation over the years
of clearing agents, exchanges and clearing houses, our exposure to certain financial intermediaries has increased and could affect
our ability to find adequate and cost-effective alternatives should the need arise. Any failure, termination or constraint of these
intermediaries could adversely affect our ability to execute transactions, service our clients and manage our exposure to risk.
Our ability to engage in routine trading and funding transactions could be adversely affected by the actions and commercial
soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, funding, and
counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute
transactions with counterparties in the financial industry, including brokers and dealers, commercial banks, investment banks,
mortgage originators and other institutional clients. Furthermore, although we do not hold any European sovereign debt, we may
do business with and be exposed to financial institutions that have been affected by the recent European sovereign debt crisis. As a
result, defaults by, or even rumors or questions about the financial condition of, one or more financial services institutions, or the
financial services industry generally, have historically led to market-wide liquidity problems and could lead to losses or defaults by
us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client.
In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices
insufficient to recover the full amount of the loan or derivative exposure due us. Although we have not suffered any material or
significant losses as a result of the failure of any financial counterparty, any such losses in the future may materially adversely
affect our results of operations.
We operate in a highly regulated industry and may face restrictions on, and examination of, the way we conduct certain of our
operations.
Our business is subject to extensive government and other regulation, and our relationship with our broker-dealer clients may
subject us to increased regulatory scrutiny. These regulations are designed to protect the interests of the investing public generally
rather than our stockholders and may result in limitations on our activities. Governmental and self-regulatory organizations,
including the SEC, FINRA, the Commodity Futures Trading Commission and other agencies and securities exchanges such as the
NYSE and NYSE American regulate the U.S. financial services industry, and regulate certain of our operations in the U.S. Some
of our international operations are subject to similar regulations in their respective jurisdictions, including rules promulgated by the
“CBI”, which apply to our operations in Ireland and rules promulgated by the ACPR which apply to our operations in France.
These regulatory bodies are responsible for safeguarding the integrity of the securities and other financial markets and protecting
the interests of investors in those markets. In addition, all records of registered investment advisors and broker-dealers are subject
at any time, and from time to time, to examination by the SEC. Some aspects of the business that are subject to extensive
regulation and/or examination by regulatory agencies, include:
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sales methods, trading procedures and valuation practices;
investment decision making processes and compensation practices;
use and safekeeping of client funds and securities;
the manner in which we deal with clients;
the safeguarding of personally identifiable information;
capital requirements;
financial and reporting practices;
required record keeping and record retention procedures;
the licensing of employees;
the conduct of directors, officers, employees and affiliates;
systems and control requirements;
conflicts of interest including, but not limited to allocation of investment opportunities and targets for business
combinations for SPACs;
restrictions on marketing, gifts and entertainment; and
client identification and anti-money laundering requirements.
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The SEC, FINRA, ACPR, the CBI and various other domestic and international regulatory agencies also have stringent rules and
regulations with respect to the maintenance of specific levels of net capital by broker-dealers. Generally, in the U.S., a broker-
dealer’s net capital is defined as its net worth, plus qualified subordinated debt, less deductions for certain types of assets. If these
net capital rules are changed or expanded, or if there is an unusually large charge against net capital, our operations that require the
intensive use of capital would be limited. Also, our ability to withdraw capital from our regulated subsidiaries is subject to
restrictions, which in turn could limit our ability or that of our subsidiaries to pay dividends, repay debt, make distributions and
redeem or purchase shares of our Common Stock or other equity interests in our subsidiaries. A large operating loss or charge
against net capital could adversely affect our ability to expand or even maintain our expected levels of business, which could have
a material adverse effect on our business. In addition, we may become subject to net capital requirements in other foreign
jurisdictions in which we operate. While we expect to maintain levels of capital in excess of regulatory minimums, we cannot
predict our future capital needs or our ability to obtain additional financing.
If we or any of our subsidiaries fail to comply with any of these laws, rules or regulations, we or such subsidiary may be subject to
censure, significant fines, cease-and-desist orders, suspension of business, suspensions of personnel or other sanctions, including
revocation of registrations with FINRA, withdrawal of authorizations from the CBI or revocation of registrations with other similar
international agencies to whose regulation we are subject, which would have a material adverse effect on our business. The
adverse publicity arising from the imposition of sanctions against us by regulators, even if the amount of such sanctions is small,
could harm our reputation and cause us to lose existing clients or fail to gain new clients.
The authority to operate as a broker-dealer in a jurisdiction is dependent on the registration or authorization in that jurisdiction or
the maintenance of a proper exemption from such registration or authorization. Our ability to comply with all applicable laws and
rules is largely dependent on our compliance, credit approval, audit and reporting systems and procedures, as well as our ability to
attract and retain qualified personnel. Any growth or expansion of our business may create additional strain on our compliance,
credit approval, audit and reporting systems and procedures and could result in increased costs to maintain and improve such
systems and procedures.
In addition, new laws or regulations or changes in the enforcement of existing laws or regulations applicable to us and our clients
may adversely affect our business, and our ability to function in this environment will depend on our ability to constantly monitor
and react to these changes. Such changes may cause us to change the way we conduct our business, both in the U.S. and
internationally. The government agencies that regulate us have broad powers to investigate and enforce compliance and punish
noncompliance with their rules, regulations and industry standards of practice. If we and our directors, officers and employees fail
to comply with the rules and regulations of these government agencies, we and they may be subject to claims or actions by such
agencies.
Substantial legal liability or significant regulatory action could have material adverse financial effects or cause significant
reputational harm, either of which could seriously harm our business.
We face substantial regulatory and litigation risks and conflicts of interests and may face legal liability and reduced revenues and
profitability if our business is not regarded as compliant or for other reasons. We are subject to extensive regulation, and many
aspects of our business will subject us to substantial risks of liability. We engage in activities in connection with (1) the evaluation,
negotiation, structuring, marketing, and sales and management of our investment funds and financial products, (2) our Capital
Markets segment, (3) our asset management operations, and (4) our investment activities. Our activities may subject us to the risk
of significant legal liabilities under securities or other laws for material omissions or materially false or misleading statements
made in connection with securities offerings and other transactions. In addition, to the extent our clients, or investors in our
investment funds and financial products, suffer losses, they may claim those losses resulting from our or our officers’, directors’,
employees’, agents’ or affiliates’ breach of contract, fraud, negligence, willful misconduct or other similar misconduct, and may
bring actions against us under federal or state securities or other applicable laws. Dissatisfied clients may also make claims against
us regarding quality of trade execution, improperly settled trades, or mismanagement. We may become subject to these claims as
the result of failures or malfunctions of electronic trading platforms or other brokerage services, including failures or malfunctions
of third-party providers’ systems which are beyond our control, and third parties may seek recourse against us for any losses. In
addition, investors may claim breaches of collateral management agreements, which could lead to our termination as collateral
manager under such agreements.
Following the start of the financial crisis in 2007, the volume of claims and amount of damages claimed in litigation and regulatory
proceedings against financial advisors and asset managers increased. With respect to the asset management business, we make
investment decisions on behalf of our clients that could result in, and in some instances in the past have resulted in, substantial
losses. In addition, as a manager, we are responsible for clients’ compliance with regulatory requirements. Investment decisions
we make on behalf of clients could cause such clients to fail to comply with regulatory requirements and could result in substantial
losses. Although the management agreements generally include broad indemnities and provisions designed to limit our exposure to
legal claims relating to our services, these provisions may not protect us or may not be enforced in all cases.
In addition, we are exposed to risks of litigation or investigation relating to transactions which present conflicts of interest that are
not properly addressed. In such actions, we could be obligated to bear legal, settlement and other costs (which may be in excess of
available insurance coverage). Also, with a workforce consisting of many very highly paid professionals, we may face the risk of
lawsuits relating to claims for compensation, which may individually or in the aggregate be significant in amount. Similarly,
certain corporate events, such as a reduction in our workforce or employee separations, could also result in additional litigation or
arbitration. In addition, as a public company, we are subject to the risk of investigation or litigation by regulators or our public
stockholders arising from an array of possible claims, including investor dissatisfaction with the performance of our business or
our share price, allegations of misconduct by our officers and directors or claims that we inappropriately dealt with conflicts of
interest or investment allocations. In addition, we may incur significant expenses in defending claims, even those without merit. If
any claims brought against us result in a finding of substantial legal liability and/or require us to incur all or a portion of the costs
arising out of litigation or investigation, our business, financial condition, liquidity and results of operations could be materially
and adversely affected. Such litigation or investigation, whether resolved in our favor or not or ultimately settled, could cause
significant reputational harm, which could seriously harm our business.
The competitive pressures we face as a result of operating in highly competitive markets could have a material adverse effect on
our business, financial condition, liquidity and results of operations.
A number of entities conduct asset management, origination, investment, and broker-dealer activities. We compete with public and
private funds, SPACs and SPAC sponsors, REITs, commercial and investment banks, savings and loan institutions, mortgage
bankers, insurance companies, institutional bankers, governmental bodies, commercial finance companies, traditional asset
managers, brokerage firms and other entities.
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Many firms offer similar and/or additional products and services to the same types of clients that we target or may target in the
future. Many of our competitors are substantially larger and have more relevant experience, have considerably greater financial,
technical and marketing resources, and have more personnel than we have. There are few barriers to entry, including a relatively
low cost of entering these lines of business, and the successful efforts of new entrants into our expected lines of business, including
major banks and other financial institutions, may result in increased competition. Other industry participants may, from time to
time, seek to recruit our investment professionals and other employees away from us. The use of SPACs as an investment tool has
recently become more widespread and there remains substantial uncertainty regarding the viability of SPAC investing in terms of
the supply of desirable transactions relative to the pace at which SPACs are currently being formed. SPACs face
significant competition in consummating business combinations. We face potential conflicts in the allocation of targets for
business combinations.
With respect to our asset management activities, our competitors may have more extensive distribution capabilities, more effective
marketing strategies, more attractive investment vehicle structures and broader name recognition than we do. Further, other
investment managers may offer services at more competitive prices than we do, which could put downward pressure on our fee
structure. With respect to our origination and investment activities, some competitors may have a lower cost of funds, enhanced
operating efficiencies, and access to funding sources that are not available to us. In addition, some of our competitors may have
higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and
establish more relationships than we can. The competitive pressures we face, if not effectively managed, may have a material
adverse effect on our business, financial condition, liquidity and results of operations.
Also, as a result of this competition, we may not be able to take advantage of attractive asset management, origination and
investment opportunities and, therefore, may not be able to identify and pursue opportunities that are consistent with our business
objectives. Competition may limit the number of suitable investment opportunities offered to us. It may also result in higher prices,
lower yields and a narrower spread of yields over our borrowing costs, making it more difficult for us to acquire new investments
on attractive terms. In addition, competition for desirable investments could delay the investment in desirable assets, which may in
turn reduce our earnings per share.
With respect to our broker-dealer activities, our revenues could be adversely affected if large institutional clients that we have
increase the amount of trading they do directly with each other rather than through our broker-dealer, decrease the amount of
trading they do with our broker-dealer because they decide to trade more with our competitors, decrease their trading of certain
over-the-counter (“OTC”) products in favor of exchange-traded products, or hire in-house professionals to handle trading that our
broker-dealer would otherwise be engaged to do.
We have experienced intense price competition in our fixed income brokerage business in recent years. Some competitors may
offer brokerage services to clients at lower prices than we offer, which may force us to reduce our prices or to lose market share
and revenue. In addition, we intend to focus primarily on providing brokerage services in markets for less commoditized financial
instruments. As the markets for these instruments become more commoditized, we could lose market share to other inter-dealer
brokers, exchanges and electronic multi-dealer brokers who specialize in providing brokerage services in more commoditized
markets. If a financial instrument for which we provide brokerage services becomes listed on an exchange or if an exchange
introduces a competing product to the products, we broker in the OTC market, the need for our services in relation to that
instrument could be significantly reduced. Further, the recent consolidation among exchange firms, and expansion by these firms
into derivative and other non-equity trading markets, will increase competition for customer trades and place additional pricing
pressure on commissions and spreads.
Employee misconduct or error, which can be difficult to detect and deter, could harm us by impairing our ability to attract and
retain clients and by subjecting us to significant legal liability and reputational harm.
There have been a number of highly publicized cases involving fraud, trading on material non-public information, or other
misconduct by employees and others in the financial services industry, and there is a risk that our employees could engage in
misconduct that adversely affects our business. For example, we may be subject to the risk of significant legal liabilities under
securities or other laws for our employees’ material omissions or materially false or misleading statements in connection with
securities and other transactions. In addition, our advisory business requires that we deal with confidential matters of great
significance to our clients. If our employees were to improperly use or disclose confidential information provided by our clients,
we could be subject to regulatory sanctions and could suffer serious harm to our reputation, financial position, current client
relationships and ability to attract future clients. We are also subject to extensive regulation under securities laws and other laws in
connection with our asset management business. Failure to comply with these legislative and regulatory requirements by any of
our employees could adversely affect us and our clients. It is not always possible to deter employee misconduct, and any
precautions taken by us to detect and prevent this activity may not be effective in all cases.
Furthermore, employee errors, including mistakes in executing, recording or reporting transactions for clients (such as entering
into transactions that clients may disavow and refuse to settle) could expose us to financial losses and could seriously harm our
reputation and negatively affect our business. The risk of employee error or miscommunication may be greater for products that
are new or have non-standardized terms.
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Risks Related to Our Organizational Structure and Ownership of Our Common Stock
We could repurchase shares of our Common Stock at price levels considered excessive, the amount of our Common Stock we
repurchase may decrease from historical levels, or we may not repurchase any additional shares of our Common Stock in the
future.
During 2020 and 2021, 121,181 and 49,544 shares of Common Stock, respectively, were repurchased and retired by us both in
accordance with our Rule 10b5-1 trading plan (the “10b5-1 Plan”) and through privately negotiated repurchase transactions. We
could repurchase shares of our Common Stock at price levels considered excessive, thereby spending more cash on such
repurchases then deemed reasonable and effectively retiring fewer shares than would be retired if repurchases were effected at
lower prices. Further, our future repurchases of shares of our Common Stock, if any, and the number of shares of Common Stock
we may repurchase will depend upon our financial condition, results of operations and other factors deemed relevant by our board
of directors. There can be no assurance that we will continue our practice of repurchasing shares of our Common Stock or that we
will have the financial resources to repurchase shares of our Common Stock in the future.
See note 21 to our consolidated financial statements included in this Annual Report on Form 10-K for additional information
regarding the 10b5-1 Plan.
We are a holding company whose primary asset is units of membership interests in the Operating LLC, and we are dependent
on distributions from the Operating LLC to pay taxes and other obligations.
We are a holding company whose primary asset is units of membership interests in the Operating LLC. Since the Operating LLC is
a limited liability company taxed as a partnership, we, as a member of the Operating LLC, could incur tax obligations as a result of
our allocable share of the income from the operations of the Operating LLC. In addition, we have convertible senior debt and
junior subordinated notes outstanding. The Operating LLC will pay distributions to us in amounts necessary to satisfy our tax
obligations and regularly scheduled payments of interest in connection with our convertible senior debt and our junior
subordinated notes, and we are dependent on these distributions from the Operating LLC in order to generate the funds necessary
to meet these obligations and liabilities. Industry conditions and financial, business and other factors will affect our ability to
generate the cash flows we need to make these distributions. There may be circumstances under which the Operating LLC may be
restricted from paying dividends to us under applicable law or regulation (for example due to Delaware limited liability company
act limitations on the Operating LLC’s ability to make distributions if liabilities of the Operating LLC after the distribution would
exceed the value of the Operating LLC’s assets).
As a holding company that does not conduct business operations in its own right, substantially all of the assets of the Company are
comprised of our minority economic ownership interest in the Operating LLC. The Company’s ability to pay any dividends to our
stockholders will be dependent on any distributions we receive from the Operating LLC and subject to the Operating LLC’s
operating agreement (the “Operating LLC Agreement”). The amount and timing of distributions by the Operating LLC will be at
the discretion of the Operating LLC’s board of managers, which is comprised of Daniel G. Cohen, our Chairman and the majority
owner of the Operating LLC, Lester Brafman, our Chief Executive Officer and Joseph W. Pooler, Jr., our Chief Financial Officer.
Certain subsidiaries of the Operating LLC have restrictions on the withdrawal of capital and otherwise in making distributions and
loans. JVB is subject to net capital restrictions imposed by the SEC and FINRA, which require certain minimum levels of net
capital to remain in JVB. In addition, these restrictions could potentially impose notice requirements or limit the Company’s ability
to withdraw capital above the required minimum amounts (excess capital) whether through distribution or loan. CCFEL is
regulated by the CBI in Ireland and must maintain certain minimum levels of capital. CCFESSA is regulated by the ACPR and
must maintain certain minimum levels of capital.
Daniel G. Cohen, our chairman, has significant ownership interests in the Operating LLC and competing duties to other
entities (including Fintech Masala) that could create potential conflicts of interest and may result in decisions that are not in
the best interests of other Cohen & Company Inc. stockholders.
As of December 31, 2021, Daniel G. Cohen, our chairman, individually and through an entity he wholly owns, Cohen Bros.
Financial, LLC (“CBF”), owns 23,265,355 units of membership interests (including both unrestricted and restricted units), or
47.7% of the membership interests in the Operating LLC. In addition, the DGC Trust owns 9,880,268 or 20.3% units of the
membership interests in the Operating LLC. The DGC Trust was formed by Daniel G. Cohen. Although Daniel G. Cohen is
neither a trustee nor a named beneficiary of the DGC Trust and does not have any voting or dispositive control of securities held
by the trust, he may be deemed to be a beneficial owner of all securities held by the DGC Trust as a result of his ability to acquire
any of the DGC Trust’s assets, including any securities held by the DGC Trust (and, in turn, the sole voting and sole dispositive
power with respect to such securities), by substituting other property of an equivalent value without the approval or consent of any
person, including any trustee or beneficiary of the DGC Trust.
Cohen & Company, Inc. also holds units of membership interests in the Operating LLC and has the majority voting power of the
LLC through a proxy granted to it by Mr. Cohen and the DGC Trust. On September 25, 2020, the SPA and the Amended and
Restated Limited Liability Company Agreement of the Operating LLC were amended to provide that the voting proxy shall be
revoked in the event that Daniel G. Cohen and/or his affiliates cease to beneficially own a majority of the voting securities of the
Company. See notes 21 and 31.
Additionally, Daniel G. Cohen owns 6.1% of our Common Stock. Further, Mr. Cohen may be deemed to be the beneficial owner
of additional shares of our Common Stock representing 4.7%, which is owned by EBC 2013 Family Trust (“EBC”) as the result of
Mr. Cohen’s position as trustee of the trust and as a result of the fact that Mr. Cohen has sole voting power with respect to all
securities held by EBC. As noted above, Daniel G. Cohen may control certain actions of the Company. As an owner of interests in
the Operating LLC, Daniel G. Cohen may have interests that differ from the stockholders of the Company, including in
circumstances in which there may be tax consequence to the members of the Operating LLC. Further, Daniel G. Cohen’s
ownership interests in third party entities, including Fintech Masala, may result in his interests differing from the stockholders of
the Company. As a result of his ownership in both the Company, the Operating LLC and third party entities, including Fintech
Masala, it is possible that Daniel G. Cohen as a shareholder of the Company could approve or reject actions based on his own
interests as a stockholder that may or may not be in the best interests of the other the Company’s stockholders.
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We are controlled by Daniel G. Cohen, whose interests in our business may be different than our other stockholders, and, as a
“controlled company” within the meaning of the rules of NYSE American, our other stockholders will not have the same
protections afforded to stockholders of companies that are subject to certain corporate governance requirements.
Mr. Cohen currently owns approximately 43.6% of the voting power of the Company as a result of his ownership of Common
Stock, Series E Preferred Stock and Series F Preferred Stock.
Further, the DGC Family Fintech Trust (the “DGC Trust”), a trust formed by Mr. Cohen, owns 9,880,268 shares of our Series F
Preferred Stock. Our Series F Preferred Stock votes together with the holders of our Common Stock on all matters, entitling the
holders thereof to one vote for every ten shares of Series F Preferred Stock held. Accordingly, the shares of Series F Preferred
Stock held by the DGC Trust entitle the DGC Trust to 988,027 votes on matters presented to holders of our Common
Stock. Although Daniel G. Cohen is neither a trustee nor a named beneficiary of the DGC Trust and does not have any voting or
dispositive control of securities held by the DGC Trust, pursuant to the terms of the DGC Trust, Mr. Cohen has the ability to
acquire any of the DGC Trust’s assets, including the 9,880,268 units of the membership interests in the Operating LLC held by the
DGC Trust (at any time and without the consent of the trustees or beneficiaries of the DGC Trust) by substituting such assets with
other property of equivalent value. Accordingly, Mr. Cohen, at any time, could become the owner of the 9,880,268 membership
interests in the Operating LLC currently held by the DGC Trust and, in turn, an additional 22.3% of the voting power of the
Company.
As a result of Mr. Cohen’s voting control of the Company, Mr. Cohen has the right to designate all members of our board of
directors and his nominees to our board of directors will have the ability to control the appointment of our management, the
entering into of mergers, material acquisitions and dispositions and other extraordinary transactions and to influence amendments
to our charter, bylaws and other corporate governance documents. So long as Mr. Cohen continues to own a majority of our voting
stock, he will have the ability to control the vote in any election of directors and will have the ability to approve or prevent any
transaction that requires stockholder approval regardless of whether others believe the transaction are or are not in our best
interests. In any of these matters, the interests of Mr. Cohen may differ from or conflict with the interests of our other stockholders.
Moreover, this concentration of voting stock ownership may also adversely affect the trading price for our Common Stock to the
extent investors perceive disadvantages in owning stock of a company with a controlling stockholder.
In addition, because Mr. Cohen controls a majority of our voting stock, we are a “controlled company” within the meaning of the
corporate governance standards of NYSE American. Under these rules, a company of which more than 50% of the voting power is
held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate
governance requirements, including the requirements that a majority of the board of directors consist of independent directors and
the requirements that the executive compensation committee and nominating and corporate governance committee each be
comprised entirely of independent directors. We may take advantage of certain of these exemptions for as long as we continue to
qualify as a “controlled company.” Accordingly, our stockholders may not have the same protections afforded to stockholders of
companies that are subject to all of the corporate governance requirements of NYSE American.
Any future distributions to our stockholders will depend upon certain factors affecting our operating results, some of which are
beyond our control. Our board of directors has not declared cash dividends recently. Any future distributions to our stockholders
will depend upon certain factors affecting our operating results, some of which are beyond our control.
Our ability to make cash distributions is based on many factors, including the return on our investments, operating expense levels
and certain restrictions imposed by Maryland law. Some of these factors are beyond our control and a change in any such factor
could affect our ability to make distributions in the future. We may not be able to make distributions. Our stockholders should rely
on increases, if any, in the price of our Common Stock for any return on their investment. Furthermore, we are dependent on
distributions from the Operating LLC to be able to make distributions. See the risk factor above titled “We are a holding company
whose primary asset is units of membership interest in the Operating LLC and we are dependent on distributions from the
Operating LLC to pay taxes and other obligations.”
Future sales of our Common Stock in the public market could lower the price of our Common Stock and impair our ability to
raise funds in future securities offerings.
Future sales of a substantial number of shares of our Common Stock in the public market, or the perception that such sales may
occur, could adversely affect the then prevailing market price of our Common Stock and could make it more difficult for us to
raise funds in the future through a public offering of our securities.
Your percentage ownership in the Company may be diluted in the future.
Your percentage ownership in the Company may be diluted in the future because of equity awards that have been, or may be,
granted to our directors, officers and employees. We have adopted equity compensation plans that provide for the grant of equity-
based awards, including restricted stock, stock options and other equity-based awards to our directors, officers and other
employees, advisors and consultants. At December 31, 2021, we had 366,293 shares of restricted stock, 50,000 of restricted units,
and 0 stock options outstanding to employees and directors of the Company and there were 195,924 shares available for future
awards under our equity compensation plans. The Operating LLC also has issued 6,871,030 units that are restricted. Vesting of
restricted stock, Operating LLC units, and stock option grants is generally contingent upon performance conditions and/or service
conditions. Vesting of those shares of restricted units and stock would dilute the ownership interest of existing
stockholders. Equity awards will continue to be a source of compensation for employees and directors.
If we raise additional capital, we expect it will be necessary for us to issue additional equity or convertible debt securities. If we
issue equity or convertible debt securities, the price at which we offer such securities may not bear any relationship to our value,
the net tangible book value per share may decrease, the percentage ownership of our current stockholders would be diluted, and
any equity securities we may issue in such offering or upon conversion of convertible debt securities issued in such offering, may
have rights, preferences or privileges with respect to liquidation, dividends, redemption, voting and other matters that are senior to
or more advantageous than our Common Stock. If we finance acquisitions by issuing equity securities or securities convertible into
equity securities, our existing stockholders will also be diluted.
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The issuance of the shares of Common Stock upon the redemption, if any, of the issued and outstanding LLC Units may cause
substantial dilution to our existing stockholders and may cause the price of our Common Stock to decline.
There are 48,740,205 units of membership interests in the Operating LLC issued and outstanding, including 23,265,355 units of
membership interests in the Operating LLC beneficially owned by Daniel G. Cohen. Subject to certain restrictions, pursuant to the
Operating LLC Agreement, a holder of unrestricted units of membership interests in the Operating LLC may cause the Operating
LLC to redeem such units at any time for, at the Company’s option, (A) cash or (B) one share of the Company’s Common Stock
for every ten units of membership interests in the Operating LLC. If the outstanding units of membership interests in the
Operating LLC are redeemed by the Company for Common Stock, our existing stockholders could be significantly diluted and the
price of our Common Stock may decline. See note 21 to our consolidated financial statements included in this Annual Report on
Form 10-K.
We may not be able to generate sufficient taxable income to fully realize our deferred tax asset, which would also have to be
reduced if U.S. federal income tax rates are lowered.
As of December 31, 2021, we have recorded a deferred tax asset of $9.5 million. If we are unable to generate sufficient taxable
income prior to the expiration of our NOLs, the NOLs would expire unused. Our projections of future taxable income required to
fully realize the recorded amount of the net deferred tax asset reflect numerous assumptions about our operating businesses and
investments and are subject to change as conditions change specific to our business units, investments or general economic
conditions. Changes that are adverse to us could result in the need to increase our deferred tax asset valuation allowance resulting
in a charge to results of operations and a decrease to total stockholders’ equity. In addition, any decrease in the federal statutory tax
rate, or other changes in federal tax statutes, could also cause a reduction in the economic benefit of the NOL currently available to
us.
The Maryland General Corporation Law (the “MGCL”), and provisions in our charter and bylaws may prevent takeover
attempts that could be beneficial to our stockholders.
Provisions of the MGCL and our charter and bylaws could discourage a takeover of us even if a change of control would be
beneficial to the interests of our stockholders. These statutory, charter and bylaw provisions include the following:
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•
•
•
the MGCL generally requires the affirmative vote of two-thirds of all votes entitled to be cast on the matter to
approve a merger, consolidation, or share exchange involving us or the transfer of all or substantially all of our
assets;
our board of directors has the power to classify and reclassify authorized and unissued shares of our Common
Stock or preferred stock and, subject to certain restrictions in the Operating LLC Agreement, authorize the
issuance of a class or series of Common Stock or preferred stock without stockholder approval;
our charter may be amended only if the amendment is declared advisable by our board of directors and approved
by the affirmative vote of the holders of our Common Stock entitled to cast at least two-thirds of all of the votes
entitled to be cast on the matter;
a director may be removed from office at any time with or without cause by the affirmative vote of the holders of
our Common Stock entitled to cast at least two-thirds of the votes of the stock entitled to be cast in the election of
directors;
an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders
and nominations of persons for election to our board of directors at an annual or special meeting of our
stockholders;
no stockholder is entitled to cumulate votes at any election of directors; and
our stockholders may take action in lieu of a meeting with respect to any actions that are required or permitted to
be taken by our stockholders at any annual or special meeting of stockholders only by unanimous consent.
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Risks Related to General and Global Factors
The COVID-19 pandemic has caused severe disruptions in the U.S. and global economy and is expected to continue to impact
our business, financial condition and results of operations.
Our business operations are and will continue to be susceptible to impacts of the COVID-19 pandemic. There is substantial
uncertainty regarding the continuation of the COVID-19 pandemic and whether future, more widespread outbreaks will occur. The
impact that the COVID-19 pandemic continues to have on our business and will have on our business in the future will depend on
numerous factors that we cannot reliably predict, including the duration and scope of the COVID-19 pandemic; the effectiveness
of vaccinations; the implications as a result of the emerging variants of COVID-19; governmental, business, and individuals’
actions in response to the pandemic; and the impact on economic activity including the possibility of recession or financial market
instability. These factors may adversely impact global financial market, as well as our businesses, including our SPAC franchise
business, TBA trading and mortgage-related operations. This uncertainty may also affect our management’s accounting estimates
and assumptions. For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of
Operations - COVID 19 / Impairment of Goodwill” in Part II, Item 7 of this Annual Report on Form 10-K.
We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly
impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine. Our business, financial
condition and results of operations may be materially adversely affected by any negative impact on the global economy and
capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.
U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of
the military conflict between Russia and Ukraine. On February 24, 2022, a full-scale military invasion of Ukraine by Russian
troops was reported. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine
could lead to market disruptions, including significant volatility in credit and capital markets.
Additionally, Russia’s prior annexation of Crimea, recent recognition of two separatist republics in the Donetsk and Luhansk
regions of Ukraine and subsequent military interventions in Ukraine have led to sanctions and other penalties being levied by the
United States, European Union and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk
People’s Republic, and the so-called Luhansk People’s Republic, including agreement to remove certain Russian financial
institutions from the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) payment system. Additional
potential sanctions and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions
could adversely affect the global economy and financial markets.
Any of the abovementioned factors could affect our business, prospects, financial condition, and operating results. The extent and
duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. Any
such disruptions may also magnify the impact of other risks described in this Annual Report on Form 10-K.
Climate change concerns and incidents could disrupt our business, adversely affect the profitability of certain of our
investments, adversely affect customer activity levels, adversely affect the creditworthiness of our counterparties, and damage
our reputation.
Climate change may cause extreme weather events that disrupt our business operations, which may negatively affect our ability to
service and interact with our customers, and also may adversely affect the value of certain of our investments, including those in
the real estate markets. Climate change may also have a negative impact on the financial condition of our customers, which may
decrease revenues from those customers and increase the credit risk associated with loans and other credit exposures to those
customers. Additionally, our reputation and customer relationships may be damaged as a result of our involvement, or our
customers’ involvement, in certain industries or projects associated with causing or exacerbating climate change, as well as any
decisions we make to continue to conduct or change our activities in response to considerations relating to climate change. New
regulations or guidance relating to climate change, as well as the perspectives of shareholders, employees and other stakeholders
regarding climate change, may affect whether and on what terms and conditions we engage in certain activities or offer certain
products.
If we fail to implement our control our costs effectively, our business could be disrupted, and our financial results could be
adversely affected.
The Company continues to look for ways to reduce infrastructure costs and reposition itself in the financial services industry.
Beginning in 2010 and continuing to the present, the Company executed initiatives that created efficiencies within its business and
decreased operating expenses through the realignment of operating facilities, a merger of its two registered U.S. broker-dealer
subsidiaries, and a restructuring of operating systems and systems support.
Our cost management initiatives have included reducing our workforce, which has placed increased burdens on our management,
systems and resources, and generally increased our dependence on key persons and reduced functional back-ups. As a result, our
ability to respond to unexpected challenges may be impaired, and we may be unable to take advantage of new opportunities. In
addition, if these and other initiatives do not have the desired effects or result in the projected increased efficiencies, the Company
may incur additional or unexpected expenses, reputational damage, or loss of customers which would adversely affect the
Company’s operations and revenues.
In response to changes in industry and market conditions, the Company may be required to further strategically realign its
resources and consider restructuring, disposing of, or otherwise exiting businesses. We cannot assure you that we will be able to:
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Expand our capabilities or systems effectively;
Successfully develop new products or services;
Allocate our human resources optimally;
Identify, hire or retain qualified employees or vendors;
Incorporate effectively the components of any business that we may acquire in our effort to achieve growth;
Sell businesses or assets at their fair market value; or
Effectively manage the costs associated with developing, growing, acquiring or exiting a business.
36
We may need to offer new investment strategies and products in order to continue to generate revenue.
The asset management industry is subject to rapid change. Strategies and products that had historically been attractive may lose
their appeal for various reasons. Thus, strategies and products that have generated fee revenue for us in the past may fail to do so in
the future, in which case we would have to develop new strategies and products. It could be both expensive and difficult for us to
develop new strategies and products, and we may not be successful in this regard. Since the disruptions in the global financial
markets, we have had difficulty expanding our offerings which has inhibited our growth and harmed our competitive position in
the asset management industry, and this may continue in the future.
Our failure to deal appropriately with conflicts of interest could damage our reputation and adversely affect our business.
Appropriately dealing with conflicts of interest is complex and difficult and our reputation could be damaged if we fail, or appear
to fail, to deal appropriately with one or more potential or actual conflicts of interest. It is possible that potential or perceived
conflicts could give rise to investor dissatisfaction or litigation or regulatory enforcement actions. In addition, regulatory scrutiny
of, or litigation in connection with, conflicts of interest would have a material adverse effect on our reputation, which could
materially and adversely affect our business in a number of ways, including an inability to raise additional funds, a reluctance of
counterparties to do business with us and the costs of defending litigation.
Insurance may be inadequate to cover risks facing the Company
Our operations and financial results are subject to risks and uncertainties related to our use of a combination of insurance, self-
insured retention and self-insurance for a number of risks, including most significantly: property and casualty, workers’
compensation, errors and omissions liability, general liability and the portion of employee-related health care benefits plans we
fund, among others.
While we endeavor to purchase insurance coverage that is appropriate to our assessment of risk, we are unable to predict with
certainty the frequency, nature or magnitude of claims for direct or consequential damages. Our business may be negatively
affected in the future if our insurance proves to be inadequate or unavailable. In addition, insurance claims may harm our
reputation or divert management attention and resources away from operating our business.
We depend on third-party software licenses and the loss of any of our key licenses could adversely affect our ability to provide
our brokerage services.
We license software from third parties, some of which is integral to our electronic brokerage systems and our business. Such
licenses are generally terminable if we breach our obligations under the licenses or if the licensor gives us notice in advance of the
termination. If any of these relationships were terminated, or if any of these third parties were to cease doing business, we may be
forced to spend significant time and money to replace the licensed software. These replacements may not be available on
reasonable terms, or at all. A termination of any of these relationships could have a material adverse effect on our financial
condition and results of operations.
If we fail to maintain effective internal control over financial reporting and disclosure controls and procedures in the future,
we may not be able to accurately report our financial results, which could have an adverse effect on our business.
If our internal controls over financial reporting and disclosure controls and procedures are not effective, we may not be able to
provide reliable financial information. Because we are a smaller reporting company, we are not required to obtain, nor have we
voluntarily obtained, an auditor attestation regarding the effectiveness of our controls as of December 31, 2021. Therefore, as of
December 31, 2021, we have only performed management’s assessment of the effectiveness of our internal controls and
management has determined that our internal controls are effective as of December 31, 2021. Any failure to maintain effective
controls in the future could adversely affect our business or cause us to fail to meet our reporting obligations. Such non-
compliance could also result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the
reliability of our financial statements. In addition, perceptions of our business among customers, suppliers, rating agencies,
lenders, investors, securities analysts and others could be adversely affected.
The market price of our Common Stock may be volatile and may be affected by market conditions beyond our control.
The market price of our Common Stock is subject to significant fluctuations in response to, among other factors:
•
•
•
•
variations in our operating results and market conditions specific to our business;
changes in financial estimates or recommendations by securities analysts;
the emergence of new competitors or new technologies;
operating and market price performance of other companies that investors deem comparable;
•
•
•
•
•
•
changes in our board or management;
sales or purchases of our Common Stock by insiders;
commencement of, or involvement in, litigation;
changes in governmental regulations;
the relatively low trading volumes of our Common Stock; and
general economic conditions and slow or negative growth of related markets.
In addition, if the market for stocks in our industry, or the stock market in general, experience a loss of investor confidence, the
market price of our Common Stock could decline for reasons unrelated to our business, financial condition or results of operations.
If any of the foregoing occurs, it could cause the price of our Common Stock to fall and may expose us to lawsuits that, even if
unsuccessful, could be costly to defend and a distraction to the board of directors and management.
Our Common Stock may be delisted, which may have a material adverse effect on the liquidity and value of our Common
Stock.
To maintain our listing on the NYSE American, we must meet certain financial and liquidity criteria. The market price of our
Common Stock has been and may continue to be subject to significant fluctuation as a result of periodic variations in our revenues
and results of operations. If we violate the NYSE American listing requirements, our Common Stock may be delisted. If we fail to
meet any of the NYSE American’s listing standards, our Common Stock may be delisted. In addition, our board may determine
that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our
Common Stock from the NYSE American may materially impair our stockholders’ ability to buy and sell our Common Stock and
could have an adverse effect on the market price of, and the efficiency of the trading market for, our Common Stock. In addition,
the delisting of our Common Stock could significantly impair our ability to raise capital.
37
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
The following table lists our current leases as of December 31, 2021.
City
New York, NY
Description
3 Columbus Circle- 24th
Floor
3 Columbus Circle- 17th
Floor
2929 Arch Street
1825 NW Corporate Blvd
17 avenue de l'Opera
New York, NY
Philadelphia, PA
Boca Raton, FL
Paris, France
Cold Spring Harbor, NY 44 Main Street
Menlo Park, CA
Hunt Valley, MD
2727 Sandy Hill Road
201 International Circle
Square Feet
Expiration Date
Status (1)
11,166
2/28/2029
Partially Occupied / Partially Subleased
8,409
9,501
5,208
1,830
1,023
2,735
180
3/31/2024
11/30/2029
6/30/2024
5/31/2030
6/4/2022
8/31/2025
8/31/2022
Occupied
Partially Occupied / Partially Subleased
Occupied
Occupied
Occupied
Occupied
Occupied
(1)
For purposes of this table, the term “Partially Occupied / Partially Subleased” means we occupy a portion of the space and
sublease the remaining portion to a third-party or third parties; and “Occupied” means we fully utilize the space for our
operations.
The properties that we occupy are used either by the Company’s Capital Markets, Asset Management, or Principal Investing
segments or all three. We believe that the facilities we occupy are suitable and adequate for our current operations.
ITEM 3. LEGAL PROCEEDINGS.
On October 8, 2021, Cohen & Company, Ltd., an Ohio limited liability company, as plaintiff, filed a complaint with the United
States District Court, Eastern District of Pennsylvania, under the caption Cohen & Company, Ltd. v. Cohen & Company Inc.,
alleging that Cohen & Company, Inc., as defendant, has been using the “Cohen & Company” trademark and business name, which
allegedly infringes and unfairly competes with the plaintiff’s registered trademarks “Cohen & Company” and “Cohen & Co,” in
violation of applicable federal and state trademark laws and regulations. Pursuant to the complaint, the plaintiff has demanded that
the defendant be permanently enjoined from using the “Cohen & Company” trademark and business name in connection with its
business, pay to the plaintiff statutory damages, attorneys’ fees and costs and other damages, and pay over to plaintiff all gains,
profits and advantages realized by the defendant from its allegedly unlawful acts and omissions. As of the date of this Annual
Report on Form 10-K, the Company has been served the complaint and its responsive pleading is due on March 5, 2022. The
Company intends to vigorously defend itself against the allegations set forth therein.
From time to time, the Company is a party to various routine legal proceedings, claims, and regulatory inquiries arising out of the
ordinary course of the Company’s business. Management believes that the results of these routine legal proceedings, claims, and
regulatory matters will not have a material adverse effect on the Company’s financial condition, or on the Company’s operations
and cash flows. However, the Company cannot estimate the legal fees and expenses to be incurred in connection with these routine
matters and, therefore, is unable to determine whether these future legal fees and expenses will have a material impact on the
Company’s operations and cash flows. It is the Company’s policy to expense legal and other fees as incurred.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
38
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information for Our Common Stock and Dividends
The closing price of our Common Stock was $13.52 on March 7, 2022. We had 1,718,135 shares of Common Stock outstanding
held by 34 holders of record as of March 7, 2022.
Commencing on March 22, 2004, our Common Stock began trading on the NYSE under the symbol “SFO.” On October 6, 2006,
upon completion of our merger with Alesco Financial Trust and our name change from Sunset Financial Resources, Inc. to Alesco
Financial Inc., our NYSE symbol was changed to “AFN.”
On December 16, 2009, we effectuated a 1-for-10 reverse stock split. Also, our name changed from Alesco Financial Inc. to
Cohen & Company Inc., we moved our listing of Common Stock from the NYSE to the NYSE American Stock Exchange
(formerly known as the NYSE MKT LLC) and our trading symbol was changed to “COHN.”
Effective January 21, 2011, we changed our name to Institutional Financial Markets, Inc. and our Common Stock began trading on
the NYSE American Stock Exchange under the symbol “IFMI.”
On September 1, 2017, we effectuated a second 1-for-10 reverse stock split and changed our name to Cohen & Company Inc. Our
trading symbol was changed to “COHN.”
During the third quarter of 2010, our board of directors initiated a dividend of $0.50 per quarter, which was paid regularly through
December 31, 2011. Beginning in 2012, our board of directors declared a dividend of $0.20 per quarter, which was paid regularly
through the first quarter of 2019. Each time a cash dividend was declared by our board of directors, a pro rata distribution was
made to the other members of the Operating LLC upon payment of dividends to our stockholders. On August 2, 2019, we
announced that our board of directors decided to suspend our quarterly cash dividend.
On July 29, 2021, our board of directors reinstated our quarterly dividend declaring a cash dividend of $0.25 per share. We have
paid a cash dividend of $0.25 regularly since then. Any future determination to declare and pay dividends will be made at the
discretion of our board of directors, after taking into account a variety of factors, including business, financial, and regulatory
considerations as well as any limitations under Maryland law or imposed by any agreements governing our indebtedness.
Unregistered Sales of Equity Securities
None
Issuer Purchases of Equity Securities
Period
October 1, 2021 - October 31, 2021
November 1, 2021 - November 30, 2021
December 1, 2021 - December 31, 2021
Total
Total Number of
Shares
Purchased
Average Price
Paid Per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Dollar
Value of Shares
that May Yet be
Purchased under
the Plans or
Programs (1)
-
-
(1) Dollar amounts in thousands. On August 3, 2007, our board of directors authorized us to repurchase up to $50 million of our
Common Stock from time to time in open market purchases or privately negotiated transactions. The repurchase plan was
publicly announced on August 7, 2007. See note 21 to our consolidated financial statements in this Annual Report on Form 10-
K.
ITEM 6. [Reserved]
39
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based on our consolidated
financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements
requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosures of contingent assets and liabilities. On a regular basis, we evaluate these estimates, including fair value of
financial instruments. These estimates are based on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. Actual results may differ from these estimates.
All amounts in this disclosure are in thousands (except share, unit, per share, and per unit data) except where otherwise
noted.
Overview
We are a financial services company specializing in fixed income markets and, more recently, the SPAC markets. We were
founded in 1999 as an investment firm focused on small-cap banking institutions but have grown to provide an expanding range of
capital markets and asset management services. We are organized into three business segments: Capital Markets, Asset
Management, and Principal Investing.
• Capital Markets: Our Capital Markets business segment consists primarily of fixed income sales, trading, matched book repo
financing, new issue placements in corporate and securitized products, and advisory services. Our fixed income sales and
trading group provides trade execution to corporate investors, institutional investors, mortgage originators, and other smaller
broker-dealers. We specialize in a variety of products, including but not limited to: corporate bonds, ABS, MBS, RMBS,
CDOs, CLOs, CBOs, CMOs, municipal securities, TBAs and other forward agency MBS contracts, U.S. government bonds,
U.S. government agency securities, brokered deposits and CDs for small banks, and hybrid capital of financial institutions
including TruPS, whole loans, and other structured financial instruments. We also offer execution and brokerage services for
equity products. We carry out our capital markets activities primarily through our subsidiaries: JVB in the United States and
CCFESA in Europe. A division of JVB, Cohen & Company Capital Markets is our full-service boutique investment banking
platform focusing on SPAC advisory, capital markets advisory, and M&A advisory, with clients primarily in the financial
technology (commonly referred to as "fintech") and SPAC spaces.
• Asset Management: Our Asset Management business segment manages assets within CDOs, managed accounts, joint
ventures, and investment funds (collectively, “Investment Vehicles”). A CDO is a form of secured borrowing. The borrowing
is secured by different types of fixed income assets such as corporate or mortgage loans or bonds. The borrowing is in the
form of a securitization, which means that the lenders are actually investing in notes backed by the assets. In the event of
default, the lenders will have recourse only to the assets securing the loan. Our Asset Management business segment includes
our fee-based asset management operations, which include on-going base and incentive management fees. As of December
31, 2021, we had approximately $2.4 billion in assets under management (“AUM”) of which 52.6% was in CDOs. A
significant portion of our asset management revenue is earned from the management of CDOs. We have not completed a
new securitization since 2008. As a result, our asset management revenue has declined from its historical highs as the assets
of the CDOs decline due to maturities, repayments, auction call redemptions, and defaults. Our ability to complete
securitizations in the future will depend upon, among other things, our asset origination capacity and success, our ability to
arrange warehouse financing to originate assets, our willingness and capacity to fund required amounts to obtain warehouse
financing and securitized financings, and the demand in the markets for such securitizations. The remaining portion of our
AUM is from a diversified mix of other Investment Vehicles that were more recently formed.
• Principal Investing: Our Principal Investing business segment is comprised of investments that we hold related to our SPAC
franchise and other investments we have made for the purpose of earning an investment return rather than investments to
support our trading, matched book repo, or other Capital Markets business segment activities. These investments are a
component of our other investments, at fair value, other investments sold, not yet purchased, and investments in equity
method affiliates in our consolidated balance sheet.
We generate our revenue by business segment primarily through the following activities.
Capital Markets:
• Our trading activities, which include execution and brokerage services, securities lending activities, riskless trading activities,
as well as gains and losses (unrealized and realized) and income and expense earned on securities classified as trading;
• Net interest income on our matched book repo financing activities; and
• New issue and advisory revenue comprised of (a) new issue revenue associated with originating, arranging, or placing newly
created financial instruments; and (b) revenue from advisory services.
Asset Management:
• Asset management fees for our on-going asset management services provided to certain Investment Vehicles, which may
include fees both senior and subordinate to the securities issued by the Investment Vehicle; and
Incentive management fees earned based on the performance of the certain Investment Vehicles.
•
Principal Investing:
• Gains and losses (unrealized and realized) and income and expense earned on securities classified as other investments, at
fair value and other investments sold, not yet purchased; and
Income and loss earned on equity method investments.
•
40
Business Environment
Our business in general and our Capital Markets business segment in particular, do not produce predictable earnings. Our results
can vary dramatically from year to year and quarter to quarter. Our business is materially affected by economic conditions in the
financial markets, political conditions, broad trends in business and finance, the housing and mortgage markets, changes in volume
and price levels of securities transactions, and changes in interest rates, including overnight funding rates, all of which can affect
our profitability and are unpredictable and beyond our control. These factors may affect the financial decisions made by investors
and companies, including their level of participation in the financial markets and their willingness to participate in corporate
transactions. Severe market fluctuations or weak economic conditions could reduce our trading volume and revenues, negatively
affect our ability to generate new issue and advisory revenue, and adversely affect our profitability.
As a general rule, our trading business benefits from increased market volatility. Increased volatility usually results in increased
activity from our clients and counterparties. However, periods of extreme volatility may at times result in clients reducing their
trading volumes, which would negatively impact our results. Also, periods of extreme volatility may result in large fluctuations in
securities valuations and we may incur losses on our holdings. Also, our mortgage group’s business benefits when mortgage
volumes increase, and may suffer when mortgage volumes decrease. Among other things, mortgage volumes are significantly
impacted by changes in interest rates.
In addition, as a smaller firm, we are exposed to intense competition. Although we provide financing to our customers, larger
firms have a much greater capability to provide their clients with financing, giving them a competitive advantage. We are much
more reliant upon our employees’ relationships, networks, and abilities to identify and capitalize on market
opportunities. Therefore, our business may be significantly impacted by the addition or loss of key personnel.
We try to address these challenges by (i) focusing our business on clients and asset classes that are underserved by the large firms,
(ii) continuing to monitor our fixed costs to enhance operating leverage and limit our losses during periods of low volumes, and
(iii) attempting to hire and retain entrepreneurial and effective traders, investment bankers, and salespeople.
Our business environment is rapidly changing. New risks and uncertainties emerge continuously and it is not possible for us to
predict all the risks we will face. This may negatively impact our operating performance.
A portion of our revenue is generated from net trading activity. We engage in proprietary trading for our own account, provide
securities financing for our customers, and execute “riskless” trades with a customer order in hand resulting in limited market risk
to us. The inventory of securities held for our own account, as well as held to facilitate customer trades, and our market making
activities are sensitive to market movements.
A portion of our revenue is generated from new issue and advisory engagements. The fees charged and volume of these
engagements are sensitive to the overall business environment. We provide origination services in Europe through our subsidiary
CCFESA, and new issue and advisory services in the U.S. through our subsidiary JVB. A division of JVB, Cohen & Company
Capital Markets is our full-service boutique investment banking platform focusing on SPAC advisory, capital markets advisory,
and M&A advisory, with clients primarily in the financial technology (commonly referred to as "fintech") and SPAC
spaces. Currently, our primary source of new issue and advisory revenue is from originating assets for our U.S. and European
insurance asset management business including our U.S. Insurance JV and our CREO JV, as well and from investment banking
and advisory services through our Cohen & Company Capital Markets platform.
A portion of our revenue is generated from management fees. Our ability to charge management fees and the amount of those fees
is dependent upon the underlying investment performance and stability of the Investment Vehicles. If these types of investments
do not provide attractive returns to investors, the demand for such instruments will likely fall, thereby reducing our opportunity to
earn new management fees or maintain existing management fees. As of December 31, 2021, 52.6% of our existing AUM were in
CDOs. The creation of CDOs has depended upon a vibrant securitization market. Since 2008, volumes within the securitization
market have dropped significantly and have not fully recovered since that time. We have not completed a new securitization since
2008. The remaining portion of our AUM is from a diversified mix of other Investment Vehicles most of which were more
recently formed.
A significant portion of our asset management revenue is earned from the management of CDOs. As a result, our asset
management revenue from CDOs has declined from its historical highs as the assets of the CDOs decline due to maturities,
repayments, auction call redemptions, and defaults. Our ability to complete securitizations in the future will depend upon, among
other things, our asset origination capacity and success, our ability to arrange warehouse financing to originate assets, our
willingness and capacity to fund required amounts to obtain warehouse financing and securitized financings, and the demand in the
markets for such securitizations.
A portion of our revenues is generated from our principal investing activities. Therefore, our revenues are impacted by the overall
market supply of and demand for these investments as well as the individual performance of each investment. Our principal
investments are included within other investments, at fair value, other investments sold, not yet purchased, and investments in
equity method affiliates in our consolidated balance sheets. More recently, a significant component of our principal investment
revenue and income from equity method affiliates has come from SPAC related equity investments, primarily in entities that have
been the result of sponsored SPAC business combinations or related party sponsored SPAC business combinations or third party
sponsored SPAC business combinations. Access to these investments is reliant on a robust SPAC market. Performance of the
resulting principal investments can be materially impacted by overall performance of the equity markets. See note 8 to our
consolidated financial statements included in this Annual Report on Form 10-K.
The SPAC Market
Beginning in 2018, we began sponsoring a series of SPACs. Each sponsored SPAC either completed or seeks to complete a
business combination with a company involved in the insurance market. In addition, we invest in other SPACs at various stages of
their business life cycle. Beginning in 2019, these SPAC activities have become a significant portion of our Principal Investing
business segment. In August 2018, we invested in and became the general partner of a newly formed investment fund (the “SPAC
Fund”), which was created for the purpose of investing in the equity interests of SPACs and SPAC sponsor entities including
SPACs sponsored by us, our affiliates, and third parties. As a complement to the SPAC Fund, we established and became manager
of two newly formed umbrella limited liability companies (the “SPAC Series Funds”) that issue a separate series of interest for
each investment portfolio, which typically consists of investments in the sponsor entities of individual SPACs. Generally, when a
SPAC acquires or merges with a privately held target company, the target company winds up owning a majority of the resulting
outstanding equity of the SPAC so the transaction is accounted for as a reverse merger. Private companies utilize reverse mergers
with SPACs as a method of going public as an alternative to a traditional IPO. All of our business activity related to SPACs is
highly sensitive to the volume of activity in the SPAC market. Volumes could be negatively impacted if target companies no
longer see SPACs as an attractive alternative thereby reducing the number of suitable potential business combination
targets. Also, investor demand for SPACs would be negatively impacted if the stocks of SPACs that successfully complete a
business combination underperform the market. If volumes of SPAC activity decline, our results of operations will likely be
significantly negatively impacted.
41
Margin Pressures in Fixed Income Brokerage Business
Performance in the financial services industry in which we operate is highly correlated to the overall strength of the economy and
financial market activity. Overall market conditions are a product of many factors beyond our control and can be unpredictable.
These factors may affect the financial decisions made by investors, including their level of participation in the financial markets. In
turn, these decisions may affect our business results. With respect to financial market activity, our profitability is sensitive to a
variety of factors including the volatility of the equity and fixed income markets, the level and shape of the various yield curves,
and the volume and value of trading in securities.
Margins and volumes in certain products and markets within the fixed income brokerage business continue to decrease materially
as competition has increased and general market activity has declined. Further, we continue to expect that competition will
increase over time, resulting in continued margin pressure.
Our response to this margin compression has included: (i) building a diversified fixed income trading platform; (ii) acquiring or
building out new product lines and expanding existing product lines including the most recent hiring of several investment banking
professionals within JVB, who are seeking to generate new issue revenue in the Fintech and SPAC spaces, further expanding our
enterprise-wide SPAC capabilities; (iii) building a hedging execution and funding operation to service mortgage originators; and
(iv) monitoring our fixed costs. Our cost management initiatives are ongoing. However, there can be no certainty that these efforts
will be sufficient. If insufficient, we will likely see a decline in profitability.
U.S. Housing Market
In recent years, our mortgage group has grown in significance to our Capital Markets segment and our company overall. The
mortgage group primarily earns revenue by providing hedging execution, securities financing, and trade execution services to
mortgage originators and other investors in mortgage-backed securities. Therefore, this group’s revenue is highly dependent on
the volume of mortgage originations in the U.S. Origination activity is highly sensitive to interest rates, the U.S. job market,
housing starts, sale activity of existing housing stock, as well as the general health of the U.S. economy. In addition, any new
regulation that impacts U.S. government agency mortgage-backed security issuance activity, residential mortgage underwriting
standards, or otherwise impacts mortgage originators will impact our business. We have no control over these external factors and
there is no effective way for us to hedge against these risks. Our mortgage group’s volumes and profitability will be highly
impacted by these external factors.
COVID-19 / Impairment of Goodwill
The ongoing COVID-19 pandemic, which continues to spread throughout the United States and worldwide, has caused significant
volatility in domestic and international markets. There is on-going uncertainty around the breadth and duration of business
disruptions related to COVID-19, as well as its impact on the U.S. and international economies. While we cannot fully assess the
impact COVID-19 will have on all of our operations at this time, there are certain impacts that we have identified:
● The unprecedented volatility of the financial markets experienced since March 2020, has caused us to operate JVB at a lower
level of leverage than prior to the pandemic. Specifically, JVB has reduced the size of its GCF repo operations, eventually
choosing to exit the business totally. JVB also reduced the volume of its TBA trading. We have determined that at our pre-
pandemic levels in these businesses, we were exposed to a higher level of counterparty credit risk and were experiencing too
much volatility in our available liquidity to conservatively meet capital requirements and margin calls in these
businesses. We expect JVB to operate at lower volumes in both these businesses for an indefinite period of time.
● The financial market volatility, as well as the reduction in volumes in the GCF repo and TBA businesses, that resulted from
COVID-19 required us to reassess the goodwill we had recorded related to JVB under the guidance of ASC 350. We
determined that the fair value of JVB was less than the carrying value (including the goodwill). As a result, we recorded an
impairment loss of $7,883 in 2020. See note 13 to our consolidated financial statements included in this Annual Report on
Form 10-K.
● JVB’s mortgage group’s operations are centered on serving the financial needs of mortgage originators and institutions that
invest in mortgage backed securities. Prolonged high unemployment could eventually impact mortgage originations and
demand for and supply of mortgage backed securities, which may have a significant unfavorable impact on the revenue
earned by JVB’s mortgage group.
In 2021, medical professionals developed COVID-19 vaccines and governments began to distribute them globally, which is
expected to reduce virus spread and further aid economic recovery. Despite broad improvements in the global fight against the
COVID-19 virus, we will likely be impacted by the pandemic in other ways which we cannot reliably determine. We will
continue to monitor market conditions and respond accordingly. In April 2020, we applied for and received a $2,166 loan under
the Paycheck Protection Program ("PPP") of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. On June 21,
2021, we received notification that the U.S. Small Business Administration, as administrator of the PPP, had approved our PPP
Loan forgiveness application for $2,127 and all accrued interest on the PPP Loan, leaving us with a remaining PPP Loan balance
of $39. The PPP Loan forgiveness was recorded to other non-operating income on the consolidated statements of operations and
comprehensive income. We repaid the remaining balance plus accrued interest on June 25, 2021, at which point the PPP Loan
balance was reduced to zero.
42
Recent Events and Transactions
Wind Down of the Company's GCF Repo Business
From 2017 through 2021, we operated a matched book GCF repo business as a full netting member of the FICC Government
Services Division. In October 2021, primarily due to reduced spreads in the repo market for GCF collateral, we decided to wind
down this business. As of December 31, 2021, the wind down was completed and the GCF reverse repurchase agreements and
repurchase agreements balances were reduced to zero. See notes 4 and 11 to our consolidated financial statements included in item
7 of this Annual Report on Form 10-K.
New Commercial Real Estate Opportunities (“CREO”) JV
On September 3, 2021, we committed to invest up to $15,000 of equity in a newly formed joint venture (the “CREO JV”) with an
outside investor who committed to invest approximately $435,000 of equity in the CREO JV. We are required to invest 7.5% of
the total equity of the CREO JV with an absolute limit of $15,000. The CREO JV is managed by us.
The CREO JV was formed for the purposes of investing in primarily multi-family commercial real estate mortgage-backed loans
and below-investment-grade rated tranches in CRE CLOs collateralized by mostly transitional commercial real estate mortgage-
backed loans. “CRE CLO” means any pooling of commercial real estate mortgage-backed loans into a collateralized loan
obligation.
The commercial real estate loans that will be funded by the CREO JV may be originated by us and we may earn origination fees
earned in connection with such transactions. In addition, we may earn structuring fees in connection with structuring and
consummating a CRE CLO consisting of a pooling of commercial real estate loans. We will also earn management fees as manager
of any CRE CLOs based on the value of the assets consolidated into a CRE CLO (calculated in accordance with the terms of such
CRE CLO), payable from the proceeds generated by and in accordance with the distribution waterfall of such CRE CLO.
We elected the fair value option in accordance with the provisions of FASB ASC 820, Fair Value Measurements (“FASB ASC
820”) to account for our equity method investment in the CREO JV. The investment will be included in other investments at fair
value, on the consolidated balance sheet and gains and losses (both realized and unrealized) will be recognized in
the consolidated statement of operations as a component of principal transactions and other income. Because the CREO JV has the
attributes of investment companies as described in FASB ASC 946-15-2, we will estimate the fair value of our investment using
the net asset value (“NAV”) per share (or its equivalent) as of the reporting date in accordance with the “practical expedient”
provisions related to investments in certain entities that calculate net asset value per share (or its equivalent) included in FASB
ASC 820 for all entities. As of December 31, 2021, our investment balance in the CREO was $5,830.
43
Insurance SPAC
The Operating LLC was the manager of Insurance Acquisition Sponsor, LLC and Dioptra Advisors, LLC (together, the “Insurance
SPAC Sponsor Entities”). The Insurance SPAC Sponsor Entities were sponsors of Insurance Acquisition Corp. ("Insurance
SPAC"), a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset
acquisition, stock purchase, reorganization, or similar business combination with one or more businesses.
On June 29, 2020, Insurance SPAC entered into an Agreement and Plan of Merger (the “Insurance SPAC Merger Agreement”)
with IAC Merger Sub, Inc., a Delaware corporation and direct wholly owned subsidiary of Insurance SPAC (“Insurance SPAC
Merger Sub”), and Shift Technologies, Inc., a Delaware corporation ("SFT"). On October 13, 2020, Insurance SPAC Merger Sub
was merged (the "Insurance SPAC Merger") with and into SFT. In connection with the Insurance SPAC Merger, the Insurance
SPAC changed its name from "Insurance Acquisition Corp." to "Shift Technologies, Inc." and, on October 15, 2020, the Insurance
SPAC's NASDAQ trading symbol changed from "INSU" to "SFT". The Insurance SPAC Merger was approved by the Insurance
SPAC's stockholders at a special meeting of stockholders held on October 13, 2020.
Upon the closing of the Insurance SPAC Merger, the Insurance SPAC Sponsor Entities held 375,000 shares of SFT's Class A
Common Stock, par value $0.0001 per share (“SFT Class A Common Stock”), and 187,500 warrants (“SFT Warrants”) to purchase
an equal number of shares of SFT Class A Common Stock for $11.50 per share (such SFT Class A Common Stock and SFT
Warrants, collectively, the “Placement Securities”) as a result of the 375,000 placement units which the Insurance SPAC Sponsor
Entities had purchased in a private placement that occurred simultaneously with the Insurance SPAC’s initial public offering on
March 22, 2019. Further, upon the closing of the Insurance SPAC Merger, the Insurance SPAC Sponsor Entities collectively held
an additional 4,497,525 shares of SFT Class A Common Stock as a result of its previous purchase of founder shares of the
Insurance SPAC. In general, when founder shares and placement shares are discussed as a group, the Company refers to them as
Sponsor Shares. Of the 375,000 placement units, 122,665 were allocable to the Operating LLC. Of the 4,497,525 founder shares,
2,019,721 were allocable to the Operating LLC.
As of the closing of the Insurance SPAC Merger, the Company continued to consolidate the Insurance SPAC Sponsor Entities.
