Cowen Annual Report 2017

Plain-text annual report

Cowen Inc. is a diversiﬁ ed ﬁ nancial services ﬁ rm and, together with its consolidated subsidiaries, provides investment management, investment banking, research, sales and trading, prime brokerage, global clearing and commission management through its two business segments: Cowen Investment Management and its afﬁ liates make up the Company’s investment management segment, while Cowen and Company, a member of FINRA and SIPC, and its afﬁ liates make up the Company’s investment bank segment. Cowen Investment Management provides investment management solutions to a global client base and manages a signiﬁ cant portion of Cowen’s proprietary capital. Cowen and its afﬁ liates offer industry focused investment banking for growth-oriented companies, domain knowledge-driven research, a sales and trading platform for institutional investors, global clearing and commission management services and also a comprehensive suite of prime brokerage services. Founded in 1918, the ﬁ rm is headquartered in New York and has ofﬁ ces worldwide. To download Cowen’s investor relations app, which offers access to SEC ﬁ lings, news releases, webcasts and presentations, please visit the App Store for iPhone and iPad or Google Play for Android mobile devices. ©2018 COWEN INC. ALL RIGHTS RESERVED. COWEN.COM COWEN INC. COWEN COWENRESEARCH ANNUAL REPORT 2017 COWEN.COM COWEN INC. COWEN COWENRESEARCH www.cowen.com LOCATIONS UNITED STATES New York Cowen Inc./Cowen Execution Series LLC/ Cowen and Company, LLC/ Algorithmic Trading Management, LLC/ ATM Execution LLC/Cowen Prime Services LLC 599 Lexington Avenue New York, NY 10022 TEL: 212 845 7990 New York New York New York New York New Jersey Greenwich Atlanta Atlanta Boston Chicago Cleveland Houston Cowen Inc. 1345 Avenue of the Americas 3rd Floor New York, NY 10105 TEL: 646 562 1660 TriArtisan Capital Advisors LLC 830 Third Avenue 4th Floor New York, New York 10022 TEL: 212 609 0620 Cowen Prime Services LLC 1010 Franklin Ave Suite 303 Garden City, NY 11530 TEL: 516 746 5757 Cowen Inc./Cowen Execution Services LLC/Westminster Research Associates LLC 1633 Broadway, 48th Floor New York, NY 10019 TEL: 646 690 3292 Cowen Execution Services LLC 75 Lincoln Highway 3rd Floor Iselin, NJ 08830 TEL: 732 855 4000 Cowen Prime Services LLC 10 Glenville Street 3rd Floor Greenwich, CT 06831 TEL: 203 588 3300 Cowen and Company LLC (Branch) Corporate Office Centers 3399 Peachtree Road NE Suite 417 Atlanta, GA 30326 TEL (Toll Free): 866 544 7009 Cowen Prime Services LLC 13010 Morris Road 6th Floor, Building 1 Alpharetta, GA 30004 TEL: 770 576 1759 Cowen and Company, LLC (Branch) Two International Place Boston, MA 02110 TEL: 617 946 3700 TEL (Toll Free): 800 343 7068 Cowen and Company, LLC (Branch) 181 West Madison Street, Suite 3135 Chicago, IL 60602 TEL: 312 577 2240 Cowen and Company, LLC (Branch) 20006 Detroit Road, Suite 100 Rocky River, OH 44116 TEL: 440 331 3531 Cowen and Company, LLC (Branch) 600 Travis, Suite 1970 Houston, TX 77002 TEL: 440 331 3531 Los Angeles Los Angeles Los Angeles Orlando San Francisco Stamford Washington D.C. Cowen and Company, LLC 10250 Constellation Blvd. Suite 2300 Los Angeles, CA 90067 TEL: 310 356 4620 Cowen and Company, LLC 2301 Rosecrans Ave Suite 4195-B El Segundo, CA 90245 TEL: 310 773 9070 Cowen Prime Services LLC 2041 Rosecrans Ave Suite 350-B El Segundo, CA 90245 TEL: 310 773 9070 Cowen Execution Services LLC 3501 Quadrangle Boulevard Suite 200 Orlando, FL 32817 TEL: 407 608 1900 Cowen and Company, LLC (Branch) 1 Maritime Plaza 9th Floor San Francisco, CA 94111 TEL (Toll Free): 800 858 9316 Cowen and Company, LLC 262 Harbor Drive Stamford, CT 06902 TEL: 646 616 3000 Cowen and Company, LLC 2900 K Street, NW Suite 520 Washington D.C. 20007 TEL: 202 868 5300 INTERNATIONAL Northern Ireland London Luxembourg Cowen International Limited (Branch) Centrepoint, 1st Floor 24 Ormeau Avenue Belfast, BT2 8HS Northern Ireland Cowen International Limited/ Cowen Execution Services Limited/ Ramius UK Ltd 1 Snowden Street - 11th Floor London EC2A 2DQ England TEL: (+44) 20 7071 7500 RCG International Opportunities S.