Prior to the closing, the Company treated the consolidated Insurance SPAC Sponsor Entities’ investment in the Insurance SPAC as
an equity method investment. Effective upon the closing of the Insurance SPAC Merger:
1.
2.
3.
determined the fair value of the Sponsor Shares held by the Insurance SPAC Sponsor Entities.
reclassified the equity method investment to other investments, at fair value and recorded principal
d other income for the difference between the fair value of the Sponsor Shares held by the Insurance SPAC
s and the equity method investment balance immediately prior to the merger closing.
hen recorded non-controlling interest expense or compensation expense related to the Sponsor Shares
the non-controlling interest holders in the Insurance SPAC Sponsor Entities. If the non-controlling interest
mployee of the Company, the Company recorded the expense as equity-based compensation
wise, the expense was recorded by the Company as non-controlling interest expense.
Subsequent to the closing of the Insurance SPAC Merger, any change in the fair value of the shares held by the Insurance SPAC
Sponsor Entities had been recorded as a component of principal transactions and other income. The Company concurrently
recorded a corresponding non-controlling interest entry related to the Sponsor Shares distributable to the non-controlling interest
holders in the Insurance SPAC Sponsor Entities. No adjustment was made to the equity-based compensation expense recorded as
of the closing of the Insurance SPAC Merger. Rather, all post-merger changes in value related to Sponsor Shares distributable to
the non-controlling interest holders in the Insurance SPAC Sponsor Entities were recorded as non-controlling interest expense.
During 2021, the Insurance SPAC Sponsor Entities distributed all the unrestricted and restricted shares held to its members
including the Operating LLC. The portion of such SFT shares that was distributed to members other than the Operating
LLC were treated as an in-kind non-controlling interest distribution. Subsequent to that distribution, the Company will continue to
record any change in the fair value of the SFT shares held by the Operating LLC as a component of principal transactions and other
income. However, no offsetting entry to non-controlling interest is necessary subsequent to the non-controlling interest
distribution.
Concurrently with the closing of the Insurance SPAC Merger, a subsidiary of the Operating LLC, INSU Pipe Sponsor LLC,
purchased 600,000 shares of SFT Class A Common Stock at a purchase price per share of $10.00 pursuant to a subscription
agreement that such subsidiary executed at the time of the execution of the Insurance SPAC Merger Agreement. The Company's
interest in INSU Pipe Sponsor LLC entitled it to an allocation of 350,000 shares of SFT Class A Common Stock. During 2020, the
Company consolidated INSU Pipe Sponsor LLC and recorded principal transactions and other income for the full 600,000 shares
and then non-controlling interest expense or income for the 250,000 shares not allocable the Company. In December 2020, the
shares of SFT Class A common stock were registered for sale and INSU Pipe Sponsor LLC distributed the shares to the non-
controlling interest holders resulting in INSU Pipe Sponsor LLC being 100% owned by the Operating LLC. INSU Pipe Sponsor
LLC was dissolved in the first quarter of 2021, and the Company's 350,000 shares of SFT class A common stock were transferred
to the Operating LLC or other wholly-owned subsidiaries of the Operating LLC.
44
The following table details the income statement impact of Insurance SPAC to the Company's operating results during 2021 and
2020:
Year Ended December 31, 2021
Year Ended December 31, 2020
Principal transactions and other income $
Equity-based compensation
Other operating
Income / (loss) from equity method
affiliates
Net income / (loss)
Less: Net lncome / (loss) attributable to
the non-controlling interest - Operating
LLC
Net income / (loss) - Operating LLC
Less: Net income / (loss) attributable to
the convertible non-controlling interest
Net income / (loss) attributable to
Cohen & Company Inc.
$
Insurance
SPAC
Sponsor
Entities
Operating
LLC
Total
Insurance
SPAC
Sponsor
Entities
INSU
Pipe
Sponsor,
LLC
7,380 $ (12,638 ) $
-
-
-
(11 )
(5,258 ) $ 41,035 $
(11,700 )
(2 )
-
(11 )
(842 ) $
-
-
Operating
LLC
Total
426 $ 40,619
(11,700 )
(2 )
-
-
-
7,369
-
(12,638 )
-
(5,269 )
(3,138 )
26,195
-
(842 )
-
426
(3,138 )
25,779
3,560
3,809
-
(12,638 )
3,560
(8,829 )
9,328
16,867
(410 )
(432 )
-
426
8,918
16,861
2,690
(8,924 )
(6,234 )
12,205
(313 )
308
12,200
1,119 $
(3,714 ) $
(2,595 ) $
4,662 $
(119 ) $
118 $
4,661
As of December 31, 2021, the Operating LLC's total investment in SFT was $5,785, which is included as a component of other
investments, at fair value. This fair value is broken out as follows:
Description
Shares freely tradeable
Shares that will become freely tradeable at such time SFT's stock price is greater than $12.00 per share for any
period of 20 trading days out of 30 consecutive trading days
Shares that will become freely tradeable at such time SFT's stock price is greater than $13.50 per share for any
period of 20 trading days out of 30 consecutive trading days
Shares that will become freely tradeable at such time SFT's stock price is greater than $15.00 per share for any
period of 20 trading days out of 30 consecutive trading days
Shares that will become freely tradeable at such time SFT's stock price is greater than $17.00 per share for any
period of 20 trading days out of 30 consecutive trading days
Total
$
$
Operating
LLC
445
1,341
1,337
1,333
1,329
5,785
As of December 31, 2021, the closing price of SFT was $3.41.
45
INSU Acquisition Corp. II ("Insurance SPAC II")
The Operating LLC, was the manager of Insurance Acquisition Sponsor II, LLC and Dioptra Advisors II, LLC (together, the
“Insurance SPAC II Sponsor Entities”). The Insurance SPAC II Sponsor Entities were sponsors of INSU Acquisition Corp. II
(“Insurance SPAC II”), a blank check company that sought to effect a merger, capital stock exchange, asset acquisition, stock
purchase, reorganization or similar business combination with one or more businesses (each a “Insurance SPAC II Business
Combination”).
On November 24, 2020, Insurance SPAC II entered into an Agreement and Plan of Merger and Reorganization (the “Insurance
SPAC II Merger Agreement”) with INSU II Merger Sub Corp., a Delaware corporation and direct wholly owned subsidiary of
Insurance SPAC II (“Insurance SPAC II Merger Sub”), and MetroMile, Inc., a Delaware corporation (at the time,
named MetroMile Operating Company) (“MetroMile”). The Insurance SPAC II Merger Agreement provided for, among other
things, the acquisition of MetroMile by Insurance SPAC II pursuant to the proposed merger of Insurance SPAC II Merger Sub with
and into MetroMile with MetroMile continuing as the surviving entity and a direct wholly owned subsidiary of Insurance SPAC
II (the “Insurance SPAC II Merger”). On February 9, 2021, the Insurance SPAC II Merger was consummated and Insurance
SPAC II changed its name to MetroMile.
Upon closing of the Insurance SPAC II Merger, the Insurance SPAC II Sponsor Entities received a total of 6,669,667 founder
shares and 452,500 placement units. On April 16, 2021, of the founder shares, 3,414,875 shares of MILE Class A Common Stock
were distributed to the non-controlling interest holders of the Insurance SPAC II Sponsor Entities and 3,254,792 shares of MILE
Class A Common Stock were distributed to the Operating LLC. All of the placement units were distributed to the non-controlling
interest holders of the Insurance SPAC II Sponsor Entities.
Each placement unit consisted of one share of Insurance SPAC II Common Stock and one-third of one warrant (the “Insurance
SPAC II Warrant”). Each whole Insurance SPAC II Warrant entitled the holder to purchase one share of Insurance SPAC II
common stock for $11.50 per share. Of the 6,669,667 founder shares, (i) 1,569,333 founder shares were freely transferable and
saleable at the closing as of the Insurance SPAC II Merger, (ii) 2,550,167 founder shares will become freely transferable and
saleable at such time as MetroMile's stock price is greater than $15.00 per share for any period of 20 trading days out of 30
consecutive trading days; (iii) 2,550,167 founder shares will become freely transferable and saleable at such time as MetroMile's
stock price is greater than $17.00 per share for any period of 20 trading days out of 30 consecutive trading days.
The Company consolidated the Insurance SPAC II Sponsor Entities and prior to the Insurance SPAC II Merger
treated its investment in the Insurance SPAC II as an equity method investment. Effective upon the closing of the Insurance SPAC
II Merger on February 9, 2021, the Company reclassified its equity method investment in the Insurance SPAC II to other
investments, at fair value and adopted fair value accounting for the investment in MetroMile, resulting in an amount of principal
transaction revenue derived from the (i) the Sponsor Shares retained by the Insurance SPAC II Sponsor Entities described in the
previous paragraph; (ii) the trading share price of MetroMile Common Stock and the MetroMile Warrants; and (iii) fair value
discounts related to the share sale restrictions on the Sponsor Shares. Upon recognition of the principal transaction revenue
described above, the Company recorded non-controlling interest expense or compensation expense related to the amount of
Sponsor Shares distributable to the non-controlling interest holders in the Insurance SPAC II Sponsor Entities. If the non-
controlling interest holder is an employee of the Company, the expense is recorded as compensation. Otherwise, the expense is
non-controlling interest expense.
Of the Sponsor Shares retained by the Insurance SPAC II Sponsor Entities, the amount allocable to the Operating LLC was (i)
765,833 founder shares that were transferable and saleable at the closing of the Insurance SPAC II Merger, (ii) 1,244,479 founder
shares that will become transferable and saleable at such time as MetroMile's stock price is greater than $15.00 per share for any
period of 20 trading days out of 30 consecutive trading days; (iii) 1,244,479 founder shares that will become transferable and
saleable at such time as MetroMile's stock price is greater than $17.00 per share for any period of 20 trading days out of 30
consecutive trading days.
As of the closing of the Insurance SPAC II Merger, the Company continued to consolidate the Insurance SPAC II Sponsor Entities.
Prior to the closing, the Company treated the consolidated Insurance SPAC II Sponsor Entities’ investment in the Insurance SPAC
II as an equity method investment. Effective upon the closing of the Insurance SPAC II Merger:
1.
2.
3.
any determined the fair value of the Sponsor Shares held by the Insurance SPAC II Sponsor Entities;
any reclassified the equity method investment to other investments, at fair value and recorded principal
s and other income for the difference between the fair value of the Sponsor Shares held by the Insurance
ponsor Entities and the equity method investment balance immediately prior to the merger closing.
any then recorded non-controlling interest expense or compensation expense related to the Sponsor Shares
le to the non-controlling interest holders in the Insurance SPAC II Sponsor Entities. If the non-controlling
der was an employee of the Company, the Company recorded the expense as equity-based compensation
Otherwise, the expense was recorded by the Company as non-controlling interest expense.
Subsequent to the February 9, 2021 closing of the Insurance SPAC II Merger through April 16, 2021, any change in the fair value
of the shares held by the Insurance SPAC II Sponsor Entities was recorded as a component of principal transactions and other
income. The Company concurrently recorded a corresponding non-controlling interest entry related to the Sponsor Shares
distributable to the non-controlling interest holders in the Insurance SPAC Sponsor II Entities. No adjustment was made to the
equity-based compensation expense recorded as of the closing of the Insurance SPAC II Merger. Rather, all post-merger changes
in value related to Sponsor Shares distributable to the non-controlling interest holders in the Insurance SPAC II Sponsor
Entities were recorded as non-controlling interest expense.
On April 16, 2021, the Insurance SPAC II Sponsor Entities distributed all the unrestricted and restricted MetroMile shares held to
its members, including the Operating LLC. The portion of such MetroMile shares that was distributed to members other than the
Operating LLC was treated as an in-kind non-controlling interest distribution. Subsequent to that distribution, the Company
will continue to record any change in the fair value of the MetroMile shares held by it as a component of principal transactions and
other income. However, no offsetting entry to non-controlling interest is necessary subsequent to the non-controlling interest
distribution.
On November 8, 2021, MetroMile announced that it has agreed to be acquired in an all stock transaction by Lemonade, Inc.
(NYSE:LMND). Upon completion of the transaction, each shareholder of MetroMile (including the Operating LLC) will receive
1/19th share of LMND for each share of MetroMile. All sale restrictions on the Operating LLC's shares lapse effective with the
completion of the transaction. Accordingly, any LMND shares received by the Operating LLC will be freely tradeable. The
transaction was approved by the shareholders of MetroMile on February 1, 2022. It is expected that that the transaction will close
some time in the second quarter of 2022.
46
The following table details the impact of all the entries associated with the Insurance SPAC II during 2021. This table excludes
any tax impact.
Year Ended December 31, 2021
Insurance SPAC
II Sponsor
Entities
Operating LLC
Total
Principal transactions and other income
Equity-based compensation
Other operating
Income / (loss) from equity method affiliates
Net income / (loss)
Less: Net loss / (income) attributable to the non-controlling interest -
Operating LLC
Net income / (loss) - Operating LLC
Less: Net income / (loss) attributable to the convertible non-controlling
interest
Net income / (loss) attributable to Cohen & Company Inc.
$
56,720
(13,068 )
(2 )
(107 )
43,543
17,644
25,899
18,287
7,612 $
(13,064 )
-
-
-
(13,064 )
-
(13,064 )
(9,224 )
(3,840 ) $
43,656
(13,068 )
(2 )
(107 )
30,479
17,644
12,835
9,063
3,772
The Operating LLC's total investment in MetroMile of $5,500 as of December 31, 2021 is included as a component of other
investments, at fair value in our consolidated balance sheet. These values are broken out as follows:
Description
Shares freely tradeable
Shares that will become freely tradeable at such time MetroMile's stock price is greater than $15.00 per share for
any period of 20 trading days out of 30 consecutive trading days
Shares that will become freely tradeable at such time MetroMile's stock price is greater than $17.00 per share for
any period of 20 trading days out of 30 consecutive trading days
Total
$
$
Fair
Value
-
2,750
2,750
5,500
If Lemonade completes its acquisition of MetroMile, all shares above will be released from sale restrictions and become freely
tradeable. MetroMile's closing share price was $2.19 on December 31, 2021.
47
INSU Acquisition Corp III ("Insurance SPAC III")
The Operating LLC is the manager of Insurance Acquisition Sponsor III, LLC and Dioptra Advisors III, LLC (together, the
“Insurance SPAC III Sponsor Entities”). The Insurance SPAC III Sponsor Entities are sponsors of INSU Acquisition Corp. III
("Insurance SPAC III"). On December 22, 2020, Insurance SPAC III completed the sale of 25,000,000 units (the “Insurance SPAC
III Units”) in its initial public offering which included 3,200,000 units issued pursuant to the underwriters’ over-allotment option.
Each Insurance SPAC III Unit consists of one share of Insurance SPAC III's Class A common stock, par value $0.0001 per share
(“Insurance SPAC III Common Stock”), and one-third of one Insurance SPAC III warrant (each, an “Insurance SPAC III
Warrant”), where each whole Insurance SPAC III Warrant entitles the holder to purchase one share of Insurance SPAC III
Common Stock for $11.50 per share. The Insurance SPAC III Units were sold in the IPO at an offering price of $10.00 per Unit,
for gross proceeds of $250,000 (before underwriting discounts and commissions and offering expenses). Pursuant to the
underwriting agreement in the IPO, Insurance SPAC III granted the underwriters in the IPO (the “Insurance SPAC III
Underwriters”) a 45-day option to purchase up to 3,270,000 additional Insurance SPAC III Units solely to cover over-allotments, if
any; and on December 21, 2020, the Insurance SPAC III Underwriters notified the Company that they were partially exercising the
over-allotment option for 3,200,000 Insurance SPAC III units and waiving the remainder of the over-allotment option.
Immediately following the completion of the IPO, there were an aggregate of 34,100,000 shares of Insurance SPAC III Common
Stock issued and outstanding. If the Insurance SPAC III fails to consummate a business combination within the first 24 months
following the IPO, its corporate existence will cease except for the purposes of winding up its affairs and liquidating its assets.
The Insurance SPAC III Sponsor Entities purchased an aggregate of 575,000 of placement units in Insurance SPAC III in a private
placement that occurred simultaneously with the IPO for an aggregate of $5,750, or $10.00 per placement unit. Each placement
unit consists of one share of Insurance SPAC III Common Stock and one-third of one warrant (the “Insurance SPAC III Placement
Warrant”). The Insurance SPAC III placement units are identical to the Insurance SPAC III Units sold in the IPO except (i) the
shares of Insurance SPAC III Common Stock issued as part of the placement units and the Insurance SPAC III Warrants will not
be redeemable by Insurance SPAC III, (ii) the Insurance SPAC III Warrants may be exercised by the holders on a cashless basis,
and (iii) the shares of Insurance SPAC III Common Stock issued as part of the placement units, together with the Insurance SPAC
III Warrants, are entitled to certain registration rights. Subject to certain limited exceptions, the placement units (including the
underlying Insurance SPAC III Warrants and Insurance SPAC III Common Stock and the shares of Insurance SPAC III Common
Stock issuable upon exercise of the Insurance SPAC III Warrants) will not be transferable, assignable or salable until 30 days after
the completion of the Insurance SPAC III's initial business combination.
A total of $250,000 of the net proceeds from the private placement and the IPO (including approximately $10,600 of the deferred
underwriting commission from the IPO) were placed in a trust account. Except for the withdrawal of interest to pay taxes (or
dissolution expenses if a business combination is not consummated), none of the funds held in the trust account will be released
until the earlier of (i) the completion of Insurance SPAC III's initial business combination, (ii) in connection with a stockholder
vote to amend Insurance SPAC III's amended and restated certificate of incorporation (A) to modify the substance or timing
of Insurance SPAC III's obligation to redeem 100% of its public shares if it does not complete an initial business combination
within 24 months from the completion of the IPO or (B) with respect to any other provision relating to stockholders’ rights or pre-
initial business combination activity, or (iii) the redemption of all of Insurance SPAC III’s public shares issued in the IPO if the
Insurance SPAC III is unable to consummate an initial business combination within 24 months from the completion of the IPO.
If Insurance SPAC III does not complete a business combination within the first 24 months following the IPO, the placement units
will expire worthless.
The Insurance SPAC III Sponsor Entities collectively hold 8,525,000 founder shares in Insurance SPAC III. Subject to certain
limited exceptions, the founder shares will not be transferable or salable except (a) with respect to 25% of such shares, until
consummation of a business combination, and (b) with respect to additional 25% tranches of such shares, when the closing price of
Insurance SPAC III Common Stock exceeds $12.00, $13.50 and $17.00, respectively, for 20 out of any 30 consecutive trading
days following the consummation of a business combination. Certain non-controlling interests in the Insurance SPAC III Sponsor
Entities, including executive and key employees of the Operating LLC, purchased membership interests in the Insurance SPAC III
Sponsor Entities and, in addition to having an interest in Insurance SPAC III’s placement units discussed above, have an interest in
Insurance SPAC III’s founder shares through such membership interests in the Insurance SPAC III Sponsor Entities. The number
of the Insurance SPAC III’s founder shares in which such non-controlling interests in the Insurance SPAC III Sponsor Entities,
including such executives and key employees of the Operating LLC, have an interest in through the Insurance SPAC III Sponsor
Entities will not be finally and definitively determined until consummation of a business combination. The number of Insurance
SPAC III’s founder shares currently allocated to the Operating LLC is 4,267,500, but such number of founder shares will also not
be finally and definitively determined until the consummation of a business combination.
The Operating LLC loaned to Insurance SPAC III approximately $71 to cover IPO expenses, which was repaid in full at the
closing of the IPO. Insurance Acquisition Sponsor III, LLC and its affiliates, including the Operating LLC, have also committed to
loan Insurance SPAC III up to an additional $810 to cover operating and acquisition related expenses following the IPO, of which
$500 was borrowed by Insurance SPAC III as of December 31, 2021. See note 31. These loans will bear no interest and, if the
Insurance SPAC III consummates a business combination in the required time frame, the loans are to be repaid from the funds held
in Insurance SPAC III’s trust account. If Insurance SPAC III does not consummate a business combination in the required time
frame, no funds from Insurance SPAC III's trust account can be used to repay the loans. In February 2022, Insurance SPAC III
borrowed an additional $310 from the Operating LLC.
As of December 31, 2021, the Company had a total equity method investment in Insurance SPAC III of $4,543 which was
included as a component of investment in equity method affiliates in the Company's consolidated balance sheet. Offsetting this
amount was non-controlling interest of $4,808 which was included as a component of non-controlling interest in the Company's
consolidated balance sheet. Therefore, the net carrying value of our investment in Insurance SPAC III was ($265) as of December
31, 2021.
48
Consolidated Results of Operations
The following section provides a comparative discussion of our consolidated results of operations for the specified periods. The
period-to-period comparisons of financial results are not necessarily indicative of future results.
Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
The following table sets forth information regarding our consolidated results of operations for the years ended December 31,
2021 and 2020.
COHEN & COMPANY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Year Ended December 31, Favorable / (Unfavorable)
% Change
$ Change
2020
2021
Revenues
Net trading
Asset management
New issue and advisory
Principal transactions and other income
Total revenues
Operating expenses
Compensation and benefits
Business development, occupancy, equipment
Subscriptions, clearing, and execution
Professional fee and other operating
Depreciation and amortization
Impairment of goodwill
Total operating expenses
$
69,385 $
10,923
28,736
37,324
146,368
73,611 $
8,759
2,234
45,506
130,110
(4,226 )
2,164
26,502
(8,182 )
16,258
85,048
3,365
10,307
7,684
371
-
106,775
59,902
2,708
9,887
7,068
334
7,883
87,782
(25,146 )
(657 )
(420 )
(616 )
(37 )
7,883
(18,993 )
(6 )%
25 %
1186 %
(18 )%
12 %
(42 )%
(24 )%
(4 )%
(9 )%
(11 )%
NM
(22 )%
Operating income / (loss)
39,593
42,328
(2,735 )
(6 )%
Non-operating income / (expense)
Interest expense, net
Income / (loss) from equity method affiliates
Other non operating income
Income / (loss) before income taxes
Income tax expense / (benefit)
Net income / (loss)
Less: Net income (loss) attributable to the non-controlling interest
Net income / (loss) attributable to Cohen & Company Inc.
$
Revenues
(7,233 )
36,010
2,127
70,497
(1,614 )
72,111
60,829
11,282 $
(9,589 )
(2,955 )
-
29,784
(8,669 )
38,453
24,248
14,205 $
2,356
38,965
2,127
40,713
(7,055 )
33,658
(36,581 )
(2,923 )
25 %
1319 %
NM
137 %
(81 )%
88 %
(151 )%
(21 )%
Revenues increased by $16,258, or 12%, to $146,368 for the year ended December 31, 2021, as compared to $130,110 for the year
ended December 31, 2020. As discussed in more detail below, the change was comprised of (i) a decrease of $4,226 in net trading
revenue; (ii) an increase of $2,164 in asset management revenue; (iii) an increase of $26,502 in new issue and advisory revenue;
and (iv) a decrease of $8,182 in principal transactions and other income.
49
Net Trading
Net trading revenue decreased by $4,226, or 6%, to $69,385 for the year ended December 31, 2021, as compared to $73,611 for
the year ended December 31, 2020. The following table shows the detail by trading group.
Mortgage
Matched book repo
High yield corporate
Investment grade corporate
Wholesale and other
Total
NET TRADING
(Dollars in Thousands)
Year Ended December 31,
2020
2021
Change
$
$
6,885 $
46,139
10,390
593
5,378
69,385 $
9,641 $
33,980
8,342
9,978
11,670
73,611 $
(2,756 )
12,159
2,048
(9,385 )
(6,292 )
(4,226 )
Our net trading revenue includes unrealized gains on our trading investments, as of the applicable measurement date that may
never be realized due to changes in market or other conditions not in our control. This may adversely affect the ultimate value
realized from these investments. In addition, our net trading revenue also includes realized gains on certain proprietary trading
positions. Our ability to derive trading gains from such trading positions is subject to overall market conditions. Due to volatility
and uncertainty in the capital markets, the net trading revenue recognized during the year may not be indicative of future results.
Furthermore, from time to time, some of the assets included in the Investments-trading line of our consolidated balance sheets
represent level 3 valuations within the FASB valuation hierarchy. Level 3 assets are carried at fair value based on estimates
derived using internal valuation models and other estimates. See notes 9 and 10 to our consolidated financial statements included
in this Annual Report on Form 10-K. The fair value estimates made by us may not be indicative of the final sale price at which
these assets may be sold.
We consider our matched book repo business to be subject to significant concentration risk. See note 11 to our consolidated
financial statements included in this Annual Report on Form 10-K.
Asset Management
Assets Under Management
Our AUM equals the sum of: (1) the gross assets included in CDOs that we have sponsored and manage; plus (2) the NAV of
investment funds we manage; plus (3) the NAV or gross assets of other accounts we manage.
Our calculation of AUM may differ from the calculations used by other asset managers and, as a result, this measure may not be
comparable to similar measures presented by other asset managers. This definition of AUM is not necessarily identical to the
definitions of AUM that may be used in our management agreements.
ASSETS UNDER MANAGEMENT
(Dollars in Thousands)
Company sponsored CDOs
Other Investment Vehicles (1)
Assets under management (2)
2021
1,239,988 $
1,118,162
2,358,150 $
As of December 31,
2020
2,057,178 $
712,028
2,769,206 $
$
$
2019
2,197,208
559,382
2,756,590
(1) Other Investment Vehicles include any Investment Vehicle that is not a Company sponsored CDO.
(2)
In some cases, accounts we manage employ leverage. In some cases, our fees are based on gross assets while in other cases our
fees are based on net assets. AUM included herein is calculated using either the gross or net assets of each Investment Vehicle
based on whichever serves as the basis for calculation of our management fees.
50
Asset management fees increased by $2,164, or 25%, to $10,923 for the year ended December 31, 2021, as compared to $8,759 for
the year ended December 31, 2020, as discussed in more detail below.
CDOs
Other
Total
ASSET MANAGEMENT
(Dollars in Thousands)
Year Ended December 31,
2020
2021
Change
$
$
2,484 $
8,439
10,923 $
3,407 $
5,352
8,759 $
(923 )
3,087
2,164
A significant portion of our asset management fees are earned from the management of CDOs. We have not completed a new
securitization since 2008. As a result, our asset management revenue from CDOs has declined from its historical highs as the
assets of the CDOs decline due to maturities, repayments, auction call redemptions, and defaults. Our ability to complete
securitizations in the future will depend upon, among other things, our asset origination capacity and success, our ability to arrange
warehouse financing to originate assets, our willingness and capacity to fund required amounts to obtain warehouse financing and
securitized financings, and the demand in the markets for such securitizations.
Asset management fees from CDOs declined mainly due to a decline in AUM due to CDO auctions, liquidations, our removal as
manager of one CDO, and principal paydowns of collateral. Asset management fees from other investment vehicles increased
primarily due to increased incentive fees earned on the SPAC Fund as well as increased fees on certain European separate accounts
and investment funds.
New Issue and Advisory Revenue
New issue and advisory revenue increased by $26,502, or 1186%, to $28,736 for the year ended December 31, 2021, as compared
to $2,234 for the year ended December 31, 2020.
Cohen & Company Capital Markets
Commercial Real Estate Originations
US Insurance Originations
Europe Insurance Originations
Total
Year Ended December 31,
2020
2021
Change
$
$
22,676 $
1,428
1,940
2,692
28,736 $
-
-
500
1,734
2,234 $
22,676
1,428
1,440
958
26,502
51
Our revenue earned from new issue and advisory has been, and we expect will continue to be, volatile. We earn revenue from a
limited number of engagements. Therefore, a small change in the number of engagements can result in large fluctuations in the
revenue recognized. Further, even if the number of engagements remains consistent, the average revenue per engagement can
fluctuate considerably. Finally, our revenue is generally earned when an underlying transaction closes (rather than on a monthly
or quarterly basis). Therefore, the timing of underlying transactions increases the volatility of our revenue recognition. In
addition, we often incur certain costs related to new issue engagements. These costs are included as a component of either
subscriptions, clearing and execution, or professional fees and other and will generally be recognized in the same period that the
related revenue is recognized.
Cohen & Company Capital Markets, a division of JVB, is our full-service boutique investment banking platform focusing on
SPAC advisory, capital markets advisory, and M&A advisory, which generates new issue placement and advisory revenue from
clients primarily in the financial technology (commonly referred to as "fintech") and SPAC spaces, further expanding our SPAC
capabilities. In addition, we generate new issue revenue by originating new assets for the U.S. Insurance JV, CREO JV, and for
our PriDe funds in Europe.
Principal Transactions and Other Income
Principal transactions and other income decreased by $8,182 to $37,324 for the year ended December 31, 2021, as compared to
$45,506 for the year ended December 31, 2020.
PRINCIPAL TRANSACTIONS & OTHER INCOME
(Dollars in Thousands)
SFT
MILE
IMXI
WEJO
REE
ML
BKSY
CLO investments
Other SPAC equity
U.S. Insurance JV
SPAC Fund
Other principal investments
Total principal transactions
IIFC revenue share
All other income / (loss)
Other income
$
Year Ended December 31,
2020
2021
Change
(5,258 ) $
43,655
318
(3,160 )
(2,968 )
(988 )
(914 )
-
2,925
142
503
1,929
36,184
634
506
1,140
40,619 $
-
2,703
-
-
-
-
(535 )
1,503
222
183
7
44,702
491
313
804
(45,877 )
43,655
(2,385 )
(3,160 )
(2,968 )
(988 )
(914 )
535
1,422
(80 )
320
1,922
(8,518 )
143
193
336
Total principal transactions and other income
$
37,324 $
45,506 $
(8,182 )
Principal Transactions
For all investments discussed below, see note 9 to our consolidated financial statements included in this Annual Report on Form
10-K for information about how we determine the value of these instruments.
SFT is a publicly traded company. The shares of SFT we hold are comprised of both unrestricted and restricted shares and are
carried at fair value. For a portion of the period we have held these shares, they were held in majority owned consolidated
subsidiaries. Accordingly, there are significant non-controlling interest and compensation expense associated with these. See note
4 to our consolidated financial statements included in this Annual Report on Form 10-K.
MILE is a publicly traded company. The shares of MILE we hold are comprised of restricted shares and are carried at fair
value. For a portion of the period we have held these shares, they were held in majority owned consolidated
subsidiaries. Accordingly, there are significant non-controlling interest and compensation expense associated with these. See note
4 to our consolidated financial statements included in this Annual Report on Form 10-K.
IMXI represents equity positions of International Money Express, Inc. (NASDAQ: IMXI), a publicly traded company that resulted
from the merger of Intermex Holdings, LLC and FinTech Acquisition Corp. II. As of December 31, 2021, we hold an investment
in IMXI caried at a fair value of $798 which is included as a component of other investments, at fair value.
WEJO represents equity positions of Wejo Group, Ltd. (NASDAQ: WEJO), a publicly traded company that closed its business
combination with Virtuoso Acquisition Corp. As of December 31, 2021, we have a total investment in WEJO carried at fair value
of $6,840 which is included as a component of other investment's at fair value. We also have investments in the sponsor of WEJO
that are accounted for as equity method affiliates. See Income / (loss) from Equity Method Affiliates below and note 12 to our
consolidated financial statements included in this Annual Report on Form 10-K
REE represents equity positions of REE Automotive Ltd. (NASDAQ: REE), a publicly traded company that closed its business
combination with 10X Capital Venture Acquisition Corp. SPAC. As of December 31, 2021, we have a total investment in REE
carried at fair value of $5,274 which is included as a component of other investments at fair value.
ML represents equity positions of MoneyLion, Inc. (NYSE: ML), a publicly traded company that closed its business combination
with Fusion Acquisition Corp. SPAC. As of December 31, 2021, we hold $322 investment in ML. This investment was carried at
fair value.
52
BKSY represents equity positions of Blacksky Technologies, Inc that closed its business combination with Osprey Technologies
Acquisition Corp. SPAC. As of December 31, 2021, we hold $161 investment in BKSY. This investment was carried at fair
value.
The CLO investments represent investments in the most junior tranche of certain CLOs. These investments were carried at fair
value. These investments were fully liquidated in 2020.
Other SPAC equity represents equity investments in publicly traded SPACs or their successor public companies carried at fair
value.
The U.S. Insurance JV invests in insurance company debt. We carry our investment in the JV at its reported NAV.
The SPAC Fund invests in the equity of SPACs. We carry our investment in the fund at its reported NAV.
Other principal investments consist of realized and unrealized gains and losses from other investments reported at fair value.
Other Income
Other income / (loss) is comprised of an ongoing revenue share arrangement as well as other miscellaneous operating income
items. The revenue share arrangement noted in the table above entitles us to a percentage of revenue earned by IIFC. The IIFC
revenue share arrangement expires at the earlier of (i) the dissolution of IIFC or (ii) when we have earned a cumulative $20,000 in
revenue share payments. To date, we have earned $3,841. Also, in any particular year, the revenue share earned by us cannot
exceed $2,000.
53
Operating Expenses
Operating expenses increased by $18,993, or 22%, to $106,775 for the year ended December 31, 2021, as compared to
$87,782 for the year ended December 31, 2020. As discussed in more detail below, the change was comprised of (i) an increase of
$25,146 in compensation and benefits; (ii) an increase of $657 in business development, occupancy, and equipment; (iii) an
increase of $420 in subscriptions, clearing, and execution; (iv) an increase of $616 in professional fee and other operating; (v) an
increase of $37 in depreciation and amortization; and (vi) a decrease in impairment of goodwill of $7,883.
Compensation and Benefits
Compensation and benefits increased by $25,146, or 42%, to $85,048 for the year ended December 31, 2021, as compared to
$59,902 for the year ended December 31, 2020.
COMPENSATION AND BENEFITS
(Dollars in Thousands)
Cash compensation and benefits
Equity-based compensation
Total
Year Ended December 31,
2020
2021
Change
$
$
69,330 $
15,718
85,048 $
47,349 $
12,553
59,902 $
21,981
3,165
25,146
Cash compensation and benefits in the table above is primarily comprised of salary, incentive compensation, severance, employer
portion of payroll taxes, and benefits. Cash compensation and benefits increased by $21,981 to $69,330 for the year ended
December 31, 2021, as compared to $47,349 for the year ended December 31, 2020. Our headcount increased to 118 as of
December 31, 2021 from 87 as of December 31, 2020. Cash compensation increased primarily due to an increase in incentive
compensation related to the increase in overall revenue and the increase in income from equity method affiliates.
Equity-based compensation increased by $3,165 to $15,718 for the year ended December 31, 2021, as compared to $12,553 for the
year ended December 31, 2020. Of the $15,718 of equity compensation recognized in 2021, $13,068 was due to equity
compensation related to the issuance of membership units of the Insurance SPAC II Sponsor Entities to employees of the
Company. The expense was recognized upon the completion of the merger between Insurance SPAC II and MetroMile on
February 9, 2021. Of the $12,553 of equity compensation recognized in 2020, $11,700 was due to equity-based compensation
related to the issuance of membership units of the Insurance SPAC Sponsor Entities to employees of the Company. This expense
was recognized upon the completion of the merger between the Insurance SPAC and Shift in October 2020. No further equity-
based compensation expense will be recognized related to membership units of the Insurance SPAC Sponsor Entities or the
Insurance SPAC II Sponsor Entities in the future.
The Insurance SPAC III Sponsor Entities have also issued membership units to employees of the Company. If the Insurance
SPAC III Sponsor Entities successfully complete a business combination, the Company will also recognize significant equity
compensation expense related to these issuances. The amount of future equity-based compensation expense that will be
recognized if this business combination is completed will be dependent upon the total number of founder shares ultimately
allocable to employees and the value of the shares upon the completion of the business combination. See notes 4 and 22 to our
consolidated financial statements included in this Annual Report on Form 10-K.
The remaining equity-based compensation recognized during 2021 and 2020 relates to restricted grants of the Company's Common
Stock and Operating LLC units. This amount increased by $1,797 to $2,650 for the year ended December 31, 2021 as compared to
$853 for the year ended December 31, 2020. This increase was due to increased share grants and a higher share price impact
during 2021 as compared to 2020.
Business Development, Occupancy, and Equipment
Business development, occupancy, and equipment increased by $657, or 24%, to $3,365 for the year ended December 31, 2021, as
compared to $2,708 for the year ended December 31, 2020. This was comprised of an increase in business development expense of
$443 and an increase in occupancy and equipment of $214. Business development increased due to increased travel in 2021 due to
a general reduction in pandemic restrictions. The increase in occupancy and equipment expense was mainly due to increased rent
due to our new Menlo Park office in California and other office lease renewals at higher rates.
54
Subscriptions, Clearing, and Execution
Subscriptions, clearing, and execution increased by $420, or 4%, to $10,307 for the year ended December 31, 2021, as compared
to $9,887 for the year ended December 31, 2020. This was comprised of an increase in clearing and execution costs of $548 and
a decrease in subscriptions and dues of $128. The decrease in subscriptions and dues was due to normal fluctuations in number of
subscriptions. The increase in clearing and execution was due to increased trading volumes.
Professional Fee and Other Operating Expenses
Professional fee and other operating expenses increased by $616, or 9%, to $7,684 for the year ended December 31, 2021, as
compared to $7,068 for the year ended December 31, 2020. This was comprised of an increase in other operating expense of $738;
partially offset by a decrease in professional fees of $122. The increase in other operating expense was mainly due to increase in
operating taxes (taxes not based on income and not included as part of the provision for income taxes) in Philadelphia,
Pennsylvania. The decrease in professional fees was mainly due to a reduction in consultant usage.
Depreciation and Amortization
Depreciation and amortization increased by $37, or 11%, to $371 for the year ended December 31, 2021, as compared to $334 for
the year ended December 31, 2020.
Impairment of Goodwill
In 2020, we determined the financial market volatility, as well as the reduction in volumes in the GCF repo and TBA businesses
that resulted from COVID-19 was a triggering event that required us to reassess the goodwill we had recorded related to JVB
under the guidance of ASC 350. We ultimately exited the GCF business in 2021. We determined that the fair value of JVB was
less than its carrying value (including the goodwill). As a result, we recorded an impairment of $7,883 in 2020. See note 13 to our
consolidated financial statements included in this Annual Report on Form 10-K.
Non-Operating Income and Expense
Interest Expense, net
Interest expense, net decreased by $2,356 to $7,233 for the year ended December 31, 2021, as compared to $9,589 for the year
ended December 31, 2020.
INTEREST EXPENSE
(Dollars in Thousands)
Junior subordinated notes
2020 Senior Notes
2013 Convertible Notes / 2019 Senior Notes
2017 Convertible Note
Line of Credit (Byline / FT)
Redeemable Financial Instrument - DGC Trust / CBF
Redeemable Financial Instrument - JKD Capital Partners I LTD
Redeemable Financial Instrument - ViaNova Capital Group, LLC
Year Ended December 31,
2020
2021
Change
2,601 $
540
211
1,534
435
197
1,715
-
7,233 $
2,882 $
496
336
1,505
1,102
1,490
1,883
(105 )
9,589 $
(281 )
44
(125 )
29
(667 )
(1,293 )
(168 )
105
(2,356 )
$
$
See notes 19 and 20 to our consolidated financial statements included in this Annual Report on Form 10-K.
55
Income / (loss) from Equity Method Affiliates
Income / (loss) from equity method affiliates increased by $38,965 to $36,010 for the year ended December 31, 2021 from
($2,955) for the year ended December 31, 2020. See note 12 to our consolidated financial statements included in this Annual
Report on Form 10-K.
Insurance SPACs
SPAC Sponsor Entities
Dutch Real Estate Entities
Year Ended December 31,
2020
2021
Change
$
$
(1,306 ) $
37,453
(137 )
36,010 $
(3,656 ) $
63
638
(2,955 ) $
2,350
37,390
(775 )
38,965
SPAC Sponsor Entities includes both indirect and direct investments in SPAC Sponsor Entities. Several of these Sponsor Entities
are invested in SPACs that have completed their business combinations. Those Sponsor Entities hold restricted and unrestricted
equity interests in the public post-merger entities. We account for our investments in Sponsor Entities under the equity method of
accounting. If the Sponsor Entity distributes SPAC shares to us, we account for those SPAC shares as a component of other
investments, at fair value. The following table shows the equity method balance included in other SPAC Sponsor Entities above
broken out by the ultimate public company investee.
HLGN
WEJO
REE
PAYO
PWP
ACHR
Other
Year Ended December 31,
2020
2021
Change
$
$
28,443 $
1,962
2,489
2,993
1,293
728
(455)
37,453 $
- $
-
-
(9 )
(7 )
-
79
63 $
28,443
1,962
2,489
3,002
1,300
728
(534)
37,390
Heliogen, Inc. (NYSE: HLGN) is a public company. The Sponsor Entity we invest in holds restricted shares of HLGN. We
expect this Sponsor Entity to either (a) liquidate this investment and distribute to us our allocable proceeds or (b) distribute to us
our allocable shares of HLGN in-kind. In either case, the final cash realized from this investment will be impacted by the
performance of this investment until it is liquidated. As of December 31, 2021, our equity method investment in the Sponsor
Entity which holds HLGN shares is $28,448.
The shares of WEJO held by the Sponsor Entity are restricted. The Sponsor Entity we invest in holds shares of WEJO. We expect
this Sponsor Entity to either (a) liquidate this investment and distribute to us our allocable proceeds or (b) distribute to us our
allocable shares of WEJO in-kind. In either case, the final cash realized from this investment will be impacted by the performance
of this investment until it is liquidated. We also hold investments in WEJO shares as component of other investments, at fair value
as of December 31, 2021. See Principal Transactions above and note 9 to our consolidated financial statements included in this
Annual Report on Form 10-K.
Our share of REE shares held by the Sponsor Entity were distributed to us prior to December 31, 2021. We hold no equity method
investment in the Sponsor Entity that held the REE shares as of December 31, 2021. However, we hold REE shares as a
component of other investments, at fair value as of December 31, 2021. See Principal Transactions above and note 9 to our
consolidated financial statements included in this Annual Report on Form 10-K.
Payoneer Global, Inc. (NASDAQ: PAYO) is a public company. Our share of PAYO shares held by the Sponsor Entity were
distributed to us prior to December 31, 2021. We hold no equity method investment in the Sponsor Entity that held the
PAYO shares as of December 31, 2021. However, we hold PAYO shares as a component of other investments, at fair value as of
December 31, 2021. See Principal Transactions above and note 9 to our consolidated financial statements included in this Annual
Report on Form 10-K.
Parella Weinberg Partners (NASDAQ: PWP) is a public company. The Sponsor Entity we invest in holds restricted shares of
PWP. We expect this Sponsor Entity to either (a) liquidate this investment and distribute to us our allocable proceeds or (b)
distribute to us our allocable shares of PWP in-kind. In either case, the final cash realized from this investment will be impacted
by the performance of this investment until it is liquidated. As of December 31, 2021, our equity method investment in the
Sponsor Entity which holds PWP shares is $1,128.
Archer Aviation (NYSE: ACHR) is a public company. The Sponsor Entity we invest in holds restricted shares of ACHR. We
expect this Sponsor Entity to either (a) liquidate this investment and distribute to us our allocable proceeds or (b) distribute to us
our allocable shares of ACHR in-kind. In either case, the final cash realized from this investment will be impacted by the
performance of this investment until it is liquidated. As of December 31, 2021, our equity method investment in the Sponsor
Entity which holds ACHR shares is $728.
56
Other Non-Operating (Income) / Loss
We recorded other non-operating income of $2,127 for the year ended December 31, 2021 as the result of the forgiveness of our
PPP loan. See note 17 to our consolidated financial statements included in this Annual Report on Form 10-K.
Income Tax Expense / (Benefit)
The income tax expense / (benefit) was ($1,614) for the year ended December 31, 2021, as compared to ($8,669) for the year
ended December 31, 2020. See note 23 to our consolidated financial statements included in our Annual Report on Form 10-K.
The tax benefit recognized in 2020 was comprised of a deferred tax benefit of $8,877, partially offset by current tax expense of
$208. The current tax expense incurred was the result of foreign, state, and local income tax. The deferred tax benefit was a U.S.
federal, state, and local tax benefit, which was the result of the reduction in the valuation allowance applied against the Company's
net operating loss carryforward ("NOL") and net capital loss carryforward ("NCL") tax assets. Prior to 2020, we had concluded
that due to our recent history of tax losses, we should only recognize our NOL asset to the extent the reversal of our deferred tax
liability amounts could be scheduled against it. For our NCL asset, we applied a full valuation allowance. In 2020, we generated
significant taxable income (both ordinary and capital) and we expected to generate income going forward. Accordingly, as of
December 31, 2020, we adjusted the calculation of the valuation allowances applied against our carryforward assets.
The tax benefit recognized in 2021 was comprised of a deferred tax benefit $2,071, partially offset by current tax expense of
$457. The current tax expense incurred was the result of foreign, state, and local income tax. The deferred tax benefit was a U.S.
federal, state, and local tax benefit, which was the result of the reduction in the valuation allowance applied against the Company's
NOL and NCL tax assets. In 2021 we continued to generate significant taxable income (both ordinary and capital) which
increased our expected taxable income to be realized during relevant carryforward periods. Therefore, in 2021, we reduced further
the valuation allowances applied against our carryforward assets.
Net Income / (Loss) Attributable to the Non-controlling Interest
Net income / (loss) attributable to the non-controlling interest for the years ended December 31, 2021 and 2020 was comprised of
the non-controlling interest related to member interests in the Operating LLC other than interests held by us for the relevant
periods. In addition, net income / (loss) attributable to the non-controlling interest also included non-controlling interest related to
entities that were consolidated but not wholly owned by the Operating LLC.
SUMMARY CALCULATION OF NON-CONTROLLING INTEREST
For the Year Ended December 31, 2021
Wholly
Owned
Subsidiaries
Other
Consolidated
Subsidiaries
Total
Operating
LLC
Consolidated
Cohen &
Company
Inc.
Consolidated
70,497
- $
(1,614 )
(770 )
72,111
770
$
Net income / (loss) before tax
Income tax expense / (benefit)
Net income / (loss) after tax
Other consolidated subsidiary non-controlling
interest
Net income / (loss) attributable to the Operating LLC
Average effective Operating LLC non-controlling
interest % (1)
Operating LLC non-controlling interest
Summary
Other consolidated subsidiary non-controlling
interest
Operating LLC non-controlling interest
1,529 $
(844 )
2,373
68,968 $
68,968
70,497 $
(844 )
71,341
2,373
35,574
33,394
35,574
35,767
$
70.61 %
25,255
$
$
35,574
25,255
60,829
SUMMARY CALCULATION OF NON-CONTROLLING INTEREST
For the Year Ended December 31, 2020
Wholly
Owned
Subsidiaries
Other
Consolidated
Subsidiaries
Total
Operating
LLC
Consolidated
Cohen &
Company
Inc.
Consolidated
29,784
- $
(8,669 )
(8,856 )
38,453
8,856
$
Net income / (loss) before tax
Income tax expense / (benefit)
Net income / (loss) after tax
Other consolidated subsidiary non-controlling
interest
Net income / (loss) attributable to the Operating LLC
Average effective Operating LLC non-controlling
interest % (1)
Operating LLC non-controlling interest
Summary
Other consolidated subsidiary non-controlling
interest
Operating LLC non-controlling interest
4,951 $
187
4,764
24,833 $
-
24,833
29,784 $
187
29,597
-
4,764
10,048
14,785
10,048
19,549
$
72.64 %
14,200
$
$
10,048
14,200
24,248
(1) Non-controlling interest is recorded on a quarterly basis. Because earnings are recognized unevenly throughout the year and the
non-controlling interest percentage may change during the period, the average effective non-controlling interest percentage may
not equal the percentage at the end of any period or the simple average of the beginning and ending percentages. The non-
controlling interest percentage changed significantly in December 2019. See discussion of in kind contribution in note 21 to
our consolidated financial statements included in this Annual Report on Form 10-K.
57
Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
The following table sets forth information regarding our consolidated results of operations for the years ended December
31, 2020 and 2019.
COHEN & COMPANY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Year Ended December 31, Favorable / (Unfavorable)
% Change
$ Change
2019
2020
Revenues
Net trading
Asset management
New issue and advisory
Principal transactions and other income
Total revenues
Operating expenses
Compensation and benefits
Business development, occupancy, equipment
Subscriptions, clearing, and execution
Professional fee and other operating
Depreciation and amortization
Impairment of goodwill
Total operating expenses
$
73,611 $
8,759
2,234
45,506
130,110
38,172 $
7,560
1,831
2,103
49,666
35,439
1,199
403
43,403
80,444
59,902
2,708
9,887
7,068
334
7,883
87,782
25,972
3,402
9,682
6,251
318
-
45,625
(33,930 )
694
(205 )
(817 )
(16 )
(7,883 )
(42,157 )
93 %
16 %
22 %
2064 %
162 %
(131 )%
20 %
(2 )%
(13 )%
(5 )%
NM
(92 )%
Operating income / (loss)
42,328
4,041
38,287
947 %
Non-operating income / (expense)
Interest expense, net
Income / (loss) from equity method affiliates
Income / (loss) before income taxes
Income tax expense / (benefit)
Net income / (loss)
Less: Net income (loss) attributable to the non-controlling
interest
Net income / (loss) attributable to Cohen & Company Inc.
$
Revenues
(9,589 )
(2,955 )
29,784
(8,669 )
38,453
(7,584 )
(553 )
(4,096 )
(523 )
(3,573 )
(2,005 )
(2,402 )
33,880
8,146
42,026
(26 )%
(434 )%
827 %
1558 %
1176 %
24,248
14,205 $
(1,519 )
(2,054 ) $
(25,767 )
16,259
(1696 )%
792 %
Revenues increased by $80,444, or 162% , to $130,110 for the year ended December 31, 2020, as compared to $49,666 for
the year ended December 31, 2019. As discussed in more detail below, the change was comprised of (i) an increase of $35,439 in
net trading revenue; (ii) an increase of $1,199 in asset management revenue; (iii) an increase of $403 in new issue and advisory
revenue; and (iv) an increase of $43,403 in principal transactions and other income.
58
Net Trading
Net trading revenue increased by $35,439, or 93%, to $73,611 for the year ended December 31, 2020, as compared to $38,172 for
the year ended December 31, 2019. The following table shows the detail by trading group.
NET TRADING
(Dollars in Thousands)
For the Year Ended December 31,
2019
2020
Change
Mortgage
Matched book repo
High yield corporate
Investment grade corporate
Wholesale and other
Total
$
$
9,641 $
33,980
8,342
9,978
11,670
73,611 $
6,780
12,011
5,989
565
12,827
38,172 $
2,861
21,969
2,353
9,413
(1,157 )
35,439
Our net trading revenue includes unrealized gains on our trading investments as of the applicable measurement date, which may
never be realized due to changes in market or other conditions not in our control. This may adversely affect the ultimate value
realized from these investments. In addition, our net trading revenue also includes realized gains on certain proprietary trading
positions. Our ability to derive trading gains from such trading positions is subject to overall market conditions. Due to volatility
and uncertainty in the capital markets, the net trading revenue recognized during any year may not be indicative of future results.
Furthermore, from time to time, some of the assets included in the Investments-trading line of our consolidated balance sheets
represent level 3 valuations within the FASB valuation hierarchy. Level 3 assets are carried at fair value based on estimates
derived using internal valuation models and other estimates. See notes 8 and 9 to our consolidated financial statements included in
this Annual Report on Form 10-K. The fair value estimates determined by us may not be indicative of the final sale price at which
these assets may be sold.
We consider our matched book repo business to be subject to significant concentration risk. See note 11 to our consolidated
financial statements included in Item 1 of this Annual Report on Form 10-K.
Asset Management
Asset management fees increased by $1,199, or 16%, to $8,759 for the year ended December 31, 2020, as compared to $7,560 for
the year ended December 31, 2019, as discussed in more detail below.
ASSET MANAGEMENT
(Dollars in Thousands)
For the Year Ended December 31,
2019
2020
Change
CDOs
Other
Total
$
$
3,407 $
5,352
8,759 $
4,028 $
3,532
7,560 $
(621 )
1,820
1,199
Asset management fees from CDOs declined mainly due to a decline in AUM due to CDO liquidations and principal paydowns of
collateral. Asset management fees from other investment vehicles increased primarily due to increased incentive fees and AUM.
New Issue and Advisory Revenue
New issue and advisory revenue increased by $403, or 22%, to $2,234 for the year ended December 31, 2020, as compared to
$1,831 for the year ended December 31, 2019.
Our new issue and advisory revenue has been, and we expect it will continue to be, volatile. We earn revenue from a limited
number of engagements. Therefore, a small change in the number of engagements can result in large fluctuations in the revenue
recognized. Further, even if the number of engagements remains consistent, the average revenue per engagement can fluctuate
considerably. Finally, our revenue is generally earned when an underlying transaction closes (rather than on a monthly or quarterly
basis). Therefore, the timing of underlying transactions increases the volatility of our revenue recognition.
In addition, we often incur certain costs related to new issue engagements. These costs are included as a component of either
subscriptions, clearing and execution, or professional fees and other and will generally be recognized in the same period that the
related revenue is recognized.
59
Principal Transactions and Other Income
Principal transactions and other income increased by $43,403 to $45,506 for the year ended December 31, 2020, as compared
to $2,103 for the year ended December 31, 2019.
PRINCIPAL TRANSACTIONS & OTHER INCOME
(Dollars in Thousands)
For the Year Ended December 31,
2019
2020
Change
SFT
EuroDekania
Currency hedges
CLO Investments
Other SPAC equity
IMXI
U.S. Insurance JV
SPAC Fund
Other principal investments
Total principal transactions
IIFC revenue share
All other income / (loss)
Other income
$
40,619 $
-
-
(535 )
1,503
2,703
222
183
7
44,702
491
313
804
- $
279
51
258
116
172
150
29
465
1,520
531
52
583
40,619
(279 )
(51 )
(793 )
1,387
2,531
72
154
(458 )
43,182
-
(40 )
261
221
Total principal transactions and other income
$
45,506 $
2,103 $
43,403
Principal Transactions
SFT is a publicly traded company. The shares of SFT we hold are comprised of both unrestricted and restricted shares and are
carried at fair value. See note 4 for discussion of sale restrictions on these shares. See note 9 to our consolidated financial
statements included in this Annual Report on Form 10-K for information about how we determine the value of these
instruments. The income recognized was mostly comprised of income of the Insurance SPAC Sponsor Entities and another
consolidated subsidiary; both of which were not wholly owned. See compensation and non-controlling interest discussion below.
EuroDekania was a company that invested in hybrid capital securities of European companies and we carried our investment at the
reported NAV. Income recognized in 2019 was the result of changes in the underlying NAV of the fund as well as distributions
received. EuroDekania sold its remaining investments and liquidated in 2019.
Our currency hedge consisted of a Euro forward agreement designed to hedge the currency risk primarily associated with our
investment in EuroDekania. We terminated this hedge during 2019 and do not expect to enter into this hedge going forward.
The CLO investments represented investments in the most junior tranche of certain CLOs. These investments were carried at fair
value. See note 9 to our consolidated financial statements included in this Annual Report on Form 10-K for information about
how we determine the value of these instruments. These investments were fully liquidated in 2020.
Other SPAC equity represents equity investments in publicly traded SPACs. See note 9 to our consolidated financial statements
included in this Annual Report on Form 10-K for information about how we determined the value of these instruments.
IMXI represents unrestricted and restricted equity positions of International Money Express, Inc. (NASDAQ: IMXI), a publicly
traded company that resulted from the merger of Intermex Holdings, LLC and FinTech Acquisition Corp. II. See note 9 to our
consolidated financial statements included in this Annual Report on Form 10-K for information about how we determine the value
of these instruments. Also see note 4 and 31 to our consolidated financial statements included in this Annual Report on Form 10-
K.
The U.S. Insurance JV is a company that invests in USD denominated debt issued by small insurance and reinsurance companies
and we carry our investment at its NAV. Income recognized in each period is the result of changes in the underlying NAV of the
fund as well as distributions received. See notes 4 and 10 to our consolidated financial statements included in this Annual Report
on Form 10-K.
The SPAC Fund primarily invests in the equity of SPACs and we carry our investment at its reported NAV. Income recognized in
each period is the result of changes in the underlying NAV of the SPAC Fund as well as distributions received. See notes 4 and 9
to our consolidated financial statements included in this Annual Report on Form 10-K.
Other Income
Other income increased by $221 to $804 for the year ended December 31, 2020, as compared to $583 for the year ended December
31, 2019. The revenue share arrangement noted in the table above entitles us to a percentage of revenue earned by IIFC. The IIFC
revenue share arrangement expires at the earlier of (i) the dissolution of IIFC or (ii) when we have earned a cumulative $20,000 in
revenue share payments. To date, we have earned $3,178. In addition, in any particular year, the revenue share earned by us
cannot exceed $2,000.
60
Operating Expenses
Operating expenses increased by $42,157, or 92%, to $87,782 for the year ended December 31, 2020, as compared to $45,625 for
the year ended December 31, 2019. As discussed in more detail below, the change was comprised of (i) an increase of $33,930 in
compensation and benefits; (ii) a decrease of $694 in business development, occupancy, and equipment; (iii) an increase of $205 in
subscriptions, clearing, and execution; (iv) an increase of $817 in professional fee and other operating; (v) an increase of $16 in
depreciation and amortization; and (vi) a $7,883 impairment of goodwill.
Compensation and Benefits
Compensation and benefits increased by $33,930, or 131%, to $59,902 for the year ended December 31, 2020, as compared to
$25,972 for the year ended December 31, 2019.
COMPENSATION AND BENEFITS
(Dollars in Thousands)
For the Year Ended December 31,
2019
2020
Change
Cash compensation and benefits
Equity-based compensation
Total
$
$
47,349 $
12,553
59,902 $
25,228 $
744
25,972 $
22,121
11,809
33,930
Cash compensation and benefits in the table above is primarily comprised of salary, incentive compensation, and benefits. Cash
compensation and benefits increased by $22,121 to $47,349 for the year ended December 31, 2020, as compared to $25,228 for the
year ended December 31, 2019. Our headcount decreased to 87 as of December 31, 2020 from 94 as of December 31, 2019. Cash
compensation increased primarily due to an increase in incentive compensation related to the increase in net trading revenue and
overall firm income.
Equity-based compensation increased by $11,809 to $12,553 for the year ended December 31, 2020, as compared to $744 for the
year ended December 31, 2019. Of the $12,553 of equity compensation recognized in 2020, $11,700 was due to equity-based
compensation related to the issuance of membership units of the Insurance SPAC Sponsor Entities to employees of the
Company. This expense was recognized upon the completion of the merger between the Insurance SPAC and Shift in October
2020. No further equity-based compensation expense will be recognized related to membership units of the Insurance SPAC
Sponsor Entities in the future. Following the business combination, the membership units of the Insurance SPAC Sponsor
Entities held by employees will be treated as part of the non-controlling interest.
The remaining $853 of equity-based compensation recognized during 2020 relates to restricted grants of the Company's Common
Stock and Operating LLC units. This amount increased by $109 as compared to $744 for the prior year. This increase was due to
a higher grant date fair value of issuances during 2020 as compared to 2019.
Business Development, Occupancy, and Equipment
Business development, occupancy, and equipment decreased by $694, or 20%, to $2,708 for the year ended December 31, 2020, as
compared to $3,402 for the year ended December 31, 2019. Of the decrease, $630 was due to reduced business development costs
due to reduced travel and entertainment as a result of the COVID-19 pandemic. The remainder of the decrease was due to reduced
occupancy and equipment costs of $64.
Subscriptions, Clearing, and Execution
Subscriptions, clearing, and execution increased by $205, or 2%, to $9,887 for the year ended December 31, 2020, as compared to
$9,682 for the year ended December 31, 2019. Subscriptions expenses declined by $7 and clearing and execution increased by
$212.
61
Professional Fee and Other Operating Expenses
Professional fee and other operating expenses increased by $817, or 13%, to $7,068 for the year ended December 31, 2020, as
compared to $6,251 for the year ended December 31, 2019. Professional fees increased $680 and other operating expenses
increased by $137.
Depreciation and Amortization
Depreciation and amortization increased by $16, or 5%, to $334 for the year ended December 31, 2020, as compared to $318 for
the year ended December 31, 2019.
Impairment of Goodwill
We determined the financial market volatility, as well as the reduction in volumes in the GCF repo and TBA businesses that
resulted from COVID-19 was a triggering event that required us to reassess the goodwill we had recorded related to JVB under the
guidance of ASC 350. We ultimately exited the GCF business in 2021. We determined that the fair value of JVB was less than its
carrying value (including the goodwill). As a result, we recorded an impairment of $7,883 in 2020. See note 13 to our
consolidated financial statements included in this Annual Report on Form 10-K.
Non-Operating Income and Expense
Interest Expense, net
Interest expense, net increased by $2,005, or 26%, to $9,589 for the year ended December 31, 2020, as compared to $7,584 for the
year ended December 31, 2019.
INTEREST EXPENSE
(Dollars in Thousands)
For the Year Ended December 31,
2019
2020
Change
Junior subordinated notes
2020 Senior Notes
2013 Convertible Notes / 2019 Senior Notes
2017 Convertible Note
Line of Credit (Byline / FT)
Redeemable Financial Instrument - DGC Trust / CBF
Redeemable Financial Instrument - JKD Capital Partners I LTD
Redeemable Financial Instrument - ViaNova Capital Group, LLC
$
$
2,882 $
496
336
1,505
1,102
1,490
1,883
(105 )
9,589 $
3,457 $
-
615
1,472
365
1,166
699
(190 )
7,584 $
(575 )
496
(279 )
33
737
324
1,184
85
2,005
See notes 19 and 20 to our consolidated financial statements included in this Annual Report on Form 10-K.
Income / (loss) from Equity Method Affiliates
Income / (loss) from equity method affiliates decreased by $2,402 to ($2,955) for the year ended December 31, 2020 , as compared
to ($553) for the year ended December 31, 2019 . See note 12 to our consolidated financial statements included in this Annual
Report on Form 10-K.
Insurance SPACs
SPAC Sponsor Entities
Dutch Real Estate Entities
Income Tax Expense / (Benefit)
Year Ended December 31,
2019
2020
Change
$
$
(3,656 ) $
63
638
(2,955 ) $
(553 ) $
-
-
(553 ) $
(3,103 )
63
638
(2,402 )
Income tax expense / (benefit) was ($8,669) for the year ended December 31, 2020, as compared to income tax expense / (benefit)
of ($523) for the year ended December 31, 2019.
The tax benefit recognized in 2020 was comprised of a deferred tax benefit of $8,877, partially offset by current tax expense of
$208. The current tax expense incurred in 2020 was the result of foreign, state, and local income tax. The deferred tax benefit was
a U.S. tax benefit, which was the result of the reduction in the valuation allowance applied against the Company's NOL and NCL
tax assets. Prior to 2020, we had concluded that due to our recent history of tax losses, we should only recognize our NOL asset to
the extent the reversal of our deferred tax liability amounts could be scheduled against it. For our NCL asset, we applied a full
valuation allowance. In 2020, we generated significant taxable income (both ordinary and capital) and we expect to generate
income going forward. Accordingly, as of December 31, 2020, we adjusted the calculation of the valuation allowances applied
against our NOL and NCL asset. We now apply both the expected reversal of our deferred tax liability as well as an expected
level of income based on 2020 actual results projected forward. The recent improvement of our operations was the result of
income earned from the sponsorship of and investment in SPACs (mostly capital income) as well as improving operations of our
other business lines (mostly operating income). We will continue to reevaluate our operations on a quarterly basis and may make
further adjustments to our valuation allowances going forward as necessary. These adjustments could be material and could result
in additional tax benefit or tax expense. These adjustments will only impact our deferred tax assets, liabilities, and expense or
benefit. Our current tax expense or benefit will not be impacted by these adjustments.
The tax benefit recognized in 2019 was comprised of a deferred tax benefit of $678, partially offset by current tax expense of
$155. The current tax expense incurred in 2019 was primarily the result of foreign income tax. The deferred tax benefit was a
U.S. tax benefit, which was the result of the net loss incurred by us in 2019. This net loss provided additional NOLs which were
recognized as a benefit to the extent such NOLs can be scheduled against our deferred tax liability reversal.
62
Net Income / (Loss) Attributable to the Non-controlling Interest
Net income / (loss) attributable to the non-controlling interest for the years ended December 31, 2020 and 2019 was comprised of
the non-controlling interest related to member interests in the Operating LLC other than interests held by us for the relevant
periods. In addition, net income / (loss) attributable to the non-controlling interest also included non-controlling interest related to
entities that were consolidated but not wholly owned by the Operating LLC.
SUMMARY CALCULATION OF NON-CONTROLLING INTEREST
For the Year Ended December 31, 2020
Wholly
Owned
Subsidiaries
Other
Consolidated
Subsidiaries
Total
Operating
LLC
Consolidated
$
Net income / (loss) before tax
Income tax expense / (benefit)
Net income / (loss) after tax
Other consolidated subsidiary non-controlling
interest
Net income / (loss) attributable to the Operating LLC
Average effective Operating LLC non-controlling
interest % (1)
Operating LLC non-controlling interest
Summary
Other consolidated subsidiary non-controlling
interest
Operating LLC non-controlling interest
4,951 $
187
4,764
24,833 $
-
24,833
29,784 $
187
29,597
-
4,764
10,048
14,785
10,048
19,549
$
72.64 %
14,200
$
$
10,048
14,200
24,248
Cohen &
Company
Inc.
Consolidated
29,784
- $
(8,669 )
(8,856 )
38,453
8,856
SUMMARY CALCULATION OF NON-CONTROLLING INTEREST
For the Year Ended December 31, 2019
Wholly
Owned
Subsidiaries
Other
Consolidated
Subsidiaries
Total
Operating
LLC
Consolidated
Cohen &
Company
Inc.
Consolidated
(4,096 )
- $
(523 )
(680 )
(3,573 )
680
$
Net income / (loss) before tax
Income tax expense / (benefit)
Net income / (loss) after tax
Other consolidated subsidiary non-controlling
interest
Net income / (loss) attributable to the Operating LLC
Average effective Operating LLC non-controlling
interest % (1)
Operating LLC non-controlling interest
(3,543 ) $
157
(3,700 )
-
(3,700 )
(553 ) $
-
(553 )
(4,096 ) $
157
(4,253 )
(288 )
(265 )
(288 )
(3,965 )
$
31.05 %
(1,231 )
Summary
Other consolidated subsidiary non-controlling
interest
Operating LLC non-controlling interest
$
$
(288 )
(1,231 )
(1,519 )
(1) Non-controlling interest is recorded on a quarterly basis. Because earnings are recognized unevenly throughout the year and the
non-controlling interest percentage may change during the period, the average effective non-controlling interest percentage may
not equal the percentage at the end of any period or the simple average of the beginning and ending percentages.
63
Liquidity and Capital Resources
Liquidity is a measurement of our ability to meet potential cash requirements including ongoing commitments to repay debt
borrowings, make interest payments on outstanding borrowings, fund investments, and support other general business purposes. In
addition, our United States and European broker-dealer subsidiaries are subject to certain regulatory requirements to maintain
minimum levels of net capital. Historically, our primary sources of funds have been our operating activities and general corporate
borrowings. In addition, our trading operations have generally been financed by use of collateralized securities financing
arrangements as well as margin loans.
Certain subsidiaries of the Operating LLC have restrictions on the withdrawal of capital and otherwise in making distributions and
loans. JVB is subject to net capital restrictions imposed by the SEC and FINRA that require certain minimum levels of net capital
to remain in this subsidiary. In addition, these restrictions could potentially impose notice requirements or limit our ability to
withdraw capital above the required minimum amounts (excess capital) whether through a distribution or a loan. CCFEL is
regulated by the CBI. CCFESA is subject to the regulations of the ACPR. CBI and ACPR impose minimum capital
requirements. See note 25 to our consolidated financial statements included in this Annual Report on Form 10-K.
See Liquidity and Capital Resources – Contractual Obligations below.
During the third quarter of 2010, our board of directors initiated a dividend of $0.50 per quarter, which was paid regularly through
December 31, 2011. Beginning in 2012, our board of directors declared a dividend of $0.20 per quarter, which was paid regularly
through the first quarter of 2019. Each time a cash dividend was declared by our board of directors, a pro rata distribution was
made to the other members of the Operating LLC upon payment of dividends to our stockholders.
On July 29, 2021, our board of directors reinstated our quarterly dividend declaring a cash dividend of $0.25 per share. We have
paid a quarterly cash dividend of $0.25 regularly since that date. On March 8, 2022, our board of directors declared a quarterly
cash dividend of $0.25 per share and a special cash dividend of $0.75 per share, both of which will be paid on our Common Stock
on April 5, 2022 to shareholders of record on March 22, 2022.
On December 21, 2020, August 31, 2020 and March 19, 2018, the Company entered into letter agreements (the “December 2020
Letter Agreement”, the "August 2020 Letter Agreement” and the “2018 Letter Agreement,” respectively and, together, the "10b5-
1 Plan"). The December 2020 Letter Agreement and the August 2020 Letter Agreement were entered into with Piper Sandler &
Co. and the 2018 Letter Agreement was entered into with Sandler O'Neill & Partners, L.P. (which, following a merger with Piper
Jaffray, became Piper Sandler & Co. (the “Agent”)). The agreements authorized the Agent to use reasonable efforts to purchase,
on the Company’s behalf, up to an aggregate purchase price of $1,000 of Common Stock (in the case of the December 2020 letter)
and $2,000 (in the case of the August 2020 letter) on any day that the NYSE was open for business. The December 2020 Letter
Agreement became effective December 23, 2020 and is in effect until December 31, 2021 or until an aggregate purchase price of
$1,000 shares had been purchased, which occurred on July 28, 2021. The August 2020 Letter Agreement was in effect from
August 31, 2020 until August 31, 2021 or until an aggregate purchase price of $2,000 shares had been purchased, which occurred
on November 10, 2020. The 2018 Letter Agreement was in effect from March 19, 2018 until March 19, 2019 or until an aggregate
purchase price of $2,000 shares had been purchased. The maximum purchase amount was not acquired so the letter expired on
March 19, 2019. Pursuant to the 10b5-1 Plan, purchases of Common Stock may be made in public and private transactions and
must comply with Rule 10b-18 under the Exchange Act. The 10b5-1 Plan was designed to comply with Rule 10b5-1 under the
Exchange Act.
During the year ended December 31, 2021, we repurchased 49,544 shares in the open market under the 10b5-1 Plan for a total
purchase price of $857. During the year ended December 31, 2020, we repurchased 121,181 shares in the open market under the
10b5-1 Plan for a total purchase price of $2,143. During the year ended December 31, 2019, we repurchased 7,890 shares in the
open market under the 10b5-1 Plan for a total purchase price of $65.
All of the repurchases noted above were completed using cash on hand.
On December 1, 2020, the Company entered into an Equity Distribution Agreement (the “Equity Agreement”) with Northland
Securities, Inc. (trade name Northland Capital Markets), as sales agent (the “Sales Agent”), relating to the issuance and sale from
time to time by the Company (the “ATM Program”), through the Sales Agent, of shares of the Company's Common Stock, having
an aggregate offering price of up to $75,000 (collectively the “Shares”). Sales of the Shares, if any, under the Equity Agreement
will be made in sales deemed to be “at-the-market offerings” as defined in Rule 415 under the Securities Act as agreed with the
Sales Agent.
On June 7, 2021, the Company entered into a letter agreement (the “Equity Distribution Letter Agreement”) with the Sales Agent,
pursuant to which the Sales Agent agreed to use its best efforts to, commencing on June 5, 2021, sell on the Company’s behalf up
to $7,966 of the Shares in the open market pursuant to the terms and conditions of the Equity Distribution Agreement and the
Equity Distribution Letter Agreement, and the Company agreed not to take any action that would cause the sales of the Shares
under the Letter Agreement not to comply with Rule 10b5-1 or Regulation M under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). The Equity Distribution Letter Agreement was entered into in connection with the ATM Program
and is designed to comply with Rule 10b5-1 under the Exchange Act.
During the year ended December 31, 2021, we sold 300,849 shares in the open market pursuant to the Equity Agreement for a total
sale price of $9,076. During the years ended December 31, 2021, 2020, and 2019, we had the following other significant financing
transactions. See notes 19 and 20 in our consolidated financial statements included in our Annual Report on Form 10-K.
64
• During 2021:
o We repaid $4,000 of redeemable financial instruments.
o We drew and repaid $17,500 on a revolving line of credit.
o We repaid $2,400 of the 2019 Senior Note.
o We made $61,678 of non-controlling interest distributions of which $58,944 were non-cash.
o We raised $17,095 from investments by non-controlling interests
• During 2020:
o We raised $5,431 by issuing equity of the Insurance SPAC III Sponsor Entities to third parties.
o
We distributed (in kind) $6,603 to the non-controlling interest holders of the Insurance SPAC Sponsor Entities and the
INSU Pipe Sponsor, LLC.
o We drew and repaid $17,500 on a revolving line of credit.
o We raised $4,500 in proceeds from issuance of the 2020 Senior Notes.
o We received a PPP Loan of $2,166.
o We repaid $4,386 of the 2019 Senior Notes.
o We repaid $4,777 of the LegacyTexas Credit Facility.
o We repaid $2,000 of the redeemable financial instrument with DGC Trust.
o We repaid $2,500 of the redeemable financial instrument with CBF.
o We repaid $421 of the ViaNova redeemable financial instruments.
o We raised $4,556 by issuing equity of the Insurance SPAC II Sponsor Entities to third parties.
• During 2019:
o We amended the previously outstanding 2013 Convertible Notes, extending the maturity date from September 25, 2019 to
September 25, 2020, increasing the interest rate from 8% to 12%, and removing the conversion feature. The post
amendment notes are referred to as the 2019 Senior Notes.
o We began periodic draws on the LegacyTexas Credit Facility totaling $4,777.
o We raised an additional $1,268 from redeemable financial instruments via an additional investment by JKD Capital
Partners I on January 9, 2019. On March 6, 2019, the agreement was amended to change the definition of Investment
Return (as defined in the agreement).
o Effective October 1, 2019, the DGC Trust / CBF redeemable financial instruments were amended and restated. The
definition of Investment Return (as defined in the agreements) was modified in both the DGC Trust and CBF
agreements. The Investment Amount was reduced by $1,500 in the CBF agreement and the Company made a $1,500 one-
time payment to CBF.
o The Insurance SPAC Sponsor Entities raised $2,550 from equity investors, which was recorded as non-controlling interest
in our consolidated financial statements.
o The Company entered into the SPA with Daniel G. Cohen and DGC Trust effective December 30, 2019. This transaction
combined with the related issuance of series F preferred stock resulted in an increase in non-controlling interest of $7,779
and an increase in preferred stock of $22. See note 4 and 31 to our consolidated financial statements included in this
Annual Report on Form 10-K.
Cash Flows
We have seven primary uses for capital:
(1)
(2)
(3)
To fund the operations of our Capital Markets business segment. Our Capital Markets business segment utilizes capital (i) to
fund securities inventory to facilitate client trading activities; (ii) for risk trading for our own account; (iii) to fund our
collateralized securities lending activities; (iv) for temporary capital needs associated with underwriting activities; (v) to fund
business expansion into existing or new product lines including additional capital dedicated to our mortgage group as well as
our matched book repo business; and (vi) to fund any operating losses incurred.
To fund the expansion of our Asset Management business segment. We generally grow our AUM by sponsoring new
Investment Vehicles. The creation of a new Investment Vehicle often requires us to invest a certain amount of our own capital
to attract outside capital to manage. Also, these new Investment Vehicles often require warehouse and other third-party
financing to fund the acquisition of investments. Finally, we generally will hire employees to manage new Investment Vehicles
and will operate at a loss for a startup period.
To fund investments. We make principal investments (including sponsor and other investments in SPACs) to generate
returns. We may need to raise additional debt or equity financing in order to ensure we have the capital necessary to take
advantage of attractive investment opportunities.
(4)
(5)
(6)
(7)
To fund mergers or acquisitions. We may opportunistically use capital to acquire other asset managers, individual asset
management contracts, or financial services firms. To the extent our liquidity sources are insufficient to fund our future merger
or acquisition activities, we may need to raise additional funding through an equity or debt offering. No assurances can be
given that additional financing will be available in the future, or that if available, such financing will be on favorable terms.
To fund potential dividends and distributions. We sometimes pay dividends. Each time a cash dividend was declared by our
board of directors, a pro rata distribution was made to the other members of the Operating LLC upon payment of dividends to
our stockholders.
To fund potential repurchases of Common Stock. We have opportunistically repurchased Common Stock in private
transactions as well through the 10b5-1 Plan. See note 21 to our consolidated financial statements included in this Annual
Report on Form 10-K.
To pay off debt as it matures. We have indebtedness that must be repaid as it matures. See note 20 to our consolidated financial
statements included in this Annual Report on Form 10-
65
If we are unable to raise sufficient capital on economically favorable terms, we may need to reduce the amount of capital invested
for the uses described above, which may adversely impact earnings and our ability to pay dividends.
As of December 31, 2021, and December 31, 2020, we maintained cash and cash equivalents of $41,996 and $8,304, respectively.
We generated cash from or used cash for the activities described below.
SUMMARY CASH FLOW INFORMATION
(Dollars in Thousands)
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Effect of exchange rate on cash
Net cash flow
Cash and cash equivalents, beginning
Cash and cash equivalents, ending
Year Ended December 31,
2020
2021
2019
$
$
18,321 $
(22,534 )
13,161
(377 )
8,571
41,996
50,567 $
41,435 $
(11,948 )
3,789
416
33,692
8,304
41,996 $
(15,463 )
3,734
5,936
(9 )
(5,802 )
14,106
8,304
See the statements of cash flows in our consolidated financial statements. We believe our available cash and cash equivalents, as
well as our investment in our trading portfolio and related borrowing capacity, will provide sufficient liquidity to meet the cash
needs of our ongoing operations in the near term.
2021 Cash Flows
As of December 31, 2021, our cash and cash equivalents were $50,567, representing an increase of $8,571 from December 31,
2020. The increase was attributable to the cash provided by operating activities of $18,321, the cash used in investing activities of
$22,534, the cash provided by financing activities of $13,161, and the decrease in cash resulting from a change in exchange rates
of $377.
The cash provided by operating activities of $18,321 was comprised of (a) net cash outflows of $19,093 related to working capital
fluctuations; (b) net cash inflows of $24,813 from trading activities comprised of our investments-trading, trading securities sold,
not yet purchased, securities sold under agreement to repurchase, receivables under resale agreements, and receivables and
payables from brokers, dealers, and clearing agencies, as well as the changes in unrealized gains and losses on the investments-
trading and trading securities sold, not yet purchased; and (c) net cash inflows from other earnings items of $12,601 (which
represents net income or loss adjusted for the following non-cash operating items: deferred taxes, other income / (expense),
realized and unrealized gains and losses on other investments at fair value, other investments sold, not yet purchased, income /
(loss) from equity method affiliates, equity-based compensation, depreciation, impairment of goodwill, and amortization).
The cash used in investing activities of $22,534 was comprised of (a) $123,098 in purchases of other investments at fair value; (b)
$59,098 in purchase of other investments sold, not yet purchased; (c) $8,143 in investments in equity method affiliates; (d)
$1,028 in purchase of furniture, equipment, and leasehold improvements; partially offset by (e) $112,013 in sales and returns of
principal of other investments, at fair value; and (f) $56,820 in sales and returns of principal of other investments sold, not yet
purchased.
The cash provided by financing activities of $13,161 was comprised of (a) $17,500 in proceeds from draws on revolving credit
facility; (b) $9,076 in proceeds from sale of Common Stock; (c) $17,095 in proceeds from non-controlling interest investments;
partially offset by (d) $17,500 in repayments on revolving credit facility; (e) $2,400 of repayment of debt; (f) $378 in cash used to
net settle equity awards; (g) $857 of cash used to repurchase and retire Common Stock; (h) $2,734 in non-controlling interest
distributions; (i) $1,970 in Operating LLC non-controlling interest distributions; (j) $4,000 in repayment of redeemable financial
instrument, and (j) $671 in cash used for dividend payments on Common Stock.
66
2020 Cash Flows
As of December 31, 2020, our cash and cash equivalents were $41,996, representing an increase of $33,692 from December 31,
2020. The increase was attributable to the cash provided by operating activities of $41,435, the cash used in investing activities of
$11,948, the cash provided in financing activities of $3,789, and the increase in cash resulting from a change in exchange rates of
$416.
The cash provided by operating activities of $41,435 was comprised of (a) net cash inflows of $79,555 related to working capital
fluctuations; (b) net cash outflows of $47,557 from trading activities comprised of our investments-trading, trading securities sold,
not yet purchased, securities sold under agreement to repurchase, receivables under resale agreements, and receivables and
payables from brokers, dealers, and clearing agencies, as well as the changes in unrealized gains and losses on the investments-
trading and trading securities sold, not yet purchased; and (c) net cash inflows from other earnings items of $9,437 (which
represents net income or loss adjusted for the following non-cash operating items: deferred taxes, other income / (expense),
realized and unrealized gains and losses on other investments at fair value, other investments sold, not yet purchased, income /
(loss) from equity method affiliates, equity-based compensation, depreciation, impairment of goodwill, and amortization).
The cash used in investing activities of $11,948 was comprised of (a) $62,282 in purchases of other investments at fair value; (b)
$12,519 in purchase of other investments sold, not yet purchased; (c) $12,675 in investments in equity method affiliates; (d) $217
in purchase of furniture, equipment, and leasehold improvements; partially offset by (e) $54,748 in sales and returns of principal of
other investments, at fair value; and (f) $20,997 in sales and returns of principal of other investments sold, not yet purchased.
The cash provided by financing activities of $3,789 was comprised of (a) $2,166 of proceeds from the PPP loan; (b) $17,500 in
draws on the FT LOC; (c) $4,500 in proceeds from issuance of non-convertible debt; (d) $13,489 in proceeds from issuance of
non-controlling interests; partially offset by (e) $17,500 in payments on the FT LOC; (f) $9,163 in repayment of debt; (g) $24 in
debt issuance costs; (h) $4,921 of repayments of redeemable financial instruments; (i) $54 in cash used to net settle equity awards;
(j) $35 in non-controlling interest distributions; (k) $27 in dividends paid; and (l) $2,142 used to purchase and retire Common
Stock.
2019 Cash Flows
As of December 31, 2019, our cash and cash equivalents were $8,304, representing a decrease of $5,802 from December 31, 2018.
The decrease was attributable to the cash used by operating activities of $15,463, the cash provided by investing activities of
$3,734, the cash provided by financing activities of $5,936, and the decrease in cash resulting from a change in exchange rates of
$9.
The cash used by operating activities of $15,463 was comprised of (a) net cash outflows of $32,007 related to working capital
fluctuations; (b) net cash inflows of $19,458 from trading activities comprised of our investments-trading, trading securities sold,
not yet purchased, securities sold under agreement to repurchase, receivables under resale agreements, and receivables and
payables from brokers, dealers, and clearing agencies, as well as the changes in unrealized gains and losses on the investments-
trading and trading securities sold, not yet purchased; and (c) net cash outflows from other earnings items of $2,914 (which
represents net income or loss adjusted for the following non-cash operating items: deferred taxes, other income / (expense),
realized and unrealized gains and losses on other investments, income / (loss) from equity method affiliates, equity-based
compensation, depreciation, and amortization).
The cash provided by investing activities of $3,734 was comprised of (a) $10,114 of sales and returns of principal from other
investments, at fair value, partially offset by (b) $4,352 of cash used to invest in an equity method affiliate (see note 12 to our
consolidated financial statements included in this Annual Report on Form 10-K), (c) $101 of cash used to purchase furniture,
fixtures, and equipment, and (d) $1,927 of cash used to purchase other investments, at fair value.
The cash provided by financing activities of $5,936 was comprised of (a) $1,268 of proceeds from redeemable financing
instrument (see note 19 to our consolidated financial statements included in this Annual Report on Form 10-K); (b) $4,777 in
proceeds from net draws on the LegacyTexas Credit Facility (see note 20 to our consolidated financial statements included in this
Annual Report on Form 10-K); (c) $2,550 in proceeds from the issuance of non-controlling interests; partially offset by (d) $1,500
of cash used for the partial redemption of a redeemable financial instrument (see note 19 to our consolidated financial statements
included in this Annual Report on Form 10-K); (e) $128 of cash used to net settle equity awards; (f) $299 of cash used to purchase
and retire Common Stock; (g) $213 of cash used for distributions to the non-controlling interests of the Operating LLC; and (h)
$519 of cash used to pay Common Stock dividends.
Note Regarding Collateral Deposits and Impact on Operating Cash Flow
As part of our matched book repo operations, we enter into reverse repos with counterparties whereby we lend money and
receive securities as collateral. In accordance with ASC 860, the collateral securities are not recorded in our consolidated
balance sheets. However, from time to time we will hold cash instead of securities as collateral for these transactions. When
we are provided cash as collateral for reverse repo transactions, we will make an entry to increase our cash and cash equivalents
and to increase our other liabilities for the amount of cash received. There are two main reasons we may receive collateral in
the form of cash as opposed to securities. First, when the value of the collateral securities we have in our possession decline,
we will require the counterparty to provide us with additional collateral. We will accept either cash or additional liquid
securities. Often, our counterparties will provide us with cash as they may not have liquid securities readily available. Second,
from time to time, our counterparties require a portion of the collateral securities in our possession returned to them for
operating purposes. In such instances, the counterparty may not have substitute liquid securities available and will often
provide us with cash as collateral instead. It is important to note that when we receive cash as collateral, it is temporary in
nature and we have an obligation to return that cash when the counterparty provides substitute liquid securities as collateral or
otherwise satisfies their associated reverse repo obligation. We are generally required to return any cash collateral the same
business day that we receive substitute securities. The amount of cash we receive as collateral for our repo operations is volatile
and therefore, both our cash and cash equivalents balance and our cash provided by and used in operations are volatile as they
are both impacted. These amounts can be large and should be taken into account when analyzing our cash flow from
operations.
The following table shows the impact of changes in these collateral deposits had on our cash flows in each period presented:
Collateral deposit end of period
Less: Collateral deposit beginning of period
Impact to cash flow from operations
Year Ended December 31,
2020
2021
2019
$
$
17,320 $
41,119
(23,799 ) $
41,119 $
9,524
31,595 $
9,524
4,277
5,247
67
Regulatory Capital Requirements
We have three subsidiaries that are licensed securities dealers: JVB in the U.S., CCFEL in Ireland, and CCFESA in France. As a
U.S. broker-dealer, JVB is subject to the Uniform Net Capital Rule in Rule 15c3-1 under the Exchange Act. Our Ireland-based
subsidiary, CCFEL, is subject to the regulatory supervision and requirements of the CBI. CCFESA is subject to the regulations of
the ACPR. The amount of net assets that these subsidiaries may distribute is subject to restrictions under these applicable net
capital rules. These subsidiaries have historically operated in excess of minimum net capital requirements. Our minimum capital
requirements at December 31, 2021 were as follows.
MINIMUM NET CAPITAL REQUIREMENTS
(Dollars in Thousands)
U.S.
Ireland
France
Total
$
$
250
895
543
1,688
We operate with more than the minimum regulatory capital requirement in our licensed broker-dealers and at December 31,
2021 total net capital, or the equivalent as defined by the relevant statutory regulations, in our licensed broker-dealers totaled
$76,816. See note 25 to our consolidated financial statements included in this Annual Report on Form 10-K. In addition, our
licensed broker-dealers are generally subject to capital withdrawal notification requirements and restrictions.
Restrictions of Distributions of Capital from JVB
As of December 31, 2021, our total equity on a consolidated basis was $149,506. However, the total equity of JVB was
$106,364. Therefore, a significant portion of our consolidated equity is within JVB. During certain periods of time, we have
generated losses or negative cash flow outside of JVB. We are dependent on taking distributions of income (and potentially
returns of capital) from JVB to satisfy the cash needs outside of JVB, such as to cover losses incurred outside of JVB, to satisfy
other obligations that come due outside of JVB, and to make investments outside of JVB. However, we are subject to
significant limitations on our ability to make distributions from JVB. These limitations include limitations imposed by FINRA
under rule 15c3-1 (described immediately above) and limitations under our line of credit with Byline Bank (see note 20 to our
consolidated financial statements included in this Annual Report on Form 10-K). Furthermore, counterparties to JVB have their
own internal counterparty credit requirements. The specific requirements are not generally shared with us. However, if we take
too much in capital distributions from JVB (beyond its net income), we may not be able to trade with certain counterparties
which may cause JVB’s operations to deteriorate.
Securities Financing
We maintain repurchase agreements with various third-party financial institutions. There is no maximum limit as to the amount of
securities that may be transferred pursuant to these agreements, and transactions are approved on a case-by-case basis. The
repurchase agreements do not include substantive provisions other than those covenants and other customary provisions contained
in standard master repurchase agreements. The repurchase agreements generally require us to transfer additional securities to the
counterparty in the event the value of the securities then held by the counterparty in the margin account falls below specified levels
and contain events of default were we to breach our obligations under the agreement. We receive margin calls from our repurchase
agreement counterparties from time to time in the ordinary course of business. To date, we have maintained sufficient liquidity to
meet margin calls, and we have never been unable to satisfy a margin call, however, no assurance can be given that we will be able
to satisfy requests from our counterparties to post additional collateral in the future. See note 11 to our consolidated financial
statements included in this Annual Report on Form 10-K.
If there were an event of default under a repurchase agreement, the counterparty would have the option to terminate all repurchase
transactions existing with us and make any amount due from us to the counterparty payable immediately. Repurchase obligations
are full recourse obligations to us. If we were to default under a repurchase obligation, the counterparty would have recourse to our
other assets if the collateral was not sufficient to satisfy our obligations in full. Most of our repurchase agreements are entered into
as part of our matched book repo business.
Our clearing brokers provide securities financing arrangements including margin arrangements and securities borrowing and
lending arrangements. These arrangements generally require us to transfer additional securities or cash to the clearing broker in the
event the value of the securities then held by the clearing broker in the margin account falls below specified levels and contain
events of default were we to breach our obligations under such agreements.
An event of default under the clearing agreement would give the counterparty the option to terminate the clearing arrangement.
Any amounts owed to the clearing broker would be immediately due and payable. These obligations are recourse to us.
Furthermore, a termination of any of our clearing arrangements would result in a significant disruption to our business and would
have a significant negative impact on our dealings and relationship with our customers.
68
The following table presents our period end balance, average monthly balance, and maximum balance at any month end for
receivables under resale agreements and securities sold under agreements to repurchase.
Receivables under resale agreements
Period end
Monthly average
Maximum month end
Securities sold under agreements to repurchase
Period end
Monthly average
Maximum month end
For the Twelve
Months Ended
December 31,
2021
For the Twelve
Months Ended
December 31,
2020
$
$
$
$
$
$
3,175,645 $
5,750,146 $
7,299,538 $
3,171,415 $
5,745,838 $
7,289,275 $
5,716,343
6,641,534
8,945,403
5,713,212
6,486,137
8,960,197
Fluctuations in the balance of our repurchase agreements from period to period and intraperiod are dependent on business activity
in those periods. The fluctuations in the balances of our receivables under resale agreements over the periods presented were
impacted by our clients’ desires to execute collateralized financing arrangements through the repurchase market or other financing
products.
Average balances and period end balances will fluctuate based on market and liquidity conditions and we consider such intraperiod
fluctuations as typical for the repurchase market. Month-end balances may be higher or lower than average period balances.
Debt Financing
The following table summarizes our long-term indebtedness and other financing outstanding. See note 20 to our consolidated
financial statements in our Annual Report on Form 10-K for more information.
Description
Non-convertible debt:
DETAIL OF DEBT
(Dollars in Thousands)
As of December 31,
2021
2020
Interest Rate
Terms
Interest (2)
Maturity
12.00% senior notes (the "2020 Senior Notes")
$
4,500 $
4,500
Fixed
-
-
2,400
2,166
Fixed
Fixed
12.00 %
12.00 %
1.00 %
January
2024
September
2021
May 2022
12.00% senior notes (the "2019 Senior Notes")
PPP Loan
Contingent convertible debt:
8.00% convertible senior note (the "2017
Convertible Note")
Less unamortized debt issuance costs
Junior subordinated notes (1):
Alesco Capital Trust I
Sunset Financial Statutory Trust I
Less unamortized discount
15,000
(67 )
14,933
15,000
(401 )
14,599
28,125
20,000
(24,164 )
23,961
28,125
20,000
(24,690 )
23,435
Fixed
8.00 %
March 2023
Variable
Variable
4.37 % (1) July 2037
4.13 % (1) March 2035
ByLine Bank
FT Financial Bank, N.A. Credit Facility
Total
-
-
43,394 $
-
-
47,100
Variable
Variable
$
N/A
N/A
December
2023
N/A
69
(1) The junior subordinated notes listed represent debt the Company owes to the two trusts noted above. The total par amount
owed by the Company to the trusts is $49,614. However, the Company owns the common stock of the trusts in a total par
amount of $1,489. The Company pays interest (and at maturity, principal) to the trusts on the entire $49,614 junior notes
outstanding. However, the Company receives back from the trusts the pro rata share of interest and principal on the common
stock held by the Company. These trusts are variable interest entities (“VIEs”) and the Company does not consolidate them
even though the Company holds the common stock. The Company carries the common stock on its balance sheet at a value
of $0. The junior subordinated notes are recorded at a discount to par. When factoring in the discount, the yield to maturity
of the junior subordinated notes as of December 31, 2021 on a combined basis is 11.32% assuming the variable rate in effect
on the last day of the reporting period remains in effect until maturity.
(2) Represents the interest rate in effect as of the last day of the reporting period.
Redeemable Financial Instruments
As of December 31, 2021, we have the following sources of financing, which we account for as redeemable financial
instruments. See note 19 to our consolidated financial statements included in this Annual Report on Form 10-K.
REDEEMABLE FINANCIAL INSTRUMENTS
(Dollars in thousands)
JKD Investor
CBF
Off-Balance Sheet Arrangements
As of December 31,
2021
2020
$
$
7,957 $
-
7,957 $
7,957
4,000
11,957
Other than as described in note 10 (derivative financial instruments) and note 18 (variable interest entities) to our consolidated
financial statements included in this Annual Report on Form 10-K, there were no material off balance sheet arrangements as of
December 31, 2021.
70
Contractual Obligations
The table below summarizes our significant contractual obligations as of December 31, 2021 and the future periods in which such
obligations are expected to be settled in cash. Our junior subordinated notes are assumed to be repaid on their respective maturity
dates. Also, we have assumed that the 2017 Convertible Note is not converted prior to maturity. Excluded from the table are
obligations that are short-term in nature, including trading liabilities and repurchase agreements. In addition, amortization of
discount on debt is excluded.
CONTRACTUAL OBLIGATIONS
December 31, 2021
(Dollars in Thousands)
Operating lease arrangements
Maturity of 2020 Senior Notes
Interest on 2020 Senior Notes
Maturity of 2017 Convertible Note (1)
Interest on 2017 Convertible Note (1)
Maturities on junior subordinated notes
Interest on junior subordinated notes (2)
Redeemable Financial Instrument - JKD Capital
Partners 1 (3)
Other Operating Obligations (4)
Payment Due by Period
Total
Less than 1
Year
1 - 3 Years 3 - 5 Years
More than 5
Years
$
14,031 $
4,500
182
15,000
529
48,125
29,877
7,957
1,842
122,043 $
$
2,200 $
4,500
182
15,000
529
-
2,036
7,957
1,164
33,568 $
4,763 $
-
-
-
-
-
4,071
-
678
9,512 $
3,283 $
-
-
-
-
-
4,071
-
-
7,354 $
3,785
-
-
-
-
48,125
19,699
-
-
71,609
(1) Assumes the 2017 Convertible Note is not converted prior to maturity. The holder of the 2017 Convertible Note has control
over whether or not the convertible note is paid off in cash or converted into equity. If it is converted into equity, no cash
outflow will be required.
(2) The interest on the junior subordinated notes related to Alesco Capital Trust I is variable. The interest rate of 4.13% (based
on a 90-day LIBOR rate in effect as of December 31, 2021 plus 4.00%) was used to compute the contractual interest payment
in each period noted. The interest on the junior subordinated notes related to Sunset Financial Statutory Trust I is variable.
The interest rate of 4.37% (based on a 90-day LIBOR rate in effect as of December 31, 2021 plus 4.15%) was used to
compute the contractual interest payment in each period noted.
(3) Represents redemption value of the redeemable financial instruments as of the reporting period. The redeemable financial
instruments do not have a fixed maturity date. The period shown above represents the first period the holder of these
instruments has the ability to require redemption by us.
(4) Represents material operating contracts for various services.
We believe that we will be able to continue to fund our current operations and meet our contractual obligations through a
combination of existing cash resources and other sources of credit. Due to the uncertainties that exist in the economy, we cannot be
certain that we will be able to replace existing financing or find sources of additional financing in the future.
Critical Accounting Policies and Estimates
Our accounting policies are essential to understanding and interpreting the financial results in our consolidated financial
statements. Our industry is subject to a number of highly complex accounting rules and requirements many of which place heavy
burdens on management to make judgments relating to our business. We encourage readers of this Form 10-K to read all of our
critical accounting policies, which are included in note 3 to our consolidated financial statements included herein for a full
understanding of these issues and how the financial statements are impacted by these judgments. Certain of these policies are
considered to be particularly important to the presentation of our financial results because they require us to make assumptions and
estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and
the related disclosures. We base our assumptions, estimates, and judgments on historical experience, current trends, and other
factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis,
management reviews the accounting policies, assumptions, estimates, and judgments to ensure that our financial statements are
presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with
certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
71
We consider the accounting policies discussed below to be the policies that are the most impactful to our financial statements and
also subject to significant management judgment.
Valuation of Financial Instruments
How fair value determinations impact our financial statements
All of the securities we own that are classified as investments-trading, securities sold, not yet purchased, other investments, at fair
value, or other investments sold, not yet purchased are recorded at fair value with changes in fair value (both unrealized and
realized) recorded in earnings.
Unrealized and realized gains and losses on securities classified as investments-trading and securities sold, not yet purchased in the
consolidated balance sheets are recorded as a component of net trading revenue in the consolidated statements of operations.
Unrealized and realized gains and losses on securities classified as other investments, at fair value, and other investments sold, not
yet purchased in the consolidated balance sheets are recorded as a component of principal transactions and other income in the
consolidated statements of operations.
How we determine fair value for securities
We account for our investment securities at fair value under various accounting literature, including Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320, Investments — Debt and Equity Securities (“ASC
320”), pertaining to investments in debt and equity securities and the fair value option of financial instruments in ASC 825,
Financial Instruments (“ASC 825”). We also account for certain assets at fair value under applicable industry guidance such as: (a)
FASB ASC 946, Financial Services-Investment Companies (“ASC 946”); and (b) FASB ASC 940-320, Proprietary Trading
Securities (“ASC 940-320").
The determination of fair value is based on quoted market prices of an active exchange, independent broker market quotations,
market price quotations from third-party pricing services, or, when independent broker quotations or market price quotations from
third-party pricing services are unavailable, valuation models prepared by management. These models include estimates and the
valuations derived from them could differ materially from amounts realizable in an open market exchange.
We adopted the fair value measurement provisions in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”),
applicable to financial assets and financial liabilities effective January 1, 2008. ASC 820 defines fair value as the price that would
be received to sell the asset or paid to transfer the liability between market participants at the measurement date (“exit price”). An
exit price valuation will include margins for risk even if they are not observable. In accordance with ASC 820, we categorize our
financial instruments, based on the priority of the inputs to the valuation technique, into a three-level valuation hierarchy. The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1
measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the hierarchy under ASC
820 are described below.
Level 1 Financial assets and liabilities whose values are based on unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities.
Level 2 Financial assets and liabilities whose values are based on one or more of the following: (a) quoted prices for similar assets or
liabilities in active markets; (b) quoted prices for identical or similar assets or liabilities in non-active markets; (c) pricing
models whose inputs are observable for substantially the full term of the asset or liability; or (d) pricing models whose inputs
are derived principally from or corroborated by observable market data through correlation or other means for substantially
the full term of the asset or liability.
Level 3 Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both
significant to the fair value measurement and unobservable. These inputs reflect management’s own assumptions about the
assumptions a market participant would use in pricing the asset or liability.
In certain cases, the inputs used to measure fair value may fall into different levels of the valuation hierarchy. In such cases, the
level of the valuation hierarchy within which the fair value measurement in its entirety falls has been determined based on the
lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular
input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
72
Financial instruments carried at contract amounts with short-term maturities (one year or less) are repriced frequently or bear
market interest rates. Accordingly, those contracts are carried at amounts approximating fair value. Financial instruments carried at
contract amounts on our consolidated balance sheets include receivables from and payables to brokers, securities purchased under
agreements to resell (“reverse repurchase agreements” or “receivables under resale agreements”), and sales of securities under
agreements to repurchase (“repurchase agreements”).
How we determine fair value for investments in investment funds and similar vehicles
A portion of our other investments, at fair value represents investments in investment funds and other non-publicly traded entities
that have the attributes of investment companies as described in ASC 946-15-2. We estimate the fair value of these entities using
the reported net asset value per share as of the reporting date in accordance with the “practical expedient” provisions related to
investments in certain entities that calculated net asset value per share (or its equivalent) included in ASC 820.
Derivative Financial Instruments
We do not utilize hedge accounting for our derivatives. Accordingly, all derivatives are carried at fair value with unrealized and
realized gains recognized in earnings.
If the derivative is expected to be managed by employees of our Capital Markets business segment or is a hedge for an investment
classified as investments-trading, the derivative will be carried as a component of investments-trading if it is an asset or securities
sold, not yet purchased if a liability. If the derivative is a hedge for an investment carried as a component of other investments, at
fair value, the derivative will be recorded in other investments, at fair value if it is an asset or other investments sold, not yet
purchase if it is a liability.
We may, from time to time, enter into derivatives to manage our risk exposures arising from (i) fluctuations in foreign currency
rates with respect to our investments in foreign currency denominated investments; (ii) our investments in interest sensitive
investments; (iii) our investments in various equity instruments; and (iv) our facilitation of mortgage-backed trading. Derivatives
entered into by us, from time to time, may include (i) foreign currency forward contracts; (ii) purchase and sale agreements of
TBAs and other forward agency MBS contracts; (iii) other extended settlement trades; and (iv) equity options such as calls and
puts.
TBAs are forward contracts to purchase or sell mortgage-backed securities whose exact collateral remain “to be announced” until
just prior to the trade settlement. In addition to TBAs, we sometimes enter into forward purchases or sales of agency mortgage-
backed securities where the underlying collateral has been identified. These transactions are referred to as other forward agency
MBS contracts. We account for TBAs and other forward agency MBS contracts as derivatives.
In addition to TBAs and other forward agency MBS contracts as part of our broker-dealer operations, we may from time to time
enter into other securities or loan trades that do not settle within the normal securities settlement period. In those cases, the
purchase or sale of the security or loan is not recorded until the settlement date. However, from the trade date until the settlement
date, our interest in the security is accounted for as a derivative as either a forward purchase commitment or forward sale
commitment.
Derivatives involve varying degrees of off-balance sheet risk, whereby changes in the level or volatility of interest rates or market
values of the underlying financial instruments may result in changes in the value of a particular financial instrument in excess of its
carrying amount. Depending on our investment strategy, realized and unrealized gains and losses are recognized in principal
transactions and other income or in net trading in our consolidated statements of operations on a trade date basis.
Accounting for Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this
method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of
assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such a
determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities,
projected future taxable income, tax planning strategies, and recent financial operations. In the event we were to determine that we
would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an
adjustment to the valuation allowance, which would reduce the provision for income taxes.
Our policy is to record penalties and interest as a component of provision for income taxes in our consolidated statements of
operations.
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Our voting-controlled subsidiary, the Operating LLC, is treated as a pass-through entity for U.S. federal income tax purposes and
in most of the states in which we do business. The Operating LLC is subject to entity level taxes in certain state and foreign
jurisdictions. However, as a result of the AFN Merger, we acquired significant deferred tax assets and liabilities and now have
significant tax attributes. Effective as of January 1, 2010, we began to be treated as a C corporation for U.S. federal and state
income tax purposes.
As shown in note 23 to the consolidated financial statements contained herein, we currently have significant recognized as well as
unrecognized deferred tax assets. Deferred tax assets should only be recognized to the extent that we determine we can benefit in
the future from the asset. Generally, this determination is based on our estimates of our ability to generate future taxable
income. This determination is complex and subject to judgment. The determination is ongoing and subject to change. If we were
to change this determination in the future, a significant deferred tax benefit or deferred tax expense would be recognized as a
component of earnings.
Revenue Recognition
Net trading
Net trading includes: (i) all gains, losses, interest income, dividend income, and interest expense from securities classified as
investments-trading and trading securities sold, not yet purchased; (ii) interest income and expense from collateralized securities
transactions; and (iii) commissions and riskless trading profits. Net trading is reduced by margin interest, which is recorded on an
accrual basis. We refer to investments included as a component of investments - trading and trading securities sold, not yet
purchased as trading assets.
Riskless trades are transacted through our proprietary account with a customer order in hand, resulting in little or no market risk to
us. Transactions that settle in the regular way are recognized on a trade date basis. Extended settlement transactions are recognized
on a settlement date basis (although in cases of extended settlement trades, the unsettled trade is accounted for as a derivative
between trade and settlement date). See notes 3 and 10 to our consolidated financial statements included in this Annual Report on
Form 10-K. The investments classified as trading are carried at fair value. The determination of fair value is based on quoted
market prices of an active exchange, independent broker market quotations, market price quotations from third-party pricing
services or, when independent broker quotations or market price quotations from third-party pricing services are unavailable,
valuation models prepared by our management. The models include estimates, and the valuations derived from them could differ
materially from amounts realizable in an open market exchange. See note 9 to our consolidated financial statements included in
this Annual Report on Form 10-K.
Asset management
Asset management revenue consists of management fees earned from Investment Vehicles. In the case of CDOs, the fees earned
by us generally consist of senior, subordinated, and incentive fees.
The senior asset management fee is generally senior to all the securities in the CDO capital structure and is recognized on a
monthly basis as services are performed. The senior asset management fee is generally paid on a quarterly basis.
The subordinated asset management fee is an additional payment for the same services but has a lower priority in the CDO cash
flows. If the CDO experiences a certain level of asset defaults and deferrals, these fees may not be paid. There is no recovery by
the CDO of previously paid subordinated asset management fees. It is our policy to recognize these fees on a monthly basis as
services are performed. The subordinated asset management fee is generally paid on a quarterly basis. However, if we determine
that the subordinated asset management fee will not be paid (which generally occurs on the quarterly payment date), we will stop
recognizing additional subordinated asset management fees on that particular CDO and will reverse any subordinated asset
management fees that are accrued and unpaid. We will begin accruing the subordinated asset management fee again if payment
resumes and, in management’s estimate, continued payment is reasonably assured. If payment were to resume but we were unsure
of continued payment, we would recognize the subordinated asset management fee as payments were received and would not
accrue such fees on a monthly basis.
The incentive management fee is an additional payment, made typically after five to seven years of the life of a CDO, which is
based on the clearance of an accumulated cash return on investment (“Hurdle Return”) received by the most junior CDO securities
holders. It is an incentive for us to perform in our role as asset manager by minimizing defaults and maximizing recoveries. The
incentive management fee is not ultimately determined or payable until the achievement of the Hurdle Return by the most junior
CDO securities holders. We recognize incentive fee revenue when it is probable and there is not a significant chance of reversal in
the future.
In the case of Investment Vehicles other than CDOs, generally we earn a base fee and, in some cases, also earns an incentive
fee. Base fees will generally be recognized monthly as services are performed and will be paid monthly or quarterly. The
contractual terms of each arrangement will determine our revenue recognition policy for incentive fees in each case. However, in
all cases, we recognize the incentive fees when they are probable and there is not a significant chance of reversal in the future.
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New issue and advisory
New issue and advisory revenue include: (i) new issue revenue associated with originating, arranging, or placing newly created
financial instruments and (ii) revenue from advisory services. New issue and advisory revenue is recognized when all services
have been provided and payment is earned.
Principal transactions and other income
Principal transactions include all gains, losses, and income (interest and dividend) from financial instruments classified as other
investments, at fair value and other investments sold, not yet purchased in the consolidated balance sheets. We refer to
investments included as a component of other investments, at fair value and other investments sold, not yet purchased as our
principal investing assets.
The investments classified as other investments, at fair value and other investments sold, not yet purchased are carried at fair
value. The determination of fair value is based on quoted market prices of an active exchange, independent broker market
quotations, market price quotations or models from third-party pricing services, or, when independent broker quotations or market
price quotations or models from third-party pricing services are unavailable, valuation models prepared by management. These
models include estimates, and the valuations derived from them could differ materially from amounts realizable in an open market
exchange. Dividend income is recognized on the ex-dividend date.
Other income / (loss) includes foreign currency gains and losses, interest earned on cash and cash equivalents, interest earned and
losses incurred on notes receivable, and other miscellaneous income including revenue from revenue sharing arrangements.
Variable Interest Entities
FASB ASC 810, Consolidation (“ASC 810”) contains the guidance surrounding the definition of VIEs, the definition of variable
interests, and the consolidation rules surrounding VIEs. In general, VIEs are entities in which equity investors lack the
characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support. As a general matter, a reporting entity must consolidate a VIE when it is deemed
to be the primary beneficiary. The primary beneficiary is the entity that has both (a) the power to direct the matters that most
significantly impact the VIE’s financial performance and (b) a significant variable interest in the VIE.
We can potentially become involved with a VIE in three main ways:
Our Principal Investing Portfolio
For each investment made within the principal investing portfolio, we assess whether the investee is a VIE and if we are the
primary beneficiary. If we determine the entity is a VIE and we are the primary beneficiary, we will consolidate it.
Our Asset Management Activities
For each investment management contract, we enter into, we will assess whether the entity being managed is a VIE and if we are
the primary beneficiary. If we determine the entity is a VIE and we are the primary beneficiary, we will consolidate it.
Our Trading Portfolio
From time to time, we may have an interest in a VIE through the investments we make as part of our trading activities. Because of
the high volume of trading activity in which we engage, we do not perform a formal assessment of each individual investment
within our trading portfolio to determine if the investee is a VIE and if we are the primary beneficiary. Even if we were to obtain a
variable interest in a VIE through our trading portfolio, we would not be deemed to be the primary beneficiary for two main
reasons: (a) we do not usually obtain the power to direct activities that most significantly impact any investee’s financial
performance and (b) a scope exception exists within the consolidation guidance for cases where the reporting entity is a broker-
dealer and any control (either as the primary beneficiary of a VIE or through a controlling interest in a voting interest entity) was
deemed to be temporary. In the unlikely case that we obtained the power to direct activities and obtained a significant variable
interest in an investee in our trading portfolio that was a VIE, any such control would be deemed to be temporary due to the rapid
turnover within the trading portfolio.
Stock Compensation
We account for stock compensation according to FASB ASC 718, Stock Compensation (“ASC 718”). In the periods presented
herein, we have had three different types of grants that fall under ASC 718.
First, we sometimes grant to employees and directors restricted common stock in Cohen & Company Inc. These grants vest over a
period of time and only have service based vesting criteria. In these cases, we determine the fair value of the grants by taking the
closing stock price of Cohen & Company Inc. on the grant date and multiplying it by the number of restricted shares granted. We
recognize the expense over the service period on a straight-line basis. We assume no forfeitures up front and record forfeitures as
they occur by reducing expense. The recipient is entitled to dividends that are declared and paid during the vesting period but they
are paid only if (and to the extent) the restricted share grant ultimately vests.
Second, we sometimes grant to employees operating units of the Operating LLC. These grants also vest over a period of time and
only have service based vesting criteria. Because there is a fixed exchange ratio between units of the Operating LLC and shares of
Cohen & Company Inc., the fair value of the grant is calculated by taking the closing stock price of Cohen & Company Inc. on the
grant date, adjusting for the exchange ratio, and then multiplying by the number of units of the Operating LLC granted. We
recognize the expense over the service period on a straight-line basis. We assume no forfeitures up front and record forfeitures as
they occur by reducing expense. The recipient is entitled to distributions that are declared and paid during the vesting period but
they are paid only if (and to the extent) the unit grant ultimately vests.
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Third, employees sometimes invest in the membership interests of consolidated SPAC sponsor entities (the Insurance SPAC
Sponsor Entities, the Insurance SPAC II Sponsor Entities, and the Insurance SPAC III Sponsor Entities). Because these entities
are consolidated and the employees are investing in the consolidated company's non-controlling interest, these equity interests fall
under ASC 718. Generally, the employee invests a de-minimus amount and receives an allocation of the founder shares held by
the sponsor entity. The investment does not have any explicit vesting criteria associated with it. Generally, the employee's
investment will be worthless if the SPAC is liquidated and it will become worth something if the SPAC completes its business
combination. Therefore, we treat these grants as having a performance condition (i.e. the completion of the SPAC business
combination). Further, at the time of the investments, we treat this performance condition as being non-probable. The effect of
this is that we record no expense related to these investments until (and only if) the business combination is completed. Upon
completion of the business combination, we record compensation expense in an amount equal to the fair value of the grant. The
fair value of the grant is equal to the public trading price of the SPAC on the date of the grant adjusted for certain sale restrictions
imposed on the shares the employee receives (generally, they are restricted for sale for some time period and subject to certain
hurdle prices before they become freely tradeable). We use a Monte Carlo simulation model to determine the appropriate discount
to place on shares that are subject to hurdle prices. The compensation amount is recorded with an offsetting credit to non-
controlling interest. From that point forward, the shares received by the employee are treated as part of the non-controlling interest
and allocated income, expense, gains, and losses accordingly until the applicable sponsor entity is liquidated or otherwise de-
consolidated.
Investments in Special Purpose Acquisition Companies ("SPACs") Sponsor Entities
We invest in the sponsor entities of SPACs. The sponsor entities are limited liability companies (each an "LLC") that pool their
members' interests and invest in the private placement and founder shares (together, sponsor shares) of a SPAC. The SPAC will
also raise funds in a public offering and seek to complete a business combination within an agreed upon time frame. The SPAC
will use the proceeds raised from the sponsor shares to pay transaction and operating expenses during the period it is seeking a
business combination. The proceeds of the public offering are placed in an interest bearing trust and can only be used to complete
the business combination and pay taxes on the interest earned. Generally, the public investors must approve any business
combination prior to its effectiveness. If a business combination is not completed within the agreed upon time frame, the SPAC
will liquidate and return the public investors' investment to them. If there are funds remaining after liquidation, the sponsor
entities may receive some portion of their investment back, but likely they will suffer a total loss of their investment. If the
business combination is completed, the sponsor entities private placement in the SPAC will entitle them to a combination of
unrestricted common, restricted common, and (in some cases) warrants of the post-business combination SPAC (which is a
publicly traded company). The following summarizes our accounting policies related to our investments in these entities:
• The sponsor entities are LLCs that give all important decision making rights to their respective managing member. Furthermore,
the other members of the LLC cannot replace the managing member. Accordingly, we have concluded that the sponsor entities are
VIEs and the managing member has the power to direct its most important economic activities. In all cases where we are the
managing member of a sponsor entity, we also have had a significant economic interest in such sponsor entity and therefore
consolidate such sponsor entity.
• In all cases where we have consolidated a sponsor entity, we have determined that the sponsor entity's private placement investment
in the SPAC which it sponsors should be treated as an equity method investment during the SPAC's pre-business combination
period. Furthermore, because of the difficulty of determining the fair value of such an investment in the SPAC's pre-business
combination period, we have chosen to not elect the fair value option.
• If a SPAC completes its business combination, the sponsor entity's investment in the SPAC will be converted to a combination of
unrestricted and restricted shares in the post-business combination SPAC. At this point (assuming we consolidate the sponsor
entity), we will account for the shares received at fair value. We will reclassify any remaining equity method investment balance to
other investments, at fair value and record principal transactions income for the difference. We will record non-controlling interest
expense for the SPAC shares that are distributable to the non-controlling interest holders of the sponsor entity. The fair value of the
unrestricted shares received is equal to the public trading price of the SPAC on the date of the business combination. The fair value
of the restricted shares received is adjusted downwards from the public trading price for certain sale restrictions
imposed (generally, they are restricted for sale for some time period and subject to certain hurdle prices before they become freely
tradeable). We use a Monte Carlo simulation model to determine the appropriate discount to place on shares that are subject to
hurdle prices. In the case of a SPAC business combination where we consolidate the sponsor entity, generally there is also an
equity-based compensation entry to be recorded at the date of the business combination. See equity-based compensation section
above. We will continue to mark the sponsor entity's investment in the SPAC to market and record principal transactions income or
loss and offsetting non-controlling interest income or expense until the sponsor entity itself distributes all of the SPAC shares it
owns to its members and liquidates. At that point, we will hold the SPAC shares directly (rather than through a consolidated
subsidiary) and will record principal transaction income and loss until the SPAC shares themselves are liquidated.
• We will also invest in sponsor entities that we do not consolidate because we are not the managing member of such sponsor entity
or otherwise do not have the power to direct the sponsor entity's most important activities. In these cases, we treat our investment
in the sponsor entity as an equity method investment. Furthermore, because of the difficulty of determining the fair value of such
an investment in the applicable SPAC's pre-business combination period, we have chosen to not elect the fair value option.
• If a SPAC completes a business combination and we have an equity method investment in the associated sponsor entity, the
sponsor entity will record income equal to the difference between the fair value of the restricted and unrestricted shares it will
receive and the carrying value of its equity method investment in the SPAC. We will recognize our share of this gain as income
from equity method affiliates. The sponsor entity will continue to mark its investment in the SPAC to market after the business
combination and we will recognize our share of the change in fair value as income or loss from equity method affiliates. Once the
sponsor entity distributes our allocable share of the SPAC shares it owns, we will reclassify our investment from investment in
equity method affiliate to other investments, at fair value as we will then hold the SPAC shares directly (rather than through an
equity method investee). We will then record principal transactions income and loss until the SPAC shares themselves are
liquidated.
• If a SPAC liquidates and we have an investment in it (either directly in the case of consolidated sponsor entities or indirectly in the
case of equity method sponsor entities), we will write off our remaining equity method balance and record loss on equity method
investment. In the case of consolidated sponsor entities we will also record an offsetting entry to non-controlling interest.
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Recent Accounting Pronouncements
The following is a list of recent accounting pronouncements that, we believe, will have a continuing impact on our financial
statements going forward. For a more complete list of recent pronouncements, see note 3 to our consolidated financial statements
included in this Annual Report on Form 10-K.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and
Contracts in an Entity's Own Equity. This ASU simplifies accounting for convertible instruments by removing major separation
models currently required. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the
derivative scope exception. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. This ASU is
effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. We are currently
evaluating the new guidance to determine the impact it may have on our consolidated financial statements.
In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable
Fees and Other Costs. The ASU clarifies that an entity should reevaluate whether a callable debt security is within the scope of
ASC paragraph 310-20-35-33 for cash reporting period. This ASU is effective for fiscal years beginning after December 15, 2021,
including interim periods within fiscal years beginning after December 15, 2022. We are currently evaluating the new guidance to
determine the impact it may have on our consolidated financial statements.
In October 2020, the FASB issued ASU 2020-10 Codification Improvements. The ASU affects a wide variety of Topics in the
Codification. The ASU, among other things, contains amendments that improve consistency of the Codification by including all
disclosure guidance in the appropriate Disclosure Section. Many of the amendments arose because the FASB provided an option
to give certain information either on the face of the financial statements or in the notes to financial statements and that option only
was included in the Other Presentation Matters Section of the Codification. The option to disclose information in the notes to
financial statements should have been codified in the Disclosure Section as well as the Other Presentation Matters Section (or
other Section of the Codification in which the option to disclose in the notes to financial statements appears). The amendments are
effective for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after
December 15, 2022. We are currently evaluating the new guidance to determine the impact it may have on our consolidated
financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments
(Subtopic 470-50), Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-
40): Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This
ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within
the scope of another topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an
exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2)
how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that
remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an
exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This
ASU is effective for fiscal years beginning after December 15, 2021. We are currently evaluating the new guidance to determine
the impact it may have on our consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and
Contract Liabilities from Contracts with Customers. This ASU requires entities to apply Topic 606 to recognize and measure
contract assets and contract liabilities in a business combination. The amendments improve comparability after the business
combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a
business combination and revenue contracts with customers not acquired in a business combination. This ASU is effective for
fiscal years beginning after December 15, 2021. We are currently evaluating the new guidance to determine the impact it may
have on our consolidated financial statements.
In October 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about
Government Assistance. This ASU includes amendments that are expected to increase transparency in financial reporting by
requiring business entities to disclose information about certain types of government assistance they receive. The
amendments require the following annual disclosures about transactions with a government that are accounted for by applying a
grant or contribution accounting model by analogy to other accounting guidance: (i) information about the nature of the
transactions and the related accounting policy used to account for the transactions; (ii) the line items on the balance sheet and
income statement that are affected by the transactions, and the amounts applicable to each financial statement line item; and (iii)
significant terms and conditions of the transactions, including commitments and contingencies. This ASU is effective for fiscal
years beginning after December 15, 2021. We are currently evaluating the new guidance to determine the impact it may have on
our consolidated financial statements.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All amounts in this section are in thousands unless otherwise noted.
Market Risk
Market risk is the risk of economic loss arising from the adverse impact of market changes to the market value of our trading and
investment positions. Market risk is inherent to both derivative and non-derivative financial instruments, and accordingly, the
scope of our market risk management procedures extends beyond derivatives to include all market risk sensitive financial
instruments. For purposes of analyzing the components of market risk, we have broken out our investment portfolio into three
broad categories, plus debt as described below.
Fixed Income Securities: We hold, from time to time, the following securities: U.S. Treasury securities, U.S. government agency
MBS, U.S. government agency debt securities, CMOs, non-government MBS, corporate bonds, non-redeemable and redeemable
preferred stock, municipal bonds, certificates of deposits, residential loans, whole loans, and unconsolidated investments in the
middle and senior tiers of securitization entities and TruPS. We attempt to mitigate our exposure to market risk by entering into
economic hedging transactions, which may include TBAs. The fixed income category can be broadly broken down into two
subcategories: fixed rate and floating rate.
Floating rate securities are not in themselves particularly sensitive to interest rate risk. Because they generally accrue interest
income at a variable rate, the movement in interest rates typically does not impact their fair value. Fluctuations in their current
income due to variations in interest rates are generally not material to us. Floating rate securities are subject to other market risks
such as: default risk of the underlying issuer, changes in the issuer’s credit spreads, prepayment rates, investor demand, and supply
of securities within a particular asset class or industry class of the ultimate obligor. The sensitivity to any individual market risk
can be difficult to quantify.
The fair value of fixed rate securities is sensitive to changes in interest rates. However, fixed rate securities that have low credit
ratings or represent junior interests in securitizations are not particularly interest rate sensitive. In general, when we acquire interest
rate sensitive securities, we enter into an offsetting short position for a similar fixed rate security. Alternatively, we may enter into
other interest rate hedging arrangements such as interest rate swaps or Eurodollar futures. We measure our net interest rate
sensitivity by determining how the fair value of our net interest rate sensitive assets would change as a result of a 100 basis points
(“bps”) adverse shift across the entire yield curve. Based on this analysis, as of December 31, 2021, we would have incurred a loss
of $1,638 if the yield curve rose 100 bps across all maturities and a gain of $1,638 if the yield curve fell 100 bps across all
maturities. As of December 31, 2020, we would have incurred a loss of $2,784 if the yield curve rose 100 bps across all maturities
and a gain of $2,774 if the yield curve fell 100 bps across all maturities.
Equity Securities: We hold equity interests in both public and private entities. These investments are subject to equity price risk.
Equity price risk results from changes in the level or volatility of underlying equity prices, which affect the value of equity
securities or instruments that in turn derive their value from a particular stock. We also hold a significant amount of equity in
public companies that recently completed a merger with a SPAC we sponsored or invested in. A significant portion of the equity
we hold in these types of entities are subject to sale restrictions. We attempt to reduce the risk of loss inherent in our inventory of
equity securities by closely monitoring those security positions or in some cases entering into derivatives trades to hedge this
exposure. We also have had equity investments in entities where the investment is denominated in a foreign currency, or where
the investment is denominated in U.S. Dollars but the investee primarily makes investments in foreign currencies. The fair values
of these investments are subject to change as the spot foreign exchange rate between these currencies and the U.S. Dollar (our
functional currency) fluctuates. We may, from time to time, enter into foreign exchange rate derivatives to hedge all or a portion of
this risk. We measure our net equity price sensitivity and foreign currency sensitivity by determining how the net fair value of our
equity price sensitive and foreign exchange sensitive assets would change as a result of a 10% adverse change in equity prices or
foreign exchange rates. Based on this analysis, as of December 31, 2021, our equity price sensitivity was $3,068 and our foreign
exchange currency sensitivity was $0. As of December 31, 2020, our equity price sensitivity was $4,441 and our foreign exchange
currency sensitivity was $0.
Other Securities: These investments are primarily made up of residual interests in securitization entities. The fair value of these
investments will fluctuate over time based on a number of factors including, but not limited to: liquidity of the investment type, the
credit performance of the individual assets and issuers within the securitization entity, the asset class of the securitization entity
and the relative supply of and demand for investments within that asset class, credit spreads in general, the transparency of
valuation of the assets and liabilities of the securitization entity, and investors’ view of the accuracy of ratings prepared by the
independent rating agencies. The sensitivity to any individual market risk cannot be quantified.
Debt: In addition to the risks noted above, we incur interest rate risk related to our debt obligations. We have debt that accrues
interest at either variable rates or fixed rates. As of December 31, 2021, a 100-bps change in the three-month LIBOR would have
resulted in a change in our annual cash to be paid for interest in the amount of $481. A 100-bps adverse change in the market yield
to maturity would have resulted in an increase in the fair value of the debt in the amount of $3,389 as of December 31, 2021.
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Counterparty Risk and Settlement Risk
We are subject to counterparty risk primarily in two areas: (1) our collateralized securities transactions described in note 11 to our
consolidated financial statements included in this Annual Report on Form 10-K and (2) our TBA and other forward agency MBS
activities described in note 10 to our consolidated financial statements included in this Annual Report on Form 10-K. With respect
to the matched book repo financing activities, our risk is that the counterparty does not fulfill its obligation to repurchase the
underlying security when it is due. In this case, we would typically liquidate the underlying security, which may result in a loss if
the security has declined in value in relation to the balance due from the counterparty under the reverse repurchase agreement.
With respect to our TBA and other forward agency MBS activities, our risk is that the counterparty does not settle the TBA trade
on the scheduled settlement date. In this case, we would have to execute the trade, which may result in a loss based on market
movement in the value of the underlying trade between its initial trade date and its settlement date (which in the case of TBAs can
be as long as 90 days). If we were to incur a loss under either of these activities, we have recourse to the counterparty pursuant to
the underlying agreements.
Finally, we have general settlement risk in all of our regular way fixed income and equity trading activities. If a counterparty fails
to settle a trade, we may incur a loss in closing out the position and would be forced to try to recover this loss from the
counterparty. If the counterparty has become insolvent or does not have sufficient liquid assets to reimburse us for the loss, we
may not get reimbursed.
How we manage these risks
Market Risk
We seek to manage our market risk by utilizing our underwriting and credit analysis processes that are performed in advance of
acquiring any investment. In addition, we continually monitor our investments on a daily basis. We perform an in-depth monthly
analysis on all our investments and our risk committee meets on a weekly basis to review specific issues within our portfolio and
to make recommendations for dealing with these issues. In addition, our broker-dealer has an assigned chief risk officer that
reviews the firm’s positions and trading activities on a daily basis.
Counterparty Risk
We seek to manage our counterparty risk primarily through two processes. First, we perform a credit assessment of each
counterparty to ensure the counterparty has sufficient equity, liquidity, and profitability to support the level of trading or lending
we plan to do with them. Second, we may require counterparties to post cash or other liquid collateral (“margin”) to support
changes in the market value of the underlying securities or trades on an ongoing basis.
In the case of collateralized securities financing transactions, we will generally lend less than the market value of the underlying
security initially. The difference between the amount lent and the value of the security is referred to as the haircut. We will seek to
maintain this haircut while the loan is outstanding. If the value of the security declines, we will require the counterparty to post
margin to offset this decline. If the counterparty fails to post margin, we will sell the underlying security. The haircut serves as a
buffer against market movements to prevent or minimize a loss.
In the case of TBA and other forward agency MBS activities, we sometimes require counterparties to post margin with us in the
case the market value of the underlying TBA trade declines. If the counterparty fails to post margin, we will close out the
underlying trade. In the case of TBA and other forward agency MBS activities, we will sometimes obtain initial margin or a cash
deposit from the counterparty which serves a purpose similar to the haircut as an additional buffer against losses. However, some
of our TBA and other forward agency MBS activities are done without initial margin or cash deposits.
Risks Related to our Matched Book Repo Business
We enter into repurchase and reverse repurchase agreements as part of our matched book repo business. In general, we will lend
money to a counterparty after obtaining collateral securities from that counterparty pursuant to a reverse repurchase
agreement. We will borrow money from another counterparty using those same collateral securities pursuant to a repurchase
agreement. We seek to earn net interest income on these matched transactions.
79
In our gestation repo business, we will generally ensure that the maturity dates of our reverse repurchase agreements match the
maturity dates of the matched repurchase agreements. Because our maturities are matched, we can pass along any changes in
funding terms imposed upon us by our repurchase agreement counterparty to our reverse repurchase agreement
counterparty. Therefore, we are not exposed to a great deal of interest rate or funding risk. The main risk we are exposed to is
credit risk. We manage this risk by obtaining collateral in excess of the contractual repo balance and performing credit reviews of
counterparties and updating them on a routine basis.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Company, the related notes and schedules to the financial statements, together with the Report of
Independent Registered Public Accounting Firm thereon, are set forth beginning on page F-1 of this Annual Report on Form 10-K
and are incorporated herein by reference.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We have established and maintain disclosure controls and procedures that are designed to ensure that material information relating
to the Company (and its consolidated subsidiaries) required to be disclosed in our Exchange Act reports is recorded, processed,
summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to management, including our chief executive officer and chief financial officer, who certify our financial
reports, and to other members of senior management and the board of directors. Under the supervision and with the participation of
our chief executive officer and chief financial officer, we have evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2021.
Based on that evaluation, the chief executive officer and the chief financial officer concluded that our disclosure controls and
procedures were effective at December 31, 2021.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) as described in the revised (2013) version in Internal Control-Integrated Framework. Based on this assessment,
management believed that, as of December 31, 2021, our internal control over financial reporting was effective.
80
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to attestation by the Company’s auditors pursuant to rules of
the SEC that permit us to provide only management’s report in this Annual Report.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the quarter ended December 31, 2021 that materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTIONS.
Not Applicable.
81
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
Our board of directors has adopted the Code of Conduct applicable to all directors, officers, and employees of the Company. The
Code of Conduct is available on our website at http://cohenandcompany.com/investor-relations/corporate-governance/code-of-
conduct/ and the Company intends to satisfy the disclosure requirements under Item 5.05 of the SEC’s Current Report on Form 8-
K regarding amendments to, or waivers from, the Code of Conduct by posting such information on its website.
The information required by Item 10 is included in the sections entitled “Executive Officers,” “Election of Directors,” “Section
16(a) Beneficial Ownership Reporting Compliance,” and “Corporate Governance and board of directors Information” in the
Company’s definitive Proxy Statement, to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934 in
connection with the Company’s 2022 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is included in the sections entitled “Executive Compensation” and “Compensation of
Directors” in the Company’s definitive Proxy Statement, to be filed pursuant to Regulation 14A of the Exchange Act in connection
with the Company’s 2022 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The information required by Item 12 with respect to the “Share Ownership of Certain Beneficial Owners and Management” is
included in the Company’s definitive Proxy Statement, to be filed pursuant to Regulation 14A of the Exchange Act in connection
with the Company’s 2021 Annual Meeting of Stockholders and is incorporated herein by reference.
The following table provides information regarding the 2020 Long-Term Incentive Plan as of December 31, 2021.
(a)
(b)
Number of
securities to be
issued upon the
exercise of
outstanding
options, warrants
and rights (1)
Weighted-
average exercise
price of
outstanding
options,
warrants, and
rights
(c)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
-
-
-
-
195,924
-
(1)
See note 22 to our consolidated financial statements included in this Annual Report on Form 10-K for further information
regarding the 2010 and the 2020 Long-Term Incentive Plan.
The remainder of the information required by Item 12 is included in the Section entitled “Share Ownership of Certain Beneficial
Owners and Management” in the Company’s definitive Proxy Statement, to be filed pursuant to Regulation 14A of the Exchange
Act in connection with the Company’s 2022 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by Item 13 is included in the sections entitled “Certain Relationships and Related Party Transactions”
and “Corporate Governance and board of directors Information — Director Independence” in the Company’s definitive Proxy
Statement, to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934 in connection with the Company’s
2022 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by Item 14 is included in the sections entitled “Principal Accounting Firm Fees” in the Company’s
definitive Proxy Statement, to be filed pursuant to Regulation 14A of the Exchange Act in connection with the Company’s
2022 Annual Meeting of Stockholders and is incorporated herein by reference.
82
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Documents filed as a part of this Annual Report on Form 10-K:
PART IV
(1) The following financial statements of the Company are included in Part II, Item 8 of this Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248)
(i)
(ii) Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations and Comprehensive Income / (Loss) for the years ended December 31, 2021,
2020 and 2019
(iii)
(iv) Consolidated Statement of Changes in Equity for the years ended December 31, 2021, 2020 and 2019
(v) Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
(vi) Notes to Consolidated Financial Statements as of December 31, 2021
(2)
I.
Schedules to Consolidated Financial Statements:
Condensed Financial Information of Registrant
F-2
F-3
F-4
F-5
F-6
F-7
F-89
83
(b) Exhibit List
The following exhibits are filed as part of this Annual Report on Form 10-K:
Exhibit
No.
2.1 Agreement and Plan of Merger, dated as of February 20, 2009, by and among Alesco Financial Inc., Fortune Merger Sub,
LLC and Cohen Brothers, LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K
filed with the SEC on February 23, 2009). #
Description
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 1, 2009, by and among Alesco Financial Inc., Fortune
Merger Sub, LLC, Alesco Financial Holdings, LLC, and Cohen Brothers, LLC (incorporated by reference to Exhibit 2.1 to
the Company’s Current Report on Form 8-K filed with the SEC on June 2, 2009). #
2.3 Amendment No. 2 to Agreement and Plan of Merger, dated as of August 20, 2009, by and among Alesco Financial Inc.,
Alesco Financial Holdings, LLC and Cohen Brothers, LLC (incorporated by reference to Exhibit 2.1 to the Company’s
Current Report on Form 8-K filed with the SEC on August 20, 2009). #
2.4 Amendment No. 3 to Agreement and Plan of Merger, dated as of September 30, 2009, by and among Alesco Financial Inc.,
Alesco Financial Holdings, LLC, and Cohen Brothers, LLC (incorporated by reference to Exhibit 2.1 to the Company’s
Current Report on Form 8-K filed with the SEC on September 30, 2009).
2.5
Purchase and Contribution Agreement, dated as of September 14, 2010, by and among Cohen & Company Inc., Cohen
Brothers, LLC, JVB Financial Holdings, L.L.C., the Sellers Listed on Annex I thereto and the Management Employees, as
defined therein (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC
on September 14, 2010). #
2.6 Amendment No. 1 to Purchase and Contribution Agreement, dated as of October 29, 2010, by and among Cohen &
Company Inc., Cohen Brothers, LLC, JVB Financial Holdings, L.L.C., the Sellers listed on Annex I to the original Purchase
and Contribution Agreement, dated as of September 14, 2010, and the Management Employees as defined in the original
Purchase and Contribution Agreement, dated as of September 14, 2010 (incorporated by reference to Exhibit 2.6 to the
Company’s Annual Report on Form 10-K filed with the SEC on March 4, 2011).
2.7 Amendment No. 2 to Purchase and Contribution Agreement, dated as of December 27, 2010, by and among Cohen &
Company Inc., Cohen Brothers, LLC, JVB Financial Holdings, L.L.C., the Sellers listed on Annex I to the original Purchase
and Contribution Agreement, dated as of September 14, 2010, and the Management Employees as defined in the original
Purchase and Contribution Agreement, dated as of September 14, 2010 (incorporated by reference to Exhibit 2.7 to the
Company’s Annual Report on Form 10-K filed with the SEC on March 4, 2011).
2.8 Amendment No. 3 to Purchase and Contribution Agreement, dated as of January 11, 2011, by and among Cohen &
Company Inc., Cohen Brothers, LLC, JVB Financial Holdings, L.L.C., the Sellers listed on Annex I to the original Purchase
and Contribution Agreement, dated as of September 14, 2010, and the Management Employees as defined in the original
Purchase and Contribution Agreement, dated as of September 14, 2010 (incorporated by reference to Exhibit 2.8 to the
Company’s Annual Report on Form 10-K filed with the SEC on March 4, 2011). #
2.9 Contribution Agreement, dated as of April 19, 2011, by and among IFMI, LLC, PrinceRidge Partners LLC and PrinceRidge
Holdings LP (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on
April 25, 2011).
2.1
Securities Purchase Agreement, dated as of February 20, 2014, by and among IFMI, LLC, Cohen Asia Investments Ltd.,
Dekania Investors, LLC, Star Asia Management Ltd., Star Asia Capital Management, LLC, Star Asia Advisors Ltd., Star
Asia Advisors II Ltd., Star Asia Partners Ltd., Star Asia Partners II Ltd., an investment vehicle managed by Taro Masuyama
and Malcolm MacLean, for purposes of Section 7.1 thereof only, Taro Masuyama and Malcolm MacLean, and, for purposes
of Section 7.2 thereof only, Institutional Financial Markets, Inc. and Daniel G. Cohen (incorporated by reference to Exhibit
2.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 20, 2014). #
3.1
Second Articles of Amendment and Restatement (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the
Company’s Registration Statement on Form S-11 filed with the SEC on February 6, 2004).
3.2 Articles of Amendment changing name to Alesco Financial Inc. (incorporated by reference to Exhibit 3.1 to the Company’s
Registration Statement on Form S-3 filed with the SEC on October 20, 2006).
3.3 Articles of Amendment to Effectuate a Reverse Stock Split (incorporated by reference to Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed with the SEC on December 17, 2009).
3.4 Articles of Amendment to Set Par Value (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form
8-K filed with the SEC on December 17, 2009).
3.5 Articles Supplementary — Series A Voting Convertible Preferred Stock (incorporated by reference to Exhibit 3.3 to the
Company’s Current Report on Form 8-K filed with the SEC on December 17, 2009).
3.6 Articles Supplementary — Series B Voting Non-Convertible Preferred Stock (incorporated by reference to Exhibit 3.4 to the
Company’s Current Report on Form 8-K filed with the SEC on December 17, 2009).
3.7 Articles of Amendment to change Name to Cohen & Company Inc. (incorporated by reference to Exhibit 3.5 to the
Company’s Current Report on Form 8-K filed with the SEC on December 17, 2009).
3.8 Articles Supplementary — Series C Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed with the SEC on December 28, 2009).
84
3.9 Articles of Amendment Changing Name to Institutional Financial Markets, Inc. (incorporated by reference to Exhibit 3.1 to
the Company’s Current Report on Form 8-K filed with the SEC on January 24, 2011).
3.1 By-laws, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the
SEC on October 11, 2005).
3.11 Articles Supplementary — Series D Voting Non-Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed with the SEC on December 31, 2012).
3.12 Articles Supplementary — Series E Voting Non-Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed with the SEC on May 13, 2013).
3.13 Articles of Amendment Changing Name to Cohen & Company Inc. (incorporated by reference to Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed with the SEC on September 1, 2017).
3.14 Articles of Amendment to Effectuate a Reverse Stock Split and to Set Par Value (incorporated by reference to Exhibit 3.2 to
the Company’s Current Report on Form 8-K filed with the SEC on September 1, 2017).
3.15 Cohen & Company Inc. Articles Supplementary Series F Voting Non-Convertible Preferred Stock (incorporated by
reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 31, 2019).
4.1
4.2
Form of 10.50% Contingent Convertible Senior Notes due 2027 (incorporated by reference to Exhibit 4.2 to the Company’s
Current Report on Form 8-K filed with the SEC on July 26, 2011).
Junior Subordinated Indenture, dated as of June 25, 2007, by and between Alesco Financial Inc. and Wells Fargo Bank, N.A.
(incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 29,
2007).
4.3
Form of Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-
K filed with the SEC on March 10, 2010).
4.4 Registration Rights Agreement, dated as of May 9, 2013, by and among Institutional Financial Markets, Inc., Cohen Bros.
Financial, LLC and Mead Park Capital Partners LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current
Report on Form 8-K filed with the SEC on May 13, 2013).
4.5
4.6
4.7
Form of Indenture (incorporated by reference to Exhibit 4.18 to the Company’s Registration Statement on Form S-3 filed
with the SEC on February 14, 2014).
Section 382 Rights Agreement, dated as of August 3, 2016, by and between Institutional Financial Markets, Inc. and
Computershare Inc. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the
SEC on August 3, 2016).
Section 382 Rights Agreement, dated as of March 10, 2020, between Cohen & Company Inc. and Computershare Inc.
(incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 10,
2020).
4.8 Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.*
10.1 Management Agreement, dated as of January 31, 2006, by and between Alesco Financial Trust and Cohen Brothers
Management, LLC (incorporated by reference to Annex E to the Company’s Proxy Statement on Schedule 14A filed with
the SEC on September 8, 2006).
10.2 Form of Restricted Share Award Agreement (incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on
Form 10-K filed with the SEC on March 16, 2007).
10.3 Form of Indemnification Agreement by and between Alesco Financial Inc. and each of its directors and officers
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 20,
2006).
10.4 Employment Agreement between Cohen Brothers, LLC and Joseph W. Pooler, Jr., dated as of May 7, 2008 (incorporated by
reference to Exhibit 10.19 to the Company’s Registration Statement on Form S-4 filed with the SEC on June 2, 2009). +
10.5 Amendment No. 1 to Employment Agreement between Cohen Brothers, LLC and Joseph W. Pooler, Jr., dated as of
February 20, 2009 (incorporated by reference to Exhibit 10.20 to the Company’s Registration Statement on Form S-4 filed
with the SEC on June 2, 2009). +
10.6 Amendment No. 2 to Employment Agreement between Joseph W. Pooler, Jr. and Cohen Brothers, LLC, dated as of
February 18, 2010 (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed with the
SEC on March 10, 2010). +
10.7
Amendment No. 3 to Employment Agreement, dated February 3, 2021, by and between Cohen & Company, LLC and
Joseph W. Pooler, Jr. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with
the SEC on February 5, 2021).
10.8 Alesco Financial Inc. Cash Bonus Plan (incorporated by reference to Annex B to Alesco Financial Inc.’s Amendment No. 1
to the Registration Statement on Form S-4 filed with the SEC on August 20, 2009). +
10.9 Amended and Restated Limited Liability Company Agreement of Cohen Brothers, LLC (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 17, 2009).
85
10.10 Amendment No. 1 to Amended and Restated Limited Liability Company Agreement of IFMI, LLC, dated as of June 20,
2011 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on
August 11, 2011).
10.11 Amendment No. 2 to Amended and Restated Limited Liability Company Agreement of IFMI, LLC, dated as of May 9, 2013
(incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on May 13,
2013).
10.12 Amendment No. 3 to Amended and Restated Limited Liability Company Agreement, dated October 30, 2019, by and among
each of the Members set forth on the signature pages thereto (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed with the SEC on October 30, 2019).
10.13
Amendment No. 4 to Amended and Restated Limited Liability Company Agreement, dated September 25, 2020, by and
among each of the Members set forth on the signature pages thereto (incorporated by reference to Exhibit 10.4 to the
Company’s Current Report on Form 8-K filed with the SEC on September 29, 2020).
10.14 Amendment No. 5 to Amended and Restated Limited Liability Company Agreement, dated December 20, 2021, by and
among each of the Members set forth on the signature pages thereto (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed with the SEC on December 21, 2021)
10.15 Amended and Restated Employment Agreement, dated as of May 9, 2013, by and among IFMI, LLC, Institutional Financial
Markets, Inc., Daniel G. Cohen, C&Co/PrinceRidge Holdings LP and C&Co/PrinceRidge Partners LLC (incorporated by
reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on May 13, 2013).+
10.16 2010 Executive Officers’ Cash Bonus Plan (incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on
Form 10-K filed with the SEC on March 10, 2010). +
10.17 Form of Award for 2010 Executive Officers’ Cash Bonus Plan (incorporated by reference to Exhibit 10.38 to the Company’s
Annual Report on Form 10-K filed with the SEC on March 10, 2010). +
10.18 Second Amended and Restated Institutional Financial Markets, Inc. 2010 Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 5, 2013). +
10.19 Amendment No. 1 to Second Amended and Restated Institutional Financial Markets, Inc. 2010 Long-Term Incentive Plan
(incorporated by reference to Appendix A to the Company’s Proxy Statement on Schedule 14A filed with the SEC on
November 10, 2016).
10.20 Form of Restricted Stock Award under Institutional Financial Markets, Inc. 2010 Long-Term Incentive Plan (incorporated
by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-K filed with the SEC on March 4, 2011). +
10.21 Second Amended and Restated Institutional Financial Markets, Inc. 2010 Long-Term Incentive Plan Non-Qualified Stock
Option Award, dated as of November 30, 2013, by and between Institutional Financial Markets, Inc. and Lester R. Brafman
(incorporated by reference to Exhibit 10.73 to the Company’s Annual Report on Form 10-K filed with the SEC on March 7,
2014).
10.22 Second Amended and Restated Institutional Financial Markets, Inc. 2010 Long-Term Incentive Plan Non-Qualified Stock
Option Award, dated as of November 30, 2013, by and between Institutional Financial Markets, Inc. and Lester R. Brafman
(incorporated by reference to Exhibit 10.74 to the Company’s Annual Report on Form 10-K filed with the SEC on March 7,
2014).
10.23 Securities Purchase Agreement, dated as of May 9, 2013, by and between Institutional Financial Markets, Inc. and Cohen
Bros. Financial, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with
the SEC on May 13, 2013).
10.24 Preferred Stock Exchange Agreement, dated as of May 9, 2013, by and among Institutional Financial Markets, Inc., Cohen
Bros. Financial, LLC and Daniel G. Cohen (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on
Form 8-K filed with the SEC on May 13, 2013).
10.25
Investment Agreement, dated as of October 3, 2016, by and between IFMI, LLC and JKD Capital Partners I LTD
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 5,
2016).
10.26 Amendment No. 1 to Investment Agreement, dated as of March 6, 2019, by and between Cohen & Company, LLC and JKD
Capital Partners I LTD (incorporated by reference to Exhibit 10.23 to the Company’s Current Report on Form 10-K filed
with the SEC on March 8, 2019).
10.27 Securities Purchase Agreement, dated March 10, 2017, by and among IFMI, LLC, DGC Family Fintech Trust and
Institutional Financial Markets, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-
K filed with the SEC on March 10, 2017).
10.28 Convertible Senior Secured Promissory Note, dated March 10, 2017, issued by IFMI, LLC to DGC Family Fintech Trust in
the aggregate principal amount of $15,000,000 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report
on Form 8-K filed with the SEC on March 10, 2017).
10.29
Amendment No. 1 to Convertible Senior Secured Promissory Note, dated September 25, 2020, by and between Cohen &
Company, LLC and the DGC Family Fintech Trust (incorporated by reference to Exhibit 10.5 to the Company’s Current
Report on Form 8-K filed with the SEC on September 29, 2020).
86
10.30
Investment Agreement, dated September 29, 2017, by and between Cohen & Company, LLC and the DGC Family Fintech
Trust (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on
October 5, 2017).
10.31 Amendment No. 1 to Investment Agreement, dated as of September 25, 2019 and effective as of October 1, 2019, by and
between Cohen & Company, LLC and the DGC Family Fintech Trust (incorporated by reference to Exhibit 10.4 to the
Company’s Current Report on Form 8-K filed with the SEC on September 30, 2019).
10.32 Amendment No. 2 to Investment Agreement, dated as of December 4, 2019 and effective as of October 1, 2019, by and
between Cohen & Company, LLC and the DGC Family Fintech Trust (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed with the SEC on December 9, 2019).
10.33 Loan Agreement, dated as of April 25, 2018, by and among Cohen & Company Inc., Cohen & Company, LLC, J.V.B.
Financial Group, LLC, J.V.B. Financial Group Holdings, LP, C&Co/PrinceRidge Partners LLC and MB Financial Bank,
N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April
27, 2018).
10.34 First Amendment to Loan Agreement, by and among Cohen & Company Inc., Cohen & Company, LLC, J.V.B. Financial
Group Holdings, LP, C&Co PrinceRidge Holdings, LP, dated January 29, 2019 (incorporated by reference to Exhibit 10.30
to the Company’s Current Report on Form 10-K filed with the SEC on March 8, 2019).
10.35 Amendment No. 1 to Convertible Senior Promissory Note, dated September 25, 2018, by and between Cohen & Company
Inc. and the EBC 2013 Family Trust (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-
K filed with the SEC on September 25, 2018).
10.36 Senior Promissory Note, dated September 25, 2019, issued by Cohen & Company Inc. to the EBC 2013 Family Trust in the
aggregate principal amount of $2,400,000 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K filed with the SEC on September 30, 2019).
10.37
Amendment No. 1 to Senior Promissory Note, dated September 25, 2020, by and between Cohen & Company Inc. and the
EBC 2013 Family Trust (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with
the SEC on September 29, 2020).
10.38 Securities Purchase Agreement, dated as of December 30, 2019, by and among Cohen & Company Inc., Cohen & Company,
LLC, Daniel G. Cohen and the DGC Family Fintech Trust (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed with the SEC on December 31, 2019).
10.39
Amendment No. 1 to Securities Purchase Agreement, dated September 25, 2020, by and among Cohen & Company Inc.,
Cohen & Company, LLC, Daniel G. Cohen and the DGC Family Fintech Trust (incorporated by reference to Exhibit 10.3 to
the Company’s Current Report on Form 8-K filed with the SEC on September 29, 2020).
10.40 Note Purchase Agreement, dated as of January 31, 2020, by and among Cohen & Company, LLC, JKD Capital Partners I
LTD and RN Capital Solutions LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-
K filed with the SEC on February 3, 2020).
10.41 Senior Promissory Note, dated January 31, 2020, issued by Cohen & Company, LLC to JKD Capital Partners I LTD in the
aggregate principal amount of $2,250,000 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K filed with the SEC on February 3, 2020).
10.42 Senior Promissory Note, dated January 31, 2020, issued by Cohen & Company, LLC to RN Capital Solutions LLC in the
aggregate principal amount of $2,250,000 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on
Form 8-K filed with the SEC on February 3, 2020).
10.43 Cohen & Company Inc. Non-Qualified Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed with the SEC on February 12, 2020).
10.44
Cohen & Company Inc. 2020 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed with the SEC on April 7, 2020).
10.45
Form of Restricted Stock Award under Cohen & Company Inc. 2020 Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.53 to the Company's Annual Report on Form 10-K filed with the SEC on March 5, 2021).
87
10.46
U.S. Small Business Association Note, dated May 4, 2020, issued by Cohen & Company, LLC to Fifth Third Bank, National
Association, in the aggregate principal amount of $2,165,600 (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed with the SEC on May 7, 2020).
10.47
Amended and Restated Revolving Note and Cash Subordination Agreement, dated December 21, 2021, by and between
J.V.B. Financial Group, LLC and Byline Bank, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current
Report on Form 8-K filed with the SEC on December 21, 2021).
10.48
Subscription Agreement, dated November 24, 2020, by and among INSU Acquisition Corp. II and Cohen & Company LLC,
as subscriber (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC
on November 30, 2020).
10.49
Sponsor Share Cancellation and Vesting Agreement, dated as of November 24, 2020, by and among INSU Acquisition Corp.
II and Sponsor (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC
on November 30, 2020).
10.50
Equity Distribution Agreement, dated December 1, 2020, by and between Cohen & Company Inc. and Northland Capital
Markets (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on
December 2, 2020).
14.1 Code of Conduct (incorporated by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K filed with the
SEC on March 10, 2010).
21.1 List of Subsidiaries. *
23.1 Consent of Grant Thornton, LLP, Independent Registered Public Accounting Firm, regarding the financial statements of
Institutional Financial Markets, Inc. *
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended. *
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended. *
32.1 Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended. *
32.2 Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended. *
101
Interactive data files pursuant to Rule 405 of Regulation S-T formatted inline XBRL: (i) the Consolidated Balance Sheets at
December 31, 2021 and December 31, 2020, (ii) the Consolidated Statements of Operations and Comprehensive Income /
(Loss) for the Year Ended December 31, 2021, 2020 and 2019, (iii) the Consolidated Statement of Changes in Equity for the
Year Ended December 31, 2021, 2020 and 2019, (iv) the Consolidated Statements of Cash Flows for Year Ended December
31, 2021, 2020 and 2019; and (v) Notes to Consolidated Financial Statements. *
104 Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibit 101)
*
**
+
#
†
Filed herewith.
Furnished herewith.
Constitutes a management contract or compensatory plan or arrangement.
Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Institutional Financial Markets, Inc.
hereby undertakes to furnish supplementally copies of any of the omitted schedules or exhibits upon request by the SEC.
Confidential treatment has been requested for portions of this document. An unredacted version of this exhibit has been filed
separately with SEC.
(c) The financial statement schedules listed in the Index to Consolidated Financial Statements and Financial Statement
Schedules listed under Item 15.1(a) are included under Item 8 and are presented beginning on page F-1 of this Form 10-K. All
other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related
instructions or are inapplicable or is not present in amount sufficient to require submission of the schedule, and therefore have
been omitted.
ITEM 16. FORM 10-K SUMMARY.
None.
88
COHEN & COMPANY INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
DATE: March 9, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
COHEN & COMPANY INC.
By:
/S/ LESTER R. BRAFMAN
Lester R. Brafman
Chief Executive Officer
(Principal Executive Officer)
Name
/s/ DANIEL G. COHEN
Daniel G. Cohen
/S/ G. STEVEN DAWSON
G. Steven Dawson
/S/ JACK J. DIMAIO, JR.
Jack J. DiMaio, Jr.
/S/ JACK HARABURDA
Jack Haraburda
/S/ DIANA L. LIBERTO
Diana L. Liberto
/S/ DOUGLAS LISTMAN
Douglas Listman
Title
Chairman
Director
Date
March 9, 2022
March 9, 2022
Vice Chairman
March 9, 2022
Director
Director
Chief Accounting Officer and Assistant Treasurer
(Principal Accounting Officer)
March 9, 2022
March 9, 2022
March 9, 2022
March 9, 2022
/S/ JOSEPH W. POOLER, JR.
Joseph W. Pooler, Jr.
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
89
THIS PAGE INTENTIONALLY LEFT BLANK
90
COHEN & COMPANY INC.
INDEX TO FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations and Comprehensive Income / (Loss) for the years ended December 31, 2021, 2020
and 2019
Consolidated Statement of Changes in Equity for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
Notes to Consolidated Financial Statements as of December 31, 2021
Schedules to Consolidated Financial Statements:
I. Condensed Financial Information of Registrant
2
3
4
5
6
7
F-1
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Cohen & Company, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Cohen & Company, Inc. (a Maryland corporation) (and
subsidiaries) (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and
comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2021,
and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting
principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are
no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2001.
Philadelphia, Pennsylvania
March 9, 2022
F-2
ITEM 1. FINANCIAL STATEMENTS.
PART I. FINANCIAL INFORMATION
COHEN & COMPANY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Assets
Cash and cash equivalents
Receivables from brokers, dealers, and clearing agencies
Due from related parties
Other receivables
Investments-trading
Other investments, at fair value
Receivables under resale agreements
Investments in equity method affiliates
Deferred income taxes
Goodwill
Right-of-use asset - operating leases
Other assets
Total assets
Liabilities
Payables to brokers, dealers, and clearing agencies
Accounts payable and other liabilities
Accrued compensation
Lease liability - operating leases
Trading securities sold, not yet purchased
Other investments sold, not yet purchased
Securities sold under agreement to repurchase
Redeemable financial instruments
Debt
Total liabilities
Commitments and contingencies (See Note 28)
Stockholders' Equity:
$
$
$
December 31,
2021
2020
50,567 $
68,392
4,581
3,203
223,865
56,033
3,175,645
48,238
9,468
109
10,273
3,885
3,654,259 $
160,896 $
22,701
22,577
10,813
62,512
2,488
3,171,415
7,957
43,394
3,504,753
41,996
52,917
2,812
3,929
242,961
58,540
5,716,343
13,482
7,397
109
6,063
2,830
6,149,379
156,678
46,251
14,359
6,531
44,439
7,415
5,713,212
11,957
47,100
6,047,942
Voting Non-Convertible Preferred Stock, $0.001 par value per share, 50,000,000 shares
authorized, 27,413,098 shares issued and outstanding, respectively
Common Stock, $0.01 par value per share, 100,000,000 shares authorized, 1,697,443 and
1,325,529 shares issued and outstanding, respectively, including 366,293 and 286,566
unvested restricted share awards, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders' equity
Non-controlling interest
Total equity
Total liabilities and equity
$
27
27
17
72,006
(905 )
(9,730 )
61,415
88,091
149,506
3,654,259 $
13
65,031
(821 )
(20,341 )
43,909
57,528
101,437
6,149,379
See accompanying notes to consolidated financial statements.
F-3
COHEN & COMPANY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / (LOSS)
(Dollars in thousands, except share or per share information)
Revenues
Net trading
Asset management
New issue and advisory
Principal transactions and other income
Total revenue
Operating expenses
Compensation and benefits
Business development, occupancy, equipment
Subscriptions, clearing, and execution
Professional fee and other operating
Depreciation and amortization
Impairment of goodwill
Total operating expenses
$
Year Ended December 31,
2020
2021
2019
69,385 $
10,923
28,736
37,324
146,368
85,048
3,365
10,307
7,684
371
-
106,775
73,611 $
8,759
2,234
45,506
130,110
59,902
2,708
9,887
7,068
334
7,883
87,782
38,172
7,560
1,831
2,103
49,666
25,972
3,402
9,682
6,251
318
-
45,625
Operating income
39,593
42,328
4,041
Non-operating income / (expense)
Interest expense, net
Income/(loss) from equity method affiliates
Other non-operating income
Income / (loss) before income tax expense / (benefit)
Income tax (benefit)
Net income / (loss)
Less: Net income / (loss) attributable to the non-controlling interest
Net income / (loss) attributable to Cohen & Company Inc.
Income / (loss) per share data (see Note 26):
Income / (loss) per common share-basic:
Basic income / (loss) per common share
Weighted average shares outstanding-basic
Income / (loss) per common share-diluted:
Diluted Income / (loss) per common share
Weighted average shares outstanding-diluted
Dividends declared per common share
Comprehensive income / (loss):
Net income / (loss)
Other comprehensive income / (loss) item:
Foreign currency translation adjustments, net of tax of $0
Other comprehensive income / (loss), net of tax of $0
Comprehensive income / (loss)
Less: comprehensive income / (loss) attributable to the non-
controlling interest
Comprehensive income / (loss) attributable to Cohen & Company
Inc.
(7,233 )
36,010
2,127
70,497
(1,614 )
72,111
60,829
11,282 $
(9,589 )
(2,955 )
-
29,784
(8,669 )
38,453
24,248
14,205 $
(7,584 )
(553 )
-
(4,096 )
(523 )
(3,573 )
(1,519 )
(2,054 )
9.50 $
1,187,029
12.56 $
1,131,085
(1.81 )
1,136,574
7.48 $
5,284,925
7.66 $
5,091,087
(1.81 )
1,681,173
0.50 $
- $
0.40
72,111 $
38,453 $
(3,573 )
(377 )
(377 )
71,734
138
138
38,591
(2 )
(2 )
(3,575 )
60,526
24,351
(1,518 )
$
$
$
$
$
$
11,208 $
14,240 $
(2,057 )
See accompanying notes to consolidated financial statements.
F-4
COHEN & COMPANY INC.
Consolidated Statement of Changes in Equity
(Dollars in thousands)
Cohen & Company Inc.
Preferred
Stock
Common
Stock
$
Retained
Earnings /
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
Income /
(Loss)
Total
Stockholders'
Equity
(31,926 ) $
(2,054 )
-
(908 ) $
-
(3 )
35,774 $
(2,054 )
(3 )
Non-
controlling
Interest
Total
Equity
6,664 $ 42,438
(3,573 )
(1,519 )
(2 )
1
-
(20 )
22
-
-
Additional
Paid-In
Capital
12 $ 68,591 $
-
-
-
-
-
-
-
-
28
481
(87 )
-
(299 )
-
-
-
-
12 $ 68,714 $
-
-
-
-
-
1
-
(1,765 )
239
(15 )
-
(2,142 )
-
-
-
-
-
-
13 $ 65,031 $
-
-
9,073
-
-
3
-
1
-
(1,929 )
790
(102 )
-
(857 )
-
-
-
-
-
-
(519 )
(34,519 ) $
14,205
-
-
-
-
-
(27 )
-
-
(20,341 ) $
11,282
-
-
-
-
-
-
-
-
-
-
(671 )
-
Balance at December 31, 2018
Net (loss)
Other comprehensive income (loss)
Cumulative effect adjustment - adoption
of ASU 2016-02
Acquisition / (surrender) of additional
units in consolidated subsidiary, net
Equity-based compensation
Shares withheld for employee taxes
Purchase and retirement of common
stock
Investment in other non-controlling
interests
Investment in non-controlling interest of
Operating LLC / Issuance of Series F
Preferred
Dividends/distributions to Operating
LLC non-controlling interest
Balance at December 31, 2019
Net income
Other comprehensive income
Acquisition / (surrender) of additional
units in consolidated subsidiary, net
Equity-based compensation
Shares withheld for employee taxes
Purchase and retirement of common
stock
Dividends/distributions to Operating
LLC non-controlling interest
Investment in other non-controlling
interests
Distributions to other non-controlling
interests
Balance at December 31, 2020
Net income
Other comprehensive (loss)
Common stock issued, net
Acquisition / (surrender) of additional
units of consolidated subsidiary, net
Equity-based compensation
Shares withheld for employee taxes
Purchase and retirement of common
stock
Dividends/distributions to Operating
LLC non-controlling interest
Investment in other non-controlling
interests
Distributions to other non-controlling
interests
Balance at December 31, 2021
$
$
5 $
-
-
-
-
-
-
-
-
-
27 $
-
-
-
-
-
-
-
-
-
27 $
-
-
-
-
-
-
-
-
-
-
(4 )
-
-
-
-
(20 )
-
(20 )
24
481
(87 )
(47 )
263
(41 )
(23 )
744
(128 )
(299 )
-
(299 )
-
2,550
2,550
-
22
7,779
7,801
-
(915 ) $
-
35
59
-
-
-
-
-
-
(821 ) $
-
(74 )
(213 )
(519 )
(732 )
33,319 $ 15,437 $ 48,756
24,248 38,453
14,205
138
35
103
(1,706 )
240
(15 )
1,706
-
12,313 12,553
(54 )
(39 )
(2,142 )
-
(2,142 )
(27 )
(35 )
(62 )
-
13,489 13,489
-
(9,694 )
(9,694 )
43,909 $ 57,528 $ 101,437
60,829 72,111
11,282
(377 )
(74 )
9,076
9,076
(303 )
-
(10 )
-
-
(1,939 )
791
(102 )
1,939
-
14,927 15,718
(378 )
(276 )
-
-
-
(857 )
-
(857 )
(671 )
(1,970 )
(2,641 )
-
17,095 17,095
-
27 $
-
-
17 $ 72,006 $
-
(9,730 ) $
-
(905 ) $
-
(61,678 ) (61,678 )
61,415 $ 88,091 $ 149,506
$
See accompanying notes to consolidated financial statements.
F-5
COHEN & COMPANY INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Year Ended December 31,
2020
2021
2019
$
72,111 $
38,453 $
(3,573 )
Operating activities
Net income (loss)
Adjustments to reconcile net income / (loss) to net cash provided by (used in)
operating activities:
Equity-based compensation
Accretion of income on other investments, at fair value
Loss / (gain) on other investments, at fair value
Loss / (gain) on other investments, sold not yet purchased
(Income) / loss from equity method affiliates
Depreciation and amortization
Impairment of goodwill
Amortization of discount on debt
Deferred tax provision / (benefit)
Other non-operating income - forgiveness of debt
Change in operating assets and liabilities, net:
Change in receivables from/ payables to brokers, dealers, and clearing
agencies
Change in receivables from / payables to related parties, net
(Increase) decrease in other receivables
(Increase) decrease in investments-trading
(Increase) decrease in receivables under resale agreement
(Increase) decrease in other assets
Increase (decrease) in accounts payable and other liabilities
Increase (decrease) in accrued compensation
Increase (decrease) in trading securities sold, not yet purchased
Increase (decrease) in securities sold under agreement to repurchase
Net cash provided by (used in) operating activities
Investing activities
Purchase of investments - other investments, at fair value
Purchase of investments - other investments sold, not yet purchased, at fair value
Sales and returns of principal - other investments, at fair value
Sales and returns of principal - other investments sold, not yet purchased, at fair
alue
Investments in equity method affiliates
Purchase of furniture, equipment, and leasehold improvements
Net cash provided by (used in) investing activities
Financing activities
Proceeds from draws on revolving credit facility
Repayment of draws on revolving credit facility
Proceeds from PPP loan
Proceeds from non-convertible debt
Repayment of debt
Payments for debt issuance costs
Proceeds from redeemable financial instrument
Repayment of redeemable financial instrument
Cash used to net share settle equity awards
Proceeds from issuance of Common Stock
Purchase and retirement of Common Stock
Proceeds from other non-controlling interest investment
Other non-controlling interest distributions
Operating LLC non-controlling interest distributions
Cohen & Company Inc. dividends
15,718
-
(35,421 )
(830 )
(36,010 )
371
-
860
(2,071 )
(2,127 )
12,553
(124 )
(43,413 )
(1,063 )
2,955
334
7,883
736
(8,877 )
-
(11,257 )
(3,872 )
726
19,096
2,540,698
(4,858 )
(19,307 )
8,218
18,073
(2,541,797 )
18,321
(123,098 )
(59,098 )
112,013
56,820
(8,143 )
(1,028 )
(22,534 )
17,500
(17,500 )
-
-
(2,400 )
-
-
(4,000 )
(378 )
9,076
(857 )
17,095
(2,734 )
(1,970 )
(671 )
(41,368 )
(2,346 )
42,696
64,891
1,783,659
4,340
24,552
10,313
(33,508 )
(1,821,231 )
41,435
(62,282 )
(12,519 )
54,748
20,997
(12,675 )
(217 )
(11,948 )
17,500
(17,500 )
2,166
4,500
(9,163 )
(24 )
-
(4,921 )
(54 )
-
(2,142 )
13,489
-
(35 )
(27 )
744
(424 )
(1,080 )
-
553
318
-
548
(678 )
-
73,343
327
(34,535 )
(6,617 )
132,228
(3,768 )
7,855
(1,208 )
(42,175 )
(137,321 )
(15,463 )
(1,927 )
-
10,114
-
(4,352 )
(101 )
3,734
4,777
-
-
-
.
-
1,268
(1,500 )
(128 )
-
(299 )
2,550
-
(213 )
(519 )
Net cash provided by (used in) financing activities
Effect of exchange rate on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
13,161
(377 )
8,571
41,996
50,567 $
3,789
416
33,692
8,304
41,996 $
5,936
(9 )
(5,802 )
14,106
8,304
$
See accompanying notes to consolidated financial statements.
F-6
COHEN & COMPANY INC.
Notes to Consolidated Financial Statements
December 31, 2021
(Dollars in thousands, except share and per share information)
1. ORGANIZATION AND NATURE OF OPERATIONS
Organizational History
Cohen Brothers, LLC (“Cohen Brothers”) was formed on October 7, 2004 by Cohen Bros. Financial, LLC (“CBF”). Cohen
Brothers was established to acquire the net assets of CBF’s subsidiaries (the “Formation Transaction”): Cohen Bros. & Company,
Inc.; Cohen Frères SAS; Dekania Investors, LLC; Emporia Capital Management, LLC; and the majority interest in Cohen Bros. &
Toroian Investment Management, Inc. The Formation Transaction was accomplished through a series of transactions occurring
between March 4, 2005 and May 31, 2005.
From its formation until December 16, 2009, Cohen Brothers operated as a privately-owned limited liability company. On
December 16, 2009, Cohen Brothers completed its merger (the “AFN Merger”) with a subsidiary of Alesco Financial Inc.
(“AFN”), a publicly traded real estate investment trust.
As a result of the AFN Merger, AFN contributed substantially all of its assets into Cohen Brothers in exchange for newly issued
units of membership interests directly from Cohen Brothers. In addition, AFN received additional Cohen Brothers membership
interests directly from its members in exchange for AFN common stock. In accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”), the AFN Merger was accounted for as a reverse acquisition, and Cohen
Brothers was deemed to be the accounting acquirer. As a result, all of AFN’s assets and liabilities were required to be revalued at
fair value as of the acquisition date. The remaining units of membership interests of Cohen Brothers that were not held by AFN
were included as a component of non-controlling interest in the consolidated balance sheets.
Subsequent to the AFN Merger, AFN was renamed Cohen & Company Inc. In January 2011, it was renamed again as Institutional
Financial Markets, Inc. (“IFMI”) and on September 1, 2017 it was renamed again as Cohen & Company Inc. Effective January 1,
2010, the Company ceased to qualify as a REIT.
On September 1, 2017, the Company (i) changed its name back from Institutional Financial Markets, Inc. to Cohen & Company
Inc. and the Company’s trading symbol on the NYSE American Stock Exchange from “IFMI” to “COHN”; (ii) effected a 1 for 10
reverse stock split; and (iii) increased the par value of Common Stock from $0.001 per share to $0.01 per share. All share and per
share amounts, and exercise and conversion prices for all periods presented reflect the reverse split as if it had occurred as of the
beginning of the first period presented.
The Company
The Company is a financial services company specializing in fixed income markets and, more recently, the SPAC markets. As of
December 31, 2021, the Company had $2.36 billion in assets under management (“AUM”) of which $1.24 billion, was in
collateralized debt obligations (“CDOs”). The remaining portion of AUM is from a diversified mix of Investment Vehicles (as
defined herein).
In these financial statements, the “Company” refers to Cohen & Company Inc. and its subsidiaries on a consolidated basis. Cohen
& Company, LLC or the “Operating LLC” refers to the main operating subsidiary of the Company. “Cohen Brothers” refers to the
pre-AFN Merger Cohen Brothers, LLC and its subsidiaries. “AFN” refers to the pre-merger Alesco Financial Inc. and its
subsidiaries. When the term “Cohen & Company Inc.” is used, it is referring to the parent company itself; “JVB Holdings” refers
to J.V.B. Financial Holdings, LP; “JVB” refers to J.V.B. Financial Group LLC, a broker dealer subsidiary; “CCFL” refers to
Cohen & Company Financial Limited (formerly known as EuroDekania Management LTD), a subsidiary formerly regulated by
the Financial Conduct Authority (formerly known as Financial Services Authority) in the United Kingdom; “CCFEL” refers to
Cohen & Company Financial (Europe) Limited, a subsidiary regulated by the Central Bank of Ireland in Ireland; "CCFESA"
refers to Cohen & Company Financial Europe Limited S.A., a majority owned subsidiary regulated by the Autorite de Controle
Prudentiel et de Resolution ("ACPR"), a majority owned subsidiary; and “EuroDekania” refers to EuroDekania (Cayman) Ltd., a
Cayman Islands exempted company that was externally managed by CCFL.
The Company’s business is organized into the following three business segments.
Capital Markets: The Company’s Capital Markets business segment consists primarily of fixed income sales, trading, matched
book repurchase agreement (“repo”) financing, new issue placements in corporate and securitized products, and advisory services.
The Company’s fixed income sales and trading group provides trade execution to corporate investors, institutional investors,
mortgage originators, and other smaller broker-dealers. The Company specializes in a variety of products, including but not limited
to: corporate bonds, asset backed securities (“ABS”), mortgage backed securities (“MBS”), residential mortgage backed securities
(“RMBS”), CDOs, collateralized loan obligations (“CLOs”), collateralized bond obligations (“CBOs”), collateralized mortgage
obligations (“CMOs”), municipal securities, to-be-announced securities (“TBAs”) and other forward agency MBS contracts, U.S.
government bonds, U.S. government agency securities, brokered deposits and certificates of deposit (“CDs”) for small banks, and
hybrid capital of financial institutions including trust preferred securities (“TruPS”), whole loans, residential transition loans
("RTLs"), and other structured financial instruments. The Company also offers execution and brokerage services for equity
products. The Company operates its capital markets activities primarily through its subsidiaries: JVB in the United States, and
CCFESA in Europe. A division of JVB, Cohen & Company Capital Markets is the Company's full-service boutique investment
banking platform focusing on SPAC advisory, capital markets advisory, and M&A advisory, with clients primarily in the financial
technology (commonly referred to as "fintech") and SPAC spaces.
Asset Management: The Company’s Asset Management business segment manages assets within CDOs, managed accounts, joint
ventures, and investment funds (collectively referred to as “Investment Vehicles”). A CDO is a form of secured borrowing. The
borrowing is secured by different types of fixed income assets such as corporate or mortgage loans or bonds. The borrowing is in
the form of a securitization, which means that the lenders are actually investing in notes backed by the assets. In the event of
default, the lenders will have recourse only to the assets securing the loan. The Company’s Asset Management business segment
includes its fee-based asset management operations, which include ongoing base and incentive management fees.
F-7
Principal Investing: The Company’s Principal Investing business segment is comprised of investments that the Company holds
related to its SPAC franchise and other investments the Company has made for the purpose of earning an investment return rather
than investments made to support the Company’s trading, matched book repo, or other Capital Markets business segment
activities. These investments are included in the Company’s other investments, at fair value; other investments sold, not yet
purchased; and investments in equity method affiliates in the Company’s consolidated balance sheets.
The Company generates its revenue by business segment primarily through the following activities.
Capital Markets
•
•
•
Trading activities of the Company, which include execution and brokerage services, riskless trading activities as well as
gains and losses (unrealized and realized) and income and expense earned on securities and derivatives classified as
trading;
Net interest income on the Company’s matched book repo financing activities; and
New issue and advisory revenue comprised primarily of (i) new issue revenue associated with originating, arranging, or
placing newly created financial instruments; and (ii) revenue from advisory services.
Asset Management
•
Asset management fees for the Company’s on-going asset management services provided to certain Investment
Vehicles, which may include fees both senior and subordinate to the securities in the Investment Vehicle, and incentive
management fees earned based on the performance of the various Investment Vehicles.
Principal Investing
•
•
Gains and losses (unrealized and realized) and income and expense earned on securities classified as other investments,
at fair value and other investments sold not yet purchased; and
Income and loss earned on equity method investments.
The Company carries out certain activities at the Operating LLC (including a material amount of its principal investing
activities). The remaining activities noted above were carried out through the following main operating subsidiaries of the
Company as of December 31, 2021.
1. Cohen & Company Financial Management, LLC (“CCFM”) is a wholly owned subsidiary of the Operating LLC and acts as
asset manager and investment adviser to the Alesco I CDO, and the Alesco III through VIII CDOs. Alesco CDOs invest in
bank and insurance company TruPS as well as insurance company subordinated debt. CCFM also manages the SPAC Fund
and SPAC Series Funds.
2. Dekania Capital Management, LLC (“DCM”) is a wholly owned subsidiary of the Operating LLC and acts as asset manager
and investment adviser to the Company’s Dekania Europe II CDO and Dekania Europe III CDO. The Dekania Europe II
CDO and Dekania Europe III CDO invest primarily in financial institution TruPS and insurance company subordinated debt
denominated in Euros. DCM also manages the U.S. Insurance JV.
JVB is a wholly owned subsidiary of the Operating LLC. JVB is a securities broker-dealer registered with the Securities and
Exchange Commission (“SEC”) and is a member of the Financial Industry Regulatory Authority (“FINRA”), and the
Securities Industry Protection Corporation (“SIPC”). JVB carries out the Company’s Capital Market business segment
activities in the U.S.
3.
4. CCFL was previously regulated by the United Kingdom Financial Conduct Authority (“FCA”). CCFL in the past acted as
asset manager and investment adviser to the Company’s Dekania Europe III CDO. CCFL also carried out certain of the
Company’s Capital Markets business segment activities in Europe including brokerage, advisory, and new issue services.
During 2020, CCFL reduced its permissions with the FCA and no longer is a regulated UK entity. As a result no capital
requirement is necessary in the United Kingdom. The Company is in the process of dissolving CCFL.
CCFESA is regulated by the Autorite de Controle Prudentiel et de Resolution ("ACPR"), performs asset management and
capital market activities in France and the European Union.
5.
6. CCFEL is regulated by Central Bank of Ireland (“CBI”), performed asset management and capital markets activities in
Ireland and the European Union. In 2021, the Company transferred CCFEL's activities to CCFESA and began the process of
withdrawing from regulation under CBI. As of December 31, 2021, CCFEL is no longer carrying out any business activities
but the withdrawal process from CBI regulation is not yet complete.
7. Cohen & Compagnie SAS (formerly Cohen Fréres SAS), the Company’s French subsidiary, acts as a credit research adviser
to DCM, and CCFESA in analyzing the creditworthiness of insurance companies and financial institutions in Europe with
respect to all assets included in the Dekania Europe CDOs and certain other Investment Vehicles.
SPAC Sponsor Entities: A series of LLC's set up to pool investor funds and invest in private placements of Company
sponsored special purpose acquisition companies ("SPACs"). See note 4.
8.
F-8
2. BASIS OF PRESENTATION
The accounting and reporting policies of the Company conform to U.S. GAAP. Certain prior period amounts have been
reclassified to conform to the current period presentation.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation
The consolidated financial statements reflect the accounts of Cohen & Company Inc. and its subsidiaries that are required to be
consolidated under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810,
Consolidation (“ASC 810”). All intercompany accounts and transactions have been eliminated in consolidation.
The Company consolidates the Operating LLC, which is its main operating subsidiary and through which it carries out nearly all of
its activities. With the exception of the junior subordinated notes included as a component of debt and the deferred tax liability,
nearly all of the assets and liabilities included in the Company’s consolidated balance sheet are owned by the Operating LLC or its
consolidated subsidiaries. In addition, with the exception of interest expense related to the junior subordinated notes and corporate
tax expense, nearly all revenues, expenses, gains, and losses recognized in the consolidated statement of operations are generated
by the Operating LLC or its consolidated subsidiaries.
As of December 31, 2018, the Company owned 67.60% of the economic and voting interests in the Operating LLC. As a result of
the issuance of additional equity interests in the Operating LLC during 2019 and the grant of a proxy from the owners of the
additional equity interests, effective December 31, 2021 and 2020, the Company controlled 51.00% of the voting interest and
owned 31.79% and 27.04%, respectively, of the economic interest of the Operating LLC. Although the Company’s economic
interests declined below 50%, it continues to consolidate the Operating LLC as it controls over 50% of the voting
interests. Earnings and loss are allocated to the Company and other members of the Operating LLC based on their economic
interest rather than their voting interest. For the years ended December 31, 2021, 2020 and 2019, 68.21%, 72.96% and 71.25%,
respectively, of the Operating LLC’s income or loss were treated as a non-controlling interest as the result of the issuance of the
additional equity interest in the Operating LLC during 2019. See notes 21, and 31.
B. Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make assumptions and estimates
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
C. Adoption of New Accounting Standards
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the new guidance (subsequently updated with ASU
2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20, and ASU 2019-01), lessees will be required to recognize the following for
all leases with the exception of short-term leases: (i) a lease liability, which is a lessee’s obligation to make lease payments arising
from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use,
or control the use of, a specified asset for the lease term. Lessor accounting is largely unchanged. The Company adopted the
provisions of the new guidance effective January 1, 2019. The Company recorded the following: (a) a right of use asset of
$8,416, (b) a lease commitment liability of $8,860, (c) a reduction in retained earnings from cumulative effect of adoption of $20,
(d) an increase in other receivables of $18, and (e) a reduction in other liabilities of $406. See note 15 and 17.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments. This ASU requires that financial instruments recorded as assets and at amortized cost as well as certain
securities accounted for as available for sale be presented at the net amount expected to be collected. The ASU requires the
recording of a valuation allowance that is deducted from amortized cost and is based on expected credit losses. This ASU does not
apply to financial assets carried at fair value. Therefore, this ASU does not apply to any financial asset that the Company classifies
as investments-trading; other investments, at fair value; trading securities sold, not yet purchased; and other investments sold, not
yet purchased. However, reverse repurchase agreements are not carried at fair value and fall within the scope of this ASU. ASC
326-20-35-6 contains simplifying provisions that apply to reverse repurchase agreements. Because the Company requires its
reverse repurchase counterparty to provide liquid collateral at all times (which is continually adjusted based on current market
values) at an amount greater than the carrying value of the reverse repurchase agreement, the Company is allowed to assume zero
credit losses and no valuation allowance is recorded. If, for some reason, the amount of collateral should fall below the carrying
value of the reverse repurchase agreement, the total valuation allowance recorded is limited to that difference. The Company
adopted the provisions of ASU 2016-13, effective January 1, 2020.
F-9
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment. The amendments in this ASU eliminate Step 2 from the goodwill impairment test. The annual or interim
goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment
charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the
loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The Company adopted the
provisions of ASU 2017-04, effective January 1, 2020. The Company recorded an impairment of goodwill for the twelve months
ended December 31, 2020. See note 13. This impairment charge was not the result of the adoption of ASU 2017-04.
In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs, Premium Amortization
on Purchased Callable Debt Securities (Sub-Topic 310-20). The amendments in this ASU shorten the amortization period for
certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the
earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to
be amortized to maturity. The Company’s adoption of the provisions of ASU 2017-08, effective January 1, 2019 did not have an
effect on the Company’s consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivative and Hedging – Targeted Improvements to Accounting for
Hedging Activities (Topic 815). The amendments in this ASU refine and expand hedge accounting for both financial and
commodity risks and contain provisions to create more transparency and clarify how economic results are presented. The
Company’s adoption of the provisions of ASU 2017-12, effective January 1, 2019 did not have an effect on the Company’s
consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this ASU provide
the option to reclassify stranded tax effects within accumulated other comprehensive income (“AOCI”) to retained earnings in
each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (the
“TCJA”) (or portion thereof) is recorded. The Company’s adoption of the provisions of ASU 2018-02, effective January 1, 2019
did not have an effect on the Company’s consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting. The amendments in this ASU expand the scope of Topic 718, which previously only included
share-based payments to employees, to include share-based payments issued to nonemployees for goods or services. Consequently,
the accounting for share-based payments to nonemployees and employees will be substantially aligned. The Company’s adoption
of the provisions of ASU 2018-07, effective January 1, 2019 did not have an effect on the Company’s consolidated financial
statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the
Disclosure Requirements for Fair Value Measurement. The ASU modifies the disclosure requirements in Topic 820, by removing
certain disclosure requirements related to the valuation hierarchy, modifying existing disclosure requirements related to
measurement uncertainty and adding new disclosure requirements such as disclosing the changes in unrealized gains and losses for
the period included in other comprehensive income for recurring level 3 fair value measurements held at the end of the reporting
period and disclosing the range and weighted average of significant unobservable inputs used to develop level 3 fair value
measurements. This ASU is effective for public companies for annual reporting periods and interim periods within those annual
periods beginning after December 15, 2019. The Company’s adoption of the provisions of ASU 2018-13, effective January 1, 2020
did not have an effect on the Company’s consolidated financial statements.
In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Target Improvements to Related Party Guidance for
Variable Interest Entities. The ASU made targeted changes to the related party consolidation guidance. The new guidance
changes how entities evaluate decision-making fees under the variable interest entity guidance. To determine whether decision-
making fees represent a variable interest, an entity will need to consider indirect interests held through related parties under
common control on a proportionate basis under the new guidance, rather than in their entirety, as has been the case under current
guidance. The guidance is effective in annual periods beginning after December 15, 2019 and interim periods within those fiscal
years. The Company’s adoption of the provisions of ASU 2018-17, effective January 1, 2020 did not have an effect on the
Company’s consolidated financial statements.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between
Topic 808 and Topic 606. The ASU provides more comparability in the presentation of revenue for certain transactions between
collaborative arrangement participants. It accomplishes this by allowing organizations to only present units of account in
collaborative arrangements that are within the scope of the revenue recognition standard together with revenue accounted for under
the revenue recognition standard. The parts of the collaborative arrangement that are not in the scope of the revenue recognition
standard should be presented separately from revenue accounted for under the revenue standard. The Company’s adoption of the
provisions of ASU 2018-18, effective January 1, 2020 did not have an effect on the Company’s consolidated financial statements.
F-10
In November 2019, the FASB issued ASU 2019-08, Compensation – Stock Compensation (Topic 718) and Revenue from
Contracts with Customers (Topic 606): Codification Improvements– Share-Based Consideration Payable to a Customer. This
ASU requires companies to measure and classify (on the balance sheet) share-based payments to customers by applying the
guidance in Topic 718, Compensation—Stock Compensation. As a result, the amount recorded as a reduction in revenue would be
measured based on the grant-date fair value of the share-based payment. The Company’s adoption of the provisions of ASU 2019-
08, effective January 1, 2020 did not have an effect on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.
This ASU is intended to simplify accounting for income taxes. It removes specific exceptions to the general principles in Topic
740 and amends existing guidance to improve consistent application. The Company’s adoption of the provisions of ASU 2019-12,
effective January 1, 2021, did not have an effect on the Company’s consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and
Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323,
and Topic 815. This ASU clarifies certain accounting certain topics impacted by Topic 321 Investments-Equity Securities. These
topics include measuring equity securities using the measurement alternative, how the measurement alternative should be applied
to equity method accounting, and certain forward contracts and purchased options which would be accounted for under the equity
method of accounting upon settlement or exercise. The Company’s adoption of the provisions of ASU 2020-01, effective January
1, 2021, did not have an effect on the Company’s consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate
Reform on Financial Reporting. Certain aspects of this topic were later enhanced and clarified in January 2021 when the FASB
issued ASU 2021-01 Reference Rate Reform (Topic 848). These ASUs provides temporary optional guidance to ease the burden in
accounting for reference rate reform by providing optional expedients and exceptions for applying generally accepted accounting
principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another
reference rate expected to be discontinued. The ASU is intended to help stakeholders during the global market-wide reference rate
transition period and will be in effect for a limited time through December 31, 2022. The Company’s adoption of the provisions of
ASU 2020-04 and ASU 2021-01, effective March 12, 2020, did not have an effect on the Company’s consolidated financial
statements.
D. Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term, highly liquid investments that have original maturities of three months or
less. A portion of the Company’s cash and cash equivalents are in the form of short-term investments and are not held in federally
insured bank accounts.
E. Financial Instruments
The Company accounts for its investment securities at fair value under various accounting literature including FASB ASC 320,
Investments — Debt and Equity Securities (“ASC 320”), pertaining to investments in debt and equity securities and the fair value
option of financial instruments in FASB ASC 825, Financial Instruments (“ASC 825”). The Company also accounts for certain
assets at fair value under applicable industry guidance such as: (a) FASB ASC 946, Financial Services-Investment Companies
(“ASC 946”); and (b) FASB ASC 940-320, Proprietary Trading Securities (“ASC 940-320).
Certain of the Company’s assets and liabilities are required to be measured at fair value. For those assets and liabilities, the
Company determines fair value according to the fair value measurement provisions included in ASC 820, Fair Value
Measurements and Disclosures (“ASC 820”). ASC 820 establishes a single authoritative definition of fair value, sets out a
framework for measuring fair value, establishes a valuation hierarchy based on the quality of inputs used to measure fair value, and
requires additional disclosures about fair value measurements. The definition of fair value focuses on the price that would be
received to sell the asset or paid to transfer the liability between market participants at the measurement date (an exit price). An
exit price valuation will include margins for risk even if they are not observable. ASC 820 establishes a valuation hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value into three broad levels (level 1, 2, and 3).
In addition, the Company has elected to account for certain of its other financial assets at fair value under the fair value option
provisions included in ASC 825. This standard provides companies the option of reporting certain instruments at fair value (with
changes in fair value recognized in the statement of operations) that were previously either carried at cost, not recognized on the
financial statements, accounted for as an equity method investment, or carried at fair value with changes in fair value recognized as
a component of equity rather than in the statement of operations. The election is made on an instrument-by-instrument basis and is
irrevocable. See note 9 for the information regarding the effects of applying the fair value option to the Company’s financial
instruments on the Company’s consolidated financial statements.
For financial instruments held by JVB, the Company accounts for them under ASC 940-320. ASC 940-320 requires all financial
instruments be carried at fair value with unrealized and realized gains included recorded in the consolidated statement of
operations. The main difference between ASC 940-320 and ASC 320 is that ASC 940-320 does not allow for available for sale or
held to maturity treatment.
For financial instruments held outside of JVB, the Company accounts for them under FAS ASC 320. ASC 320 requires that the
Company classify its investments as either (i) held to maturity, (ii) available for sale, or (iii) trading. This determination is made at
the time a security is purchased. ASC 320 requires that both trading and available for sale securities are to be carried at fair value.
However, in the case of trading assets, both unrealized and realized gains and losses are recorded in the statement of operations.
For available for sale securities, only realized gains and losses are recognized in the statement of operations while unrealized gains
and losses are recognized as a component of other comprehensive income (“OCI”). However, if the reporting entity elects to
account for an otherwise available for sale security under the fair value option (ASC 825), then the security is accounted for at fair
value with both unrealized and realized gains recorded in the statement of operations. In all the periods presented, all securities
accounted for under ASC 320 were either classified as trading or available for sale. No securities were classified as held to
maturity. Furthermore, the Company elected the fair value option, in accordance with ASC 825, for all securities that were
classified as available for sale. Therefore, for all periods presented, all securities owned by the Company were accounted for at fair
value with unrealized and realized gains and losses recorded in the consolidated statement of operations.
When the Company acquires an investment for the purpose of earning a return rather than to support the Company’s trading or
matched book repo operations, the Company classifies that investment as either other investments, at fair value or other
investments sold, not yet purchased in the consolidated balance sheet and unrealized and realized gains will be included as a
component of principal transactions and other income in the in the consolidated statement of operations. Otherwise, the
investment is classified as investments-trading or securities sold, not yet purchased in the consolidated balance sheet and
unrealized and realized gains will be included as a component of net trading revenue in the in the consolidated statement of
operations.
F-11
When the Company acquires an investment that is required to be accounted for under the equity method, the Company will elect
the fair value option when the fair value of the investment is either readily determinable or is eligible to be accounted for at NAV
under the practical expedient of ASC 946. In those cases, the investment will be included as a component of other investments, at
fair value in the consolidated balance sheet and unrealized and realized gains will be included as a component of principal
transactions and other income in the in the consolidated statement of operations. If the fair value is not readily determinable, the
Company will account for the investment under the equity method. In those cases, the investment will be included as a component
of investments in equity method affiliates in the consolidated balance sheet and the Company will recognize its allocable share of
the investee’s income or loss as a component of income / (loss) from equity method affiliates in the consolidated statement of
operations. See note 12.
The determination of fair value is based on either quoted market prices of an active exchange, independent broker market
quotations, market price quotations from third-party pricing services, or, when independent broker quotations or market price
quotations from third-party pricing services are unavailable, valuation models prepared by the Company’s management. These
models include estimates and the valuations derived from them could differ materially from amounts realizable in an open market
exchange.
Also, from time to time, the Company may be deemed to be the primary beneficiary of a VIE and may be required to consolidate it
and its investments under the provisions included in ASC 810. See note 18. In those cases, the Company’s classification of the
assets as trading, other investments, at fair value, available for sale, or held to maturity will depend on the intended use of the
investment by the variable interest entity.
Investments-Trading
Unrealized and realized gains and losses on securities classified as investments-trading are recorded in net trading in the
consolidated statements of operations.
Trading Securities Sold, Not Yet Purchased
Trading securities sold, not yet purchased represent obligations of the Company to deliver the specified security at the contracted
price, thereby creating a liability to purchase the security in the market at prevailing prices. The Company is obligated to acquire
the securities sold short at prevailing market prices, which may exceed the amount reflected on the consolidated balance sheets.
Unrealized and realized gains and losses on trading securities sold, not yet purchased are recorded in net trading in the
consolidated statements of operations.
Other Investments, at Fair Value
All gains and losses (unrealized and realized) from securities classified as other investments, at fair value in the consolidated
balance sheets are recorded as a component of principal transactions and other income in the consolidated statements of
operations.
Other investments sold, not yet purchased
Other investments sold, not yet purchased represent obligations of the Company to deliver the specified security at the contracted
price, thereby creating a liability to purchase the security in the market at prevailing prices. These investments differ from
investments classified as trading securities sold, not yet purchased as they are either acquired for purposes of earning a return
rather than to support the Company’s trading or matched book operations or they acquired as an economic hedge to investments
classified as other investments, at fair value. The Company is obligated to acquire the securities sold short at prevailing market
prices, which may exceed the amount reflected on the statement of financial condition. Unrealized and realized gains and losses on
other investments sold, not yet purchased are recorded as a component of principal transactions and other in the consolidated
statement of operations.
F. Derivative Financial Instruments
FASB ASC 815, Derivatives and Hedging (“ASC 815”), provides for optional hedge accounting. When a derivative is deemed to
be a hedge and certain documentation and effectiveness testing requirements are met, reporting entities can record all or a portion
of the change in the fair value of a designated hedge as an adjustment to OCI rather than as a gain or loss in the statements of
operations. To date, the Company has not designated any derivatives as hedges under the provisions included in ASC 815.
All of the derivatives that the Company enters into contain master netting arrangements. If certain requirements are met, the
offsetting provisions included in FASB ASC 210, Balance Sheet (“ASC 210”), allow (but do not require) the reporting entity to net
the derivative asset and liability on the consolidated balance sheets. It is the Company’s policy to present the derivative assets and
liabilities on a net basis if the conditions of ASC 210 are met. However, in general the Company does not enter in to offsetting
derivatives with the same counterparties. Therefore, in all periods presented, no derivatives are presented on a net basis.
Derivative financial instruments are recorded at fair value. If the derivative was entered into as part of the Company’s broker-
dealer operations, it will be included as a component of investments-trading or trading securities sold, not yet purchased. If it is
entered into as a hedge for another financial instrument included in other investments, at fair value then the derivative or as a
speculative principal investment, it will be included as a component of other investments, at fair value or other investments sold,
not yet purchased.
The Company may, from time to time, enter into derivatives to manage its risk exposures arising from (i) fluctuations in foreign
currency rates with respect to the Company’s investments in foreign currency denominated investments; (ii) the Company’s
investments in interest sensitive investments; (iii) the Company's investments in equities; and (iv) the Company’s facilitation of
mortgage-backed trading. Derivatives entered into by the Company, from time to time, may include (a) foreign currency forward
contracts; (b) purchase and sale agreements of TBAs and other forward agency MBS contracts; and (c) other extended settlement
trades.
TBAs are forward contracts to purchase or sell MBS whose collateral remain “to be announced” until just prior to the trade
settlement. In addition to TBAs, the Company sometimes enters into forward purchases or sales of agency MBS where the
underlying collateral has been identified. These transactions are referred to as other forward agency MBS contracts. TBAs and
other forward agency MBS contracts are accounted for as derivatives by the Company under ASC 815. The settlement of these
transactions is not expected to have a material effect on the Company’s consolidated financial statements.
F-12
In addition to TBAs and other forward agency MBS contracts as part of the Company’s broker-dealer operations, the Company
may from time to time enter into other securities or loan trades that do not settle within the normal securities settlement period. In
those cases, the purchase or sale of the security or loan is not recorded until the settlement date. However, from the trade date until
the settlement date, the Company’s interest in the security is accounted for as a derivative as either a forward purchase
commitment or forward sale commitment. The Company will classify the related derivative either within investments-trading or
other investments, at fair value depending on where it intends to classify the investment once the trade settles.
Derivatives involve varying degrees of off-balance sheet risk, whereby changes in the level or volatility of interest rates or market
values of the underlying financial instruments may result in changes in the value of a particular financial instrument in excess of its
carrying amount. Depending on the Company’s investment strategy, realized and unrealized gains and losses are recognized in
principal transactions and other income or in net trading in the Company’s consolidated statements of operations on a trade date
basis. See note 10.
G. Receivables from and payables to brokers, dealers, and clearing agencies
Receivables from brokers, dealers, and clearing agencies may include amounts receivable for deposits placed with clearing
agencies, funds in the Company’s accounts held with clearing agencies, and amounts receivable from securities or repo
transactions that have failed to deliver. Payables to brokers, dealers, and clearing agencies may include amounts payable from
securities or repo transactions that have failed to receive as well as amounts borrowed from clearing agencies under margin loan
arrangements. In addition, receivables or payables arising from unsettled regular way trades is reflected on a net basis either as a
component of receivables from or payables to brokers, dealers, and clearing agencies. These receivables are subject to the
requirements of ASU 2016-13 which potentially may require the recording of credit losses. The Company’s trades and contracts
are cleared through a clearing organization and settled daily between the clearing organization and the Company. Because of this
daily settlement, the amount of unsettled credit exposures is limited to the amount owed the Company for a very short period of
time. The Company continually reviews the credit quality of its counterparties and has not experienced a default. As a result, the
Company has not recorded a credit loss allowance on these receivables. See note 6.
H. Furniture, Equipment, and Leasehold Improvements, Net
Furniture, equipment, and leasehold improvements are stated at cost, less accumulated depreciation and amortization, and are
included as a component of other assets in the consolidated balance sheets. Furniture and equipment are depreciated on a straight-
line basis over their estimated useful life of 3 to 5 years. Leasehold improvements are amortized over the lesser of their useful life
or lease term, which generally ranges from 5 to 10 years. See note 16.
I. Goodwill and Intangible Assets with Indefinite Lives
Goodwill represents the amount of the purchase price in excess of the fair value assigned to the individual assets acquired and
liabilities assumed in various acquisitions completed by the Company. See note 13. In accordance with FASB ASC 350,
Intangibles — Goodwill and Other (“ASC 350”), goodwill and intangible assets deemed to have indefinite lives are not amortized
to expense but rather are analyzed for impairment.
The Company measures its goodwill for impairment on an annual basis or when events indicate that goodwill may be impaired.
The impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge
would be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, any loss
recognized would not exceed the total amount of goodwill, allocated to the reporting unit. Any impairment loss is included in the
consolidated statements of operations as impairment of goodwill and is included as a component of operating expense.
The Company includes intangible assets comprised primarily of its broker-dealer licenses in other assets on its consolidated
balance sheets that it considers to have indefinite useful lives. The Company reviews these assets for impairment on an annual
basis.
J. Variable Interest Entities
ASC 810 contains the guidance surrounding the definition of a VIE, the definition of variable interests, and the consolidation rules
surrounding VIEs. In general, VIEs are entities in which equity investors lack the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. The
Company has variable interests in VIEs through its management contracts and investments in various securitization entities
including CLOs and CDOs.
Once it is determined that the Company holds a variable interest in a VIE, ASC 810 requires that the Company perform a
qualitative analysis to determine (i) which entity has the power to direct the matters that most significantly impact the VIE’s
financial performance and (ii) if the Company has the obligation to absorb the losses of the VIE that could potentially be
significant to the VIE or the right to receive the benefits of the VIE that could potentially be significant to the VIE. The entity that
has both of these characteristics is deemed to be the primary beneficiary and required to consolidate the VIE. This assessment must
be done on an ongoing basis. The Company has included the required disclosures for VIEs in its consolidated financial statements.
See note 18 for further details.
K. Collateralized Securities Transactions
The Company may enter into transactions involving purchases of securities under agreements to resell (“reverse repurchase
agreements” or “receivables under resale agreements”) or sales of securities under agreements to repurchase (“repurchase
agreements”). The resulting interest income and expense are included in net trading in the consolidated statements of operations.
In the case of reverse repurchase agreements, the Company generally takes possession of securities as collateral. Likewise, in the
case of repurchase agreements, the Company is required to provide the counterparty with securities as collateral.
In certain cases, a repurchase agreement and a reverse repurchase agreement may be entered into with the same counterparty. If
certain requirements are met, the offsetting provisions included in ASC 210 allow (but do not require) the reporting entity to net
the asset and liability on the consolidated balance sheets.
ASC 210 provides the option to present reverse repo and repo on a net basis if certain netting conditions are met. The Company's
accounting policy is to present repo transactions on a gross basis even if netting thresholds are met.
F-13
The Company classifies reverse repurchase agreements as a separate line item within the assets section of the Company’s
consolidated balance sheets. The Company classifies repurchase agreements as a separate line item within the liabilities section of
the Company’s consolidated balance sheets.
In the case of reverse repurchase agreements, if the counterparty is unable or unwilling to fulfill its obligation to repurchase the
collateral securities at maturity, the Company can sell the collateral securities to repay the obligation. However, the Company is at
risk that it may sell at unfavorable market prices and may sustain significant losses. The Company’s policy to control this risk is
monitoring the market value of securities pledged or used as collateral on a daily basis and requiring additional collateral in the
event the market value of the existing collateral declines.
In the case of repurchase agreements, if the counterparty makes a margin call and the Company is unable or unwilling to meet the
margin call, the counterparty can sell the securities to repay the obligation. The Company is at risk that the counterparty may sell
the securities at unfavorable market prices and the Company may sustain significant losses. The Company controls this risk by
monitoring its liquidity position to ensure it has sufficient cash or liquid securities to meet margin calls.
In general, reverse repurchase agreements and repurchase agreements allow each counterparty to re-pledge or resell the collateral
securities to other counterparties. See note 11.
L. Debt
Debt is recorded at its face amount, less any discount or plus any premium. Debt issuance costs are included as a component of
discount on debt. Any discount on debt is amortized as a component of interest expense using the effective interest method. The
Company has not elected to account for any of its debt at fair value under ASC 825. See note 20.
M. Redeemable Financial Instruments
Redeemable financial instruments are investments made in the Operating LLC or other operating subsidiaries. These investments
entitle the holder to an investment return which is variable and is based on the operating results of certain business units of the
Company. These investments can be redeemed by the Company under certain circumstances or the holder may require redemption
under certain circumstances. However, there are no fixed maturity dates. The Company treats these investments as liabilities and
carries these investments at the redemption value plus any accrued and unpaid investment return on its consolidated balance
sheets. The redemption value is included in redeemable financial instruments and the accrued and unpaid investment return is
included in accounts payable and other liabilities in the consolidated balance sheets. Investment return is recorded on an accrual
basis and is included as a component of interest expense in the consolidated statements of operations. See note 19 and 31.
N. Revenue Recognition
Net trading
Net trading includes: (i) all gains, losses, interest income, dividend income, and interest expense from securities classified as
investments-trading and trading securities sold, not yet purchased; (ii) interest income and expense from collateralized securities
transactions; and (iii) commissions and riskless trading profits. Net trading is reduced by margin interest, which is recorded on an
accrual basis. Riskless trades are transacted through the Company’s proprietary account with a customer order in hand, resulting
in little or no market risk to the Company. Transactions that settle in the regular way are recognized on a trade date basis.
Extended settlement transactions are recognized on a settlement date basis (although in cases of extended settlement trades, the
unsettled trade is accounted for as a derivative between trade and settlement date). See note 10. The investments classified as
trading (both investments-trading and trading securities sold, not yet purchased) are carried at fair value. The determination of fair
value is based on quoted market prices of an active exchange, independent broker market quotations, market price quotations from
third-party pricing services or, when independent broker quotations or market price quotations from third-party pricing services are
unavailable, valuation models prepared by the Company’s management. The models include estimates, and the valuations derived
from them could differ materially from amounts realizable in an open market exchange. See note 9.
Asset management
Asset management revenue consists of management fees earned from Investment Vehicles. In the case of CDOs, the fees earned
by the Company generally consist of senior, subordinated, and incentive fees. The senior asset management fee is generally senior
to all the securities in the CDO capital structure and is recognized on a monthly basis as services are performed. The senior asset
management fee is generally paid on a quarterly basis. The subordinated asset management fee is an additional payment for the
same services but has a lower priority in the CDO cash flows. If the CDO experiences a certain level of asset defaults and
deferrals, these fees may not be paid. There is no recovery by the CDO of previously paid subordinated asset management fees. It
is the Company’s policy to recognize these fees on a monthly basis as services are performed. The subordinated asset management
fee is generally paid on a quarterly basis. However, if the Company determines that the subordinated asset management fee will
not be paid (which generally occurs on the quarterly payment date), the Company will stop recognizing additional subordinated
asset management fees on that particular CDO and will reverse any subordinated asset management fees that are accrued and
unpaid. The Company will begin accruing the subordinated asset management fee again if payment resumes and, in management’s
estimate, continued payment is reasonably assured. If payment were to resume but the Company was unsure of continued payment,
it would recognize the subordinated asset management fee as payments were received and would not accrue such fees on a
monthly basis. The incentive management fee is an additional payment, made typically after five to seven years of the life of a
CDO, which is based on the clearance of an accumulated cash return on investment (“Hurdle Return”) received by the most junior
CDO securities holders. It is an incentive for the Company to perform in its role as asset manager by minimizing defaults and
maximizing recoveries. The incentive management fee is not ultimately determined or payable until the achievement of the Hurdle
Return by the most junior CDO securities holders. The Company recognizes incentive fee revenue when it is probable and there is
not a significant chance of reversal in the future.
In the case of Investment Vehicles other than CDOs, generally the Company earns a base fee and, in some cases, also earns an
incentive fee. Base fees will generally be recognized on a monthly basis as services are performed and will be paid monthly or
quarterly. The contractual terms of each arrangement will determine the Company’s revenue recognition policy for incentive fees
in each case. However, in all cases the Company recognizes the incentive fees when they are probable and there is not a
significant chance of reversal in the future.
New issue and advisory
New issue and advisory revenue includes: (i) new issue revenue associated with originating, arranging, or placing newly created
financial instruments and (ii) revenue from advisory services. New issue and advisory revenue is recognized when all services
have been provided and payment is earned.
F-14
Principal transactions and other income
Principal transactions include all gains, losses, and income from financial instruments classified as other investments, at fair value
and other investments sold, not yet purchased in the consolidated balance sheets.
Investments classified as other investments, at fair value and other investments sold, not yet purchased are carried at fair value.
The determination of fair value is based on quoted market prices of an active exchange, independent broker market quotations,
market price quotations or models from third-party pricing services, or, when independent broker quotations or market price
quotations or models from third-party pricing services are unavailable, valuation models prepared by the Company’s management.
These models include estimates, and the valuations derived from them could differ materially from amounts realizable in an open
market exchange. Dividend income is recognized on the ex-dividend date.
Other income /(loss) includes foreign currency gains and losses, interest earned on cash and cash equivalents, interest earned and
losses incurred on notes receivable, and other miscellaneous income including revenue from revenue sharing arrangements.
O. Interest Expense, net
Interest expense incurred, other than interest income and expense included as a component of net trading is recorded on an accrual
basis and presented in the consolidated statements of operations as a separate non-operating expense. See notes 19 and 20.
P. Leases
The Company leases office space, certain computer and related equipment and a vehicle under a noncancelable operating
lease. From time to time, the Company sub-leases office space to other tenants. Under the requirements of ASC 842, the company
determines if an arrangement is a lease at the inception date of the contract. The Company measures operating lease liabilities
using an estimated incremental borrowing rate as there is no rate implicit in the Company’s operating lease arrangements. An
incremental borrowing rate was calculated for each operating lease based on the term of the lease, the U.S. Treasury term interest
rate, and an estimated spread to borrow on a secured basis. During the periods presented, all leases to which the Company was a
party are classified as operating leases and rent expense was recognized on a straight-line basis and included as a component of
business development, occupancy, and equipment in the consolidated statements of operations.
Q. Non-Controlling Interest
The equity interests of any consolidated subsidiary that are not owned by the Company are treated as non-controlling interests. See
note 21.
R. Equity-Based Compensation
The Company accounts for equity-based compensation issued to its employees using the fair value-based methodology prescribed
by the provisions related to share-based payments included in FASB ASC 718, Compensation-Stock Compensation (“ASC 718”).
In the periods presented herein, the Company has had three different types of grants that fall under ASC 718.
First, the Company sometimes grant to employees and directors restricted common stock in Cohen & Company Inc. These grants
vest over a period of time and only have service based vesting criteria. In these cases, the Company determines the fair value of
the grants by taking the closing stock price of Cohen & Company, Inc. on the grant date and multiplying it by the number of
restricted shares granted. The recipient is entitled to dividends during the vesting period but they are paid only if (and to the
extent) the restricted share grant ultimately vests. Any dividends paid for periods prior to vesting are treated as compensation
expense. The Company recognizes the expense over the service period on a straight line basis. The Company assumes no
forfeitures up front and records forfeitures as they occur by reducing expense.
Second, the Company sometimes grants to employees operating units of the Operating LLC. These grants also vest over a period
of time and only have service based vesting criteria. Because there is a fixed exchange ratio between units of the Operating LLC
and shares of Cohen & Company Inc., the fair value of the grant is calculated by taking the closing stock price of Cohen
& Company, Inc. on the grant date, adjusting for the exchange ratio, and then multiplying by the number of units of the Operating
LLC granted. The recipient is entitled to distributions during the vesting period but they are paid only if (and to the extent) the
unit grant ultimately vests. Any distributions paid for periods prior to vesting are treated as compensation expense. The
Company recognizes the expense over the service period on a straight line basis. The Company assumes no forfeitures up front
and record forfeitures as they occur by reducing expense.
Third, employees sometimes invest in the membership interests of consolidated SPAC sponsor entities. Because these entities are
consolidated and the employees are investing in the consolidated company's non-controlling interest, these equity interests fall
under ASC 718. Generally, the employee invests a de-minimus amount and receives an allocation of the founder shares held by
the sponsor entity. The investment generally does not have any explicit vesting criteria associated with it. Generally, the
employee's investment will be worthless if the SPAC in which the sponsor entity has invested is liquidated and it will become
worth something if the SPAC completes its business combination. Therefore, the Company treats these grants as having a
performance condition (i.e. the completion of the SPAC business combination). Further, at the time of the investments, the
Company treats this performance condition as being non-probable. The effect of this is that the Company records no expense
related to these investments until (and only if) the business combination is completed. Upon completion of the business
combination, the Company records compensation expense in an amount equal to the fair value of the grant. The fair value of the
grant is equal to the public trading price of the SPAC on the date of the grant adjusted for certain sale restrictions imposed on the
shares the employee receives (generally, the shares are restricted for sale for some time period and subject to certain hurdle prices
before they become freely tradeable). The Company uses a Monte Carlo simulation model to determine the appropriate discount
to place on shares that are subject to hurdle prices. The compensation amount is recorded with an offsetting credit to non-
controlling interest. From that point forward, the shares received by the employee are treated as part of the non-controlling interest
and allocated income, expense, gains, and losses accordingly until the applicable sponsor entity is liquidated or otherwise de-
consolidated.
F-15
S. Accounting for Income Taxes
Cohen & Company Inc. is treated as a C corporation for United States federal and state income tax purposes. The Company’s
voting-controlled subsidiary, the Operating LLC, is treated as a pass-through entity for U.S. federal income tax purposes and in
most of the states in which it does business. However, in the periods presented, the Operating LLC or its subsidiaries have been
subject to entity level income taxes in certain foreign jurisdictions as well as New York City, and Philadelphia.
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this
method, deferred tax assets and liabilities are determined based on the differences between the U.S. GAAP and tax basis of assets
and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change
in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized.
In making such a determination, the Company considers all available positive and negative evidence, including scheduled reversals
of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial operations. As shown in
note 23 to the consolidated financial statements contained herein, the Company currently has significant recognized as well as
unrecognized deferred tax assets. Deferred tax assets should only be recognized to the extent that we determine we can benefit in
the future from the asset. Generally, this determination is based on the Company's estimates of our ability to generate future
taxable income. This determination is complex and subject to judgment. The determination is ongoing and subject to change. If
the Company were to change this determination in the future, a significant deferred tax benefit or deferred tax expense would be
recognized as a component of earnings.
The Company’s policy is to record penalties and interest as a component of income tax expense (benefit) in the consolidated
statements of operations.
T. Other Comprehensive Income / (Loss)
The Company reports the components of comprehensive income / (loss) within the consolidated statements of operations and
comprehensive income / (loss). Comprehensive income / (loss) includes net income / (loss) from foreign translation adjustment.
U. Earnings / (Loss) Per Common Share
In accordance with FASB ASC 260, Earnings Per Share (“ASC 260”), the Company presents both basic and diluted earnings /
(loss) per common share in its consolidated financial statements and footnotes. Basic earnings / (loss) per common share (“Basic
EPS”) excludes dilution and is computed by dividing net income or loss allocable to common stockholders or members by the
weighted average number of common shares and restricted stock entitled to non-forfeitable dividends outstanding for the period.
Diluted earnings per common share (“Diluted EPS”) reflects the potential dilution of common stock equivalents (such as restricted
stock and restricted units entitled to forfeitable dividends, in-the-money stock options, and convertible debt, if they are not anti-
dilutive). See note 26 for the computation of earnings/(loss) per common share.
V. Business Concentration
A significant portion of the Company’s asset management revenues in a year may be derived from a small number of transactions.
For the year ended December 31, 2021, the Company earned asset management revenue of $2,484 from CDOs and $8,438 from
other investment funds.
Other than revenue earned in its matched book repo operations, the Company’s trading revenue is generated from transactions with
a diverse set of institutional customers. The Company does not consider its trading revenue, other than revenue earned in its
matched book repo operations, to be concentrated from a customer or counterparty perspective. See note 11 for discussion of
concentrations within its matched book repo operations.
F-16
W. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments. These
determinations were based on available market information and appropriate valuation methodologies. Considerable judgment is
required to interpret market data to develop the estimates and, therefore, these estimates may not necessarily be indicative of the
amount the Company could realize in a current market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts. Refer to note 9 for a discussion of the valuation
hierarchy with respect to investments-trading; other investments, at fair value; and the derivatives held by the Company.
Cash equivalents: Cash equivalents are carried at historical cost, which is assumed to approximate fair value. The estimated fair
value measurement of cash and cash equivalents is classified within level 1 of the valuation hierarchy.
Investments-trading: These amounts are carried at fair value. The fair value is based on either quoted market prices of an active
exchange, independent broker market quotations, market price quotations from third-party pricing services, or valuation models
when quotations are not available.
Other investments, at fair value: These amounts are carried at fair value. The fair value is based on quoted market prices of an
active exchange, independent broker market quotations, or valuation models when quotations are not available. In the case of
investments in alternative investment funds, fair value is generally based on the reported net asset value of the underlying fund.
Receivables under resale agreements: Receivables under resale agreements are carried at their contracted resale price, have short-
term maturities, and are repriced frequently or bear market interest rates and, accordingly, these contracts are at amounts that
approximate fair value. The estimated fair value measurements of receivables under resale agreements are based on observations
of actual market activity and are generally classified within level 2 of the valuation hierarchy.
Trading securities sold, not yet purchased: These amounts are carried at fair value. The fair value is based on quoted market prices
of an active exchange, independent market quotations, market price quotations from third-party pricing services, or valuation
models when quotations are not available.
Other investments, sold not purchased: These amounts are carried at fair value. The fair value is based on quoted market prices of
an active exchange, independent broker market quotations, or valuation models when quotations are not available.
Securities sold under agreement to repurchase: The liabilities for securities sold under agreement to repurchase are carried at their
contracted repurchase price, have short-term maturities, and are repriced frequently with amounts normally due in one month or
less and, accordingly, these contracts are at amounts that approximate fair value. The estimated fair value measurements of
securities sold under agreement to repurchase are based on observations of actual market activity and are generally classified
within level 2 of the valuation hierarchy.
Redeemable financial instruments: The liabilities for redeemable financial instruments are carried at their redemption value which
approximates fair value. The estimated fair value measurement of the redeemable financial instruments is classified within level 3
of the valuation hierarchy.
Debt: These amounts are carried at outstanding principal less unamortized discount. However, a substantial portion of the debt was
assumed in the AFN Merger and recorded at fair value as of that date. As of December 31, 2021, and 2020, the fair value of the
Company’s debt was estimated to be $54,284 and $62,496, respectively. The estimated fair value measurements of the debt are
generally based on discounted cash flow models prepared by the Company’s management primarily using discount rates for
similar instruments issued to companies with similar credit risks to the Company and are generally classified within level 3 of the
valuation hierarchy.
Derivatives: These amounts are carried at fair value. Derivatives may be included as a component of investments-trading; trading
securities sold, not yet purchased; and other investments, at fair value. See notes 10 and 11. The fair value is generally based on
quoted market prices on an exchange that is deemed to be active for derivative instruments such as foreign currency forward
contracts and Eurodollar futures. For derivative instruments, such as TBAs and other extended settlement trades, the fair value is
generally based on market price quotations from third-party pricing services.
F-17
X. Investments in Special Purpose Acquisition Companies ("SPACs") Sponsor Entities
The Company invests in the sponsor entities of SPACs. The sponsor entities are limited liability companies (each an "LLC") that
pool their members' interests and invest in the private placement of a SPAC. The SPAC will also raise funds in a public offering
and seek to complete a business combination within an agreed upon time frame. The SPAC will use the proceeds raised from
the private placement to pay transaction and operating expenses during the period it is seeking a business combination. The
proceeds of the public offering are placed in an interest bearing trust and can only be used to complete the business
combination. Generally, the public investors must approve any business combination prior to its effectiveness. If a business
combination is not completed within the agreed upon time frame, the SPAC will liquidate and return the public investors'
investment to them. If there are funds remaining after liquidation, the sponsor entities may receive some portion of their
investment back, but likely they will suffer a total loss of their investment. If the business combination is completed, the sponsor
entities private placement in the SPAC will entitle them to a combination of unrestricted common, restricted common, and (in
some cases) warrants of the post-business combination SPAC (which is a publicly traded company). The following summarizes
the Company's accounting policies related to its investments in these entities:
• The sponsor entities are LLCs that give all important decision making rights to their respective managing member. Furthermore,
the other members of the LLC cannot replace the managing member. Accordingly, the Company has concluded that the sponsor
entities are VIEs and the managing member has the power to direct its most important economic activities. In all cases where the
Company is the managing member of a sponsor entity, it has also had a significant economic interest in such sponsor entity and
therefore consolidates such sponsor entity.
• In all cases where the Company has consolidated a sponsor entity, it has determined that the sponsor entity's private placement
investment in the SPAC which it sponsors should be treated as an equity method investment during the SPAC's pre-business
combination period. Furthermore, because of the difficulty of determining the fair value of such an investment in the SPAC's pre-
business combination period, the Company has chosen to not elect fair value option.
• If a SPAC completes its business combination, the sponsor entity's investment in the SPAC will be converted to a combination of
unrestricted and restricted shares in the post-business combination SPAC. At this point (assuming the Company consolidates the
sponsor entity), the Company will account for the shares received at fair value. It will reclassify any remaining equity method
investment to other investments, at fair value and record principal transactions income for the difference. The Company will record
non-controlling interest expense for the SPAC shares that are distributable to the non-controlling interest holders of the sponsor
entity. The fair value of the unrestricted shares received is equal to the public trading price of the SPAC on the date of the business
combination. The fair value of the restricted shares received is adjusted downwards from the public trading price for certain sale
restrictions imposed (generally, they are restricted for sale for some time period and subject to certain hurdle prices before they
become freely tradeable). The Company uses a Monte Carlo simulation model to determine the appropriate discount to place on
shares that are subject to hurdle prices. In the case of a SPAC business combination where the Company consolidates the sponsor
entity, generally there is also an equity-based compensation entry to be recorded at the date of the business combination. See
equity-based compensation section above. The Company will continue to mark the sponsor entity's investment in the SPAC to
market and record principal transactions income or loss and offsetting non-controlling interest income or expense until the sponsor
entity itself distributes all of the SPAC shares it owns to its members and liquidates. At that point, the Company will hold the
SPAC shares directly (rather than through a consolidated subsidiary) and will record principal transaction income and loss until the
SPAC shares themselves are liquidated.
• The Company will also invest in sponsor entities that it does not consolidate because it is not the managing member of such
sponsor entity or otherwise does not have the power to direct the sponsor entity's most important activities. In these cases, the
Company treats its investment in the sponsor entity as an equity method investment. Furthermore, because of the difficulty of
determining the fair value of such an investment in the applicable SPAC's pre-business combination period, the Company has
chosen to not elect fair value option.
• If a SPAC completes a business combination and the Company has an equity method investment in the associated sponsor entity,
upon completing a business combination, the sponsor entity will record income equal to the difference between the fair value of the
restricted and unrestricted shares it receives and the carrying value of its equity method investment in the SPAC. The Company
will recognize its share of this gain as income from equity method affiliates. The sponsor entity will continue to mark its
investment in the SPAC to market after the business combination and the Company will recognize its share of the change in fair
value as income or loss from equity method affiliates. Once the sponsor entity distributes the Company's share of the SPAC shares
it owns, the Company will reclassify its investment from investment in equity method affiliate to other investments, at fair value as
the Company will hold the SPAC shares directly (rather than through an equity method investee). The Company will then record
principal transactions income and loss until the SPAC shares themselves are liquidated.
• If a SPAC liquidates and the Company has an investment in it (either directly in the case of consolidated sponsor entities or
indirectly in the case of equity method sponsor entities), the Company will write off its remaining equity method balance and
record loss on equity method investment. In the case of consolidated sponsor entities, the Company will also record an offsetting
entry to non-controlling interest.
F-18
Y. Recent Accounting Developments
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and
Contracts in an Entity's Own Equity. This ASU simplifies accounting for convertible instruments by removing major separation
models currently required. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the
derivative scope exception. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. This ASU is
effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company is
currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements.
In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable
Fees and Other Costs. The ASU clarifies that an entity should reevaluate whether a callable debt security is within the scope of
ASC paragraph 310-20-35-33 for cash reporting period. This ASU is effective for fiscal years beginning after December 15, 2021,
including interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating the new
guidance to determine the impact it may have on its consolidated financial statements.
In October 2020, the FASB issued ASU 2020-10 Codification Improvements. The ASU affects a wide variety of Topics in the
Codification. The ASU, among other things, contains amendments that improve consistency of the Codification by including all
disclosure guidance in the appropriate Disclosure Section. Many of the amendments arose because the FASB provided an option
to give certain information either on the face of the financial statements or in the notes to financial statements and that option only
was included in the Other Presentation Matters Section of the Codification. The option to disclose information in the notes to
financial statements should have been codified in the Disclosure Section as well as the Other Presentation Matters Section (or
other Section of the Codification in which the option to disclose in the notes to financial statements appears). The amendments are
effective for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after
December 15, 2022. The Company is currently evaluating the new guidance to determine the impact it may have on its
consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments
(Subtopic 470-50), Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-
40): Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This
ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within
the scope of another topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an
exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2)
how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that
remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an
exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This
ASU is effective for fiscal years beginning after December 15, 2021. The Company is currently evaluating the new guidance to
determine the impact it may have on its consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and
Contract Liabilities from Contracts with Customers. This ASU requires entities to apply Topic 606 to recognize and measure
contract assets and contract liabilities in a business combination. The amendments in improve comparability after the business
combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a
business combination and revenue contracts with customers not acquired in a business combination. This ASU is effective for
fiscal years beginning after December 15, 2021. The Company is currently evaluating the new guidance to determine the impact it
may have on its consolidated financial statements.
In October 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about
Government Assistance. This ASU includes amendments that are expected to increase transparency in financial reporting by
requiring business entities to disclose information about certain types of government assistance they receive. The
amendments require the following annual disclosures about transactions with a government that are accounted for by applying a
grant or contribution accounting model by analogy to other accounting guidance: (i) information about the nature of the
transactions and the related accounting policy used to account for the transactions; (ii)the line items on the balance sheet and
income statement that are affected by the transactions, and the amounts applicable to each financial statement line item; and (iii)
significant terms and conditions of the transactions, including commitments and contingencies. This ASU is effective for fiscal
years beginning after December 15, 2021. The Company is currently evaluating the new guidance to determine the impact it may
have on its consolidated financial statements.
F-19
4. INSURANCE SPAC INVESTMENTS AND OTHER RECENT EVENTS
Insurance SPAC Investments
Insurance SPAC
The Operating LLC was the manager of Insurance Acquisition Sponsor, LLC (“IAS”) and Dioptra Advisors, LLC (“Dioptra” and,
together with IAS, the “Insurance SPAC Sponsor Entities”). The Insurance SPAC Sponsor Entities were sponsors of Insurance
Acquisition Corp. ("Insurance SPAC"), a special purpose acquisition company formed for the purpose of effecting a merger,
capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more
businesses.
On June 29, 2020, Insurance SPAC entered into an Agreement and Plan of Merger (the “Insurance SPAC Merger Agreement”)
with IAC Merger Sub, Inc., a Delaware corporation and direct wholly owned subsidiary of Insurance SPAC (“Insurance SPAC
Merger Sub”), and Shift Technologies, Inc., a Delaware corporation ("SFT"). On October 13, 2020, Insurance SPAC Merger Sub
was merged (the "Insurance SPAC Merger") with and into SFT. In connection with the Insurance SPAC Merger, the Insurance
SPAC changed its name from "Insurance Acquisition Corp." to "Shift Technologies, Inc." and, on October 15, 2020, the Insurance
SPAC's NASDAQ trading symbol changed from "INSU" to "SFT". The Insurance SPAC Merger was approved by the Insurance
SPAC's stockholders at a special meeting of stockholders held on October 13, 2020.
Upon the closing of the Insurance SPAC Merger, the Insurance SPAC Sponsor Entities held 375,000 shares of SFT's Class A
Common Stock, par value $0.0001 per share (“SFT Class A Common Stock”), and 187,500 warrants (“SFT Warrants”) to
purchase an equal number of shares of SFT Class A Common Stock for $11.50 per share (such SFT Class A Common Stock and
SFT Warrants, collectively, the “Placement Securities”) as a result of the 375,000 placement units which the Insurance SPAC
Sponsor Entities had purchased in a private placement that occurred simultaneously with the Insurance SPAC’s initial public
offering on March 22, 2019. Further, upon the closing of the Insurance SPAC Merger, the Insurance SPAC Sponsor Entities
collectively held an additional 4,497,525 shares of SFT Class A Common Stock as a result of its previous purchase of founder
shares of the Insurance SPAC. In general, when founder shares and placement shares are discussed as a group, the Company
refers to them as Sponsor Shares. Of the 375,000 placement units, 122,665 were allocable to the Operating LLC. Of the
4,497,525 founder shares, 2,019,721 were allocable to the Operating LLC.
As of the closing of the Insurance SPAC Merger, the Company continued to consolidate the Insurance SPAC Sponsor Entities.
Prior to the closing, the Company treated the consolidated Insurance SPAC Sponsor Entities’ investment in the Insurance SPAC as
an equity method investment. Effective upon the closing of the Insurance SPAC Merger:
1. The Company determined the fair value of the Sponsor Shares held by the Insurance SPAC Sponsor Entities.
2. The Company reclassified the equity method investment to other investments, at fair value and recorded principal
transactions and other income for the difference between the fair value of the Sponsor Shares held by the Insurance
SPAC Sponsor Entities and the equity method investment balance immediately prior to the merger closing.
3. The Company then recorded non-controlling interest expense or compensation expense related to the Sponsor Shares
distributable to the non-controlling interest holders in the Insurance SPAC Sponsor Entities. If the non-controlling
interest holder was an employee if the Company, the Company recorded the expense as equity-based compensation
expense. Otherwise, the expense was recorded by the Company as non-controlling interest expense.
Subsequent to the closing of the Insurance SPAC Merger, any change in the fair value of the shares held by the Insurance SPAC
Sponsor Entities has been recorded as a component of principal transactions and other income. The Company concurrently
recorded a corresponding non-controlling interest entry related to the Sponsor Shares distributable to the non-controlling interest
holders in the Insurance SPAC Sponsor Entities. No adjustment was made to the equity-based compensation expense recorded as
of the closing of the Insurance SPAC Merger. Rather, all post-merger changes in value related to Sponsor Shares distributable to
the non-controlling interest holders in the Insurance SPAC Sponsor Entities were recorded as non-controlling interest expense.
During 2021, the Insurance SPAC Sponsor Entities distributed all the unrestricted and restricted shares held to its members
including the Operating LLC. The portion of such SFT shares that was distributed to members other than the Operating
LLC were treated as an in-kind non-controlling interest distribution. Subsequent to that distribution, the Company will continue to
record any change in the fair value of the SFT shares held by the Operating LLC as a component of principal transactions and
other income. However, no offsetting entry to non-controlling interest is necessary subsequent to the non-controlling interest
distribution.
Concurrently with the closing of the Insurance SPAC Merger, a subsidiary of the Operating LLC, INSU Pipe Sponsor LLC,
purchased 600,000 shares of SFT Class A Common Stock at a purchase price per share of $10.00 pursuant to a subscription
agreement that such subsidiary executed at the time of the execution of the Insurance SPAC Merger Agreement. The Company's
interest in INSU Pipe Sponsor LLC entitled it to an allocation of 350,000 shares of SFT Class A Common Stock. During 2020, the
Company consolidated INSU Pipe Sponsor LLC and recorded principal transactions and other income for the full 600,000 shares
and then non-controlling interest expense or income for the 250,000 shares not owned by the Company. In December 2020, the
shares of SFT Class A common stock were registered for sale and INSU Pipe Sponsor LLC distributed the shares to the non-
controlling interest holders resulting in INSU Pipe Sponsor LLC being 100% owned by the Operating LLC. INSU Pipe Sponsor
LLC was dissolved in the first quarter of 2021, and the Company's 350,000 shares of SFT class A common stock were transferred
to the Operating LLC or other wholly-owned subsidiaries of the Operating LLC.
F-20
The following table details the income statement impact of Insurance SPAC to the Company's operating results during 2021 and
2020. This table excludes any tax impact.
Year Ended December 31, 2021
Year Ended December 31, 2020
Principal transactions and other income $
Equity-based compensation
Other operating
Income / (loss) from equity method
affiliates
Net income / (loss)
Less: Net lncome / (loss) attributable to
the non-controlling interest - Operating
LLC
Net income / (loss) - Operating LLC
Less: Net income / (loss) attributable to
the convertible non-controlling interest
Net income / (loss) attributable to
Cohen & Company Inc.
$
Insurance
SPAC
Sponsor
Entities
Operating
LLC
Total
Insurance
SPAC
Sponsor
Entities
INSU
Pipe
Sponsor,
LLC
7,380 $ (12,638 ) $
-
-
-
(11 )
(5,258 ) $ 41,035 $
(11,700 )
(2 )
-
(11 )
(842 ) $
-
-
Operating
LLC
Total
426 $ 40,619
(11,700 )
(2 )
-
-
-
7,369
-
(12,638 )
-
(5,269 )
(3,138 )
26,195
-
(842 )
-
426
(3,138 )
25,779
3,560
3,809
-
(12,638 )
3,560
(8,829 )
9,328
16,867
(410 )
(432 )
-
426
8,918
16,861
2,690
(8,924 )
(6,234 )
12,205
(313 )
308
12,200
1,119 $
(3,714 ) $
(2,595 ) $
4,662 $
(119 ) $
118 $
4,661
As of December 31, 2021, the Operating LLC's total investment in SFT was $5,785, which is included as a component of other
investments, at fair value. This fair value is broken out as follows:
Description
Shares freely tradeable
Shares that will become freely tradeable at such time SFT's stock price is greater than $12.00 per share for any
period of 20 trading days out of 30 consecutive trading days
Shares that will become freely tradeable at such time SFT's stock price is greater than $13.50 per share for any
period of 20 trading days out of 30 consecutive trading days
Shares that will become freely tradeable at such time SFT's stock price is greater than $15.00 per share for any
period of 20 trading days out of 30 consecutive trading days
Shares that will become freely tradeable at such time SFT's stock price is greater than $17.00 per share for any
period of 20 trading days out of 30 consecutive trading days
Total
$
$
Operating
LLC
445
1,341
1,337
1,333
1,329
5,785
SFT's closing price on December 31, 2021 was $3.41.
F-21
INSU Acquisition Corp II ("Insurance SPAC II")
The Operating LLC, was the manager of Insurance Acquisition Sponsor II, LLC (“IAS II”) and Dioptra Advisors II, LLC
(“Dioptra II” and, together with IAS II, the “Insurance SPAC II Sponsor Entities”). The Insurance SPAC II Sponsor Entities
were sponsors of INSU Acquisition Corp. II (“Insurance SPAC II”), a blank check company that sought to effect a merger, capital
stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses
(each a “Insurance SPAC II Business Combination”).
On November 24, 2020, Insurance SPAC II entered into an Agreement and Plan of Merger and Reorganization (the “Insurance
SPAC II Merger Agreement”) with INSU II Merger Sub Corp., a Delaware corporation and direct wholly owned subsidiary of
Insurance SPAC II (“Insurance SPAC II Merger Sub”), and MetroMile, Inc., a Delaware corporation (at the time,
named MetroMile Operating Company) (“MetroMile”). The Insurance SPAC II Merger Agreement provided for, among other
things, the acquisition of MetroMile by Insurance SPAC II pursuant to the proposed merger of Insurance SPAC II Merger Sub
with and into MetroMile with MetroMile continuing as the surviving entity and a direct wholly owned subsidiary of Insurance
SPAC II (the “Insurance SPAC II Merger”). On February 9, 2021, the Insurance SPAC II Merger was consummated and
Insurance SPAC II changed its name to MetroMile.
Upon closing of the Insurance SPAC II Merger, the Insurance SPAC II Sponsor Entities received a total of 6,669,667 founder
shares and 452,500 placement units. On April 16, 2021, of the founder shares, 3,414,875 shares of MILE Class A Common Stock
were distributed to the non-controlling interest holders of the Insurance SPAC II Sponsor Entities and 3,254,792 shares of MILE
Class A Common Stock were distributed to the Operating LLC. All of the placement units were distributed to the non-controlling
interest holders of the Insurance SPAC II Sponsor Entities.
Each placement unit consisted of one share of Insurance SPAC II Common Stock and one-third of one warrant (the “Insurance
SPAC II Warrant”). Each whole Insurance SPAC II Warrant entitled the holder to purchase one share of Insurance SPAC II
common stock for $11.50 per share. Of the 6,669,667 founder shares, (i) 1,569,333 founder shares were freely transferable and
saleable at the closing as of the Insurance SPAC II Merger, (ii) 2,550,167 founder shares will become freely transferable and
saleable at such time as MetroMile's stock price is greater than $15.00 per share for any period of 20 trading days out of 30
consecutive trading days; (iii) 2,550,167 founder shares will become freely transferable and saleable at such time as MetroMile's
stock price is greater than $17.00 per share for any period of 20 trading days out of 30 consecutive trading days.
As of the closing of the Insurance SPAC II Merger, the Company continued to consolidate the Insurance SPAC II Sponsor
Entities. Prior to the closing, the Company treated the consolidated Insurance SPAC Sponsor Entities’ investment in the Insurance
SPAC II as an equity method investment. Effective upon the closing of the Insurance SPAC II Merger.
1. The Company determined the fair value of the Sponsor Shares held by the Insurance SPAC Sponsor Entities;
2. The Company reclassified the equity method investment to other investments, at fair value and recorded principal
transactions and other income for the difference between the fair value of the Sponsor Shares held by the Insurance
SPAC II Sponsor Entities and the equity method investment balance immediately prior to the merger closing.
3. The Company then recorded non-controlling interest expense or compensation expense related to the Sponsor Shares
distributable to the non-controlling interest holders in the Insurance SPAC II Sponsor Entities. If the non-controlling
interest holder was an employee if the Company, the Company recorded the expense as equity-based compensation
expense. Otherwise, the expense was recorded by the Company as non-controlling interest expense.
Subsequent to the closing of the Insurance SPAC II Merger through April 16, 2021, any change in the fair value of the shares held
by the Insurance SPAC II sponsor Entities was recorded as a component of principal transactions and other income. The
Company concurrently recorded a corresponding non-controlling interest entry related to the Sponsor Shares distributable to the
non-controlling interest holders in the Insurance SPAC Sponsor II Entities. No adjustment was made to the equity-based
compensation expense recorded as of the closing of the Insurance SPAC II Merger. Rather, all post-merger changes in value
related to Sponsor Shares distributable to the non-controlling interest holders in the Insurance SPAC II Sponsor
Entities were recorded as non-controlling interest expense.
On April 16, 2021, the Insurance SPAC II Sponsor Entities distributed all the unrestricted and restricted MetroMile shares held to
its members including the Operating LLC. The portion of such MetroMile shares that was distributed to members other than the
Operating LLC was treated as an in-kind non-controlling interest distribution. Subsequent to that distribution, the Company
will continue to record any change in the fair value of the MetroMile shares held by it as a component of principal transactions and
other income. However, no offsetting entry to non-controlling interest is necessary subsequent to the non-controlling interest
distribution.
On November 8, 2021, MetroMile announced that it has agreed to be acquired in an all stock transaction by Lemonade
(NYSE:LMND). Upon completion of the transaction, each shareholder of MetroMile (including the Operating LLC) will receive
1/19th share of LMND for each share of MetroMile. All sale restrictions on the Operating LLC's shares lapse effective with the
completion of the transaction. Accordingly any LMND shares received by the Operating LLC will be freely tradeable. The
transaction was approved by the shareholders of MetroMile on February 1, 2022. It is expected that that the transaction will close
some time in the second quarter of 2022.
F-22
The following table details the income statement impact of Insurance SPAC to the Company's operating results during 2021 and
2020. This table excludes any tax impact.
Year Ended December 31, 2021
Year Ended December 31, 2020
Insurance
SPAC II
Sponsor
Entities
Operating
LLC
Total
Insurance
SPAC II
Sponsor
Entities
Operating
LLC
Total
Principal transactions and other
income
Equity-based compensation
Other operating
Income / (loss) from equity method
affiliates
Net income / (loss)
Less: Net loss / (income) attributable
to the non-controlling interest -
Operating LLC
Net income / (loss) - Operating LLC
Less: Net income / (loss) attributable
to the convertible non-controlling
interest
Net income / (loss) attributable to
Cohen & Company Inc.
$
56,720
(13,068 )
(2 )
(13,064 )
-
-
43,656
(13,068 )
(2 )
-
-
-
(107 )
43,543
-
(13,064 )
(107 )
30,479
(486 )
(486 )
17,644
25,899
-
(13,064 )
17,644
12,835
-
(486 )
- $
-
-
-
-
-
-
-
-
-
(486 )
(486 )
-
(486 )
18,287
(9,224 )
9,063
(262 )
-
(262 )
7,612 $
(3,840 ) $
3,772 $
(224 ) $
- $
(224 )
The Operating LLC's total investment in MetroMile of $5,500 as of December 31, 2021 is included as a component of other
investments, at fair value in our consolidated balance sheet. These values are broken out as follows:
Description
Shares freely tradeable
Shares that will become freely tradeable at such time MetroMile's stock price is greater than $15.00 per share for
any period of 20 trading days out of 30 consecutive trading days
Shares that will become freely tradeable at such time MetroMile's stock price is greater than $17.00 per share for
any period of 20 trading days out of 30 consecutive trading days
Total
$
$
Fair
Value
-
2,750
2,750
5,500
If Lemonade completes its acquisition of MetroMile, all shares above will be released from sale restrictions and become freely
tradeable. MetroMile's closing share price was $2.19 on December 31, 2021.
F-23
INSU Acquisition Corp III ("Insurance SPAC III")
The Operating LLC, is the manager of Insurance Acquisition Sponsor III, LLC (“IAS III”) and Dioptra Advisors III, LLC
(together with IAS III, the “Insurance SPAC III Sponsor Entities”). The Insurance SPAC III Sponsor Entities are sponsors of
INSU Acquisition Corp. III ("Insurance SPAC III"). On December 22, 2020, Insurance SPAC III completed the sale of 25,000,000
units (the “Insurance SPAC III Units”) in its initial public offering which included 3,200,000 units issued pursuant to the
underwriters’ over-allotment option.
Each Insurance SPAC III Unit consists of one share of Insurance SPAC III's Class A common stock, par value $0.0001 per share
(“Insurance SPAC III Common Stock”), and one-third of one Insurance SPAC III warrant (each, an “Insurance SPAC III
Warrant”), where each whole Insurance SPAC III Warrant entitles the holder to purchase one share of Insurance SPAC III
Common Stock for $11.50 per share. The Insurance SPAC III Units were sold in the IPO at an offering price of $10.00 per Unit,
for gross proceeds of $250,000 (before underwriting discounts and commissions and offering expenses). Pursuant to the
underwriting agreement in the IPO, Insurance SPAC III granted the underwriters in the IPO (the “Insurance SPAC III
Underwriters”) a 45-day option to purchase up to 3,270,000 additional Insurance SPAC III Units solely to cover over-allotments, if
any; and on December 21, 2020, the Insurance SPAC III Underwriters notified the Company that they were partially exercising the
over-allotment option for 3,200,000 Insurance SPAC III units and waiving the remainder of the over-allotment option.
Immediately following the completion of the IPO, there were an aggregate of 34,100,000 shares of Insurance SPAC III Common
Stock issued and outstanding. If the Insurance SPAC III fails to consummate a business combination within the first 24 months
following the IPO, its corporate existence will cease except for the purposes of winding up its affairs and liquidating its assets.
The Insurance SPAC III Sponsor Entities purchased an aggregate of 575,000 of placement units in Insurance SPAC III in a private
placement that occurred simultaneously with the IPO for an aggregate of $5,750 or $10.00 per placement unit. Each placement unit
consists of one share of Insurance SPAC III Common Stock and one-third of one warrant (the “Insurance SPAC III Placement
Warrant”). The Insurance SPAC III placement units are identical to the Insurance SPAC III Units sold in the IPO except (i) the
shares of Insurance SPAC III Common Stock issued as part of the placement units and the Insurance SPAC III Warrants will not
be redeemable by Insurance SPAC, III (ii) the Insurance SPAC III Warrants may be exercised by the holders on a cashless basis,
and (iii) the shares of Insurance SPAC III Common Stock issued as part of the placement units, together with the Insurance SPAC
III Warrants, are entitled to certain registration rights. Subject to certain limited exceptions, the placement units (including the
underlying Insurance SPAC III Warrants and Insurance SPAC III Common Stock and the shares of Insurance SPAC III Common
Stock issuable upon exercise of the Insurance SPAC III Warrants) will not be transferable, assignable or salable until 30 days after
the completion of the Insurance SPAC III's initial business combination.
A total of $250,000 of the net proceeds from the private placement and the IPO (including approximately $10,600 of the deferred
underwriting commission from the IPO) were placed in a trust account. Except for the withdrawal of interest to pay taxes (or
dissolution expenses if a business combination is not consummated), none of the funds held in the trust account will be released
until the earlier of (i) the completion of Insurance SPAC III's initial business combination, (ii) in connection with a stockholder
vote to amend Insurance SPAC III's amended and restated certificate of incorporation (A) to modify the substance or timing
of Insurance SPAC III's obligation to redeem 100% of its public shares if it does not complete an initial business combination
within 24 months from the completion of the IPO or (B) with respect to any other provision relating to stockholders’ rights or pre-
initial business combination activity or (iii) the redemption of all of Insurance SPAC III’s public shares issued in the IPO if the
Insurance SPAC III is unable to consummate an initial business combination within 24 months from the completion of the IPO.
If Insurance SPAC III does not complete a business combination within the first 24 months following the IPO, the placement units
will expire worthless.
The Insurance SPAC III Sponsor Entities collectively hold 8,525,000 founder shares in Insurance SPAC III. Subject to certain
limited exceptions, the founder shares will not be transferable or salable except (a) with respect to 25% of such shares, until
consummation of a business combination, and (b) with respect to additional 25% tranches of such shares, when the closing price of
Insurance SPAC III Common Stock exceeds $12.00, $13.50 and $17.00, respectively, for 20 out of any 30 consecutive trading
days following the consummation of a business combination. Certain non-controlling interests in the Insurance SPAC III Sponsor
Entities, including executive and key employees of the Operating LLC, purchased membership interests in the Insurance SPAC III
Sponsor Entities and, in addition to having an interest in Insurance SPAC III’s placement units discussed above, have an interest in
Insurance SPAC III’s founder shares through such membership interests in the Insurance SPAC III Sponsor Entities. The number
of the Insurance SPAC III’s founder shares in which such non-controlling interests in the Insurance SPAC III Sponsor Entities,
including such executives and key employees of the Operating LLC, have an interest in through the Insurance SPAC III Sponsor
Entities will not be finally and definitively determined until consummation of a business combination. The number of Insurance
SPAC III’s founder shares currently allocated to the Operating LLC is 4,267,500, but such number of founder shares will also not
be finally and definitively determined until the consummation of a business combination.
The Operating LLC loaned to Insurance SPAC III approximately $71 to cover IPO expenses, which was repaid in full at the
closing of the IPO. Insurance Acquisition Sponsor III and its affiliates, including the Operating LLC, have also committed to loan
Insurance SPAC III up to an additional $810 to cover operating and acquisition related expenses following the IPO, of which $500
was borrowed by Insurance SPAC III as of December 31, 2021. See note 31. These loans will bear no interest and, if the
Insurance SPAC III consummates a business combination in the required time frame, the loans are to be repaid from the funds held
in Insurance SPAC III’s trust account. If Insurance SPAC III does not consummate a business combination in the required time
frame, no funds from Insurance SPAC III's trust account can be used to repay the loans. Insurance SPAC III borrowed an
additional $310 in February 2022 from the Operating LLC.
As of December 31, 2021, the Company had a total equity method investment in Insurance SPAC III of $4,543 which was
included as a component of investment in equity method affiliates in the Company's consolidated balance sheet. Partially
offsetting this amount was non-controlling interest of $4,808 which was included as a component of non-controlling interest in the
Company's consolidated balance sheet. Therefore, the net carrying value of our investment in Insurance SPAC III was ($265) as
of December 31, 2021.
F-24
Other Recent Events
Wind Down of the Company's GCF Repo Business
Since 2017, the Company has carried out a matched book GCF repo business as a full-netting member of the FICC Government
Services Division. In October 2021, primarily due to reduced spreads in the repo market for GCF collateral, the Company decided
to wind down this business. As of December 31, 2021, the wind down was completed and the GCF reverse repurchase agreements
and repurchase agreements balances were reduced to zero. See note 11.
New Commercial Real Estate Opportunities JV
On September 3, 2021, the Company committed to invest up to $15,000 of equity in a newly formed joint venture (the “CREO
JV”) with an outside investor who committed to invest approximately $435,000 of equity in the CREO JV. The Company is
required to invest 7.5% of the total equity of the CREO JV with an absolute limit of $15,000. The CREO JV is managed by the
Company.
The CREO JV was formed for the purposes of investing in primarily multi-family commercial real estate mortgage-backed loans
and below-investment-grade rated tranches in CRE CLOs collateralized by mostly transitional commercial real estate mortgage-
backed loans. “CRE CLO” means any pooling of commercial real estate mortgage-backed loans into a collateralized loan
obligation.
The commercial real estate loans that will be funded by the CREO JV may be originated by the Company and the Company may
earn origination fees in connection with such transactions. In addition, the Company may earn structuring fees in connection with
structuring and consummating a CRE CLO consisting of a pooling of commercial real estate loans. The Company will also earn
management fees as manager of any CRE CLOs based on the value of the assets consolidated into a CRE CLO (calculated in
accordance with the terms of such CRE CLO), payable from the proceeds generated by and in accordance with the distribution
waterfall of such CRE CLO.
The Company will elect the fair value option in accordance with the provisions of ASC 820 to account for its equity method
investment in the CREO JV. The investment will be included in other investments at fair value, on the consolidated balance sheet
and gains and losses (both realized and unrealized) will be recognized in the consolidated statement of operations as a component
of principal transactions and other income. Because the CREO JV has the attributes of investment companies as described in ASC
946-15-2, the Company will estimate the fair value of its investment using the net asset value (“NAV”) per share (or its
equivalent) as of the reporting date in accordance with the “practical expedient” provisions related to investments in certain entities
that calculate net asset value per share (or its equivalent) included in ASC 820 for all entities. As of December 31, 2021, the
Company's investment balance in the CREO was $5,830.
5. NET TRADING
Net trading consisted of the following in the periods presented.
NET TRADING
(Dollars in Thousands)
$
Net realized gains / (losses)- trading inventory
Net unrealized gains / (losses)-trading inventory
Gains and losses
Interest income-trading inventory
Interest income - RTLs
Interest income-receivables under resale agreements
Interest income
Interest expense-securities sold under agreement to repurchase
Interest expense-LegacyTexas Credit Facility
Interest expense-margin payable
Interest expense
For the Year Ended December 31,
2020
2021
2019
21,103 $
(3,069 )
18,034
5,958
-
94,123
100,081
(48,024 )
-
(706 )
(48,730 )
31,269 $
2,076
33,345
7,759
-
98,710
106,469
(65,030 )
(39 )
(1,134 )
(66,203 )
24,118
(1,320 )
22,798
6,921
236
176,336
183,493
(164,851 )
(100 )
(3,168 )
(168,119 )
Net trading
$
69,385 $
73,611 $
38,172
Trading inventory includes investments classified as investments-trading as well as trading securities sold, not yet purchased. See
note 6 for discussion of margin payable. See note 11 for discussion of receivables under resale agreements and securities sold
under agreements to repurchase.
F-25
6. RECEIVABLES FROM AND PAYABLES TO BROKERS, DEALERS, AND CLEARING AGENCIES
Amounts receivable from brokers, dealers, and clearing agencies consisted of the following.
RECEIVABLES FROM BROKERS, DEALERS, AND CLEARING AGENCIES
(Dollars in Thousands)
Deposits with clearing organizations
Unsettled regular way trades, net
Receivable from clearing organizations
Receivables from brokers, dealers, and clearing agencies
As of December 31,
2021
2020
$
$
250 $
2,827
65,315
68,392 $
250
2,961
49,706
52,917
Amounts payable to brokers, dealers, and clearing agencies consisted of the following.
PAYABLES TO BROKERS, DEALERS, AND CLEARING AGENCIES
(Dollars in Thousands)
Margin payable
Payables to brokers, dealers, and clearing agencies
As of December 31,
2021
2020
$
$
160,896 $
160,896 $
156,678
156,678
Deposits with clearing organizations represent contractual amounts the Company is required to deposit with its clearing agents.
Securities transactions that settle in the regular way are recorded on the trade date, as if they had settled. The related amounts
receivable and payable for unsettled securities transactions are recorded net in receivables from or payables to brokers, dealers, and
clearing agencies on the Company’s consolidated balance sheets. The related amounts receivable and payable for unsettled
securities transactions are recorded net in receivables from or payables to brokers, dealers, and clearing agencies on the
Company’s consolidated balance sheets.
Receivables from clearing organizations are primarily comprised of cash received by the Company upon execution of short trades
that is restricted from withdrawal by the clearing agent.
Margin payable represents amounts borrowed from Pershing, LLC and Cantor Fitzgerald to finance the Company’s trading
portfolio. See note 5 for interest expense incurred on margin payable.
F-26
7. OTHER RECEIVABLES
Other receivables consisted of the following.
OTHER RECEIVABLES
(Dollars in Thousands)
Cash collateral due from counterparties
Asset management fees receivable
Accrued interest and dividend receivable
Revenue share receivable
Miscellaneous other receivables
Other receivables
As of December 31,
2021
2020
$
$
- $
962
1,813
108
320
3,203 $
225
879
2,275
125
425
3,929
When the Company enters into a reverse repo, the Company obtains collateral in excess of the principal of the reverse repo. The
Company accepts collateral in the form of liquid securities or cash. If the value of the securities the Company receives as
collateral increases, the Company’s reverse repo counterparties may request a return of a portion of their collateral. In some cases,
the Company will return to them cash instead of securities. In that case, the Company includes the cash returned as a component
of other receivables (see above).
When the Company enters into repo transactions, the Company provides collateral to the Company’s repo counterparties in excess
of the principal balance of the repo. The Company’s counterparties accept collateral in the form of liquid securities or cash. To
the extent the Company provides the collateral in cash, the Company includes it as a component of other receivables (see above).
Asset management fees receivables are of a routine and short-term nature. These amounts are generally accrued monthly and paid
on a monthly or quarterly basis. See note 3-N regarding asset management fees accrued.
Accrued interest and dividends receivable represents interest and dividends accrued on the Company’s investment securities
included as a component of investments-trading or other investments, at fair value. Interest payable on securities sold, not yet
purchased or other investments sold, not yet purchased is included as a component of accounts payable and other liabilities. See
note 17.
Revenue share receivable represents the amount due to the Company for the Company’s share of revenue generated from an
entity in which the Company receives a share of the entity’s revenue. Miscellaneous other receivables represent other
miscellaneous receivables that are of a short-term nature.
F-27
INVESTMENTS - TRADING
(Dollars in Thousands)
8. FINANCIAL INSTRUMENTS
Investments—Trading
Investments-Trading consisted of the following.
U.S. government agency MBS and CMOs
U.S. government agency debt securities
RMBS
U.S. Treasury securities
ABS
SBA loans
Corporate bonds and redeemable preferred stock
Foreign government bonds
Municipal bonds
Certificates of deposit
Derivatives
Equity securities
Investments-trading
As of December 31,
2021
2020
$
$
134,093 $
22,373
9
-
1
-
45,519
467
18,841
169
1,275
1,118
223,865 $
162,031
6,904
14
607
1
2,742
36,388
659
19,400
70
13,717
428
242,961
Substantially all of the Company's investments-trading serve as collateral for the Company's margin loan payable. See note 6.
Trading Securities Sold, Not Yet Purchased
Trading securities sold, not yet purchased consisted of the following.
TRADING SECURITIES SOLD, NOT YET PURCHASED
(Dollars in Thousands)
U.S. government agency debt securities
U.S. Treasury securities
Corporate bonds and redeemable preferred stock
Municipal bonds
Derivatives
Equity securities
Trading securities sold, not yet purchased
As of December 31,
2021
2020
1 $
29,513
32,574
-
424
-
62,512 $
-
3,348
29,206
20
11,822
43
44,439
$
$
The Company tries to manage its exposure to changes in interest rates for the interest rate sensitive securities it holds by entering
into offsetting short positions for similar fixed rate securities. See note 5 for realized and unrealized gains recognized on
investments-trading and trading securities sold, not yet purchased.
F-28
Other Investments, at Fair Value
Other investments, at fair value consisted of the following.
OTHER INVESTMENTS, AT FAIR VALUE
(Dollars in Thousands)
Equity securities
Restricted equity securities
Corporate bonds and redeemable preferred stock
Subordinated Notes
RTLs
CREO
U.S. Insurance JV
SPAC Fund
Residential loans
Other investments, at fair value
As of December 31, 2021
2020
2021
$
$
24,733 $
19,449
476
-
-
5,830
3,450
1,980
115
56,033 $
17,421
34,172
476
1,519
2,300
-
1,564
984
104
58,540
A total of $15,563 and $11,086 of the amounts shown other investments, at fair value above serve as collateral for the Company's
margin loan payable for the years ended December 31, 2021 and 2020, respectively. See note 6.
OTHER INVESTMENTS SOLD, NOT YET PURCHASED
(Dollars in Thousands)
Equity securities
Derivatives
Other investments sold, not yet purchased
$
$
2,488 $
-
2,488 $
F-29
As of December 31, 2021
2021
2020
233
7,182
7,415
9. FAIR VALUE DISCLOSURES
Fair Value Option
The Company has elected to account for certain of its other financial assets at fair value under the fair value option provisions of
ASC 825. The primary reason for electing the fair value option was to reduce the burden of monitoring the differences between the
cost and the fair value of the Company’s investments, previously classified as available for sale securities, including the
assessment as to whether the declines are temporary in nature and to further remove an element of management judgment.
Such financial assets accounted for at fair value include:
•
•
•
securities that would otherwise qualify for available for sale treatment;
investments in equity method affiliates that have the attributes in ASC 946-10-15-2 (commonly referred to as investment
companies); and
investments in residential loans.
The changes in fair value (realized and unrealized gains and losses) of these instruments for which the Company has elected the
fair value option are recorded in principal transactions and other income in the consolidated statements of operations. All of the
investments for which the Company has elected the fair value option are included as a component of other investments, at fair
value in the consolidated balance sheets. The Company recognized net gains (losses) of $35,421, $43,413, and $1,080 related to
changes in fair value of investments that are included as a component of other investments, at fair value during the years ended
December 31, 2021, 2020, and 2019, respectively. The Company recognized net gains (losses) of $830, $1,063, and $0 related to
changes in fair value of investments that are included as a component of other investments, sold not purchased during the years
ended December 31, 2021, 2020, and 2019, respectively.
Fair Value Measurements
In accordance with ASC 820, the Company has categorized its financial instruments, based on the priority of the inputs to the
valuation technique, into a three-level valuation hierarchy. The valuation hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level
3 measurement). The three levels of the valuation hierarchy under ASC 820 are described below.
Level 1
Financial assets and liabilities whose values are based on unadjusted quoted prices in active markets that are
accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2
Financial assets and liabilities whose values are based on one or more of the following:
1. Quoted prices for similar assets or liabilities in active markets;
2. Quoted prices for identical or similar assets or liabilities in non-active markets;
3. Pricing models whose inputs are derived, other than quoted prices, are observable for substantially the full term
of the asset or liability; or
4. Pricing models whose inputs are derived principally from or corroborated by observable market data through
correlation or other means for substantially the full term of the asset or liability.
Level 3
Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are
both significant to the fair value measurement and unobservable. These inputs reflect management’s own
assumptions about the assumptions a market participant would use in pricing the asset or liability.
In certain cases, the inputs used to measure fair value may fall into different levels of the valuation hierarchy. In such cases, the
level in the valuation hierarchy within which the fair value measurement in its entirety falls has been determined based on the
lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of
a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or
liability.
Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified
within the level 3 category. As a result, the unrealized gains and losses for assets and liabilities within the level 3 category
presented in the tables below may include changes in fair value that were attributable to both observable (e.g., changes in market
interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.
F-30
The following tables present information about the Company’s assets and liabilities measured at fair value as of December 31,
2021 and 2020 and indicates the valuation hierarchy of the valuation techniques utilized by the Company to determine such fair
value.
FAIR VALUE MEASUREMENTS ON A RECURRING BASIS
As of December 31, 2021
(Dollars in Thousands)
Assets
Investments-trading:
U.S. government agency MBS and CMOs
U.S. government agency debt securities
RMBS
ABS
Corporate bonds and redeemable preferred stock
Foreign government bonds
Municipal bonds
Certificates of deposit
Derivatives
Equity securities
Total investments - trading
Other investments, at fair value:
Equity securities
Restricted equity securities
Corporate bonds and redeemable preferred stock
Residential loans
Investments measured at NAV (1)
Total other investments, at fair value
Liabilities
Trading securities sold, not yet purchased:
U.S. government agency debt securities
U.S. Treasury securities
Corporate bonds and redeemable preferred stock
Derivatives
Total trading securities sold, not yet purchased
Other investments, sold not yet purchased:
Equity securities
Total other investments, sold not yet purchased
Quoted
Prices in
Active
Markets
Fair Value (Level 1)
Significant
Significant
Other Observable Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
$
$
$
$
$
$
$
$
- $
-
-
-
-
-
-
-
-
-
- $
24,733 $
-
-
-
24,733 $
134,093 $
22,373
9
1
45,519
467
18,841
169
1,275
1,118
223,865 $
24,733
19,449
476
115
44,773 $
11,260
56,033
134,093 $
22,373
9
1
45,519
467
18,841
169
1,275
1,118
223,865 $
- $
19,449
476
115
20,040 $
1 $
29,513
32,574
424
62,512 $
1 $
29,513
-
-
29,514 $
- $
-
32,574
424
32,998 $
2,488 $
2,488 $
2,488 $
2,488 $
- $
- $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) As a practical expedient, the Company uses NAV (or its equivalent) to measure the fair value of its investments in the U.S.
Insurance JV, the SPAC Fund and the CREO JV. The U.S. Insurance JV invests in USD denominated debt issued by small
insurance and reinsurance companies. The SPAC Fund invests in equity securities of SPACs. The CREO JV invests in primarily
multi-family commercial real estate mortgage-backed loans and below-investment grade rated tranches in CRE CLOs
collateralized by mostly transitional commercial real estate mortgage-backed loans. See note 4. According to ASC 820, these
investments are not categorized within the valuation hierarchy.
F-31
FAIR VALUE MEASUREMENTS ON A RECURRING BASIS
As of December 31, 2020
(Dollars in Thousands)
Assets
Investments-trading:
U.S. government agency MBS and CMOs
U.S. government agency debt securities
RMBS
U.S. Treasury securities
ABS
SBA loans
Corporate bonds and redeemable preferred stock
Foreign government bonds
Municipal bonds
Certificates of deposit
Derivatives
Equity securities
Total investments - trading
Other investments, at fair value:
Equity securities
Restricted equity securities
Corporate bonds and redeemable preferred stock
Subordinated Notes
RTLs
Residential loans
Investments measured at NAV (1)
Total other investments, at fair value
Liabilities
Trading securities sold, not yet purchased:
U.S. Treasury securities
Corporate bonds and redeemable preferred stock
Municipal bonds
Derivatives
Equity securities
Total trading securities sold, not yet purchased
Other investments, sold not yet purchased:
Derivatives
Equity securities
Total other investments, sold not yet purchased
Quoted
Prices in
Active
Markets
Fair Value (Level 1)
Significant
Significant
Other Observable Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
$
$
$
$
$
$
$
$
- $
-
-
607
-
-
-
-
-
-
-
-
607 $
17,421 $
-
-
-
-
-
17,421 $
162,031 $
6,904
14
607
1
2,742
36,388
659
19,400
70
13,717
428
242,961 $
17,421 $
34,172
476
1,519
2,300
104
55,992 $
2,548
58,540
3,348 $
29,206
20
11,822
43
44,439 $
3,348 $
-
-
-
43
3,391 $
233 $
7,182
7,415 $
233 $
7,182
7,415 $
162,031 $
6,904
14
-
1
2,742
36,388
659
19,400
70
13,717
428
242,354 $
- $
34,172
476
1,519
2,300
104
38,571 $
- $
29,206
20
11,822
-
41,048 $
- $
-
- $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) As a practical expedient, the Company uses NAV per share (or its equivalent) to measure the fair value of its investments in the
U.S. Insurance JV and the SPAC Fund. The U.S. Insurance JV invests in USD denominated debt issued by small insurance and
reinsurance companies. The SPAC Fund invests in equity securities of SPACs. According to ASC 820, these investments are
not categorized within the valuation hierarchy.
F-32
The following provides a brief description of the types of financial instruments the Company holds, the methodology for
estimating fair value, and the level within the valuation hierarchy of the estimate. The discussion that follows applies regardless of
whether the instrument is included in investments-trading; other investments, at fair value; other investments sold, not yet
purchased; or trading securities sold, not yet purchased.
U.S. Government Agency MBS and CMOs: These are securities that are generally traded over the counter. The Company
generally values these securities using third-party quotations such as unadjusted broker-dealer quoted prices or market price
quotations from third-party pricing services. These valuations are based on a market approach. The Company classifies the fair
value of these securities within level 2 of the valuation hierarchy.
U.S. Government Agency Debt Securities: Callable and non-callable U.S. government agency debt securities are measured
primarily based on quoted market prices obtained from third-party pricing services. Non-callable U.S. government agency debt
securities are generally classified within level 1 and callable U.S. government agency debt securities are classified within level 2 of
the valuation hierarchy.
RMBS: The Company generally values these securities using third-party quotations such as unadjusted broker-dealer quoted prices
or market price quotations from third-party pricing services. These valuations are based on a market approach. The Company
generally classifies the fair value of these securities based on third-party quotations within level 2 of the valuation hierarchy.
U.S. Treasury Securities: U.S. Treasury securities include U.S. Treasury bonds and notes and the fair values of the U.S. Treasury
securities are based on quoted prices or market activity in active markets. Valuation adjustments are not applied. The Company
classifies the fair value of these securities within level 1 of the valuation hierarchy.
CLOs, CDOs, and ABS: CLOs, CDOs, and ABS are interests in securitizations. ABS may include, but are not limited to, securities
backed by auto loans, credit card receivables, or student loans. When the Company is able to obtain independent market quotations
from at least two broker-dealers and where a price within the range of at least two broker-dealers is used or market price quotations
from third-party pricing services is used, these interests in securitizations will generally be classified within level 2 of the valuation
hierarchy. These valuations are based on a market approach. The independent market quotations from broker-dealers are generally
nonbinding. The Company seeks quotations from broker-dealers that historically have actively traded, monitored, issued, and been
knowledgeable about the interests in securitizations. The Company generally believes to the extent that it (i) receives two
quotations in a similar range from broker-dealers knowledgeable about these interests in securitizations and (ii) considers the
broker-dealers gather and utilize observable market information such as new issue activity in the primary market, trading activity
in the secondary market, credit spreads versus historical levels, bid-ask spreads, and price consensus among market participants
and sources, then classification within level 2 of the valuation hierarchy is appropriate. In the absence of two broker-dealer market
quotations, a single broker-dealer market quotation may be used without corroboration of the quote in which case the Company
generally classifies the fair value within level 3 of the valuation hierarchy.
If quotations are unavailable, prices observed by the Company for recently executed market transactions or valuation models
prepared by the Company’s management may be used, which are based on an income approach. These models prepared by the
Company’s management include estimates and the valuations derived from them could differ materially from amounts realizable
in an open market exchange. Each CLO and CDO position is evaluated independently taking into consideration available
comparable market levels, underlying collateral performance and pricing, deal structures, and liquidity. Fair values based on
internal valuation models prepared by the Company’s management are generally classified within level 3 of the valuation
hierarchy.
Establishing fair value is inherently subjective (given the volatile and sometimes illiquid markets for certain interests in
securitizations) and requires management to make a number of assumptions, including assumptions about the future of interest
rates, discount rates, and the timing of cash flows. The assumptions the Company applies are specific to each security. Although
the Company may rely on internal calculations to compute the fair value of certain interest in securitizations, the Company
requests and considers indications of fair value from third-party pricing services to assist in the valuation process.
SBA Loans: SBA loans include loans and SBA interest only strips. In the case of loans, the Company generally values these
securities using third-party quotations such as unadjusted broker-dealer quoted prices, internal valuation models using observable
inputs, or market price quotations from third-party pricing services. The Company generally classifies these investments within
level 2 of the valuation hierarchy. These valuations are based on a market approach. SBA interest only strips do not trade in an
active market with readily available prices. Accordingly, the Company generally uses valuation models to determine fair value and
classifies the fair value of the SBA interest only strips within level 2 or level 3 of the valuation hierarchy depending on whether the
model inputs are observable or not.
Corporate Bonds and Redeemable Preferred Stock: The Company uses recently executed transactions or third-party quotations
from independent pricing services to arrive at the fair value of its investments in corporate bonds and redeemable preferred stock.
These valuations are based on a market approach. The Company generally classifies the fair value of these bonds within level 2 of
the valuation hierarchy. In instances where the fair values of securities are based on quoted prices in active markets (for example
with redeemable preferred stock), the Company classifies the fair value of these securities within level 1 of the valuation hierarchy.
Foreign Government Bonds: The fair value of foreign government bonds is estimated using valuations provided by third-party
pricing services and classifies the fair value within level 2 of the valuation hierarchy.
Municipal Bonds: Municipal bonds, which include obligations of U.S. states, municipalities, and political subdivisions, primarily
include bonds or notes issued by U.S. municipalities. The Company generally values these securities using third-party quotations
such as market price quotations from third-party pricing services. The Company generally classifies the fair value of these bonds
within level 2 of the valuation hierarchy. The valuations are based on a market approach. In instances where the Company is
unable to obtain reliable market price quotations from third-party pricing services, the Company will use its own internal valuation
models. In these cases, the Company will classify such securities as level 3 within the valuation hierarchy until it is able to obtain
third-party pricing.
F-33
Certificates of Deposit: The fair value of certificates of deposit is estimated using valuations provided by third-party pricing
services. The Company classifies the fair value of certificates of deposit within level 2 of the valuation hierarchy.
Residential Loans: Management utilizes home price indices or market indications to value the residential loans. The Company
classifies the fair value of these loans within level 2 in the valuation hierarchy.
Residential transition loans: The Company uses valuation models prepared by management which are based on an income
approach. These models include estimates, and the valuations derived from them could differ materially from amounts realizable
in an open market exchange. Fair values based on internal valuation models prepared by the Company’s management are generally
classified within level 3 of the valuation hierarchy.
Equity Securities: The fair value of equity securities that represent unrestricted investments in publicly traded companies (common
or preferred shares, options, warrants, and other equity investments) are determined using the closing price of the security as of the
reporting date. These are securities that are traded on a recognized liquid exchange and the Company classifies their fair
value within level 1 of the valuation hierarchy. The fair value of equity securities that represent investments in privately held
companies are generally determined either (i) based on a valuation model or (ii) based on recently observed transactions in the
same instrument or similar instrument that we hold. These valuations are generally classified within either level 2 or level 3 of the
valuation hierarchy.
Restricted Equity Securities: Restricted equity securities are investments in publicly traded companies. However, they are
restricted from re-sale until either (a) the share price trades above a certain threshold for a certain period of time; or (b) a certain
period of time elapses or both. The Company determines the fair value by utilizing a model that starts with the publicly traded
share price but then applies a discount based on a Monte Carlo simulation. The inputs to this model are observable so the
Company classifies these securities within level 2 of the valuation hierarchy. The Company is not allowed to sell these shares
during the restriction period and there is no certainty as to when these hurdles will be met or if they will be met at all.
Subordinated Notes: The Company uses recently executed transactions or third-party quotations from independent pricing services
to arrive at the fair value of its investments in subordinated notes. These valuations are based on a market approach. The Company
generally classifies the fair value of these bonds within level 2 of the valuation hierarchy.
Derivatives:
TBAs and Other Forward Agency MBS Contracts
The Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices or
market price quotations from third party pricing services. TBAs and other forward agency MBS contracts are generally classified
within level 2 of the valuation hierarchy. If there is limited transaction activity or less transparency to observe market based inputs
to valuation models, TBAs and other forward agency MBS contracts are classified within level 3 of the valuation hierarchy. U.S.
government agency MBS and CMOs include TBAs and other forward agency MBS contracts. Unrealized gains on TBAs and
other forward agency MBS contracts are included in investments-trading on the Company’s consolidated balance sheets and
unrealized losses on TBAs and other forward agency MBS contracts are included in trading securities sold, not yet purchased on
the Company’s consolidated balance sheets. See note 10.
Other Extended Settlement Trades
When the Company buys or sells a financial instrument that will not settle in the regular time frame, the Company will account for
that purchase or sale on the settlement date rather than the trade date. In those cases, the Company accounts for the transaction
between trade date and settlement date as a derivative (as either a purchase commitment or sale commitment). The Company will
record an unrealized gain or unrealized loss on the derivative for the difference between the fair value of the underlying financial
instrument as of the reporting date and the agreed upon transaction price. The Company will determine the fair value of the
financial instrument using the methodologies described above.
Equity Derivatives
The Company enters into equity derivatives such as puts and short call options. These are securities that are traded on a recognized
liquid exchange and the Company classifies their fair value within level 1 of the valuation hierarchy. See note 10.
Foreign Currency Forward Contracts
Foreign currency forward contracts are exchange-traded derivatives, which transact on an exchange that is deemed to be
active. The fair value of the foreign currency forward contracts is based on current quoted market prices. Valuation adjustments
are not applied. These are classified within level 1 of the valuation hierarchy. See note 9.
F-34
Level 3 Financial Assets and Liabilities
Financial Instruments Measured at Fair Value on a Recurring Basis
The following table present additional information about assets measured at fair value on a recurring basis and for which the
Company has utilized level 3 inputs to determine fair value.
LEVEL 3 ROLLFORWARD
(Dollars in thousands)
Beginning of Period
Net trading
Gains & losses (1)
Accretion of income (1)
Purchases
Sales and returns of capital
Reclassification of RTLs
Transfer out of Level 3 (2)
End of Period
Change in unrealized gains / (losses) (3)
Year Ended December 31,
2020
2021
- $
-
-
-
-
-
-
-
- $
- $
2,522
(57 )
(604 )
124
638
(5,601 )
5,278
(2,300 )
-
-
$
$
$
(1) Gains and losses on and accretion of income on other investments, at fair value are recorded as a component of principal
transactions and other income in the consolidated statements of operations.
(2) RTL was reclassified from level 3 to level 2 due to availability of observable inputs.
(3) Represents the change in unrealized gains and losses for the period included in earnings for assets held at the end of the
reporting period.
F-35
Investments in Certain Entities that Calculate Net Asset Value Per Share (or its Equivalent)
The following table presents additional information about investments in certain entities that calculate NAV per share (regardless
of whether the “practical expedient” provisions of ASC 820 have been applied), which are measured at fair value on a recurring
basis as of December 31, 2021 and 2020.
FAIR VALUE MEASUREMENTS OF INVESTMENTS IN CERTAIN ENTITIES
THAT CALCULATE NET ASSET VALUE PER SHARE (OR ITS EQUIVALENT)
(Dollars in thousands)
Other investments, at fair value
CREO (a)
U.S. Insurance JV (b)
SPAC Fund (c)
December 31,
2021
Unfunded
Commitments
Redemption Frequency
Redemption
Notice Period
$
$
5,830 $
3,450
1,980
11,260
N/A
9,170
N/A
N/A
N/A Quarterly after 1 year lock up
N/A
N/A
30 days
December 31, 2020
Unfunded
Commitments
Redemption
Frequency
Redemption Notice
Period
Other investments, at fair value
U.S. Insurance JV (a)
SPAC Fund (b)
N/A – Not applicable.
$
$
1,564 $
1,567
N/A
N/A
984
2,548
Quarterly after 1
NA
year lock up
30 days
(a) The CREO JV invests in primarily multi-family commercial real estate mortgage-backed loans and below-investment grade
rated tranches in CRE CLOs collateralized by mostly transitional commercial real estate mortgage-backed loans. See note 4.
The U.S. Insurance JV invests in USD denominated debt issued by small and medium sized insurance and reinsurance
(b)
companies.
The SPAC Fund invests in equity interests of SPACs.
(c)
F-36
10. DERIVATIVE FINANCIAL INSTRUMENTS
The Company may, from time to time, enter into the following derivative instruments:
Equity Derivatives
A significant portion of the Company’s equity holdings are carried at fair value. The Company hedges a portion of this exposure
by entering into equity derivatives such as puts and short call options from time to time. These derivative positions are carried at
fair value as a component of other investments, at fair value and other investments sold, not yet purchased in the Company’s
consolidated balance sheets. As of December 31, 2021 and December 31, 2020, the Company had short call options representing a
notional of $0 and $1,595, respectively. From time to time, the Company may also enter into forward purchase commitments for
equity securities. These amounts are included in the tables below.
The Company also hedges a portion of the exposure from these equity investments by entering into short trades. These short
trades are not treated as derivatives and are carried as a component of other investments sold, not yet purchased. See Note 7.
TBAs and Other Forward Agency MBS Contracts
The Company enters into TBAs and other forward agency MBS transactions for three main reasons.
(i) The Company trades U.S. government agency obligations. In connection with these activities, the Company may be
required to maintain inventory in order to facilitate customer transactions. In order to mitigate exposure to market risk, the
Company may enter into the purchase and sale of TBAs and other forward agency MBS contracts.
(ii) The Company also enters into TBAs and other forward agency MBS contracts in order to assist clients (generally small to
mid-size mortgage loan originators) in hedging the interest rate risk associated with the mortgages owned by these clients.
(iii) Finally, the Company may enter into TBAs and other forward agency MBS contracts on a speculative basis.
The Company carries the TBAs and other forward agency MBS contracts at fair value and includes them as a component of
investments—trading or trading securities sold, not yet purchased in the Company’s consolidated balance sheets. At December 31,
2021, the Company had open TBA and other forward MBS purchase agreements in the notional amount of $1,243,250 and open
TBA and other forward MBS sale agreements in the notional amount of $1,283,850. At December 31, 2020, the Company had
open TBA and other forward agency MBS purchase agreements in the notional amount of $1,706,834 and open TBA and other
forward agency MBS sale agreements in the notional amount of $1,809,550.
Other Extended Settlement Trades
When the Company buys or sells a financial instrument that will not settle in the regular time frame, the Company will account for
that purchase and sale on the settlement date rather than the trade date. In those cases, the Company accounts for the transaction
between trade date and settlement date as either a forward purchase commitment or a forward sale commitment, both considered
derivatives. The Company will record an unrealized gain or unrealized loss on the derivative for the difference between the fair
value of the underlying financial instrument as of the reporting date and the agreed upon transaction price. At December 31, 2021,
the Company had no open forward purchase or sale commitments. At December 31, 2020, the Company had open forward
purchase commitments in the notional amount of $365 and no open sale commitments.
Foreign Currency Forward Contracts
The Company invests in foreign currency denominated investments that expose it to fluctuations in foreign currency rates, and,
therefore, the Company may, from time to time, hedge such exposure by using foreign currency forward contracts. The Company
carries the foreign currency forward contracts at fair value and includes them as a component of other investments, at fair value in
the Company’s consolidated balance sheets. As of December 31, 2021, and 2020, the Company had no outstanding foreign
currency forward contracts.
The following table presents the Company’s derivative financial instruments and the amount and location of the fair value
(unrealized gain / (loss)) presented in the consolidated balance sheets as of December 31, 2021 and 2020.
DERIVATIVE FINANCIAL INSTRUMENTS-BALANCE SHEET INFORMATION
(Dollars in Thousands)
As of December 31,
Derivative Financial Instruments Not Designated as
Hedging Instruments Under ASC 815
TBA and other forward agency MBS
TBA and other forward agency MBS
Equity derivatives
Balance Sheet Classification
Investments-trading
$
2021
2020
1,275 $
13,717
Trading securities sold, not yet
purchased
Other investments sold, not yet
purchased
(424 )
(11,822 )
$
-
851 $
(233 )
1,662
F-37
The following table presents the Company’s derivative financial instruments and the amount and location of the net gain (loss)
recognized in the consolidated statement of operations.
DERIVATIVE FINANCIAL INSTRUMENTS-STATEMENT OF OPERATIONS INFORMATION
(Dollars in Thousands)
Derivative Financial Instruments Not
Designated as Hedging Instruments Under
ASC 815
Foreign currency forward contracts
Other extended settlement trades
TBA and other forward agency MBS
Equity derivatives
Income Statement
Classification
Principal transactions and
other income
Revenues-net trading
Revenues-net trading
Principal transactions and
other income
$
$
For the Year Ended December 31,
2021
2020
2019
- $
-
7,460
(233 )
7,227 $
- $
-
5,219
105
5,324 $
51
(70 )
6,545
-
6,526
F-38
11. COLLATERALIZED SECURITIES TRANSACTIONS
Matched Book Repo Business
The Company enters into repos and reverse repos as part of its matched book repo business. In general, the Company will lend
money to a counterparty after obtaining collateral securities from that counterparty pursuant to a reverse repo. The Company will
borrow money from another counterparty using the same collateral securities pursuant to a repo. The Company seeks to earn net
interest income on these transactions. Until the fourth quarter 2021, the Company categorized its matched book repo business into
two major groups: gestation repo and GCF repo. In the fourth quarter 2021, the Company wound down its GCF repo business.
Gestation Repo
Gestation repo involves entering into repo and reverse repo where the underlying collateral security represents a pool of newly
issued mortgage loans. The borrowers (the reverse repo counterparties) are generally mortgage originators. The lenders (the repo
counterparties) are a diverse group of the counterparties comprised of banks, insurance companies, and other financial
institutions. The Company self-clears its gestation repo transactions.
GCF Repo
In October 2017, the Company became a full netting member of the FICC’s Government Securities Division. As a full netting
member of the FICC, the Company has access to the FICC’s GCF repo service that provides netting and settlement services for
repo transactions where the underlying security is general collateral (primarily U.S. Treasuries and U.S. Agency securities). The
Company began entering into matched book GCF repo transactions in November 2017. The borrowers (the reverse repo
counterparties) are a diverse group of financial institutions including hedge funds, registered investment funds, REITs, and other
similar counterparties. The lenders (the repo counterparties) are the FICC and other large financial institutions. The Company
uses Bank of New York (“BONY”) as its settlement agent for its GCF repo matched book transactions. The Company is
considered self-clearing for this business. In connection with the Company’s full netting membership of the FICC, the Company
agreed to establish and maintain a committed line of credit in a minimum amount of $25,000, which it entered into with Fifth
Third Financial Bank, N.A. ("FT Financial") on April 25, 2018. The FT Financial line of credit arrangement was subsequently
amended. In October 2020, the Company entered into a replacement credit arrangement with Byline Bank, which was
subsequently amended in December 2021. See note 20.
In October 2021, primarily due to reduced spreads in the repo market for GCF collateral, the Company decided to wind down this
business. As of December 31, 2021, the carrying value of the Company's reverse repurchase agreements and repurchase
agreements were zero.
Other Repo Transactions
In addition to the Company’s matched book repo business, the Company may also enter into reverse repos to acquire securities, to
cover short positions or as an investment. Additionally, the Company may enter into repos to finance the Company’s securities
positions held in inventory. These repo and reverse repo agreements are generally cleared on a bilateral or triparty basis; no
clearing broker is involved.
Repo Information
At December 31, 2021 and 2020, the Company held reverse repos of $3,175,645 and $5,716,343, respectively, and the fair value
of securities and cash received as collateral under reverse repos was $3,249,411 and $5,885,656, respectively. As of December 31,
2021, and 2020, the reverse repo balance was comprised of receivables collateralized by 14 and 38 counterparties, respectively.
At December 31, 2021 and 2020, the Company had repos of $3,171,415 and $5,713,212, respectively, and the fair value of
securities pledged as collateral under repos was $3,232,091 and $5,768,018, respectively. These amounts include collateral for
reverse repos that were re-pledged as collateral for repos.
Intraday and Overnight Lending Facility
In conjunction with the Company’s GCF repo business, on October 19, 2018, the Company and BONY entered into an intraday
lending facility. The lending facility allowed for BONY to advance funds to JVB in order to facilitate the settlement of GCF repo
transactions. In conjunction with the wind down of the GCF Repo business, the Company terminated this facility during 2021.
Concentration
In the matched book repo business, the demand for borrowed funds is generated by the reverse repo counterparty and the supply of
funds is provided by the repo counterparty.
On the demand side, the Company did not consider its GCF repo business to be concentrated because the Company’s reverse repo
counterparties were comprised of a diverse group of financial institutions. On the supply side, the Company obtained a significant
amount of its funds from the FICC. Therefore, during the periods the Company operated a GCF repo business, it considered that
business to be concentrated from the supply side of the business.
The gestation repo business has been and continues to be concentrated as to reverse repo counterparties. The Company conducts
this business with a limited number of reverse repo counterparties. As of December 31, 2021, and 2020, the Company’s gestation
reverse repos shown in the tables below represented balances from 14 and 11 counterparties, respectively. The Company also has
a limited number of repo counterparties in the gestation repo business. However, this is primarily a function of the limited number
of reverse repo counterparties with whom the Company conducts this business rather than a reflection of a limited supply of
funds. Therefore, the Company considers the gestation repo business to be concentrated on the demand side.
F-39
The total net revenue earned by the Company on its matched book repo business (both gestation and GCF repo) was $46,139,
$33,980, and $12,011 for the years ended December 31, 2021, 2020, and 2019, respectively.
Detail
ASC 210 provides the option to present reverse repo and repo on a net basis if certain netting conditions are met. The Company
presents all repo and reverse repo transactions on a gross basis even if the underlying netting conditions are met. The amounts in
the table below are presented on a gross basis.
As of December 31, 2021, the Company had no repurchase agreements and reverse agreements with the same counterparty that
were eligible for netting. As of December 31, 2020, the Company had outstanding reverse repos of $5,716,343 and repos of
$5,713,212. Included in these amounts are outstanding reverse repos of $99,750 and repos of $2,155,850, where the FICC was the
Company’s counterparty to the transaction and which were subject to a master netting arrangement. The following tables
summarize the remaining contractual maturity of the gross obligations under repos accounted for as secured borrowings segregated
by the underlying collateral pledged as of each date shown. All amounts as well as counterparty cash collateral (see notes 7 and
17) are subject to master netting arrangements.
Secured Borrowings
(Dollars in Thousands)
December 31, 2021
Collateral Type:
MBS (gestation repo)
Collateral Type:
MBS (gestation repo)
Overnight and
Continuous
Repurchase Agreements
Remaining Contractual Maturity of the Agreements
Greater than 90
days
Up to 30 days 30 - 90 days
- $
3,171,415 $
- $
- $
Overnight and
Continuous
Reverse Repurchase Agreements
Remaining Contractual Maturity of the Agreements
Greater than 90
days
Up to 30 days 30 - 90 days
- $
3,175,645 $
- $
- $
$
$
Total
3,171,415
Total
3,175,645
SECURED BORROWINGS
(Dollars in Thousands)
December 31, 2020
Collateral Type:
U.S. treasury and government agency
MBS (GCF repo)
MBS (gestation repo)
SBA loans
Repurchase Agreements
Remaining Contractual Maturity of the Agreements
Greater than 90
days
Up to 30 days 30 - 90 days
Overnight and
Continuous
Total
$
$
1,946,890 $
638,057
2,190
2,587,137 $
1,070,094 $
2,004,451
-
3,074,545 $
- $
51,530
-
51,530 $
- $
-
-
- $
3,016,984
2,694,038
2,190
5,713,212
U.S. treasury and government agency
MBS (GCF repo)
MBS (gestation repo)
$
$
871,805 $
641,619
1,513,424 $
1,016,446 $
2,003,514
3,019,960 $
1,091,609 $
51,534
1,143,143 $
39,816 $
-
39,816 $
3,019,676
2,696,667
5,716,343
Reverse Repurchase Agreements
Remaining Contractual Maturity of the Agreements
F-40
12. INVESTMENTS IN EQUITY METHOD AFFILIATES
Equity method accounting requires that the Company record its investments in equity method affiliates on the consolidated balance
sheets and recognize its share of the equity method affiliates’ net income as earnings each reporting period. The Company elected
to use the cumulative earnings approach for the distributions it receives from its equity method investments. Under the cumulative
earnings approach, any distributions received up to the amount of cumulative earnings are treated as return on investment and
classified in operating activities within the cash flows. Any excess distributions would be considered as return of investments and
classified in investing activities.
The Company has certain equity method affiliates for which it has elected the fair value option. Those investees are excluded
from the table below. Those investees are included as a component of other investments, at fair value in the consolidated balance
sheets. All gains and losses (unrealized and realized) from securities classified as other investments, at fair value in the
consolidated balance sheets are recorded as a component of principal transactions and other income in the consolidated statement
of operations
The following table summarizes the activities and earnings of the Company’s investments that are accounted for under the equity
method. See note 4 and note 31.
INVESTMENTS IN EQUITY METHOD AFFILIATES
(Dollars in Thousands)
December 31, 2018
Investments / advances
Distributions / repayments
Earnings / (loss) realized
December 31, 2019
Investments / advances
Distributions / repayments
Earnings / (loss) realized
December 31, 2020
Investments / advances
Distributions / repayments
Reclasses to (from)
Earnings / (loss) realized
December 31, 2021
Insurance
SPACs
Dutch Real
Estate
Entities
Other SPAC
Sponsor
Entities
Total
$
$
- $
3,775
-
(553 )
3,222
10,325
(84 )
(3,656 )
9,807
-
(3,958 )
-
(1,306 )
4,543 $
- $
577
-
-
577
2,097
-
638
3,312
2,425
-
-
(137 )
5,600 $
- $
-
-
-
-
300
-
63
363
5,967
(249 )
(5,439 )
37,453
38,095 $
-
4,352
-
(553 )
3,799
12,722
(84 )
(2,955 )
13,482
8,392
(4,207 )
(5,439 )
36,010
48,238
The Insurance SPACs represent the Company's consolidated subsidiaries equity method investments in various insurance SPACs.
Dutch Real Estate Entities includes: (i) Amersfoot Office Investment I Cooperatief U. A. (“AOI”) is a company based in the
Netherlands that invests in real estate and (ii) CK Capital Partners B.V. (“CK Capital”) is a company based in the Netherlands that
manages investments in real estate.
Other SPAC Sponsor Entities includes both indirect and direct investments in SPAC Sponsor Entities. Several of these Sponsor
Entities are invested in SPACs that have completed their business combinations. Those Sponsor Entities hold restricted and
unrestricted equity interests in the public post-merger entities. The following table shows the equity method balance included in
other SPAC Sponsor Entities above broken out by the ultimate investee.
Entity
Parella Weinberg Partners
Archer Aviation Inc.
Wejo Group Ltd.
Heliogen, Inc.
Various other Sponsor Entities
Total
Ticker
PWP
ARCHR
WEJO
HLGN
Equity Method
Carrying Value
1,128
728
1,963
28,448
5,828
38,095
$
$
Over time, the Company expects these Sponsor Entities to either (a) liquidate their investments in these companies and
distribute to the Company its allocable share of the cash proceeds or (b) to distribute the Company's allocable share of these equity
investments in-kind to the Company. In either case, the final cash realized from these investments will be impacted by the
performance of the public companies listed above until those investments are liquidated.
F-41
The following tables show certain summary financial data of all the Company's equity method investees. These amounts include
all equity method investees whether accounted for under the equity method or at fair value. All information is presented on a
combined basis.
Total Assets
Liabilities
Total Equity
Total Liabilities & Equity
December 31,
2021
1,158,081 $
$
December 31,
2020
$
$
193,184 $
964,897
1,158,081 $
677,755
66,018
611,737
677,755
Net income/(loss)
Net income/(loss) attributable to the investee
277,134
277,134
21,416
21,416
6,009
6,005
F-42
Year Ended December 31,
2020
2021
2019
13. GOODWILL
Goodwill is comprised of the following.
GOODWILL
(Dollars in Thousands)
AFN
JVB
Goodwill
As of December 31,
2021
2020
$
$
109 $
-
109 $
109
-
109
The Company measures its goodwill impairment on an annual basis or when events indicate that goodwill may be impaired. The
Company performs its annual impairment tests of AFN goodwill on October 1 of each year; and JVB goodwill on January 1 of
each year.
JVB Goodwill
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which
continues to spread throughout the United States and worldwide. The spread of COVID-19 has caused significant volatility in
domestic and international markets. The volatility of the financial markets experienced since March 2020, as a result of the
COVID-19 pandemic has caused the Company to operate JVB at a lower level of leverage than prior to the pandemic. The
financial market volatility, as well as the reduction in volumes in the GCF repo and TBA businesses that resulted from COVID-19
required the Company to reassess the goodwill it had recorded related to JVB under the guidance of ASC 350. The Company
determined that the fair value of JVB was less than the carrying value (including the goodwill). As a result, the Company recorded
an impairment loss of $7,883 for the year ended December 31, 2020. The impairment loss is included in the consolidated
statements of operations as impairment of goodwill and is reflected as a component of operating expense.
AFN Goodwill
The annual impairment testing date for the AFN goodwill is October 1. The first testing date following the Merger was October 1,
2010. The Company determined the goodwill was not impaired as of 2021, 2020, and 2019. The Company concluded there was
no triggering event for the goodwill related to AFN.
F-43
14. LEASES
As of December 31, 2021, all of the leases to which the Company was a party were operating leases. The weighted average
remaining term of the leases was 6.9 years. The weighted average discount rate for the leases was 4.64%. Maturities of operating
lease liability payments consisted of the following.
FUTURE MATURITY OF LEASE LIABILITIES
(Dollars in Thousands)
2022
2023
2024
2025
2026
Thereafter
Total
Less imputed interest
Lease obligation
As of December
31, 2021
$
$
1,723
1,988
1,958
1,770
1,514
3,785
12,738
(1,925 )
10,813
During the twelve months ended December 31, 2021 and 2020, total cash payments of $1,532 and $1,571, respectively, were
recorded as a reduction in the operating lease obligation. No cash payments were made to acquire right of use assets.
F-44
15. OTHER ASSETS
Other assets consisted of the following.
OTHER ASSETS
(Dollars in Thousands)
Deferred costs
Prepaid expenses
Deposits
Miscellaneous other assets
Furniture, equipment, and leasehold improvements, net
Intangible assets
Other assets
As of December 31,
2021
2020
$
$
240 $
1,286
479
258
1,456
166
3,885 $
248
964
398
255
799
166
2,830
Deferred costs and prepaid expenses represent amounts paid for services that are being amortized over their expected period of use
and benefit. They are all routine and short-term in nature. Deposits are amounts held by landlords or other parties which will be
returned or offset upon satisfaction of a lease or other contractual arrangement.
F-45
16. FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS, NET
Furniture, equipment, and leasehold improvements, net, which are included as a component of other assets on the consolidated
balance sheets, are as follows.
FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS, NET
(Dollars in Thousands)
Furniture and equipment
Leasehold improvements
Accumulated depreciation
Furniture, equipment, and leasehold improvements, net
Estimated Useful
Lives (In Years)
3 to 5
5 to 10
As of December 31,
2021
2020
$
$
1,525 $
1,545
3,070
(1,614 )
1,456 $
1,250
869
2,119
(1,320 )
799
For the year ended December 31, 2021, the Company wrote-off fully depreciated furniture and equipment and leasehold
improvements of $69.
The Company recognized depreciation and amortization expense of $371, $334, and $318 for the years ended December 31, 2021,
2020, and 2019, respectively, as a component of depreciation and amortization on the consolidated statements of operations, all of
which represented depreciation of furniture, equipment, and leasehold improvements.
F-46
17. ACCOUNTS PAYABLE AND OTHER LIABILITIES
Accounts payable and other liabilities consisted of the following.
ACCOUNTS PAYABLE AND OTHER LIABILITIES
(Dollars in Thousands)
Accounts payable
Redeemable financial instruments accrued interest
Accrued income tax
Accrued interest payable
Accrued interest on securities sold, not yet purchased
Payroll taxes payable
Counterparty cash collateral
Accrued expense and other liabilities
Accounts payable and other liabilities
As of December 31,
2021
2020
$
$
122 $
291
61
558
704
1,548
17,320
2,097
22,701 $
162
316
99
630
435
1,048
41,119
2,442
46,251
The redeemable financial instrument accrued interest represents accrued interest on the JKD Capital Partners I LTD and the CBF
redeemable financial instruments. See note 19 and 20.
When the Company enters into a reverse repo, the Company obtains collateral in excess of the principal of the reverse repo. The
Company accepts collateral in the form of liquid securities or cash. To the extent the Company receives cash collateral, the
Company includes it as a component of other liabilities (counterparty cash collateral) in the table above. See note 11.
When the Company enters into repo transactions, the Company provides collateral to the Company’s repo counterparty in excess
of the principal balance of the repo. If the value of the securities the Company provides as collateral increases, the Company may
request a return of its collateral with a value equal to such increase. In some cases, the repo counterparty will return cash instead
of securities. In that case, the Company includes the cash returned as a component of other liabilities (counterparty cash collateral)
in the table above. See note 11.
F-47
18. VARIABLE INTEREST ENTITIES
As a general matter, a reporting entity must consolidate a VIE when it is deemed to be the primary beneficiary. The primary
beneficiary is the entity that has both (a) the power to direct the matters that most significantly impact the VIE’s financial
performance and (b) a significant variable interest in the VIE.
Consolidated VIEs
The Company determined it was the primary beneficiary of several VIEs and therefore has consolidated them. The following table
provides certain summary information regarding the consolidated VIEs:
Cash and cash equivalents
Receivables
Other investments, at fair value
Investment in equity method affiliates
Non-controlling interest
Investment in consolidated VIEs
As of December 31,
2021
2020
$
$
43 $
-
9,543
33,080
(29,979 )
12,687 $
270
2,112
36,395
9,805
(27,805 )
20,777
The maximum potential loss the Company could incur related to the consolidated VIEs is the investment in consolidated VIEs
shown in the table above plus certain obligations the Company has to fund additional working capital to the equity method
investees of certain of the consolidated VIEs. The total amount of working capital commitment was $810 and $1,560 as
of December 31, 2021 and 2020, respectively.
The Company’s Principal Investing Portfolio
Included in other investments, at fair value and investment in equity method affiliates in the consolidated balance sheets are
unconsolidated investments in several VIEs. In each case, the Company determined that it was not the primary beneficiary. The
maximum potential financial statement loss the Company would incur if the VIEs were to default on all their obligations would be
the loss of the carrying value of these investments as well as any future investments the Company were to make. As of December
31, 2021 and 2020, there were $9,170 and $1,567, respectively of unfunded investment commitments to VIEs in which the
Company has invested in. Other than its investment in these entities, the Company did not provide financial support to these VIEs
during the years ended December 31, 2021 and 2020 and had no liabilities, contingent liabilities, or guarantees (implicit or
explicit) related to these VIEs at December 31, 2021 and 2020. See table below.
For each investment management contract entered into by the Company, the Company assesses whether the entity being managed
is a VIE and if the Company is the primary beneficiary. Certain of the Investment Vehicles managed by the Company are
VIEs. Under the current guidance of FASB ASU 2015-12, the Company has concluded that its asset management contracts are not
variable interests. Currently, the Company has no other interests in entities it manages that are considered variable interests and
are considered significant. Therefore, the Company is not the primary beneficiary of any VIEs that it manages.
The Company’s Trading Portfolio
From time to time, the Company may acquire an interest in a VIE through the investments it makes as part of its trading
operations, which are included as investments-trading or securities sold, not yet purchased in the consolidated balance sheets. Due
to the high volume of trading activity in which the Company engages, the Company does not perform a formal assessment of each
individual investment within its trading portfolio to determine if the investee is a VIE and if the Company is a primary
beneficiary. Even if the Company were to obtain a variable interest in a VIE through its trading portfolio, the Company would not
be deemed to be the primary beneficiary for two main reasons: (a) the Company does not usually obtain the power to direct
activities that most significantly impact any investee’s financial performance and (b) a scope exception exists within the
consolidation guidance for cases where the reporting entity is a broker-dealer and any control (either as the primary beneficiary of
a VIE or through a controlling interest in a voting interest entity) was deemed to be temporary. In the unlikely case that the
Company obtained the power to direct activities and obtained a significant variable interest in an investee in its trading portfolio
that was a VIE, any such control would be deemed to be temporary due to the rapid turnover of the Company’s trading portfolio.
The following table presents the carrying amounts of the assets in the Company’s consolidated balance sheets related to the
Company’s variable interests in identified VIEs with the exception of (i) the two trust VIEs that hold the Company’s junior
subordinated notes (see note 20) and (ii) any security that represents an interest in a VIE that is included in investments-trading or
securities sold, not yet purchased in the Company’s consolidated balance sheets. The table below shows the Company’s maximum
exposure to loss associated with these identified nonconsolidated VIEs in which it holds variable interests at December 31,
2021 and 2020.
CARRYING VALUE OF VARIABLE INTERESTS IN NON-CONSOLIDATED VARIABLE INTEREST ENTITIES
(Dollars in Thousands)
Other investments, at fair value
Investments in equity method affiliates
Maximum Exposure
F-48
As of December 31,
2021
2020
$
$
11,260 $
5,015
16,275 $
2,548
363
2,911
19. REDEEMABLE FINANCIAL INSTRUMENTS
Redeemable financial instruments consisted of the following.
REDEEMABLE FINANCIAL INSTRUMENTS
(Dollars in Thousands)
JKD Investor
CBF
JKD Capital Partners I LTD Amendment
As of December 31,
2021
2020
$
$
7,957 $
-
7,957 $
7,957
4,000
11,957
On October 3, 2016, the Operating LLC entered into an investment agreement (the “JKD Investment Agreement”), by and
between Operating LLC and JKD Investor, pursuant to which the JKD Investor agreed to invest up to $12,000 in the Operating
LLC (the “JKD Investment”), $6,000 of which was invested upon the execution of the JKD Investment Agreement, an additional
$1,000 was invested in January 2017, and an additional $1,268 was invested on January 9, 2019. The JKD Investor is owned by
Jack DiMaio, the vice chairman of the Company’s board of directors, and his spouse.
In exchange for the JKD Investment, the Operating LLC agreed to pay to JKD Investor during the term of the JKD Investment
Agreement an amount (“JKD Investment Return”) equal to 50% of the difference between (i) the revenues generated during a
quarter by the activities of the Institutional Corporate Trading Business of JVB (as defined in the JKD Investment Agreement, as
amended) and (ii) certain expenses incurred by such Institutional Corporate Trading Business (the “Institutional Corporate Trading
Business Net Revenue”). This JKD Investment Return is recorded monthly as interest expense or (interest income) with the related
accrued interest recorded in accounts payable and other accrued liabilities. If the return is negative in an individual quarter, it will
reduce the balance of the JKD Investment. Payments of the JKD Investment Return are made on a quarterly basis. The term of
the JKD Investment Agreement commenced on October 3, 2016 and will continue until a redemption (as described below) occurs,
unless the JKD Investment Agreement is earlier terminated.
On March 6, 2019, the JKD Investor and the Operating LLC entered into an amendment to the JKD Investment Agreement (the
“JKD Investment Agreement Amendment”), pursuant to which the term “JKD Investment Return” under the JKD Investment
Agreement was amended as follows:
(a) during the fourth quarter of 2018, an amount equal to 42% of the Institutional Corporate Trading Business Net Revenue, and
(b) commencing on January 1, 2019 and for each quarter during the remainder of the term of the JKD Investment Agreement, an
amount equal to a percentage of the Institutional Corporate Trading Business Net Revenue, which percentage is based on the
JKD Investor’s investment under the JKD Investment Agreement as a percentage of the total capital allocated to the
Institutional Corporate Trading Business of JVB.
The JKD Investor may terminate the JKD Investment Agreement (i) upon 90 days’ prior written notice to the Operating LLC if the
Operating LLC or its affiliates modify any of their policies or procedures governing the operation of their businesses or change the
way they operate their business and such modification has a material adverse effect on the amounts payable to the JKD Investor
pursuant to the JKD Investment Agreement or (ii) upon 60 days’ prior written notice to the Operating LLC if the employment of
Lester Brafman, the Company’s chief executive officer, is terminated. The Operating LLC may terminate the JKD Investment
Agreement, as amended, upon 60 days’ prior written notice to the JKD Investor if Mr. DiMaio ceases to control the day-to-day
operations of the JKD Investor.
Upon a termination of the JKD Investment Agreement, as amended, the Operating LLC will pay to the JKD Investor an amount
equal to the “Investment Balance” (as such term is defined in the JKD Investment Agreement, as amended) as of the day prior to
such termination.
At any time following October 3, 2019, the JKD Investor or the Operating LLC may, upon two months’ notice to the other party,
cause the Operating LLC to pay a redemption to the JKD Investor in an amount equal to the Investment Balance (as such term is
defined in the JKD Investment Agreement, as amended) as of the day prior to such redemption.
If the Operating LLC or JVB sells JVB’s Institutional Corporate Trading Business to any unaffiliated third-party, and such sale is
not part of a larger sale of all or substantially all of the assets or equity securities of the Operating LLC or JVB, the Operating LLC
will pay to the JKD Investor an amount equal to 25% of the net consideration paid to the Operating LLC in connection with such
sale, after deducting certain amounts and certain expenses incurred by the Operating LLC or JVB in connection with such sale.
DGC Trust/ CBF Amendments
Prior to September 30, 2019, the DGC Trust / CBF redeemable financial instruments were comprised of two separate agreements:
the CBF Investment Agreement and the DGC Trust Investment Agreement.
The CBF Investment Agreement and the DGC Trust Investment Agreement were both amended on September 25, 2019 and again
on December 4, 2019, with each amendment becoming effective October 1, 2019. The amendments included the following
amendments to each of the CBF Investment Agreement and the DGC Trust Investment Agreement:
(a)
(b)
The term “Investment Amount” under the CBF Investment Agreement was reduced from $8,000 to $6,500 in
exchange for a one-time payment of $1,500 from the Operating LLC to CBF. The payment of $1,500 was made by
the Operating LLC to CBF in October 2019.
The term “Investment Return” under the CBF Investment Agreement was amended to mean an annual return equal to:
F-49
•
•
for the Annual Period ending on September 29, 2020, 3.75% of the Investment Amount, plus (x)
11.47% of any revenue of the GCF repo business (the “Revenue of the Business”) during such
period between zero and $11,777 plus (y) 7.65% of any Revenue of the Business during such
period in excess of $11,777. Prior to the second amendment, the Investment Return was with
respect to any twelve-month period ending on September 29, 2020 (each, an “Annual
Period”) was 3.75% of the Investment Amount plus (x) 11.47% of the Revenue of the Business for
any Annual Period in which the Revenue of the Business was greater than zero but less than or
equal to $5,333, (y) $612 for any Annual Period in which the Revenue of the Business is greater
than $5,333 but less than or equal to $8,000, or (z) 7.65% of the Revenue of the Business for any
Annual Period in which the Revenue of the Business is greater than $8,000, and
for any Annual Period following September 29, 2020, (x) for any Annual Period in which the
Revenue of the Business is greater than zero, the greater of 20% of the Investment Amount or
15.29% of the Revenue of the Business, or (y) for any Annual Period in which the Revenue of the
Business is zero or less than zero, 3.75% of the Investment Amount.
(c) The term “Investment Return” under the DGC Trust Investment Agreement was amended to mean an annual return equal to:
•
•
for the twelve-month period ending on September 29, 2020, 3.75% of the Investment Amount plus (x) 3.53% of
any Revenue of the Business during such period between zero and $11,177 plus (y) 2.35% of any Revenue of
the Business during such period in excess of $11,177. Prior to the second amendment, the Investment
Return was 3.75% of the Investment Amount, as defined in the DGC Trust Investment Agreement, plus (x)
3.53% of the Revenue of the Business, for any Annual Period in which the Revenue of the Business is greater
than zero but less than or equal to $5,333, (y) $188 for any Annual Period in which the Revenue of the Business
is greater than $5,333, but less than or equal to $8,000, or (z) 2.35% of the Revenue of the Business for any
Annual Period in which the Revenue of the Business is greater than $8,000, and
for any Annual Period following September 29, 2020, (x) for any Annual Period in which the Revenue of the
Business is greater than zero, the greater of 20% of the Investment Amount or 4.71% of the Revenue of the
Business, or (y) for any Annual Period in which the Revenue of the Business is zero or less than zero, 3.75% of
the Investment Amount.
On September 25, 2020, the Operating LLC and CBF entered into Amendment No. 3 to CBF Investment Agreement, which
amended the CBF Investment Agreement (i) to extend the date thereunder pursuant to which the Company or CBF could cause a
redemption of the Investment Amount from September 27, 2020 to January 1, 2021, and (ii) to state that no such redemption by
the Company could be in violation of any loan agreement to which the Company was then a party.
On September 30, 2020, the Company redeemed the DGC Trust Investment Agreement in full by making payment of $2,000.
On October 9, 2020 and effective October 15, 2020, the Operating LLC entered into Amendment No. 4 to Investment Agreement,
which further amended the CBF Investment Agreement to, among other things, (A) decrease the “Investment Amount” under the
CBF Investment Agreement from $6,500 to $4,000 in exchange for a one-time payment of $2,500 from the Operating LLC to
CBF; and (B) provide that the term “Investment Return” (as defined in the CBF Investment Agreement) will mean an annual
return equal to, (i) for any twelve-month period following September 29, 2020 (each, an “Annual Period”) in which the revenue of
the business of JVB (“Revenue of the Business”), is greater than zero, the greater of 20% of the Investment Amount or 9.4% of the
Revenue of the Business, or (ii) for any Annual Period in which the Revenue of the Business is zero or less than zero, 3.75% of the
Investment Amount. Prior to the Investment Agreement Amendment, the term “Investment Return” under the CBF Investment
Agreement was defined as (A) with respect to any Annual Period in which the Revenue of the Business was greater than zero, the
greater of 20% of the Investment Amount or 15.2% of the Revenue of the Business, or (ii) for any Annual Period in which the
Revenue of the Business was zero or less than zero, 3.75% of the Investment Amount. The Company made the $2,500 payment to
CBF on October 15, 2020. The Company made a $4,000 payment on March 30, 2021 to fully redeem the Investment Amount.
F-50
20. DEBT
DETAIL OF DEBT
(Dollars in Thousands)
As of December 31,
Description
2021
2020
Interest Rate
Terms
Interest (2) Maturity
Non-convertible debt:
12.00% senior notes (the "2020 Senior Notes")
12.00% senior notes (the "2019 Senior Notes")
PPP Loan
$
4,500 $
-
-
4,500
2,400
2,166
Fixed
Fixed
Fixed
12.00%
12.00%
1.00%
January 2024
September 2021
May 2022
Contingent convertible debt:
8.00% convertible senior note (the "2017
Convertible Note")
Less unamortized debt issuance costs
Junior subordinated notes (1):
Alesco Capital Trust I
Sunset Financial Statutory Trust I
Less unamortized discount
15,000
(67 )
14,933
15,000
(401 )
14,599
Fixed
8.00%
March 2023
28,125
20,000
(24,164 )
23,961
28,125 Variable
20,000 Variable
(24,690 )
23,435
July 2037
4.37% (1)
4.13% (1) March 2035
ByLine Bank
FT Financial Bank, N.A. Credit Facility
Total
-
-
43,394 $
$
- Variable
- Variable
N/A
N/A
December 2023
N/A
47,100
(1) The junior subordinated notes listed represent debt the Company owes to the two trusts noted above. The total par amount owed
by the Company to the trusts is $49,614. However, the Company owns the common stock of the trusts in a total par amount of
$1,489. The Company pays interest (and at maturity, principal) to the trusts on the entire $49,614 junior notes outstanding.
However, the Company receives back from the trusts the pro rata share of interest and principal on the common stock held by
the Company. These trusts are VIEs and the Company does not consolidate them even though the Company holds the common
stock. The Company carries the common stock on its balance sheet at a value of $0. The junior subordinated notes are recorded
at a discount to par. When factoring in the discount, the yield to maturity of the junior subordinated notes as of December 31,
2021 on a combined basis was 11.32% assuming the variable rate in effect on the last day of the reporting period remains in
effect until maturity.
(2) Represents the interest rate in effect as of the last day of the reporting period.
F-51
The 2020 Senior Notes
On January 31, 2020, the Operating LLC entered into a Note Purchase Agreement (the "Original Purchase Agreement) with JKD
Capital Partners I LTD, a New York corporation (“JKD Investor”), and RN Capital Solutions LLC, a Delaware limited liability
company (“RNCS”). The JKD Investor is owned by Jack DiMaio, the vice chairman of the Company’s board of directors and the
Operating LLC’s board of managers, and his spouse. The note purchased by the JKD Investor is herein referred to as the JKD
Note.
Pursuant to the Original Purchase Agreement, JKD Investor and RNCS each purchased a senior promissory note in the principal
amount of $2,250 (for an aggregate investment of $4,500). The senior promissory notes bear interest at a fixed rate of 12% per
annum and matured on January 31, 2022. On February 3, 2020, pursuant to the Original Purchase Agreement, the Operating LLC
used the proceeds received from the issuance of the senior promissory notes to the JKD Investor and RNCS to repay in full all
amounts outstanding under the senior promissory note, dated September 25, 2019, issued by the Company to Pensco Trust
Company, Custodian fbo Edward E. Cohen IRA in the principal amount of $4,386 (the “Cohen IRA Note”). The Cohen IRA
Note was fully paid and extinguished on February 3, 2020. Subsequent to this repayment, $2,400 of the 2019 Senior Notes
remained outstanding.
On January 31, 2022, the Operating LLC and JKD Investor entered into a Note Purchase Agreement (the “2022 Purchase
Agreement”), pursuant to which, among other things, on such date, (i) JKD Investor paid to the Operating LLC an additional
$2,250 and (ii) in consideration for such funds, the Operating LLC issued to JKD Investor an Amended and Restated Senior
Promissory Note in the aggregate principal amount of $4,500 (the “Amended and Restated Note”), which Amended and Restated
Note amended and restated the JKD Note in its entirety. The 2022 Purchase Agreement contains customary representations and
warranties on the part of each of JKD Investor and the Operating LLC.
The Amended and Restated Note evidences Operating LLC’s obligation to repay to JKD (i) the original principal amount of
$2,250 paid by JKD to the Operating LLC under the Original Purchase Agreement, plus (ii) the additional $2,250 paid by JKD to
the Operating LLC under the 2022 Purchase Agreement. Pursuant to the Amended and Restated Note, which is substantially
identical to the JKD Note, the unpaid principal amount and all accrued but unpaid interest thereunder will be due and payable in
full on January 31, 2024; provided, that, at any time after January 31, 2023 and prior to January 31, 2024, the holder of the
Amended and Restated Note may, with at least 31 days’ prior written notice from the holder to the Operating LLC, declare the
entire unpaid principal amount outstanding and all interest accrued and unpaid on the Amended and Restated Note to be
immediately due and payable.
The Amended and Restated Note accrues interest on the unpaid principal amount from January 31, 2022 until maturity at a rate
equal to 10% per year. Interest on the Amended and Restated Note is payable in cash quarterly on each January 1, April 1, July 1,
and October 1, commencing on April 1, 2022. Under the Amended and Restated Note, upon the occurrence or existence of any
“Event of Default” thereunder, the outstanding principal amount is (or in certain instances, at the option of the holder thereof, may
be) immediately accelerated. Further, upon the occurrence of any “Event of Default” under the Amended and Restated Note and
for so long as such Event of Default continues, all principal, interest and other amounts payable under the Amended and Restated
Note will bear interest at a rate equal to 11% per year. The Amended and Restated Note may not be prepaid in whole or in part
prior to January 31, 2023. The Amended and Restated Note may, with at least 31 days’ prior written notice from the Operating
LLC to the holder thereof, be prepaid in whole or in part at any time following January 31, 2023 without the prior written consent
of the holder and without penalty or premium.
The Amended and Restated Note and the payment of all principal, interest and any other amounts payable thereunder are senior
obligations of the Operating LLC and will be senior to any Indebtedness (as defined in the Amended and Restated Note) of the
Operating LLC outstanding as of and issued following January 30, 2020 (the original issuance date of the JKD Note), except that
the Amended and Restated Note ranks parri passu to the Convertible Senior Secured Promissory Note, dated March 10, 2017,
issued by the Operating LLC to the DGC Family Fintech Trust in the aggregate principal amount of $15,000. Pursuant to the
Amended and Restated Note, following January 31, 2022, the Operating Company may not incur any Indebtedness that is a senior
obligation to the Amended and Restated Note.
F-52
The 2019 Senior Notes
On September 25, 2019, the Company amended and restated the previously outstanding 2013 Convertible Notes, which were
scheduled to mature on September 25, 2019. The material terms and conditions of the 2013 Convertible Notes remained
substantially the same, except that (i) the maturity date thereof was changed from September 25, 2019 to September 25, 2020;
(ii) the conversion feature in the 2013 Convertible Notes was removed; (iii) the interest rate thereunder was changed from 8% per
annum (9% in the event of certain events of default) to 12% per annum (13% in the event of certain events of default); and (iv) the
restrictions regarding prepayment were removed. The post amendment notes are referred to herein as the “2019 Senior Notes” and
the pre-amendment notes are referred to herein as the “2013 Convertible Notes.” On September 25, 2020, the 2019 Senior Notes
were amended again to extend the maturity date from September 25, 2020 until September 25, 2021. All other material terms and
conditions of the 2019 Convertible Notes remained substantially the same. The Company fully paid and extinguished the 2019
Notes on September 24, 2021.
The 2017 Convertible Note
On March 10, 2017, the Operating LLC entered into a Securities Purchase Agreement (the “2017 Convertible Note Purchase
Agreement”), by and among the Operating LLC and DGC Family Fintech Trust, a trust established by Daniel G. Cohen. Daniel G.
Cohen is the chairman of the Company’s board of directors and chairman of the board of managers of the Operating LLC.
Pursuant to the 2017 Convertible Note Purchase Agreement, the DGC Family Fintech Trust agreed to purchase from the Operating
LLC, and the Operating LLC agreed to issue and to sell to the DGC Family Fintech Trust, a convertible senior secured promissory
note (the “2017 Convertible Note”) in the aggregate principal amount of $15,000. On March 10, 2017, the DGC Family Fintech
Trust paid to the Operating LLC $15,000 in cash in consideration for the 2017 Convertible Note. As required pursuant to ASC
470, the Company accounted for the 2017 Convertible Notes as conventional convertible debt and did not allocate any amount of
the proceeds to the embedded equity option.
Under the 2017 Convertible Note Purchase Agreement, the Operating LLC and the DGC Family Fintech Trust offer customary
indemnifications. Further, the Operating LLC and the DGC Family Fintech Trust provide each other with customary
representations and warranties, the Company provides limited representations and warranties to the DGC Family Fintech Trust,
and each of the Operating LLC and the Company make customary affirmative covenants.
Pursuant to the 2017 Convertible Note Purchase Agreement, the Company agreed to execute an amendment (the “LLC Agreement
Amendment”) to the Amended and Restated Limited Liability Company Agreement of the Operating LLC dated as of
December 16, 2009, by and among the Operating LLC and its members, as amended (the “LLC Agreement”) at such time in the
future as all of the other members execute the LLC Agreement Amendment. The LLC Agreement Amendment provides, among
other things, that the board of managers will initially consist of Daniel G. Cohen, as chairman of the Operating LLC’s board of
managers, Lester R. Brafman (the Company’s current chief executive officer), and Joseph W. Pooler, Jr. (the Company’s current
executive vice president, chief financial officer, and treasurer). The LLC Agreement Amendment also provides that Daniel G.
Cohen will not be able to be removed from the Operating LLC’s board of managers or as chairman of the Operating LLC’s board
of managers other than for cause or under certain limited circumstances. On October 30, 2019, each of the members of Cohen &
Company, LLC executed the LLC Agreement Amendment. The outstanding principal amount under the 2017 Convertible Note is
due and payable on March 10, 2022 provided that the Operating LLC may, in its sole discretion, extend the maturity date for an
additional one-year period, in each case unless the 2017 Convertible Note is earlier converted (in the manner described
below). The Operating LLC intends to exercise its option to extend effective March 10, 2022.
The 2017 Convertible Note accrues interest at a rate of 8% per year, payable quarterly. Provided that no event of default has
occurred under the 2017 Convertible Note, if dividends of less than $0.20 per share are paid on the Common Stock in any fiscal
quarter prior to an interest payment date, then the Operating LLC may pay one-half of the interest payable on such date in cash,
and the remaining one-half of the interest otherwise payable will be added to the principal amount of the 2017 Convertible Note
then outstanding. The 2017 Convertible Note contains customary “Events of Default.” Upon the occurrence or existence of any
Event of Default under the 2017 Convertible Note, the outstanding principal amount is immediately accelerated in certain limited
instances and may be accelerated in all other instances upon notice by the holder of the 2017 Convertible Note to the Operating
LLC. Further, upon the occurrence of any Event of Default under the 2017 Convertible Note and for so long as such Event of
Default continues, all principal, interest, and other amounts payable under the 2017 Convertible Note will bear interest at a rate
equal to 9% per year. The 2017 Convertible Note may not be prepaid in whole or in part prior to the maturity date without the prior
written consent of the holder thereof (which may be granted or withheld in its sole discretion). The 2017 Convertible Note is
secured by the equity interests held by the Operating LLC in all of its subsidiaries.
At any time following March 10, 2017, all or any portion of the outstanding principal amount of the 2017 Convertible Note may be
converted by the holder thereof into units of membership interests of the Operating LLC (“LLC Units”) at a conversion rate equal
to $1.45 per unit, subject to customary anti-dilution adjustments. Units of the Operating LLC not held by Cohen & Company Inc.
may, with certain restrictions, be redeemed and exchanged into shares of the Company on a ten-for-one basis. Therefore, the 2017
Convertible Note can be converted into Operating LLC units and then redeemed and exchanged into Common Stock at an
effective conversion price of $14.50. Under the 2017 Convertible Note Purchase Agreement, the Company submitted a proposal
to the Company’s stockholders at its 2017 annual meeting of stockholders to approve the Company’s issuance, if any, of Common
Stock upon any redemption of the LLC Units and the Company’s board of directors agreed to recommend that the Company’s
stockholders vote to approve such proposal. The proposal was approved at the Company’s 2017 annual meeting.
Following any conversion of the 2017 Convertible Note into LLC Units, the holder of such LLC Units will have the same rights of
redemption, if any, held by the holders of LLC Units as set forth in the LLC Agreement; provided that the holder will have no such
redemption rights with respect to such LLC Units if the Company’s board of directors determines in good faith that satisfaction of
such redemption by the Company with shares of its Common Stock would (i) jeopardize or endanger the availability to the
Company of its net operating loss and net capital loss carryforwards and certain other tax benefits under Section 382 of the Internal
Revenue Code of 1986, or (ii) constitute a “Change of Control” under the Junior Subordinated Indenture, dated as of June 25,
2007, between the Company (formerly Alesco Financial Inc.) and Wells Fargo Bank, N.A., as trustee.
Under the 2017 Convertible Note, if following any conversion of the 2017 Convertible Note into LLC Units, for so long as the
Company owns a number of LLC Units representing less than a majority of the voting control of the Operating LLC, each holder
of any LLC Units issued as a result of the conversion of the 2017 Convertible Note (regardless of how such LLC Units were
acquired by such holder) is obligated to grant and appoint the Company as such holder’s proxy and attorney-in-fact to vote (i) the
number of LLC Units owned by each such holder that, if voted by the Company, would give the Company a majority of the voting
control of the Operating LLC, or (ii) if such holder holds less than such number of LLC Units, all such holder’s LLC Units. In
connection with the amendment to the 2019 Senior Notes, on September 25, 2020, the Operating LLC and DGC Trust entered into
Amendment No. 1 ( the "Amendment to the 2017 Convertible Note") to the 2017 Convertible Note to provide that the voting
proxy as defined in the 2017 Convertible Note will be revoked without further action by any party, upon the earliest to occur of the
following: (i) a Notice Default (as defined in the 2017 Convertible Note); (ii) and Automatic Default (as defined in the 2017
Convertible Note); and (iii) if Daniel Cohen and/or his affiliates cease to beneficially own (as defined in Rule 13d-3 under the
Exchange Act) a majority of the voting securities of the Company pursuant to the terms and conditions of the Amendment to the
2017 Convertible Note. All other material terms and conditions of the 2017 Note remained substantially the same.
F-53
PPP Loan
On May 1, 2020, the Company applied for and received a $2,166 loan (the "PPP Loan") under the Paycheck Protection Program
(PPP) of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. The Company carefully considered the eligibility
requirements for PPP loans as well as supplemental guidance regarding the PPP beyond the applicable statute issued from time to
time by government agencies and certain government officials. The Company was eligible for a PPP Loan because it had fewer
than 100 employees at the time of the loan. Further, although the Company is public and listed on the NYSE American stock
exchange, the Company’s market capitalization is small, and the Company believes that it did not have access to the public capital
markets at the time.
The PPP Loan was evidenced by a promissory note between the Company and FT Financial. The PPP Loan bore interest at a fixed
rate of 1% per year, with the first six months of interest deferred, had a term of two year and could be prepaid at any time without
payment of any premium. The PPP Loan was unsecured but guaranteed by the U.S. Small Business Association. On September
23, 2020, the Company applied for forgiveness of the PPP Loan. On June 21, 2021, the Company received notification that the
U.S. Small Business Administration, as administrator of the PPP, had approved the Company’s PPP Loan forgiveness application
for $2,127 and all accrued interest on the PPP Loan, leaving the Company with a remaining PPP Loan balance of $39. The PPP
Loan forgiveness was recorded to other non-operating income on the consolidated statements of operations and comprehensive
income. The Company repaid the remaining balance, plus accrued interest, on June 25, 2021, at which point the PPP Loan balance
was reduced to zero.
F-54
Byline Bank / FT Financial Line of Credit
Effective on April 25, 2018, the Company, the Operating LLC, and JVB Holdings, as guarantors, and JVB, as borrower, entered
into a loan agreement (the “FT LOC”) with FT Financial Bank, N.A. ("FT Financial") as lender in the total amount of up to
$25,000. FT Financial was formerly known as MB Financial Bank, N.A. In March 2020, the Company drew $17,500 under the
FT LOC. This amount was fully repaid (with accrued interest) on October 27, 2020.
On October 28, 2020, (i) the Company entered into a loan agreement (the “Original Byline Loan Agreement”) with Byline Bank,
as lender (“Byline Bank”), by and among the Byline Bank, and JVB as borrower, and C&Co PrinceRidge Holdings, LP
(“C&Co.”), pursuant to which Byline Bank agreed to make loans at JVBs request from time to time in the aggregate amount of up
to $7,500 and (ii) JVB and Byline Bank entered into a Revolving Note and Cash Subordination Agreement (the "Original Byline
Note and Subordination Agreement"), pursuant to which, among other things, Byline Bank agreed to make loans at JVB’s request
from time to time in the aggregate amount of up to $17,500. The Company drew $17,500 under the Byline LOC during 2021 and
repaid it in full during 2021. The Company, and the Company’s subsidiaries, the Operating LLC and JVB Holdings, served as
guarantors of both the $7,500 and $17,500 facilities.
On December 21, 2021, (i) JVB and Byline Bank entered into the Amended and Restated Revolving Note and Cash Subordination
Agreement (the “Amended and Restated Byline Loan Agreement”), which amended and restated the Original Byline Loan
Agreement in its entirety, and (ii) the Original Byline Note and Subordination Agreement was terminated by the parties thereto.
Pursuant to the Amended and Restated Byline Loan Agreement, Byline Bank agreed to make loans to JVB, at JVB’s request from
time to time, in the aggregate amount of up to $25,000.
Loans (both principal and interest) made by Byline Bank to JVB under the Amended and Restated Byline Loan Agreement are
scheduled to mature and become immediately due and payable in full on December 21, 2023. In addition, loans may be made until
December 21, 2022. Loans will bear interest at a per annum rate equal to LIBOR plus 6.0%, provided that in no event can the
interest rate be less than 7.0%. JVB is required to pay on a quarterly basis an undrawn commitment fee at a per annum rate equal
to 0.50% of the undrawn portion of Byline Bank’s $25,000 commitment. JVB is also required to pay on each anniversary of
December 21, 2021, a commitment fee at a per annum rate equal to 0.50% of the $25,000 commitment. JVB paid a commitment
fee of $125 on December 21, 2021.
JVB may request a reduction in the $25,000 commitment in a minimum amount of $1,000 and multiples of $500 thereafter or such
lesser amount as would bring the $25,000 loan commitment to the total principal amount of loans advanced under the Amended
and Restated Byline Loan Agreement. The obligations of JVB under the Amended and Restated Agreement are guaranteed by the
Company, the Operating LLC and JVB Holdings (collectively, the “Guarantors”), and are secured by a lien on all of JVB
Holdings’ property, including its 100% ownership interest in all of the outstanding membership interests of JVB. Pursuant to the
Amended and Restated Byline Loan Agreement, JVB and the Guarantors provide customary representations and warranties for a
transaction of this type.
Also, effective December 22, 2021, the Company received approval from FINRA to treat draws under the Amended and Restated
Byline Loan Agreement as qualified subordinated debt. As such, draws may be treated as an increase in net capital for purposes of
FINRA Rule 15(c) 3-1.
The Amended and Restated Byline Loan Agreement also includes customary covenants for a transaction of this type, including
covenants limiting the indebtedness that can be incurred by JVB and JVB Holdings and restricting JVB’s ability to make certain
loans and investments. Additionally, JVB may not permit its (i) net worth to be less than $80,000 at any time from December 22,
2021 through and including December 30, 2021, $85,000 from December 31, 2021 through and including December 30, 2022, and
$90,000 from December 31, 2022 and thereafter; and (ii) excess net capital to be less than $40,000 at any time. Further, any loans
outstanding under the Amended and Restated Byline Loan Agreement may not exceed 0.25 times JVB's tangible net worth. As of
December 31, 2021 no amounts are outstanding under the Byline LOC and the Company was in compliance with all of these
financial covenants.
Pursuant to the Amended and Restated Byline Agreement, JVB may repay its existing outstanding indebtedness provided,
however, that if the anticipated payment relates to the payment of any dividend by JVB, on the date such payment is made, and
immediately after making such payment, the loans outstanding may not exceed $10,000. The Amended and Restated Byline Loan
Agreement contains customary events of default for a transaction of this type. If an event of default occurs and is continuing, then
Byline Bank may declare and cause all or any part of the loans thereunder and all other liabilities outstanding under the Amended
and Restated Byline Loan Agreement to become immediately due and payable.
In the financial statements and other footnotes, the term "Byline LOC" refers to either the Original Byline Note and Subordination
Agreement or the Amended and Restated Byline Loan Agreement depending on which period of time it is referring to.
F-55
LegacyTexas Bank
In 2018, the Company formed a wholly owned subsidiary, ViaNova Capital Group LLC ("ViaNova"), for the purpose of building a
residential transition loan ("RTL") business. RTLs are small balance commercial loans that are secured by first lien mortgages
used by professional investors and real estate developers to finance the purchase and rehabilitation of residential properties. On
November 20, 2018, ViaNova, as borrower, entered into a Warehousing Credit and Security Agreement (the “LegacyTexas Credit
Facility”) with LegacyTexas Bank, as the lender, with an effective date of November 16, 2018, and amended on May 4, 2019 and
September 25, 2019. The LegacyTexas Credit Facility supported the purchasing, aggregating, and distribution of residential
transition loans by ViaNova.
On March 19, 2020, ViaNova received a notice of default from LegacyTexas Bank regarding the LegacyTexas Credit Facility,
stating that ViaNova’s unrestricted cash balance was less than the amount required. Also, on March 19, 2020, ViaNova received
notice from LegacyTexas Bank that the Bank had suspended funding all “Alternative” loans for all of their clients, including the
RTLs that are the subject of the LegacyTexas Credit Facility. Since March 19, 2020, ViaNova has repaid all outstanding
indebtedness under the LegacyTexas Credit Facility and stopped acquiring new RTLs. On August 22, 2020, the Company sold its
investment in ViaNova to the former managing director of ViaNova in exchange for the managing director's assumption of all of
ViaNova's liabilities and a potential earn out of up to $500. In conjunction with the sale, the Company transferred one RTL
representing a par value of $2,300 and a fair value of $2,243 from ViaNova to JVB with a maturity date of January 1, 2021. The
RTL was included in other investments, at fair value in the consolidated balance sheets as of December 31, 2020.
Deferred Financing
The Company incurred $1,400 of deferred financing costs associated with the issuance of the 2017 Convertible Note and $670 of
deferred financing costs associated with the issuance of the 2013 Convertible Notes. These amounts were initially recorded as a
discount on debt and are amortized to interest expense over the life of the notes under the effective interest method.
The Company also incurred $272 of deferred financing costs associated with the Byline Credit Facility. These amounts were
initially recorded as a component of other assets and are amortized to interest expense over the life of the line of credit using the
straight-line method. The Company recognized interest expense from deferred financing costs of $471, $626, and $509 for the
years ended December 31, 2021, 2020, and 2019, respectively.
Interest Expense, Net
Interest expense incurred is shown in the table below by instrument for the years ended 2021, 2020, and 2019.
INTEREST EXPENSE
(Dollars in Thousands)
Junior subordinated notes
2020 Senior Notes
2017 Convertible Note
2013 Convertible Notes / 2019 Senior Notes
FT LOC / Byline LOC
Redeemable Financial Instrument - DGC Trust / CBF
Redeemable Financial Instrument - JKD Investor
Redeemable Financial Instrument - ViaNova Capital Group, LLC
Year Ended December 31,
2020
2021
2019
$
$
2,601 $
540
1,534
211
435
197
1,715
-
7,233 $
2,882 $
496
1,505
336
1,102
1,490
1,883
(105 )
9,589 $
3,457
-
1,472
615
365
1,166
699
(190 )
7,584
The redeemable financial instrument – Via Nova Capital Group, LLC had a negative return during the periods
presented. Accordingly, the redemption value of the instrument is reduced, which is recorded as interest income. See note 20.
F-56
21. EQUITY
Common Stock
The holders of the Common Stock are entitled to one vote per share. These holders are entitled to receive distributions on such
stock when, as, and if authorized by the Company’s board of directors out of funds legally available and declared by the Company,
and to share ratably in the assets legally available for distribution to the Company’s stockholders in the event of its liquidation,
dissolution, or winding up after payment of or adequate provision for all of the Company’s known debts and liabilities, including
the preferential rights on dissolution of any class or classes of preferred stock. The holders of the Common Stock have no
preference, conversion, exchange, sinking fund, redemption, or, so long as the Common Stock remains listed on a national
exchange, appraisal rights and have no preemptive rights to subscribe for any of the Company’s securities. Shares of the Common
Stock have equal dividend, liquidation, and other rights.
Preferred Stock
Series C Junior Participating Preferred Stock: Series C Junior Participating Preferred Stock (“Series C Preferred Stock”) was
authorized by the Company’s board of directors in connection with the Stockholder Rights Plan discussed below. The Series C
Preferred Stock has a par value of $0.001 per share and 10,000 shares were authorized as of December 31, 2021 and 2020. The
holders of Series C Preferred Stock are entitled to receive, when, as, and if declared by the Company’s board of directors out of
funds legally available for the purpose, quarterly dividends payable in cash on the last day of March, June, September, and
December in each year commencing on the first quarterly dividend payment date after the first issuance of a share or fraction of a
share of Series C Preferred Stock. Dividends accrue and are cumulative. The holder of each share of Series C Preferred Stock is
entitled to 10,000 votes on all matters submitted to a vote of the Company’s stockholders. Holders of Series C Preferred Stock are
entitled to receive dividends, distributions or distributions upon liquidation, dissolution, or winding up of the Company in an
amount equal to $100,000 per share of Series C Preferred Stock, plus an amount equal to accrued and unpaid dividends and
distributions, whether or not declared, prior to payments made to holders of shares of stock ranking junior to the Series C Preferred
Stock. The shares of Series C Preferred Stock are not redeemable. There were no shares of Series C Preferred Stock issued and
outstanding as of December 31, 2021 and 2020.
Series E Voting Non-Convertible Preferred Stock: Each share of the Company’s Series E Voting Non-Convertible Preferred Stock
(“Series E Preferred Stock”) has no economic rights but entitles the holders thereof, to vote the Series E Preferred Stock on all
matters presented to the Company’s stockholders. For every 10 shares of Series E Preferred Stock, the holders thereof are entitled
to one vote on any such matter. Daniel G. Cohen, the Company’s chairman, is the sole holder of all 4,983,557 shares of Series E
Preferred Stock outstanding as of December 31, 2021. The Series E Preferred Stock held by Daniel G. Cohen gives him the same
voting rights he would have if all of the Operating LLC units of membership interests held by him were exchanged for Common
Stock on a ten for one basis and effectively gives him voting rights at the Company in the same proportion as his economic interest
(as his units of membership interests of the Operating LLC do not carry voting rights at the Company level). The Series E
Preferred Stock effectively enables Daniel G. Cohen to exercise approximately 11.2% of the voting power of the Company’s total
shares outstanding that were entitled to vote as of December 31, 2021 (in addition to the voting power he holds through his
common share ownership and Series F Preferred Stock (defined below)). The terms of the Series E Preferred Stock provide that, if
the Company causes the redemption of or otherwise acquires any of the Operating LLC units owned by Daniel G. Cohen as of
May 9, 2013, then the Company will redeem an equal number of shares of Series E Preferred Stock. The Series E Preferred Stock
is otherwise perpetual. As of December 31, 2021, there were 4,983,557 shares of Series E Preferred Stock issued and outstanding.
See Non-Controlling Interest — Future Conversion / Redemption of Operating LLC Units below.
Series F Voting Non-Convertible Preferred Stock: On December 23, 2019, the board of directors adopted a resolution that
reclassified 25,000,000 authorized but unissued shares of Preferred Stock, par value $.001 per share, of the Company as a series of
Preferred Stock designated as Series F Voting Non-Convertible (“Series F Preferred Stock”). In conjunction with SPA, the
Company issued 12,549,273 Series F Preferred Stock to Daniel G. Cohen and 9,880,268 Series F Preferred Stock to the DGC
Trust. The holders of the Series F Preferred Stock are not entitled to receive any dividends or distributions (whether in cash, stock
or property of the Company). The holders of Series F Preferred Stock and Common Stock are required to vote, together as a single
class on all matters with respect to which a vote of the stockholders of the Corporation is required or permitted. Each outstanding
share of Series F Preferred Stock entitles the holder to (1) vote for every ten (10) shares of Series F Preferred Stock on each matter
submitted to the Holders for their vote. The Series F Preferred Stock held by Daniel G. Cohen and the DGC Trust give them the
same voting rights they would have if all of the Operating LLC units of membership interests held by each were exchanged for
Common Stock on a ten for one basis and effectively gives Daniel G. Cohen and the DGC Trust voting rights at the Company in
the same proportion as their economic interest (as units of membership interests of the Operating LLC do not carry voting rights at
the Company level). The Series F Preferred Stock effectively enables Daniel G. Cohen and the DGC Trust to exercise
approximately 50.6% of the voting power of the Company’s total shares outstanding that were entitled to vote as of December 31,
2021 (in addition to the voting power held through his common share ownership and Series E Preferred Stock ownership). As of
December 31, 2021, there were 22,429,541 shares of Series F Preferred Stock issued and outstanding. See Non-Controlling
Interest/ - Securities Purchase Agreement – Purchase of IMXI shares below.
F-57
Together, the Series E and Series F Preferred Stock enables Daniel G. Cohen and the DGC Trust to exercise approximately 61.8%
of the voting power of the Company’s total shares outstanding that were entitled to vote as of December 31, 2021, in addition to
the voting power held through Mr. Cohen’s common share ownership.
Stockholder Rights Plan
On March 10, 2020, the Company entered into a new Section 382 Rights Agreement (the “Rights Agreement”) with
Computershare Inc., as rights agent (the “Rights Agent”). The Rights Agreement provided for a distribution of one preferred stock
purchase right (each, a “Right,” and collectively, the “Rights”) for each share of the Company’s common stock outstanding to
stockholders of record at the close of business on March 20, 2020 (the “Record Date”). Each Right entitles the registered holder to
purchase from the Company a unit (a “Unit”) consisting of one ten-thousandth of a share of the Company’s Series C Junior
Participating Preferred Stock, par value $0.001 per share (the “Series C Preferred Stock”), at a purchase price of $100.00 per Unit
(the “Purchase Price”), subject to adjustment. The description and terms of the Rights are set forth in the Rights Agreement.
Initially, the Rights will be attached to all Common Stock certificates representing shares then outstanding or, in the case of
uncertificated shares of Common Stock registered in book entry form (“Book Entry Shares”) by notation in book entry (which
certificates for Common Stock and Book Entry Shares shall be deemed also to be certificates for Rights), and no separate Rights
certificates will be distributed.
Subject to certain exceptions specified in the Rights Agreement, the Rights will separate from the Common Stock and a
“Distribution Date” will occur upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated
or associated persons has become an “Acquiring Person” (as defined below) (the “Stock Acquisition Date”) and (ii) 10 business
days following the commencement of a tender offer or exchange offer that would result in a person or group becoming an
Acquiring Person. Pursuant to the Rights Agreement, an “Acquiring Person” means any person or entity who or which, together
with all affiliates and associates of such person or entity, is the beneficial owner of 4.95% or more of the shares of Common Stock
then outstanding, but does not include the Company or any “Exempted Person” (as defined below). Until the Distribution Date,
(i) the Rights will be evidenced by the Common Stock certificates and will be transferred with and only with such Common Stock
certificates, (ii) new Common Stock certificates after the Record Date will contain a notation incorporating the Rights Agreement
by reference, and (iii) the surrender for transfer of any certificates for Common Stock outstanding will also constitute the transfer
of the Rights associated with the Common Stock represented by such certificate.
Pursuant to the Rights Agreement, an “Exempted Person” is any person or entity who, together with all affiliates and associates of
such person or entity, was or could become, as of March 10, 2020, the beneficial owner of Common Stock and/or other securities
exercisable for shares of Common Stock representing 4.95% or more of the shares of Common Stock outstanding as of March 10,
2020. However, any such person or entity will no longer be deemed to be an Exempted Person and shall be deemed an Acquiring
Person under the Rights Agreement if such person or entity, together with all affiliates and associates of such person or entity,
becomes the beneficial owner (and so long as such person continues to be the beneficial owner of 4.95% or more of the then
outstanding shares of Common Stock) of additional shares of Common Stock, except (x) pursuant to equity compensation awards
granted to such person or entity by the Company or options or warrants outstanding and beneficially owned by such person or
entity as of March 10, 2020, or as a result of an adjustment to the number of shares of Common Stock represented by such equity
compensation award pursuant to the terms thereof; or (y) as a result of a stock split, stock dividend or the like. In addition, any
person or entity who, together with all affiliates and associates of such person or entity, becomes the beneficial owner of Common
Stock and/or other securities exercisable for shares of Common Stock representing 4.95% or more of the shares of Common Stock
then outstanding as a result of a purchase by the Company or any of its subsidiaries of shares of Common Stock will also be an
“Exempted Person.” However, any such person will no longer be deemed to be an Exempted Person and will be deemed to be an
Acquiring Person if such person, together with all affiliates and associates of such person, becomes the beneficial owner, at any
time after the date such person became the beneficial owner of 4.95% or more of the then outstanding shares of Common Stock, of
additional shares of Common Stock, except if such additional securities are acquired (x) pursuant to the exercise of options or
warrants to purchase Common Stock outstanding and beneficially owned by such person as of the date such person became the
beneficial owner of 4.95% or more of the then outstanding shares of Common Stock or as a result of an adjustment to the number
of shares of Common Stock for which such options or warrants are exercisable pursuant to the terms thereof, or (y) as a result of a
stock split, stock dividend or the like.
In addition, the Rights Agreement defines the term “Exempted Person” to also include any person or entity who, together with all
affiliates and associates of such person or entity, is the beneficial owner of Common Stock and/or other securities exercisable for
shares of Common Stock representing 4.95% or more of the shares of Common Stock outstanding, and whose beneficial
ownership would not, as determined by the Company’s board of directors, jeopardize or endanger the availability of the Company
of its deferred tax assets. However, any such person or entity will cease to be an Exempted Person if (x) such person or entity
ceases to beneficially own 4.95% or more of the shares of the then outstanding Common Stock or (y) the Company’s board of
directors makes a contrary determination with respect to the effect of such person’s or entity’s beneficial ownership (together with
all affiliates and associates of such person) with respect to the availability to the Company of its deferred tax assets.
Pursuant to the Rights Agreement, a purchaser, assignee or transferee of the shares of Common Stock (or options or warrants
exercisable for Common Stock) from an Exempted Person will not be considered an Exempted Person, except that a transferee
from the estate of an Exempted Person who receives Common Stock as a bequest or inheritance from an Exempted Person will be
an Exempted Person so long as such transferee continues to be the beneficial owner of 4.95% or more of the then outstanding
shares of Common Stock.
F-58
The Rights are not exercisable until the Distribution Date and will expire on the earliest of (i) the close of business on December
31, 2023, (ii) the time at which the Rights are redeemed pursuant to the Rights Agreement, (iii) the time at which the Rights are
exchanged pursuant to the Rights Agreement, (iv) the repeal of Section 382 of the Code or any successor statute if the Company’s
board of directors determines that the Rights Agreement is no longer necessary or desirable for the preservation of certain tax
benefits, and (v) the beginning of a taxable year of the Company to which the Company’s board of directors determines that
certain tax benefits may not be carried forward. At no time will the Rights have any voting power.
Except as otherwise determined by the Company’s board of directors, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.
Pursuant to the Rights Agreement, in the event that a person or entity becomes an Acquiring Person, each other holder of a Right
will thereafter have the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other
securities of the Company), having a value equal to two times the exercise price of the Right. The exercise price is the Purchase
Price times the number of Units associated with each Right (initially, one). For example, at an exercise price of $100.00 per Right,
each Right not owned by an Acquiring Person (or by certain related parties) following an event set forth in the preceding
paragraph would entitle its holder to purchase $200.00 worth of Common Stock (or other consideration, as noted above) for
$100.00. If the Common Stock at the time of exercise had a market value per share of $20.00, the holder of each valid Right would
be entitled to purchase ten (10) shares of Common Stock for $100.00.
Notwithstanding any of the foregoing, following the occurrence of a person or entity becoming an Acquiring Person (the “Flip-In
Event”), all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by such
Acquiring Person will be null and void.
In the event that, at any time following the Stock Acquisition Date, (i) the Company engages in a merger or other business
combination transaction in which the Company is not the surviving corporation; (ii) the Company engages in a merger or other
business combination transaction in which the Company is the surviving corporation and the Common Stock is changed or
exchanged; or (iii) 50% or more of the Company’s assets, cash flow or earning power is sold or transferred, each holder of a Right
(except Rights which have previously been voided as set forth above) will thereafter have the right to receive, upon exercise of the
Right, common stock of the acquiring company having a value equal to two times the exercise price of the Right. However,
Rights are not exercisable following the occurrence of a Flip-In Event until such time as the Rights are no longer redeemable by
the Company as set forth below.
The Purchase Price payable, and the number of Units of Series C Preferred Stock or other securities or property issuable, upon
exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the Series C Preferred Stock, (ii) if holders of the Series C Preferred Stock are
granted certain rights or warrants to subscribe for Series C Preferred Stock or convertible securities at less than the current market
price of the Series C Preferred Stock, or (iii) upon the distribution to holders of the Series C Preferred Stock of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of subscription rights or warrants (other than those referred
to above).
With certain exceptions, no adjustments in the Purchase Price will be required until cumulative adjustments amount to at least 1%
of the Purchase Price. No fractional Units will be issued and, in lieu thereof, an adjustment in cash will be made based on the
market price of the Series C Preferred Stock on the last trading date prior to the date of exercise.
At any time after the Stock Acquisition Date, the Company may exchange all or part of the Rights (other than Rights owned by
an Acquiring Person) for Common Stock at an exchange ratio equal to (i) a number of shares of Common Stock per Right with a
value equal to the spread between the value of the number of shares of Common Stock for which the Rights may then be exercised
and the Purchase Price or (ii) if prior to the acquisition by the Acquiring Person of 50% or more of the then outstanding shares of
Common Stock, one share of Common Stock per Right (subject to adjustment).
At any time until ten days following the Stock Acquisition Date, the Company may redeem the Rights in whole, but not in part, at
a price of $0.001 per Right. Immediately upon the action of the Company’s board of directors ordering redemption of the Rights,
the Rights will terminate and the only right of the holders of Rights will be to receive the $0.001 redemption price.
Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without
limitation, the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to shareholders or to the
Company, stockholders may, depending upon the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company as set forth above or in the event the Rights are redeemed.
F-59
Net Share Settlement of Restricted Stock
The Company may, from time to time, net share settle equity-based awards for the payment of employees’ tax obligations to taxing
authorities related to the vesting of such equity-based awards. The total shares withheld and retired are based on the value of the
restricted award on the applicable vesting date as determined by the Company’s closing stock price. These net share settlements
reduce the number of shares that would have otherwise been issued as a result of the vesting and do not represent an expense to the
Company.
Repurchases of Shares and Retirement of Treasury Stock
On December 21, 2020, August 31, 2020 and March 19, 2018, the Company entered into letter agreements (the “December 2020
Letter Agreement”, the "August 2020 Letter Agreement" and the “2018 Letter Agreement,” respectively and, together, the "10b5-
1 Plan"). The December 2020 Letter Agreement and the August 2020 Letter Agreement were entered into with Piper Sandler &
Co. and the 2018 Letter Agreement was entered into with Sandler O'Neill & Partners, L.P. (which, following a merger with Piper
Jaffray, became Piper Sandler & Co. (the “Agent”)). The 10b5-1 Plan authorized the Agent to use reasonable efforts to purchase,
on the Company's behalf, up to an aggregate maximum amount of $1,000 of Common Stock for the December 2020 Letter
Agreement and $2,000 each for the August 2020 Letter Agreement and 2018 Letter Agreement on any day that the NYSE
American Stock Exchange was open for business. The December 2020 Letter Agreement was effective from December 23, 2020
until July 28, 2021, at which time the aggregate maximum purchase authorization was reached. The August 2020 Letter
Agreement was in effect from August 31, 2020 until November 19, 2020, at which time the aggregate maximum purchase
authorization was reached. The 2018 Letter was in effect from March 19, 2018 until March 19, 2019. Pursuant to the 10b5-1
Plan, purchases of Common Stock may be made in public and private transactions and must comply with Rule 10b-18 under the
Exchange Act. The 10b5-1 Plan was designed to comply with Rule 10b5-1 under the Exchange Act.
During the twelve months ended December 31, 2021, pursuant to the 10b-5 Plan, the Company repurchased 49,544 shares of
Common Stock in the open market for a total purchase price of $857.
During the twelve months ended December 31, 2020, pursuant to the 10b5-1 Plan, the Company repurchased 121,181 shares of
Common Stock in the open market for a total purchase price of $2,143.
During the twelve months ended December 31, 2019, pursuant to the 10b5-1 Plan, the Company repurchased 7,890 shares of
Common Stock in the open market for a total purchase price of $65. In addition, in privately negotiated transactions, on October
21, 2019, the Company purchased 23,000 shares from a former member of the board of directors for $230 or $10.00 per share and
on November 7, 2019, the Company purchased 1,000 shares from the chief financial officer for $5 or $4.50 per share. See Note
31.
All of the repurchases noted above were completed using cash on hand.
Equity Distribution Agreement
On December 1, 2020, the Company entered into an Equity Distribution Agreement (the “Equity Agreement”) with Northland
Securities, Inc. (trade name Northland Capital Markets), as sales agent (the “Sales Agent”), relating to the issuance and sale from
time to time by the Company (the “ATM Program”), through the Sales Agent, of shares of the Company's Common Stock, having
an aggregate offering price of up to $75,000 (collectively the “Shares”). Sales of the Shares, if any, under the Equity Agreement
will be made in sales deemed to be “at-the-market offerings” as defined in Rule 415 under the Securities Act as agreed with the
Sales Agent. In accordance with applicable rules of the SEC, the Company was permitted to sell an aggregate of up to $9,318 in
Shares under the Equity Agreement, which represented one-third of the value of the Common Stock held by non-affiliates as of
March 5, 2021.
On June 7, 2021, the Company entered into a letter agreement (the “Equity Distribution Letter Agreement”) with the Sales Agent,
pursuant to which the Sales Agent agreed to use its best efforts to, commencing on June 5, 2021, sell on the Company’s behalf up
to $7,966 of the shares in the open market pursuant to the terms and conditions of the Equity Agreement and the Equity
Distribution Letter Agreement, and the Company agreed not to take any action that would cause the sales of the Shares under the
Equity Distribution Letter Agreement not to comply with Rule 10b5-1 or Regulation M under the Securities Exchange Act of
1934, as amended (the “Exchange Act”). The Equity Distribution Letter Agreement was entered into in connection with the ATM
Program and is designed to comply with Rule 10b5-1 under the Exchange Act
The Equity Agreement includes customary representations, warranties and covenants by the Company and customary obligations
of the parties and termination provisions. The Company has agreed to indemnify the Sales Agent against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the Sales Agent may be required to make with respect to
any of those liabilities. The Company will pay the Sales Agent for sales of its common stock a commission of 2.5% of the gross
offering proceeds of the Shares sold through the Sales Agent pursuant to the Equity Agreement.
The offering of the Common Stock pursuant to the Equity Agreement will terminate upon the sale of all of the Shares pursuant to
the Equity Agreement, unless sooner terminated in accordance with the terms and conditions of the Equity Agreement.
During the year ended December 31, 2021, the Company sold 300,859 shares in the open market pursuant to the
Equity Distribution Agreement for a total net sale price of $9,076. No shares were sold under the Equity Distribution Agreement
during the year ended December 31, 2020.
F-60
Dividends and Distributions
During 2021, 2020, and 2019, the Company paid cash dividends on its outstanding Common Stock in the amount of $671, $27,
and $519, respectively. Pro-rata distributions were made to the other members of the Operating LLC upon the payment of
dividends to the Company’s stockholders. During 2021, 2020, and 2019, the Company paid cash distributions of $1,970, $35, and
$213, respectively, to the holders of the non-controlling interest (that is, the members of the Operating LLC other than Cohen &
Company Inc.).
Certain subsidiaries of the Operating LLC have restrictions on the withdrawal of capital and otherwise in making distributions and
loans. JVB is subject to net capital restrictions imposed by the SEC and FINRA, which require certain minimum levels of net
capital to remain in this subsidiary. In addition, these restrictions could potentially impose notice requirements or limit the
Company’s ability to withdraw capital above the required minimum amounts (excess capital) whether through distribution or
loan. CCFEL is regulated by the CBI and must maintain certain minimum levels of capital. CCFL reduced its permissions with the
FCA and is no longer a regulated entity. CCFESA is regulated by the ACPR and also subject to certain minimum levels of
capital. See note 25.
Shares Outstanding of Stockholders’ Equity of the Company
The following table summarizes share transactions that occurred in stockholders’ equity during the years ended December 31,
2021, 2020, and 2019.
ROLLFORWARD OF SHARES OUTSTANDING OF
COHEN & COMPANY INC.
Common Stock Restricted Stock
Total
December 31, 2018 (1)
Issuance of shares
Issuance as equity-based compensation
Vesting of shares
Shares withheld for employee taxes
Forfeiture / cancellation of restricted stock
Repurchase and retirement of common stock
December 31, 2019 (1)
Issuance of shares
Issuance as equity-based compensation
Vesting of shares
Shares withheld for employee taxes
Forfeiture / cancellation of restricted stock
Repurchase and retirement of common stock
December 31, 2020 (1)
Issuance of shares
Issuance as equity-based compensation
Vesting of shares
Shares withheld for employee taxes
Forfeiture / cancellation of restricted stock
Repurchase and retirement of common stock
December 31, 2021 (1)
1,110,717
-
-
56,639
(15,557 )
-
(31,890 )
1,119,909
-
-
55,278
(15,043 )
-
(121,181 )
1,038,963
300,859
-
62,649
(21,777 )
-
(49,544 )
1,331,150
93,479
-
36,875
(56,639 )
-
-
-
73,715
-
268,129
(55,278 )
-
-
-
286,566
-
142,376
(62,649 )
-
-
-
366,293
1,204,196
-
36,875
-
(15,557 )
-
(31,890 )
1,193,624
-
268,129
-
(15,043 )
-
(121,181 )
1,325,529
300,859
142,376
-
(21,777 )
-
(49,544 )
1,697,443
(1)
Excludes remaining restricted units of Cohen & Company Inc. Common Stock. See note 22.
F-61
Convertible Non-Controlling Interest
Securities Purchase Agreement – Purchase of IMXI shares
On December 30, 2019 (the “SPA Effective Date”), the Company entered into a Securities Purchase Agreement (the “SPA”), by
and among the Company, the Operating LLC, Daniel G. Cohen, and the DGC Trust.
Pursuant to the SPA, Daniel G. Cohen and the DGC Trust purchased (i) an aggregate of 22,429,541 newly issued units of
membership interests in the Operating LLC (collectively, the “LLC Units”); and (ii) 22,429,541 newly issued, Series F Preferred
Stock.
In consideration for the issuance of the LLC Units and Series F Preferred Stock, Daniel G. Cohen transferred to the Operating LLC
370,881 shares of common stock, par value $.00001 per share (“IMXI Common Stock”), of International Money Express, Inc.
(formerly FinTech Acquisition Corp. II) a Delaware corporation (“IMXI”), and the DGC Trust transferred to the Operating LLC
an aggregate of 291,480 shares of IMXI common stock. The aggregate number of IMXI shares transferred to the Operating LLC
was 662,361, of which (a) 264,021 shares are subject to certain restrictions on transfer until the closing price per share of IMXI
Common Stock (as reported by The NASDAQ Capital Market) exceeds $15.00 for any 20 trading days within a consecutive 30
trading day period or immediately upon certain change of control events involving IMXI, as set forth in the letter agreement, dated
January 19, 2017 (the “Letter Agreement”), by and among IMXI, Daniel G. Cohen, the DGC Trust and the other parties named
therein, and (b) 264,023 shares are subject to certain restrictions on transfer until the closing price per share of IMXI Common
Stock (as reported by The NASDAQ Capital Market ("NASDAQ")) exceeds $17.00 for any 20 trading days within a consecutive
30 trading day period or immediately upon certain change of control events involving IMXI, as set forth in the Letter Agreement.
The shares transferred by Daniel Cohen were valued at $4,351 and the shares transferred by the DGC Trust were valued at
$3,428. The Company accounted for this transaction by recording an increase of $7,779 in other investments, at fair value and a
corresponding increase in the non-controlling interest. The IMXI Common Stock is listed on the NASDAQ under the trading
symbol “IMXI.” Prior to the merger of IMXI with and into a special purpose acquisition company in a transaction that resulted in
the listing of IMXI on NASDAQ, Mr. Cohen served as the chief executive officer and member of the board of directors of the
special purpose acquisition company.
The SPA contains customary representations and warranties on the part of each of the Operating LLC, the Company, Daniel G.
Cohen, and the DGC Trust. The Operating LLC, the Company, Daniel G. Cohen, and the DGC
Trust provide customary indemnifications thereunder.
Pursuant to the Amended and Restated Limited Liability Company Agreement of the Operating LLC, dated as of December 16,
2009, as amended (“LLC Agreement”), a holder of units of membership interests in the Operating Agreement, including the LLC
Units, may cause the Operating LLC to redeem (each, a “Unit Redemption”) such units at any time for, at the Company’s option,
(A) cash or (B) one share of Common Stock for every 10 units of membership interests in the Operating LLC.
However, pursuant to the SPA, Daniel G. Cohen and the DGC Trust agreed that, until the Company’s stockholders approve the
Stockholder Proposal (as defined below), they will not cause a Unit Redemption with respect to any portion of the LLC Units if
such Unit Redemption would result in the Company issuing a number of shares of Common Stock that, when aggregated with any
shares of Common Stock previously issued in connection with any Unit Redemption of the LLC Units equals or exceeds 19.99%
of the outstanding Common Stock as of the SPA Effective Date.
Pursuant to the SPA, Daniel G. Cohen and the DGC Trust also agreed to not cause a Unit Redemption with respect to any portion
of the Cohen LLC Units if the Company’s board of directors determines that the satisfaction of such Unit Redemption by the
Company with shares of Common Stock would jeopardize or endanger the availability to the Company of its net operating loss and
net capital loss carryforwards and certain other tax benefits under Section 382 of the Internal Revenue Code of 1986, as amended.
Pursuant to the SPA, at the 2020 annual meeting of the Company’s stockholders, the Company agreed to cause its stockholders to
vote on proposals (collectively, the “Stockholder Proposal”) regarding the issuance of all shares of Common Stock issuable in
connection with a redemption of the LLC Units for purposes of Section 713 of the NYSE American’s Company Guide. Further,
the Company’s board of directors must recommend to the Company’s stockholders that such stockholders approve the Stockholder
Proposal and may not modify or withdraw such resolution. The Stockholder Proposal was approved at the Company's 2020 annual
meeting.
F-62
In addition, effective as of the SPA Effective Date, if the Company owns a number of units of membership interests in the
Operating LLC representing less than a majority of the votes entitled to be cast at any meeting or any other circumstances upon
which a vote, agreement, consent (including unanimous written consents) or other approval is sought from the holders of units of
membership interests in the Operating LLC (each, a “Meeting”), then for so long as the Company owns a number of units of
membership interests in the Operating LLC representing less than a majority of the votes entitled to be cast at any Meeting, Daniel
G. Cohen and the DGC Trust have agreed to grant a voting proxy to the Company pursuant to which the Company may vote at any
Meeting the number of units of membership interests in the Operating LLC owned by Daniel G. Cohen and the DGC Trust
necessary to give the Company a majority of the votes at such Meeting. On September 25, 2020, the SPA was amended to provide
that the voting proxy shall be revoked in the event that Daniel G. Cohen and/or his affiliates cease to beneficially own a majority
of the voting securities of the Company. See notes 21 and 31.
Future Conversion / Redemption of Operating LLC Units
Each Operating LLC membership unit is redeemable at the member’s option, at any time, for (i) cash in an amount equal to the
average of the per share closing prices of the Common Stock for the ten consecutive trading days immediately preceding the date
the Company receives the holder’s redemption notice, or (ii) at the Company’s option, for one share of the Common Stock for
every 10 units subject, in each case, to appropriate adjustment upon the occurrence of an issuance of additional shares of the
Common Stock as a dividend or other distribution on the Company’s outstanding Common Stock, or a further subdivision or
combination of the outstanding shares of the Common Stock.
Unit Issuance and Surrender Agreement — Acquisition and Surrender of Additional Units of the Operating LLC, net
Effective January 1, 2011 and revised effective May 27, 2021, Cohen & Company Inc. and the Operating LLC entered into a Unit
Issuance and Surrender Agreement (the “UIS Agreement”) that was approved by the board of directors of Cohen & Company Inc.
and the board of managers of the Operating LLC. In an effort to maintain a 1:10 ratio of Common Stock to the number of units of
membership interests Cohen & Company Inc. holds in the Operating LLC, the UIS Agreement calls for the issuance of additional
units of membership interests of the Operating LLC to Cohen & Company Inc. when the Cohen & Company Inc. issues its
Common Stock to employees under existing equity compensation plans or issues its Common Stock in a public or private offering.
In certain cases, the UIS Agreement calls for Cohen & Company Inc. to surrender units to the Operating LLC when certain
restricted shares are forfeited by the employee or repurchased by the Company.
The following table summarizes the transactions that resulted in changes in the unit ownership of the Operating LLC including
unit issuances and forfeitures related to the UIS agreement.
ROLLFORWARD OF UNITS OUTSTANDING OF
THE OPERATING LLC
Cohen &
Company
Inc.
Daniel G.
Cohen
DGC Trust Others
Total
December 31, 2018
11,107,164 4,983,557
-
340,533 16,431,254
Issuance of Units under UIS, net
Issuance of Units for purchase of IMXI
Additional units purchased by Daniel G. Cohen
Issuance of Units as equity compensation
Repurchase and retirement of Common Stock
410,820
-
-
- 12,549,273 9,880,268
-
-
-
-
-
(318,900 )
268,445
-
-
410,820
-
- 22,429,541
-
-
(318,900 )
(268,445 )
-
-
December 31, 2019
11,199,084 17,801,275 9,880,268
72,088 38,952,715
Issuance of Units under UIS, net
Issuance of Units as equity compensation
Vesting of units
Repurchase and retirement of Common Stock
402,350
-
-
(1,211,810 )
-
-
275,000
-
-
-
-
-
-
402,350
-
-
275,000
-
- (1,211,810 )
December 31, 2020
10,389,624 18,076,275 9,880,268
72,088 38,418,255
Issuance of Units under UIS, net
Issuance of Units as equity compensation
Vesting of units
Repurchase and retirement of Common Stock
3,417,310
-
-
(495,440 )
-
-
529,040
-
-
-
-
-
- 3,417,310
-
-
529,050
10
(495,440 )
-
December 31, 2021
13,311,494 18,605,315 9,880,268
72,098 41,869,175
F-63
The following table presents the impact to equity from Cohen & Company Inc.’s ownership interest in the Operating LLC.
Net income / (loss) attributable to Cohen & Company Inc.
$
11,282 $
14,205 $
(2,054 )
For the Year Ended December 31,
2020
2021
2019
Transfers (to) from the non-controlling interest:
Increase / (decrease) in Cohen & Company Inc.'s paid in capital for
the acquisition / (surrender) of additional units in consolidated
subsidiary, net
Changes from net income / (loss) attributable to Cohen & Company Inc.
and transfers (to) from non-controlling interest
$
Detail of Non-Controlling Interest
(1,929 )
(1,765 )
28
9,353 $
12,440 $
(2,026 )
ROLLFORWARD OF NON-CONTROLLING INTERESTS
(Dollars in Thousands)
Insurance
SPAC
Sponsor
Entities
Insurance
SPAC II
Sponsor
Entities
Insurance
SPAC III
Sponsor
Entities
Other
Consolidated
Subsidiaries
Total
Operating
LLC
$
$
$
December 31, 2018
Non-controlling interest share of
income / (loss)
OCI
Acquisition / (surrender) of
additional units of consolidated
subsidiary
Equity-based compensation
Shares withheld for employee taxes
Investment in other non-controlling
interest
Investment in non-controlling
interest of Operating LLC / Issuance
of Series F Preferred
Distributions to Operating LLC non-
controlling interest
December 31, 2019
Non-controlling interest share of
income / (loss)
OCI
Acquisition / (surrender) of
additional units of consolidated
subsidiary
Equity-based compensation
Shares withheld for employee taxes
Distributions to Operating LLC non-
controlling interest
Investment in other non-controlling
interest
Distributions to other non-controlling
interest
December 31, 2020
Non-controlling interest share of
income / (loss)
OCI
Acquisition / (surrender) of
additional units of consolidated
subsidiary
6,664 $
- $
(1,231 )
1
(288 )
-
(47 )
263
(41 )
-
-
-
-
2,550
7,779
(213 )
13,175 $
-
2,262 $
- $
-
-
-
-
-
-
-
-
- $
- $
-
-
-
-
-
-
-
-
- $
- $
6,664
-
-
-
-
-
(1,519 )
1
(47 )
263
(41 )
-
2,550
-
7,779
-
- $
(213 )
15,437
14,200
103
9,328
-
(262 )
-
(16 )
-
998
-
24,248
103
1,706
613
(39 )
-
11,700
-
(35 )
-
-
-
-
-
-
-
-
-
-
-
-
-
1,706
12,313
(39 )
(35 )
-
-
4,557
5,432
3,500
13,489
29,723 $
(6,604 )
16,686 $
-
4,295 $
-
5,416 $
(3,090 )
1,408 $
(9,694 )
57,528
25,255
(303 )
3,560
-
17,644
-
(615 )
-
14,985
-
60,829
(303 )
1,939
-
-
-
-
1,939
Equity-based compensation
Shares withheld for employee taxes
Distributions to Operating LLC non-
controlling interest
Investment in other non-controlling
interest
Distributions to other non-controlling
interest
December 31, 2021
$
1,859
(276 )
(1,970 )
-
-
-
-
-
13,068
-
-
-
-
-
-
-
-
14,927
(276 )
-
(1,970 )
7
17,088
17,095
-
56,227 $
(20,246 )
- $
(35,007 )
- $
-
4,808 $
(6,425 )
27,056 $
(61,678 )
88,091
F-64
22. EQUITY-BASED COMPENSATION
The following table summarizes the amounts the Company recognized as equity-based compensation expense including restricted
stock, restricted units, membership units of consolidated sponsor entities and stock options. These amounts are included as a
component of compensation and benefits in the consolidated statements of operations. The remaining unrecognized compensation
expense related to unvested awards at December 31, 2021 was $16,800 and the weighted average period of time over which this
expense will be recognized is approximately 2.73 years. The awards assume estimated forfeitures during the vesting period, which
were updated to reflect the actual forfeitures that occurred during the relevant periods.
EQUITY-BASED COMPENSATION INCLUDED IN COMPENSATION AND BENEFITS
(Dollars in Thousands)
Equity based compensation expense
Non equity-based compensation expense
Total compensation and benefits
For the Year Ended December 31,
2020
2021
2019
$
$
15,718 $
69,330
85,048 $
12,553 $
47,349
59,902 $
744
25,228
25,972
The following table summarizes the equity-based compensation by plan. Each plan is discussed in detail below.
DETAIL OF EQUITY-BASED COMPENSATION BY PLAN
Restricted Stock or Units - 2006/2010 Plans
Restricted Stock or Units - 2020 Plan
Membership interests in consolidated sponsor entities
Total equity-based compensation expense
For the Year Ended December 31,
2020
2021
2019
$
$
291 $
2,359
13,068
15,718 $
635 $
218
11,700
12,553 $
744
-
-
744
The Company’s 2020 Long-Term Incentive Plan – Restricted Common Stock, Restricted Units and Stock Options
The Company's board of directors adopted the Cohen & Company Inc. 2020 Long-Term Incentive Plan (the“ 2020 Long Term
Incentive Plan”) on April 7, 2020, which was approved by the Company’s stockholders at the Company’s annual meeting on June
18, 2020. The 2020 Long-Term Incentive Plan provides for the grant of stock options, restricted Common Stock, stock
appreciation rights, and other share-based awards. The 2020 Long Term Incentive Plan is administered by the compensation
committee of the Company’s board of directors. The maximum number of equity-based awards of the Company’s Common Stock
originally authorized to be granted pursuant to these plans was limited to 600,000, of which 200,000 shares remained available to
be issued as of December 31, 2020. Effective as of April 1, 2021, the board of directors authorized the registration of an additional
600,000 shares of Common Stock under the Plan, which was approved by the Company's stockholders at the Company's annual
meeting on June 9, 2021. As of December 31, 2021, 195,924 shares remain available to be issued under the Company's 2020
Long-term Incentive Plan. No award may be granted under the 2020 Long Term Incentive Plan after April 7, 2030.
The Company's 2010 Long- Term-Incentive Plan and the AFN 2006 Equity Plan expired in 2020 and there are no shares available
to be issued under these plans.
Membership Interests of Consolidated Sponsor Entities
Employees sometimes invest in the membership interests of consolidated SPAC sponsor entities. Because these entities are
consolidated and the employees are investing in the consolidated company's non-controlling interest, these equity interests fall
under FASB ASC 718. Generally, the employee invests a de-minimus amount and receives an allocation of the founder shares
held by the sponsor entity. The investment generally does not have any explicit vesting criteria associated with it. Generally, the
employee's investment will be worthless if the SPAC in which the sponsor entity has invested is liquidated and it will become
worth something if the SPAC completes its business combination. Therefore, the Company treats these grants as having a
performance condition (i.e. the completion of the SPAC business combination). Further, at the time of the investments, the
Company treats this performance condition as being non-probable. The effect of this is that the Company records no expense
related to these investments until (and only if) the business combination is completed. Upon completion of the business
combination, the Company records compensation expense in an amount equal to the fair value of the grant. The fair value of the
grant is equal to the public trading price of the SPAC on the grant date adjusted for certain sale restrictions imposed on the shares
the employee receives (generally, the shares are restricted for sale for some time period and subject to certain hurdle prices before
they become freely tradeable).
F-65
Unvested at January 1, 2019
Granted
Vested
Unvested at December 31, 2019
Granted
Vested
Unvested at December 31, 2020
Granted
Vested
Unvested at December 31, 2021
RESTRICTED STOCK - SERVICE BASED VESTING
Number of Shares of
Restricted Stock
Weighted Average
Grant Date Fair Value
11.03
8.00
11.41
9.22
14.65
9.63
14.23
17.94
7.59
16.80
93,479 $
36,875
(56,639 )
73,715
268,129
(55,278 )
286,566
142,376
(62,649 )
366,293
OPERATING LLC RESTRICTED UNITS - SERVICE BASED VESTING
Number of
Restricted Units
Unvested at January 1, 2019
Granted
Vested
Forfeited
December 31, 2019
Granted
Vested
Forfeited
Unvested at December 31, 2020
Granted
Vested
Forfeited
Unvested at December 31, 2021
Weighted
Average Grant
Date Fair Value
-
0.80
-
-
0.80
1.54
0.80
-
1.46
2.07
0.62
-
1.93
- $
550,000
-
-
550,000
2,508,080
(275,000 )
-
2,783,080
4,617,000
(529,050 )
-
6,871,030 $
The total fair value of all equity awards vested in each year based on the fair market value of the Common Stock on the vesting
date during the years ended December 31, 2021, 2020, and 2019, was $1,999, $290, and $462, respectively.
The restricted shares and restricted units of Common Stock typically may vest either quarterly, annually, or at the end of a
specified term on a straight-line basis over the remaining term of the awards, assuming the recipient is continuing in service to the
Company at such date, and, in the case of performance-based equity awards, the performance thresholds have been attained. In the
case of director grants, the equity awards have no performance or service conditions. In the cases of graded vesting, the Company
typically expenses the grant on a straight-line basis if only service conditions are present but expenses on a graded basis if
performance-based conditions are present.
STOCK OPTIONS - SERVICE BASED VESTING
Number of Options
Weighted Average
Exercise Price
Weighted Average
Grant Date Fair
Value
Weighted Average
Remaining
Contractual Term (in
years)
19,286 $
-
-
(19,286 )
-
-
-
-
40.00 $
-
-
40.00
-
-
-
-
7.00
-
-
7.00
-
-
-
-
0.1
-
-
-
-
-
-
-
Balance at January 1, 2019
Granted
Exercised
Forfeited
Balance at December 31, 2019
Granted
Exercised
Forfeited
Balance at December 31, 2020
Granted
Exercised
Forfeited
Unvested at December 31, 2021
-
-
-
-
- $
-
-
-
-
- $
-
-
-
-
-
-
-
-
-
-
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and
the closing stock price of the Common Stock. As of December 31, 2021, no options were exercisable as they had all expired.
F-66
SPONSOR ENTITY MEMBERSHIP UNITS - PERFORMANCE BASED VESTING
Membership
Units
Weighted
Average Grant
Date Fair Value
-
9.95
-
-
-
9.98
9.95
9.95
9.98
9.99
9.99
9.97
- $
1,263,000
-
-
1,263,000
3,272,500
(1,175,339 )
(87,661 )
3,272,500
-
(1,309,000 )
(231,000 )
1,732,500 $
Unvested at January 1, 2019
Granted
Vested
Forfeited
December 31, 2019
Granted
Vested
Forfeited
Unvested at December 31, 2020
Granted
Vested
Forfeited
Unvested at December 31, 2021
The total fair value of all equity awards vested in each year based on the fair market value of the membership units on the vesting
date during the years ended December 31, 2021, 2020, and 2019, was $23,527, $13,361, and $0, respectively.
Contingent Issuance of Shares
On March 12, 2012, the Company entered into an agreement with unrelated third parties whereby the Company agreed to assist in
the establishment of an international infrastructure finance business (“IIFC”). As consideration for the Company’s assistance in
establishing IIFC, the Company receives 8.0% of certain revenues of the manager of IIFC through October 31, 2021, and effective
November 1, 2021, we receive 7.35% of certain of the revenues of the manager of IIFC. The IIFC revenue share arrangement
expires when the Company has earned a cumulative $20,000 in revenue share payments or with the dissolution of IIFC’s
management company. Also, in any particular year, the revenue share earned by the Company cannot exceed $2,000.
In connection with this revenue share arrangement, the Company issued 50,000 restricted units of Common Stock to the managing
member of IIFC, which vest 1/3 when the Company receives $6,000 of cumulative revenue share payments, 1/3 when the
Company receives $12,000 of cumulative revenue share payments, and 1/3 when the Company receives $18,000 of cumulative
revenue share payments. In certain circumstances, the Company retains the right to deliver fixed amounts of cash to the managing
member of IIFC as opposed to vested shares of Common Stock. As of December 31, 2021, the Company had earned $3,841 under
the revenue share arrangement. On March 12, 2022, any remaining unvested restricted units expire.
The managing member of IIFC is not an employee of the Company. The grant of these restricted units was to a non-employee and
under the guidance of ASU 2018-07, which was adopted January 1, 2019 (the “Adoption Date”), the Company is required to
determine the possible outcome of each threshold and record an adjustment to retained earnings based on the restricted units
anticipated to vest as of the Adoption Date based on the stock price on the Adoption Date. Currently, the Company considers the
vesting of these restricted units to be not probable. The Company will not record any adjustment to retained earnings because it is
not probable that these restricted units will vest as of the Adoption Date. If in the future, the Company determines that vesting is
probable, the Company will record an expense using the Common Stock price on the Adoption Date.
F-67
23. INCOME TAXES
Cohen & Company Inc. is treated as a C corporation for United States federal income tax purposes. The components of income tax
expense (benefit) included in the consolidated statements of operations for each year presented herein are shown in the table
below.
INCOME TAX EXPENSE
(Dollars in Thousands)
Current income tax expense (benefit)
Federal income tax expense (benefit)
Foreign income tax expense (benefit)
State and local income tax expense (benefit)
Deferred income tax expense (benefit)
Federal income tax expense (benefit)
Foreign income tax expense (benefit)
State and local income tax expense (benefit)
For the Year Ended December 31,
2020
2021
2019
$
- $
188
269
457
(531 )
-
(1,540 )
(2,071 )
- $
122
86
208
(7,430 )
-
(1,447 )
(8,877 )
Total
(1,614 )
(8,669 )
The components of income (loss) before income taxes is shown below.
INCOME (LOSS) BEFORE INCOME TAXES
(Dollars in Thousands)
(1 )
156
-
155
(324 )
-
(354 )
(678 )
(523 )
Domestic
Foreign
Total
For the Year Ended December 31,
2020
2021
2019
$
$
69,791 $
706
70,497 $
30,317 $
(533 )
29,784 $
(4,400 )
304
(4,096 )
F-68
The Company had no prepaid taxes in the consolidated balance sheet as of December 31, 2021 and 2020, respectively.
The expected income tax expense /(benefit) using the federal statutory rate differs from income tax expense / (benefit) pertaining
to pre-tax income / (loss) as a result of the following for the years ended December 31, 2021, 2020, and 2019.
INCOME TAX RATE RECONCILIATION
(Dollars in Thousands)
Federal statutory rate
Pass thru impact
Deferred tax valuation allowance
State and local tax
Foreign tax
Total
For the Year Ended December 31,
2020
2021
2019
$
$
14,804 $
(12,774 )
(2,561 )
(1,271 )
188
(1,614 ) $
6,255 $
(5,092 )
(8,593 )
(1,361 )
122
(8,669 ) $
(860 )
319
216
(354 )
156
(523 )
Deferred tax assets and liabilities are determined based on the difference between the book basis and tax basis of assets and
liabilities using tax rates in effect for the year in which the differences are expected to reverse. The recognition of deferred tax
assets is reduced by a valuation allowance if it is more likely than not that the tax benefits will not be realized.
The components of the net deferred tax asset (liability) are as follows.
DEFERRED TAX ASSET AND LIABILITY
(Dollars in Thousands)
As of December 31, 2021
As of December 31, 2020
Asset
Liability
Net
Asset
Liability
Net
Federal net operating loss carry-
forward
State and local net operating loss
carry-forward
Federal capital loss carry-forward
Unrealized gain on debt
Investment in Operating LLC
Other
Gross deferred tax asset / (liability)
Less: valuation allowance
Net deferred tax asset / (liability)
$
19,678 $
- $
19,678 $
20,579 $
- $
20,579
3,872
17,192
-
10,489
1,060
52,291
(35,861 )
16,430 $
-
-
(5,679 )
-
(1,283 )
(6,962 )
-
(6,962 ) $
3,872
17,192
(5,679 )
10,489
(223 )
45,329
(35,861 )
9,468 $
4,238
7,311
-
14,402
312
46,842
(33,775 )
13,067 $
-
-
(5,670 )
-
-
(5,670 )
-
(5,670 ) $
4,238
7,311
(5,670 )
14,402
312
41,172
(33,775 )
7,397
$
As of December 31, 2021, the Company had a federal net operating loss (“NOL”) of approximately $93,707, which will be
available to offset future taxable income, subject to limitations described below. If not used, this NOL will begin to expire in 2029.
The Company also had net capital losses (“NCLs”) in excess of capital gains of $81,868 as of December 31, 2021, which can be
carried forward to offset future capital gains, subject to the limitations described below. If not used, this carryforward will begin to
expire in 2022. No assurance can be made that the Company will have future taxable income or future capital gains to benefit from
its NOL and NCL carryovers.
The Company has determined that its NOL and NCL carryovers are not currently limited by Section 382 of the Internal Revenue
Code of 1986, as amended (the “Code”). However, the Company may experience an ownership change as defined in that section
(“Ownership Change”) in the future. If an Ownership Change were to occur in the future, the Company’s ability to use its NOLs,
NCLs, and certain recognized built-in losses to reduce its taxable income in a future year would generally be limited to an annual
amount (the “Section 382 Limitation”) equal to the fair value of the Company immediately prior to the Ownership Change
multiplied by the “long term tax-exempt interest rate.” In the event of an Ownership Change, NOLs and NCLs that exceed the
Section 382 Limitation in any year will continue to be allowed as carryforwards for the remainder of the carryforward period, and
such NOLs and NCLs can be used to offset taxable income for years within the carryforward period subject to the Section 382
Limitation in each year. However, if the carryforward period for any NOL or NCL were to expire before that loss is fully utilized,
the unused portion of that loss would be lost. See discussion of stockholder rights plan in note 21.
F-69
Notwithstanding the facts that the Company has determined that the use of its remaining NOL and NCL carryforwards are not
currently limited by Section 382 of the Code, the Company recorded a valuation allowance for a substantial portion of its NOLs
and NCLs when calculating its net deferred tax liability as of December 31, 2021. The valuation allowance was recorded because
the Company determined it is not more likely than not that it will realize these benefits.
The Company recognized a significant deferred tax benefit in 2020. The deferred tax benefit was a U.S. tax benefit, which was
the result of the reduction in the valuation allowance applied against the Company's net operating loss carryforward ("NOL") and
net capital loss carryforward ("NCL") tax assets. Prior to 2020, the Company had concluded that due to its recent history of tax
losses, it should only recognize its NOL asset to the extent the reversal of its deferred tax liability amounts could be scheduled
against it. For the NCL asset, the Company applied a full valuation allowance. In 2020, the Company generated significant
taxable income (both ordinary and capital) and expected to generate income going forward. Accordingly, as of December 31,
2020, the Company adjusted the calculation of the valuation allowances applied against our carryforward assets.
The Company also recognized a significant deferred tax benefit in 2021. The deferred tax benefit was a U.S. tax benefit, which
was the result of the reduction in the valuation allowance applied against the Company's net operating loss carryforward ("NOL")
and net capital loss carryforward ("NCL") tax assets. In 2021 the Company continued to generate significant taxable income (both
ordinary and capital) which increased the Company's expected taxable income to be realized during relevant carryforward
periods. Therefore, in 2021, the Company reduced further the valuation allowances applied against its carryforward assets.
The Company had no unrecognized tax benefits in the periods presented.
The Company files tax returns in the U.S. federal jurisdiction, various states or local jurisdictions, the United Kingdom, Ireland,
and France. With few exceptions, the Company is no longer subject to examination for years prior to 2016.
F-70
24. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
The following table shows the components of other comprehensive income / (loss) and the tax effects allocated to other
comprehensive income / (loss). Accumulated OCI consists solely of foreign currency items.
ACCUMULATED OTHER COMPREHENSIVE INCOME / (LOSS) AND INCOME TAX EFFECT OF ITEMS ALLOCATED TO
OTHER COMPREHENSIVE INCOME / (LOSS)
(Dollars in Thousands)
December 31, 2018
Change in foreign currency items
Other comprehensive income / (loss), net
Acquisition / (surrender) of additional units in consolidated subsidiary,
net
December 31, 2019
Change in foreign currency items
Other comprehensive income / (loss), net
Acquisition / (surrender) of additional units in consolidated subsidiary,
net
December 31, 2020
Change in foreign currency items
Other comprehensive income / (loss), net
Acquisition / (surrender) of additional units in consolidated subsidiary,
net
December 31, 2021
F-71
OCI Items
$
(908 ) $
(3 )
(3 )
(4 )
(915 )
35
35
59
(821 )
(74 )
(74 )
(10 )
(905 ) $
$
Tax Effect
Total
- $
-
-
-
-
-
-
-
-
-
-
-
- $
(908 )
(3 )
(3 )
(4 )
(915 )
35
35
59
(821 )
(74 )
(74 )
(10 )
(905 )
25. NET CAPITAL REQUIREMENTS
JVB is subject to the net capital provision of Rule 15c3-1 under the Exchange Act, which requires the maintenance of minimum
net capital, as defined therein.
CCFEL, a subsidiary of the Company regulated by the CBI is subject to certain regulatory capital requirements in accordance with
the Capital Requirements Regulation 575/2013 and applicable CBI requirements.
CCFESA, a subsidiary of the Company, is regulated by the ACPR in France.
CCFL cancelled its FCA license on November 25 2020; therefore it was not subject to a minimum liquid capital requirement as of
December 31, 2020.
The following tables shows the actual net capital (in the case of the JVB) and actual net liquid capital (in the case of CCFESA and
CCFEL) as compared to the required amounts for the periods indicated.
STATUTORY NET CAPITAL REQUIREMENTS
(Dollars in thousands)
JVB
CCFESA
CCFEL
Total
JVB
CCFEL
Total
As of December 31, 2021
Actual Net Capital or
Liquid Capital
Amount Required
Excess
$
$
73,999 $
1,117
1,700
76,816 $
250 $
543
895
1,688 $
73,749
574
805
75,128
As of December 31, 2020
Actual Net Capital or
Liquid Capital
Amount Required
Excess
66,803 $
2,023
68,826 $
250 $
707
957 $
66,553
1,316
67,869
$
$
F-72
26. EARNINGS / (Loss) PER COMMON SHARE
The following table presents a reconciliation of basic and diluted earnings / (loss) per common share for the periods indicated.
EARNINGS / (LOSS) PER COMMON SHARE
(Dollars in Thousands, except share or per share information)
Net income / (loss) attributable to Cohen & Company Inc.
Add/ (deduct): Income / (loss) attributable to non-controlling interest
attributable to Operating LLC membership (1)
Add: Interest expense incurred on dilutive convertible notes
Add / (deduct): Adjustment (2)
Net income / (loss) on a fully converted basis
Weighted average common shares outstanding - Basic
Unrestricted Operating LLC units of membership interests exchangeable
into Cohen & Company Inc. shares (1)
Restricted Units or shares
Contingent shares on the 2017 Convertible Note
Weighted average common shares outstanding - Diluted
Net income / (loss) per common share - Basic
Net income / (loss) per common share - Diluted (3)
Year Ended December 31,
2020
2021
2019
$
11,282 $
14,205 $
(2,054 )
25,255
1,183
1,828
39,548 $
14,200
1,162
9,452
39,019 $
(1,231 )
-
246
(3,039 )
1,187,029
1,131,085
1,136,574
2,851,358
212,055
1,034,483
5,284,925
2,800,597
124,922
1,034,483
5,091,087
544,599
-
-
1,681,173
9.50 $
12.56 $
7.48 $
7.66 $
(1.81 )
(1.81 )
$
$
$
(1)
The Operating LLC units of membership interests not held by Cohen & Company Inc. (that is, those held by the non-
controlling interest) may be redeemed and exchanged into shares of the Company on a ten-for-one basis. The Operating LLC
units of membership interests not held by Cohen & Company Inc. are redeemable, at the member’s option at any time, for
(i) cash in an amount equal to the average of the per share closing prices of the Common Stock for the ten consecutive trading
days immediately preceding the date the Company receives the member’s redemption notice, or (ii) at the Company’s option,
one tenth of a share of the Common Stock, subject, in each case, to appropriate adjustment upon the occurrence of an issuance
of additional shares of the Common Stock as a dividend or other distribution on the outstanding Common Stock, or a further
subdivision or combination of the outstanding shares of the Common Stock. These units are not included in the computation of
basic earnings per share. These units enter into the computation of diluted net income (loss) per common share when the effect
is not anti-dilutive using the if-converted method.
(2) An adjustment is included because the Company would have incurred a higher income tax expense or realized a higher income
(3)
tax benefit if the Operating LLC units of membership interests had been converted at the beginning of the period.
Potentially diluted securities that were not included in the diluted per share calculations because they would be anti-dilutive
were as follows:
2017 Convertible Note
2013 Convertible Notes
Restricted Common Stock
Restricted Operating LLC units
Year Ended December 31,
2020
2021
-
-
-
-
-
-
-
-
-
-
2019
1,034,483
414,882
15,101
3,752
1,468,218
F-73
27. RESERVE REQUIREMENTS
As of December 31, 2021 and 2020, JVB claims exemptions to the reserve requirements under Rule 15c3-3 of the Securities
Exchange Act of 1934 under two separate exemptions. First, because JVB does not carry securities accounts for their customers or
perform custodial functions relating to customer securities and, therefore, qualifies for an exemption under Rule 15c3-
3(k)(2)(ii). Second, JVB qualifies for an exemption under Footnote 74 of the SEC Release No. 34-70073 because it limits its
business activities to certain activities allowed under this exemption and it does not hold customer funds or securities, carry
customer accounts, and does not carry PAB accounts.
F-74
28. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases office space in several cities under agreements. As of December 31, 2021, future minimum commitments
under these operating leases are as follows.
FUTURE LEASE COMMITMENTS
(Dollars in Thousands)
Lease
2022
2023
2024
2025
2026
2027 and Thereafter
$
$
Less: Sublease Net Commitment
2,199
(60 ) $
2,639
-
2,124
-
1,770
-
1,514
-
3,785
-
14,031
(60 ) $
2,259 $
2,639
2,124
1,770
1,514
3,785
14,091 $
Rent expense for the years ended December 31, 2021, 2020, and 2019 was $1,639, $1,521, and $1,555, respectively, and was
included in business development, occupancy, equipment expense in the consolidated statements of operations. Rent expense was
recorded net of sublease income was $178, $318 and $280 for the years ended December 31, 2021, 2020 and 2019,
respectively. The lease commitments noted above represent the actual cash commitments and will not necessarily match the
amount of rent expense recorded in the consolidated statements of operations.
F-75
Legal and Regulatory Proceedings
On October 8, 2021, Cohen & Company, Ltd., an Ohio limited liability company, as plaintiff, filed a complaint with the United
States District Court, Eastern District of Pennsylvania, under the caption Cohen & Company, Ltd. v. Cohen & Company Inc.,
alleging that Cohen & Company, Inc., as defendant, has been using the “Cohen & Company” trademark and business name, which
allegedly infringes and unfairly competes with the plaintiff’s registered trademarks “Cohen & Company” and “Cohen & Co,” in
violation of applicable federal and state trademark laws and regulations. Pursuant to the complaint, the plaintiff has demanded that
the defendant be permanently enjoined from using the “Cohen & Company” trademark and business name in connection with its
business, pay to the plaintiff statutory damages, attorneys’ fees and costs and other damages, and pay over to plaintiff all gains,
profits and advantages realized by the defendant from its allegedly unlawful acts and omissions. As of the date of this Annual
Report on Form 10-K, the Company has been served the complaint and its responsive pleading is due on March 5, 2022. The
Company intends to vigorously defend itself against the allegations set forth therein.
From time to time, the Company is a party to various routine legal proceedings, claims, and regulatory inquiries arising out of the
ordinary course of the Company’s business. Management believes that the results of these routine legal proceedings, claims, and
regulatory matters will not have a material adverse effect on the Company’s financial condition, or on the Company’s operations
and cash flows. However, the Company cannot estimate the legal fees and expenses to be incurred in connection with these routine
matters and, therefore, is unable to determine whether these future legal fees and expenses will have a material impact on the
Company’s operations and cash flows. It is the Company’s policy to expense legal and other fees as incurred.
F-76
29. SEGMENT AND GEOGRAPHIC INFORMATION
Segment Information
The Company operates within three business segments: Capital Markets, Asset Management, and Principal Investing. See note 1.
The Company’s business segment information was prepared using the following methodologies and generally represents the
information that is relied upon by management in its decision-making processes.
(a) Revenues and expenses directly associated with each business segment are included in determining net income / (loss)
by segment.
(b) Indirect expenses (such as general and administrative expenses including executive and indirect overhead costs) not
directly associated with specific business segments are not allocated to the business segments’ statements of operations.
Accordingly, the Company presents segment information consistent with internal management reporting. See note (1) in the table
below for more detail on unallocated items. The following tables present the financial information for the Company’s segments for
the periods indicated.
SEGMENT INFORMATION
Statement of Operations Information
For the Year Ended December 31, 2021
(Dollars in Thousands)
Capital
Asset
Principal
Segment
Net trading
Asset management
New issue and advisory
Principal transactions and other
income
Total revenues
Compensation and benefits
Other operating expense
Total operating expenses
Operating income / (loss)
Interest income (expense)
Income / (loss) from equity method
affiliates
Other non-operating income
Income / (loss) before income
taxes
Income tax expense / (benefit)
Net income / (loss)
Less: Net income / (loss) attributable
to the non-controlling interest
Net income / (loss) attributable to
Cohen & Company Inc.
Markets
$
Management
Investing
Total
Unallocated
(1)
Total
69,385 $
-
28,736
(3 )
98,118
42,064
13,914
55,978
42,140
(435 )
- $
10,923
-
768
11,691
6,630
2,151
8,781
2,910
-
- $
-
-
69,385 $
10,923
28,736
- $
-
-
69,385
10,923
28,736
36,559
36,559
16,546
387
16,933
19,626
-
37,324
146,368
65,240
16,452
81,692
64,676
(435 )
-
-
19,808
5,275
25,083
(25,083 )
(6,798 )
37,324
146,368
85,048
21,727
106,775
39,593
(7,233 )
-
-
-
-
36,010
-
36,010
-
-
2,127
36,010
2,127
41,705
-
41,705
2,910
-
2,910
55,636
-
55,636
100,251
-
100,251
(29,754 )
(1,614 )
(28,140 )
70,497
(1,614 )
72,111
-
1,878
33,696
35,574
25,255
60,829
$
41,705 $
1,032 $
21,940 $
64,677 $
(53,395 ) $
11,282
Other statement of operations data
Depreciation and amortization
(included in total operating expense) $
1 $
2 $
- $
3 $
368 $
371
F-77
SEGMENT INFORMATION
Statement of Operations Information
For the Year Ended December 31, 2020
(Dollars in Thousands)
Capital
Asset
Principal
Segment
Net trading
Asset management
New issue and advisory
Principal transactions and other
income
Total revenues
Compensation and benefits
Other operating expense
Impairment of goodwill
Total operating expenses
Operating income / (loss)
Interest income (expense)
Income / (loss) from equity method
affiliates
Income / (loss) before income
taxes
Income tax expense / (benefit)
Net income / (loss)
Less: Net income / (loss) attributable
to the non-controlling interest
Net income / (loss) attributable to
Cohen & Company Inc.
Markets
$
Management
Investing
Total
Unallocated
(1)
Total
73,611 $
-
2,234
3
75,848
36,092
12,546
7,883
56,521
19,327
(997 )
- $
8,759
-
639
9,398
5,309
2,042
-
7,351
2,047
-
- $
-
-
73,611 $
8,759
2,234
- $
-
-
73,611
8,759
2,234
44,864
44,864
11,700
168
-
11,868
32,996
-
45,506
130,110
53,101
14,756
7,883
75,740
54,370
(997 )
-
-
6,801
5,241
-
12,042
(12,042 )
(8,592 )
45,506
130,110
59,902
19,997
7,883
87,782
42,328
(9,589 )
-
-
(2,955 )
(2,955 )
-
(2,955 )
18,330
-
18,330
2,047
-
2,047
30,041
-
30,041
50,418
-
50,418
(20,634 )
(8,669 )
(11,965 )
29,784
(8,669 )
38,453
-
1,408
8,640
10,048
14,200
24,248
$
18,330 $
639 $
21,401 $
40,370 $
(26,165 ) $
14,205
Other statement of operations data
Depreciation and amortization
(included in total operating expense) $
18 $
3 $
- $
21 $
313 $
334
SEGMENT INFORMATION
Statement of Operations Information
For the Year Ended December 31, 2019
(Dollars in Thousands)
Capital
Asset
Principal
Segment
Net trading
Asset management
New issue and advisory
Principal transactions and other
income
Total revenues
Salaries/Wages
Other Operating Expense
Total operating expenses
Operating income / (loss)
Interest income (expense)
Income / (loss) from equity method
affiliates
Markets
$
Management
Investing
Total
Unallocated
(1)
Total
38,172 $
-
1,831
1
40,004
18,575
12,257
30,832
9,172
(175 )
- $
7,560
-
530
8,090
4,805
2,456
7,261
829
-
- $
-
-
38,172 $
7,560
1,831
- $
-
-
1,572
1,572
-
399
399
1,173
-
2,103
49,666
23,380
15,112
38,492
11,174
(175 )
-
-
2,592
4,541
7,133
(7,133 )
(7,409 )
38,172
7,560
1,831
2,103
49,666
25,972
19,653
45,625
4,041
(7,584 )
-
-
(553 )
(553 )
-
(553 )
Income / (loss) before income
taxes
Income tax expense / (benefit)
Net income / (loss)
Less: Net income / (loss) attributable
to the non-controlling interest
Net income / (loss) attributable to
Cohen & Company Inc.
8,997
-
8,997
829
-
829
620
-
620
10,446
-
10,446
(14,542 )
(523 )
(14,019 )
(4,096 )
(523 )
(3,573 )
-
-
(289 )
(289 )
(1,230 )
(1,519 )
$
8,997 $
829 $
909 $
10,735 $
(12,789 ) $
(2,054 )
Other statement of operations data
Depreciation and amortization
(included in total operating expense) $
18 $
3 $
- $
21 $
297 $
318
(1) Unallocated includes certain expenses incurred by indirect overhead and support departments (such as the executive, finance,
legal, information technology, human resources, risk, compliance and other similar overhead and support departments). Some
of the items not allocated include: (1) operating expenses (such as cash compensation and benefits, equity-based compensation
expense, professional fees, travel and entertainment, consulting fees, and rent) related to support departments excluding certain
departments that directly support the Capital Markets business segment; (2) interest expense on debt; and (3) income taxes.
Management does not consider these items necessary for an understanding of the operating results of these business segments
and such amounts are excluded in business segment reporting to the chief operating decision maker.
F-78
Balance Sheet Data
As of December 31, 2021
(Dollars in Thousands)
Capital
Asset
Principal
Segment
Markets
$ 3,501,973 $
Management
Investing
Total
Unallocated
(1)
Total
5,251 $
104,491 $ 3,611,715 $
42,544 $ 3,654,259
$
$
$
- $
54 $
166 $
- $
55 $
- $
48,238 $
- $
- $
48,238 $
109 $
166 $
- $
- $
- $
48,238
109
166
Balance Sheet Data
As of December 31, 2020
(Dollars in Thousands)
Capital
Asset
Principal
Segment
Markets
$ 6,049,599 $
Management
Investing
Total
Unallocated
(1)
Total
1,540 $
72,292 $ 6,123,431 $
25,948 $ 6,149,379
$
$
$
- $
54 $
166 $
- $
55 $
- $
13,482 $
- $
- $
13,482 $
109 $
166 $
- $
- $
- $
13,482
109
166
Total Assets
Included within total assets:
Investments in equity method
affiliates
Goodwill (2)
Intangible assets (2)
Total Assets
Included within total assets:
Investments in equity method
affiliates
Goodwill (2)
Intangible assets (2)
(1) Unallocated assets primarily include (1) amounts due from related parties; (2) furniture and equipment, net; and (3) other assets
that are not considered necessary for an understanding of business segment assets and such amounts are excluded in business
segment reporting to the chief operating decision maker.
(2) Goodwill and intangible assets are allocated to the Capital Markets and Asset Management business segments as indicated in
the table from above.
Geographic Information
The Company has conducted its business activities through offices in the following locations: (1) United States and (2) United
Kingdom and other. Total revenues by geographic area are summarized as follows.
Total Revenues:
United States
United Kingdom & Other
Total
GEOGRAPHIC DATA
(Dollars in Thousands)
Year Ended December 31,
2020
2021
2019
$
$
140,420 $
5,948
146,368 $
125,151 $
4,959
130,110 $
43,853
5,813
49,666
Long-lived assets attributable to an individual country, other than the United States, are not material.
F-79
30. SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid by the Company on its debt and redeemable financial instruments was $6,388, $8,711 and $7,265 for the years ended
December 31, 2021, 2020, and 2019, respectively.
The Company paid income taxes of $166, $234, and $30 for the years ended December 31, 2021, 2020, and 2019, respectively,
and received income tax refunds of $96, $82, and $48 for the years ended December 31, 2021, 2020, and 2019, respectively.
In 2021, the Company had the following significant non-cash transactions that are not reflected on the statement of cash flows:
• The Company net surrendered units of membership interests in the Operating LLC. The Company recognized a net
decrease in additional paid-in capital of $1,929, a net decrease of $10 in AOCI, and an increase of $1,939 in non-controlling
interest. See note 21.
• The Company recorded a decrease of $2,103 in due from related party, a corresponding increase of $701 in other investments
at fair value, and a corresponding decrease of $1,402 to non-controlling interest, all as a result of an in-kind distribution of
incremental LP interests, from the 2020 performance fee earned, to all the members of Vellar GP, including the Company.
• The Company recorded a decrease of $3,958 in investments in equity method affiliates and a $31,049 decrease in other
investments, at fair value and a corresponding decrease in non-controlling interest resulting from an in-kind distribution from
Insurance SPAC II.
•
The Company recorded a decrease in other investments at fair value of $20,119 and a corresponding decrease in non-
controlling interest resulting from an in-kind distribution from Insurance SPAC.
•
The Company recorded a net decrease in investments in equity method affiliates of $5,439 and a net increase in other
investments at fair value of $5,439 resulting from an in-kind distribution from an equity method affiliate.
•
The Company recorded a decrease in other investments at fair value of $2,415 and a decrease in non-controlling interest of
$2,415 resulting from an in-kind distribution from other consolidated subsidiaries.
In 2020, the Company had the following significant non-cash transactions that are not reflected on the statement of cash flows:
• The Company net surrendered units of the Operating LLC. The Company recognized a net decrease in additional paid-in
capital of $1,765, a net increase of $59 in accumulated other comprehensive income, and an increase of $1,706 in non-
controlling interest. See note 21.
•
In conjunction with the sale of ViaNova on August 22, 2020, the Company transferred one RTL with a fair value of $2,243 to
JVB. As a result, the Company recorded an increase in other investments at fair value and corresponding decrease in other
assets. See note 20.
• The Company recorded a $9,694 decrease to other investments, at fair value resulting from noncontrolling interest in-kind
distributions.
In 2019, the Company had the following significant non-cash transactions that are not reflected on the statement of cash flows:
•
•
On January 1, 2019, the Company recorded a right of use asset of $8,416 and a right of use liability of $8,860, a reduction in
retained earnings from cumulative effect of adoption of $20, an increase in other receivables of $18, and a reduction in other
liabilities of $406, resulting from the adoption of ASU 2016-02. See note 3.
On December 30, 2019, the Company recorded a $7,779 increase to other investments, at fair value resulting from the
contribution of IMXI securities from Daniel G. Cohen and the DGC Trust in exchange for the issuance of 22,429,541 newly
issued units of membership interests in the Operating LLC and the issuance of 22,429,541 shares of Series F Preferred
Stock. This also resulted in an increase of $7,779 in non-controlling interest. See notes 21, and 31.
As part of the Company's matched book repo operations, the Company enters into reverse repos with counterparties whereby
it lends money and receives securities as collateral. In accordance with FASB ASC 860, the collateral securities are not recorded
in the Company's consolidated balance sheets. However, from time to time the Company will hold cash instead of securities as
collateral for these transactions. When the Company is provided cash as collateral for reverse repo transactions, the Company will
make an entry to increase its cash and cash equivalents and to increase its other liabilities for the amount of cash received. There
are two main reasons the Company may receive collateral in the form of cash as opposed to securities. First, when the value of the
collateral securities the Company has in its possession declines, the Company will require the counterparty to provide it with
additional collateral. The Company will accept either cash or additional liquid securities. Often, the Company's counterparties
will provide it with cash as they may not have liquid securities readily available. Second, from time to time, the
Company's counterparties require a portion of the collateral securities in the Company's possession returned to them for operating
purposes. In such instances, the counterparty may not have substitute liquid securities available and will often provide the
Company with cash as collateral instead. It is important to note that when the Company receives cash as collateral, it is temporary
in nature and the Company has an obligation to return that cash when the counterparty provides substitute liquid securities as
collateral or otherwise satisfies their associated reverse repo obligation. The Company is generally required to return any cash
collateral the same business day that it receives substitute securities. See note 11.
The Company has no legal or contractual obligation to segregate this cash collateral held and therefore it is included as a
component of its cash and cash equivalents in the Company's consolidated balance sheets. However, it is not available for use in
the Company's general operations as the Company must stand ready at all times to return the collateral held immediately once the
reverse repo counterparty provides substitute liquid securities or the repo matures.
The following table illustrates the impact of changing collateral deposits had on cash from operations:
Collateral deposit end of period
Less: Collateral deposit beginning of period
Impact to cash flow from operations
Year Ended December 31,
2020
2021
2019
$
$
17,320 $
41,119
(23,799 ) $
41,119 $
9,524
31,595 $
9,524
4,277
5,247
F-80
31. RELATED PARTY TRANSACTIONS
The Company has identified the following related party transactions for the years ended December 31, 2021, 2020, and 2019. The
transactions are listed by related party and, unless otherwise noted in the text of the description, the amounts are disclosed in the
tables at the end of this section.
A. The Bancorp, Inc. (“TBBK”)
TBBK is identified as a related party because Daniel G. Cohen was the chairman of TBBK through October 31, 2021. Thereafter,
TBBK will no longer be treated as a related party by the Company.
As part of the Company’s broker-dealer operations, the Company from time to time purchased securities from third parties and
sold those securities to TBBK. The Company also purchased securities from TBBK and ultimately sold those securities to third
parties. In either of the cases listed above, the Company included the trading revenue earned (i.e. the gain or loss realized,
commission or interest earned) by the Company for the entire transaction in the amounts disclosed as part of net trading in the
table at the end of this section.
From time to time, the Company will enter into repo agreements with TBBK as its counterparty. As of December 31, 2021, and
2020, the Company had no repo agreements with TBBK as the counterparty therefore, no interest expense was incurred related to
repo agreement with TBBK as it counterparty for the years ended December 31, 2021 and 2020.
B. Daniel G. Cohen/Cohen Bros. Financial, LLC (“CBF”)/ EBC 2013 Family Trust (“EBC”)
On December 30, 2019, Daniel G. Cohen contributed 370,881 common shares of IMXI to the Operating LLC. In exchange for
these shares, the Operating LLC issued 12,549,273 newly issued units of membership interests in the Operating LLC and
12,549,273 shares of newly issued Series F Preferred Stock. The Company included the value of the IMXI shares in other
investments at fair value. See notes 4 and 21. In connection with the IMXI share contribution, the Company paid $6 for legal fees
on behalf of Daniel G. Cohen, which is not included in the table at the end of this section.
In December 2019, the Company acquired a 45% interest in CK Capital Partners B.V. ("CK Capital"). The Company purchased
this interest for $18 (of which $17 was paid to an entity controlled by Daniel G. Cohen). CK Capital is a private company
incorporated in the Netherlands and provides asset and investment advisory services relating to real estate holdings. In addition,
the Company also acquired a 10% interest in Amerisfoot Office Investment I Cooperatief U.A. ("AOI"), a real estate holding
company, for $1 from entities controlled by Daniel G. Cohen. See note 12.
CBF has been identified as a related party because (i) CBF is a non-controlling interest holder of the Company and (ii) CBF is
wholly owned by Daniel G. Cohen. On September 29, 2017, CBF also invested $8,000 of the initial $10,000 total investment in
the Company’s Redeemable Financial Instrument – DGC Trust / CBF pursuant to the CBF Investment Agreement. The Company
incurred interest expense on this instrument, which is disclosed as part of interest expense incurred in the table at the end of this
section. In March 2021, October 2020 and 2019, payments of $4,000, $2,500 and $1,500 were made by the Company to CBF,
which reduced the redeemable financial instrument balance to zero. See notes 19 and 20.
EBC has been identified as a related party because Daniel G. Cohen is a trustee of EBC and has sole voting power with respect to
all shares of the Company held by EBC. In September 2013, EBC, as an assignee of CBF, made a $4,000 investment in the
Company. The Company issued $2,400 in principal amount of the 2013 Convertible Notes and $1,600 of the Common Stock to
EBC. On September 25, 2019, the 2013 Convertible Notes were amended and restated and, subsequent to this amendment, are
referred to as the 2019 Senior Notes. On September 25, 2020 the 2019 Senior Notes were amended again to extend their
maturity date until September 25, 2021. The Company fully paid and extinguished the 2019 Notes on September 24, 2021. See
note 20. The Company incurred interest expense on this debt, which is disclosed as part of interest expense incurred in the table at
the end of this section.
C. The Edward E. Cohen IRA
On August 28, 2015, $4,386 in principal amount of the 2013 Convertible Notes originally issued to Mead Park Capital in
September 2013 was purchased by Pensco Trust Company, Custodian fbo Edward E. Cohen of which Edward E. Cohen is the
benefactor. Edward E. Cohen is the father of Daniel G. Cohen. On September 25, 2019, the 2013 Convertible Notes were
amended and restated by the 2019 Senior Notes. See note 20 for a description of amendments related to the 2019 Senior Notes and
the 2013 Convertible Notes. On February 3, 2020, the $4,386 of the 2019 Senior Notes, representing all of the Senior Notes held
by the Pensco Trust Company, Custodian fbo Edward E. Cohen were fully repaid. The Company incurred interest expense on this
debt, which is disclosed as part of interest expense incurred in the table at the end of this section.
D. JKD Investor
The JKD Investor is an entity owned by Jack J. DiMaio, the vice chairman of the board of directors and vice chairman of the
Operating LLC's board of managers and his spouse. On October 3, 2016, JKD Investor invested $6,000 in the Operating
LLC. Additional investments were made in January 2017 and January 2019 in the amounts of $1,000 and $1,268,
respectively. See notes 19 and 20. The interest expense on this investment is disclosed as part of interest expense incurred in the
table at end of this section
On January 31, 2020, JKD Investor purchased $2,250 of the 2020 Senior Notes. See note 20. The Company incurred interest
expense on this debt, which is disclosed as part of interest expense incurred in the table at the end of this section.
E. DGC Trust
DGC Trust has been identified as a related party because Daniel G. Cohen's children are the beneficiaries of the trust and the trust
was established by Daniel G. Cohen, chairman of the Company’s board of directors and chairman of the Operating LLC’s board of
managers. Daniel G. Cohen does not have any voting or dispositive control of securities held in the interest of the trust.
F-81
On December 30, 2019, the DGC Trust contributed 291,480 shares of IMXI common stock with a fair value of $3,428 to the
Operating LLC. In exchange for these shares, the Operating LLC issued to the DGC Trust 9,880,268 newly issued units of
membership interests in the Operating LLC and the Company issued to the DGC Trust 9,880,268 shares of newly issued Series F
Preferred Stock. The Company included the value of the shares of IMXI common stock in other investments, at fair value. See
note 21. In March 2017, the 2017 Convertible Note was issued to the DGC Trust. See note 20. The Company incurred interest
expense on the 2017 Convertible Note, which is disclosed as part of interest expense incurred in the table below. On September
29, 2017, the DGC Trust also invested $2,000 of the initial $10,000 total investment in the Company’s Redeemable Financial
Instrument – DGC Trust / CBF pursuant to the DGC Trust Investment Agreement. The Company redeemed the DGC Trust
Redeemable Financial Instrument in full by making payment of $2,000 on September 30, 2020. See notes 19 and 20. Interest
incurred on this instrument is disclosed in the table below.
F. Duane Morris, LLP (“Duane Morris”)
Duane Morris is an international law firm and serves as legal counsel to the Company. Duane Morris is considered a related party
because a partner at Duane Morris is a member of the same household as a director of the Company. Expense incurred by the
Company for services provided by Duane Morris is included within professional fees and operating expense in the consolidated
statements of operations and comprehensive income and are disclosed in the table below.
G. FinTech Masala, LLC
FinTech Masala, LLC (formerly Bezuco Capital, LLC) is a related party because Betsy Cohen, the mother of Daniel G. Cohen, is a
member of FinTech Masala, LLC. Daniel G. Cohen is also a member of Fintech Masala, LLC. The Company engaged Betsy
Cohen as an agent of FinTech Masala, LLC as a consultant to provide certain services related to the Insurance SPAC. The
Company agreed to pay a consultant fee of $1 per month, which commenced July 1, 2019 and continued through the Insurance
SPAC Merger. Betsy Cohen made a $2 investment in the Insurance SPAC Sponsor Entities in March 2019 which is included as a
component of non-controlling interest in the consolidated balance sheet as of December 31, 2020. The expense incurred by the
Company for the consulting services provided by FinTech Masala, LLC are included within professional fees and operating
expense in the consolidated income statement and are disclosed in the table below.
The Company engaged Betsy Cohen as an agent of FinTech Masala, LLC as a consultant to provide certain services related to
the Insurance SPAC II. The Company agreed to pay a consultant fee of $1 per month, which commenced on October 1, 2020, and
continued through February 2021. Betsy Cohen made a $1 investment in the Insurance SPAC II Sponsor Entities which is
included as a component of non-controlling interest in the consolidated balance sheet as of December 31, 2020. The expense
incurred by the Company for the consulting services provided by FinTech Masala, LLC is included within professional fees and
operating expense in the consolidated income statement and are disclosed in the table below.
The Company engaged Betsy Cohen as an agent of of FinTech Masala, LLC as a consultant to provide certain services related to
the Insurance SPAC III. The Company agreed to pay a consultant fee of $1 per month, which commenced on December 1, 2020,
and continues through the earlier of (i) the date that is thirty days following the closing of the Insurance SPAC III's Initial Business
Combination and (ii) the date on which the Company or Betsy Cohen terminates the consulting agreement. Betsy Cohen made a
$1 investment in the Insurance SPAC III Sponsor Entities, which is included as a component of non-controlling interest in the
consolidated balance sheet as of December 31, 2021 and December 2020, respectively. The expense incurred by the Company for
the consulting services provided by FinTech Masala, LLC is included within professional fees and operating expense in the
consolidated income statement and are disclosed in the table below.
The Company has a sublease agreement as sub-lessor for certain office space with FinTech Masala, LLC. The Company received
payments under this sublease agreement which payments are recorded as a reduction in rent expenses. This sublease agreement
commenced on August 1, 2018 and has a term that automatically renews for one year periods if not cancelled by either party upon
90 days’ notice prior to the end of the then-existing term. The income earned pursuant to this sublease agreement is included as a
reduction in rent expense in the consolidated statements of income and is disclosed in the table below.
F-82
H. Investment Vehicle and Other
FlipOs (previously Stoa USA, Inc.)
FlipOs is a related party because Daniel Cohen is a director. As of December 31, 2021 the Company made cumulative
investments of $566 in FlipOs. The fair value of this investment is included in other investments, at fair value on the
consolidated balance sheets; any realized and unrealized gains on this investment are included in principle transactions and
other income on the consolidated statements of operations and comprehensive income. This amount is included in the table
below.
CK Capital and AOI
CK Capital and AOI are related parties as they are equity method investments of the Company. In December 2019, the
Company acquired a 45% interest in CK Capital. The Company purchased this interest for $18 (of which $17 was paid to
an entity controlled by Daniel G. Cohen). In addition, in December 2019, the Company also acquired a 10% interest in
AOI, a real estate holding company, for $1 from entities controlled by Daniel G. Cohen. Income earned, or loss incurred by
the Company on the equity method investments in CK Capital and AOI is included in the tables below. In accordance
with the CK Capital shareholders agreement, the Company may receive fees for consulting services provided by the
Company to CK Capital. Any fees earned for such consulting services are included in principal transactions and other
income in the table below. See Note 12.
Insurance SPAC
Prior to October 13, 2020, the date of the Insurance SPAC Merger, the Insurance SPAC was considered a related party as it
was an equity method investment of the Company. The Operating LLC was the manager of the Insurance SPAC Sponsor
Entities and the Company consolidated the Insurance SPAC Sponsor Entities. Prior to the Insurance SPAC Merger, the
Company owned 26.5% of the equity in the Insurance SPAC. Income earned or losses incurred on equity method
investment in the Insurance SPAC is included in the tables below. The Operating LLC and the Insurance SPAC entered into
an administrative services agreement, dated March 19, 2019, pursuant to which the Operating LLC and the Insurance SPAC
agreed that, commencing on the date that the Insurance SPAC’s securities were first listed on the NASDAQ Capital Market
through the earlier of the Insurance SPAC’s consummation of a business combination and its liquidation, the Insurance
SPAC would pay the Operating LLC $10 per month for certain office space, utilities, secretarial support, and administrative
services. Revenue earned by the Company from such administrative services agreement is included as part of principal
transactions and other income in the tables below. The Company also agreed to lend the Insurance SPAC $750 for
operating and acquisition related expenses, of which $650 was borrowed by the Insurance SPAC from the Company. On
October 13, 2020 in connection with the Insurance SPAC Merger, the Insurance SPAC made a payment of $650 to the
Company extinguishing the loan balance in full. See notes 4.
Insurance SPAC II
Prior to February 9, 2021, the date of the Insurance SPAC II merger, Insurance SPAC II was considered a related party as it
was an equity method investment of the Company. The Operating LLC was the manager of the Insurance SPAC II Sponsor
entities and the Company consolidated the Insurance SPAC II Sponsor Entities. Prior to the Insurance SPAC II Merger, the
Company owned 46.1% of the equity in Insurance SPAC II. Income earned, or loss incurred on the equity method
investment in Insurance SPAC II is included in the table below. The Operating LLC and the Insurance SPAC II entered
into an administrative services agreement, dated September 2, 2020, pursuant to which the Operating LLC and the
Insurance SPAC II agreed that, commencing on the date that the Insurance SPAC II’s securities were first listed on the
NASDAQ Capital Market through the earlier of the Insurance SPAC II’s consummation of a business combination and its
liquidation, the Insurance SPAC II would pay the Operating LLC $20 per month for certain office space, utilities, secretarial
support, and administrative services. Revenue earned by the Company from such administrative services agreement is
included as part of principal transactions and other income in the tables below. The Company also agreed to lend the
Insurance SPAC II $750 for operating and acquisition related expenses as a sponsor of Insurance SPAC II; no amounts have
been borrowed as of December 31, 2021. See notes 4 and 12.
Insurance SPAC III
Insurance SPAC III is a related party as it is an equity method investment of the Company. The Operating LLC, is the
manager of the Insurance SPAC III Sponsor Entities and the Company consolidates the Insurance SPAC III Sponsor
Entities. As of December 31, 2021, Insurance SPAC III Sponsor Entities owns 47.3% of the equity in Insurance SPAC III
Sponsor Entities. Income earned, or loss incurred on the equity method investment in the Insurance SPAC III is included in
the table below. The Operating LLC and the Insurance SPAC III entered into an administrative services agreement, dated
December 17, 2020, pursuant to which the Operating LLC and the Insurance SPAC III agreed that, commencing on the date
that the Insurance SPAC III’s securities were first listed on the NASDAQ Capital Market through the earlier of the
Insurance SPAC III’s consummation of a business combination and its liquidation, the Insurance SPAC III would pay the
Operating LLC $20 per month for certain office space, utilities, and shared personnel support as may be requested by
Insurance SPAC III. Revenue earned by the Company from the administrative services agreement is included as part of
principal transactions and other income in the tables below. The Company also agreed to lend Insurance SPAC III $810 for
operating and acquisition related expenses, of which $500 was borrowed by Insurance SPAC III from the Company as of
December 31, 2021. In the first quarter of 2022, the Operating LLC advanced an additional $310 to Insurance SPAC
III. See notes 4 and 12.
F-83
Sponsor Entities of Other SPACs
In general, a SPAC is initially funded by a sponsor and that sponsor invests in and receives private placement and
founder shares of the SPAC. The sponsor may be organized as a single legal entity or multiple entities under common
control. In either case, the entity or entities is referred in this section as the sponsor of the applicable SPAC. The Company
has had the following transactions with various sponsors of SPACs that are related parties and which the Company does not
consolidate.
Fintech Acquisition Corp. III ("FTAC III") was a SPAC. The sponsor of FTAC III ("FTAC III Sponsor") is a related
party because Daniel G. Cohen was the manager of the FTAC II Sponsor. In December 2018, the Operating LLC
entered into an agreement with FTAC III Sponsor whereby the Company will provide certain accounting and
administrative services and in exchange the Company received 23,300 founder shares of FTAC III. The revenue
earned on this arrangement is disclosed in Principle transactions and other income, SPAC Sponsor Entities in the
tables below.
Fintech Acquisition Corp. IV ("FTAC IV") was a SPAC. The sponsor of Fintech Acquisition Corp. IV ("FTAC IV
Sponsor") is a related party as it is an equity method investment of the Company. The Company made a sponsor
investment in FTAC IV Sponsor, receiving a final allocation of 81,825 founder shares of Fintech Acquisition IV stock
for $1. In addition, on September 29, 2020, the Operating LLC entered into a letter agreement with FTAC IV
Sponsor whereby the Operating LLC will provide personnel to serve as the chief financial officer as well as other
accounting and administrative services to FTAC IV Sponsor for a period not longer than 24 months. As consideration
for these services, the Company received an allocation of an additional 24,547 founder shares of Fintech Acquisition
IV stock to the Operating LLC and recorded an equity method investment of $40 for the valuation of these services.
The revenue earned on this arrangement is disclosed in Principle transactions and other income, SPAC Sponsor
Entities in the tables below.
Fintech Acquisition Corp. V ("FTAC V") is a SPAC. The sponsor of Fintech Acquisition Corp. V ("FTAC V
Sponsor") is a related party as it is an equity method investment of the Company. The Company made a
sponsor investment in FTAC V Sponsor, receiving an allocation of 140,000 founder shares. On December 14, 2020,
the Operating LLC entered into a letter agreement with FTAC V Sponsor whereby the Operating LLC will provide
personnel to serve as the chief financial officer as well as other accounting and administrative services to FTAC V
Sponsor for a period not longer than 24 months. As consideration for these services, the Company received an
allocation of 35,000 founder shares of FTAC V stock to the Operating LLC and recorded an equity method investment
of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principle
transactions and other income, SPAC Sponsor Entities in the tables below.
Fintech Acquisition Corp. VI ("FTAC VI") is a SPAC. The sponsor of Fintech Acquisition Corp. VI ("FTAC VI
Sponsor") is a related party as it is an equity method investment of the Company. On June 26, 2021, the Operating
LLC entered into a letter agreement with FTAC VI Sponsor whereby the Operating LLC will provide personnel to
serve as the chief financial officer as well as other accounting and administrative services to FTAC VI Sponsor for a
period not longer than 24 months. As consideration for these services, the Company received an allocation of 35,000
founder shares of FTAC VI stock to the Operating LLC and recorded an equity method investment of $40 for the
valuation of these services. The revenue earned on this arrangement is disclosed in Principle transactions and other
income, SPAC Sponsor Entities in the tables below.
FTAC Olympus Acquisition Corp ("FTAC Olympus") was a SPAC. The sponsor of FTAC Olympus Acquisition
Corp. ("FTAC Olympus Sponsor") is a related party as it is an equity method investment of the Company. The
Company made a sponsor investment in FTAC Olympus Sponsor, receiving a final allocation of 399,741
founder shares of FTAC Olympus stock. In addition, on September 8, 2020, the Operating LLC entered into a letter
agreement with FTAC Olympus Sponsor whereby the Operating LLC will provide personnel to serve as the chief
financial officer as well as other accounting and administrative services to FTAC Olympus Sponsor for a period not
longer than 24 months. As consideration for these services, the Company received an allocation of an additional
19,987 founder shares of FTAC Olympus stock to the Operating LLC and recorded an equity method investment of
$40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principle transactions
and other income, SPAC Sponsor Entities in the tables below.
FTAC Athena Acquisition Corp. ("FTAC Athena") is a SPAC. The sponsor of FTAC Athena Acquisition Corp.
("FTAC Athena Sponsor") is a related party as it is an equity method investment of the Company. On February 26,
2021, the Operating LLC entered into a letter agreement with FTAC Athena Sponsor whereby the Operating LLC will
provide personnel to serve as the chief financial officer as well as other accounting and administrative services to
FTAC Olympus Sponsor for a period not longer than 24 months. As consideration for these services, the Company
received an allocation of 35,000 founder shares of FTAC Athena stock to the Operating LLC and recorded an equity
method investment of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in
Principal transactions and other income, SPAC Sponsor Entities in the tables below.
FTAC Hera Acquisition Corp. ("FTAC Hera") is a SPAC. The sponsors of FTAC Hera Acquisition Corp. ("FTAC
Hera Sponsors") is a related party as it is an equity method investment of the Company. On March 5, 2021, the
Operating LLC entered into a letter agreement with FTAC Hera Sponsors whereby the Operating LLC will provide
personnel to serve as the chief financial officer as well as other accounting and administrative services to FTAC
Hera Sponsors for a period not longer than 24 months. As consideration for these services, the Company received an
allocation of 35,000 founder shares of FTAC Hera stock to the Operating LLC and recorded an equity method
investment of $40 for the valuation of these services. The revenue earned on this arrangement is disclosed in Principal
transactions and other income, SPAC Sponsor Entities in the tables below.
FTAC Parnassus Acquisition Corp. ("FTAC Parnassus") is a SPAC. The sponsors of FTAC Parnassus Acquisition
Corp. ("FTAC Parnassus Sponsors") is a related party as it is an equity method investment of the Company. On
March 15, 2021, the Operating LLC entered into a letter agreement with FTAC Parnassus Sponsors whereby the
Operating LLC will provide personnel to serve as the chief financial officer as well as other accounting and
administrative services to FTAC Parnassus Sponsors for a period not longer than 24 months. As consideration for
these services, the Company received an allocation of 35,000 founder shares of FTAC Parnassus stock to the
Operating LLC and recorded an equity method investment of $40 for the valuation of these services. The revenue
earned on this arrangement is disclosed in Principal transactions and other income, SPAC Sponsor Entities in the
tables below.
Other
The Company invests in sponsor entities of SPACS, either directly or through its interest in the SPAC Series Funds,
that are not otherwise affiliated with the Company but are considered related parties because they are accounted for
under the equity method. As of December 31, 2021, the Company owned 11.3% of these entities in the aggregate.
Income earned or loss incurred on the equity method investment in the SPAC Sponsor Entities is included in the tables
below.
F-84
SPAC Fund
The SPAC Fund is considered a related party because it is an equity method investment. The Company has an investment in
and a management contract with the SPAC Fund. Income earned or loss incurred on the investment are included as part of
principal transactions and other income. Revenue earned on the management contract are included as part of asset
management in the table below. As of December 31, 2021, the Company owned 1.8% of the equity of the SPAC Fund.
U.S. Insurance JV
U.S. Insurance JV is considered a related party because it is an equity method investment. The Company has an investment
in and a management contract with the U.S. Insurance JV. Income earned or loss incurred on the investment are included as
part of principal transactions and other income. Revenue earned on the management contract are included as part of asset
management in the table below. As of December 31, 2021, the Company owned 3.1% of the equity of the U.S. Insurance
JV.
CREO JV
CREO JV is considered a related party because it is an equity method investment. The Company has an investment in and a
management contract with CREO JV. Income earned or loss incurred on the investment are included as part of principal
transactions and other income. Revenue earned on the management contract are included as part of asset management in
the table below. As of December 31, 2021, the Company owned 7.5% of the equity of CREO JV.
F-85
The following tables display the routine transactions recognized in the statements of operations from identified related parties that
are described above.
Related Party Transactions
(Dollars in Thousands)
For the Years Ended December 31,
2020
2021
2019
Net trading
TBBK
Asset management
EuroDekania
SPAC Fund
Other SPAC Entities
U.S. Insurance JV
Principal transactions and other income
EuroDekania
Dutch Real Estate Entities
Insurance SPAC
Insurance SPAC II
Insurance SPAC III
FlipOS
Other SPAC Entities
SPAC Fund
U.S. Insurance JV
Income (loss) from equity method affiliates
Dutch Real Estate Entities
Insurance SPAC
Insurance SPAC II
Insurance SPAC III
Other SPAC Entities
Operating expense (income)
Duane Morris
Fintech Masala, LLC
Interest expense (income)
CBF
DGC Trust
EBC
Edward E. Cohen IRA
JKD Investor
$
- $
- $
14
-
4,327
319
525
5,171 $
-
137
-
40
240
1,805
132
474
142
2,970 $
(137 )
-
(107 )
(1,200 )
37,453
36,009 $
925
(54 )
871 $
197
1,534
211
-
1,985
3,927 $
$
$
$
$
$
-
2,406
368
2,774 $
-
147
95
80
20
-
23
183
222
770 $
639
(3,138 )
(486 )
(34 )
63
(2,956 ) $
1,194
(44 )
1,150 $
1,191
1,804
289
47
2,131
5,462 $
236
331
-
303
870
279
-
95
-
-
-
10
30
150
564
-
(553 )
-
-
-
(553 )
462
(34 )
428
912
1,725
218
398
699
3,952
The following related party transactions are non-routine and are not included in the tables above.
I. Directors and Employees
The Company has entered into employment agreements with Daniel G. Cohen, its chairman, and Joseph W. Pooler, Jr., its chief
financial officer. The Company has entered into its standard indemnification agreement with each of its directors and executive
officers.
The Company maintains a 401(k)-savings plan covering substantially all of its employees. The Company matches 50% of
employee contributions for all participants not to exceed 3% of their salary. Contributions made to the plan on behalf of the
Company were $287, $270, and $265 for the years ended December 31, 2021, 2020, and 2019, respectively.
On October 21, 2019, the Company purchased 23,000 shares from a former member of the board of directors for $230 or $10.00
per share and on November 7, 2019, the Company purchased 1,000 shares from the chief financial officer for $5 or $4.50 per
share.
The Company leases office space from Zucker and Moore, LLC. Zucker and Moore, LLC is partially owned by Jack DiMaio, Jr.,
the vice chairman of the Company's board of directors. The lease agreement automatically renews each June unless it is terminated
with 120 days' notice. The Company recorded $96 of rent expense related to this agreement for each of the three years ended
December 31, 2021, 2020, and 2019, respectively.
F-86
32. DUE FROM / DUE TO RELATED PARTIES
Amounts due to related parties related to redeemable financial instruments and outstanding debt are included as components of
those balances in the consolidated balance sheets. Also, interest or investment return owed on those balances are included as a
component of accounts payable and other liabilities in the consolidated balance sheets. Any investment made in an equity method
affiliate for which the Company does not elect the fair value option is included as a component of Investments in equity method
affiliates in the consolidated balance sheets. Any investment made in an equity method affiliate for which the Company elected
the fair value option is included as a component of other investments, at fair value in the consolidated balance sheets.
The following table summarizes the outstanding due from /due to related parties. These amounts may result from normal operating
advances, employee advances, or from timing differences between the transactions disclosed in note 31 and final settlement of
those transactions in cash. All amounts are primarily non-interest bearing.
DUE FROM/DUE TO RELATED PARTIES
(Dollars in Thousands)
CK Capital
U.S. Insurance JV
Insurance SPAC III
SPAC Fund
Employees & other
Due from Related Parties
F-87
As of December 31,
2021
2020
$
$
137 $
147
500
3,653
144
4,581 $
147
78
-
2,255
332
2,812
33. SUBSEQUENT EVENTS
Subsequent to December 31, 2021, U.S. public equity markets have broadly declined as well as become more
volatile. Specifically, equity prices for SPACs as well as post business combination former SPAC public companies have declined
significantly. The Company has significant exposure to these investments both through its investments in equity method affiliates
and other investments, at fair value. The Company has particular concentrations in the following public companies: SFT, MILE,
HLGN, WEJO, REE, PAYO, and PWP. See notes 4, 8, 9, and 12.
F-88
COHEN & COMPANY INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
COHEN & COMPANY INC. (PARENT COMPANY)
Balance Sheets
(Dollars in Thousands)
SCHEDULE I
Assets
Cash
Investment in Cohen & Company, LLC
Deferred income taxes
Total assets
Liabilities
Accrued interest and other liabilities
Deferred income taxes
Debt
Total liabilities
Stockholders’ Equity
Preferred Stock
Common Stock
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ equity
$
$
$
As of December 31,
2021
2020
- $
77,316
8,194
85,510 $
134 $
-
23,961
24,095
27
17
72,006
(9,730 )
(905 )
61,415
-
62,552
7,397
69,949
205
-
25,835
26,040
27
13
65,031
(20,341 )
(821 )
43,909
Total liabilities and stockholders’ equity
$
85,510 $
69,949
See accompanying notes to condensed financial statements.
F-89
COHEN & COMPANY INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
COHEN & COMPANY INC. (PARENT COMPANY)
Statements of Operations
(Dollars in Thousands)
Revenues
Equity in undistributed earnings / (loss) from Cohen & Company, LLC $
Total revenues
Operating income / (loss)
Non-operating expense
Interest expense
Income / (loss) before income taxes
Income tax (benefit) / expense
Net income / (loss)
$
For the Year Ended December 31,
2020
2021
2019
13,324 $
13,324
13,324
(2,812 )
10,512
(770 )
11,282 $
8,567 $
8,567
8,567
(3,218 )
5,349
(8,856 )
14,205 $
1,340
1,340
1,340
(4,074 )
(2,734 )
(680 )
(2,054 )
See accompanying notes to condensed financial statements.
F-90
COHEN & COMPANY INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
COHEN & COMPANY INC. (PARENT COMPANY)
Statements of Cash Flows
(Dollars in Thousands)
Operating activities
Net income / (loss)
Adjustments to reconcile net income / (loss) to net cash provided by /
(used) in operating activities:
Equity in undistributed earnings / (loss) from Cohen & Company,
LLC
Distributions from / (contributions to) Cohen & Company, LLC
Other (income) / expense
Amortization of discount of debt
(Increase) / decrease in other assets
Increase / (decrease) in accounts payable and other liabilities
Increase / (decrease) in deferred income taxes
Net cash provided by / (used in) operating activities
Financing activities
Repurchase and repayment of debt
Proceeds from issuance of Common Stock
Cash used to net share settle equity awards
Principal payments on debt
Repurchase of stock
Dividends paid to stockholders
Net cash provided by / (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
For the Year Ended December 31,
2020
2021
2019
$
11,282 $
14,205 $
(2,054 )
(13,324 )
(2,662 )
-
526
-
(71 )
(797 )
(5,046 )
-
9,076
(102 )
(2,400 )
(857 )
(671 )
5,046
-
-
- $
(8,567 )
9,388
-
434
21
(34 )
(8,877 )
6,570
-
-
(15 )
(4,386 )
(2,142 )
(27 )
(6,570 )
-
-
- $
(1,340 )
4,634
-
277
47
19
(678 )
905
-
-
(87 )
-
(299 )
(519 )
(905 )
-
-
-
See accompanying notes to condensed financial statements.
F-91
COHEN & COMPANY INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
COHEN & COMPANY INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands)
The accompanying condensed financial statements should be read in conjunction with the consolidated financial statements and
related notes of Cohen & Company Inc. Certain prior period amounts have been reclassified to conform to the current period
presentation. The Company paid or received cash distributions to / from Cohen & Cohen, LLC as disclosed above in the
statements of cash flow.
F-92
COHEN & COMPANY INC.
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
Lester R. Brafman
Chief Executive Officer
Joseph W. Pooler, Jr.
Executive Vice President, Chief
Financial Officer and Treasurer
Daniel G. Cohen
President and Chief Executive,
European Business
Daniel G. Cohen
Chairman of the Board
G. Steven Dawson
Private Investor
Jack J. DiMaio, Jr.
Vice-Chairman of the Board,
Chief Executive Officer of Mead
Park Holdings LP
Jack Haraburda
Managing Partner of CJH
Securities Information Group,
a professional coaching business
Diana Louise Liberto
President, Chief Executive Officer
and Chair of the Board of Directors
of WalkMyMind, Inc., a corporate
and personal wellness company
CORPORATE
INFORMATION
Corporate Office
Cira Centre
2929 Arch Street, Suite 1703
Philadelphia, Pennsylvania 19104
Transfer Agent
Computershare
Independent Auditors
Grant Thornton LLP
Corporate Counsel
Duane Morris LLP
Stock Listing
NYSE American (COHN)
Forward-Looking Statements
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements discuss matters that are not historical facts. Because they
discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,”
“intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,”
“potential,” “continue,” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are
made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such
statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity,
performance or achievement to be materially different from the results of operations or plans expressed or implied by such
forward-looking statements.
While we cannot predict all of the risks and uncertainties, they include, but are not limited to those risks and uncertainties
described in “Item 1A – Risk Factors” included in Cohen & Company Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2021. Accordingly, such information should not be regarded as representations that the results or conditions
described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the
accuracy or completeness of any of these forward-looking statements. All subsequent written and oral forward-looking
statements concerning other matters addressed in this annual report and attributable to us or any person acting on our behalf are
expressly qualified in their entirety by the cautionary statements contained or referred to in this annual report. Except to the
extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new
information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or
otherwise.