á.r.l./ Hollenfels Re SA 97, rue Jean-Pierre Michels L-4243 Esch-Sur-Alzette Luxembourg TEL: +352 26 17 35 Dear Shareholders, Partners, Colleagues and Friends: In 1918, the world looked quite different than it does today. It was the end of the Great World War and the beginning of what would become known as the American Century. It was also the year that Cowen was founded. The past 100 years have brought tremendous global change economically, politically and socially. There were booms and busts, wars and revolutions, the rise and fall of despots, horrible pandemics followed by miracle cures, and there was the invention of the semiconductor which underpinned an increase in the rate of technological change unlike any other in the history of humanity. Markets changed too, in ways that no one could possibly have predicted back in 1918. And through it all, Cowen has not only survived, but we have prospered. We did so by attracting amazing, team-oriented people who have worked tirelessly to deliver positive outcomes for clients regardless of market conditions. We did so by anticipating the needs of our clients as they evolved. We did so by creating an empathetic culture that recognizes the value of long- term partnership with each other and with our clients. We have a long Cowen tradition of thinking ahead, anticipating new challenges and sensing new opportunities. We have often said that change is the only constant in our business. Change is what motivates us to think about who we are, what we stand for, what role we play in the lives of our clients and what we need to do to stay Ahead of The Curve™. Many of the decisions we have made in recent years laid the groundwork for the growth we have experienced. In 2017 revenue expanded 42% from the prior year to $666 million. Economic income was $15.8 million, a $44.5 million improvement from the economic income loss reported in the prior year. These results move us closer towards our goal of sustainable profitability and set us up for a stronger 2018. COWEN OUTPERFORMTM Leading Cowen is a tremendous responsibility and a mission that we have embraced with a deep sense of commitment since we merged Ramius into Cowen in 2009. We take tremendous pride in making a difference in the lives of our clients and partners every day by helping them do better than they would otherwise do without us. Our OutperformTM brand speaks to who we are as a team and who we aspire to be as individuals on that team and it crystallizes our mission: to promote an empathetic and collaborative culture that advises and connects aspirational providers and users of capital. The bar for consistently achieving outperformance is a high one. Everything we do as an organization has to be exceptional because the pressure on our clients to outperform their peers has never been greater. Whether it is active managers trying to outperform passive managers, companies aiming to outperform their peer groups, or investors looking to identify investment strategies to meet their long term outperformance objectives, Cowen has superior solutions driven from our market position as the pre-eminent content network. At the center of our excellence is original, creative thought combined with the power of human collaboration and interaction. Our responsibility at Cowen is to foster a sharing environment that encourages and enables our talented professionals to flourish under that ideal. Aided by intelligent technology, we believe in these uniquely human traits that cannot be automated or replicated. In addition, our long term success has been built around trust, transparency and insight, none of which ever go out of style. Whether we are advising corporate clients on strategic mergers and acquisitions or connecting them to providers of capital to finance their growth, providing active portfolio managers with sophisticated research or independent, non-conflicted trade execution, and other alpha generating tools, or offering clients access to differentiated alternative investment products, we do so with one thing in mind: helping our clients Outperform. FORWARD THINKING AND FORWARD LOOKING In order to appreciate our view of Cowen’s role in the future, we want to take a moment to review the opportunities and decisions we made over the last eight years that have enabled us to capture the opportunities that are now upon us. Markets and Research Over the past decade, as we recognized the rise of passive investing and considered its impact on those who believe in the value of active management, we made strategic decisions to scale our markets business and deepen our research capabilities. Well before the implementation of MiFID II, a European regulation with global implications to research and trading firms worldwide, we recognized that our clients were moving towards a separation of payments between research and trading commissions. In this “unbundled” environment, we believed that the winners would be those firms that provide differentiated capabilities in both research and trade execution. As a result, over the last 5 years, we transformed our platform to become a leader in independent, non-conflicted cash and electronic trading as well as a premier research platform. In addition to the organic changes we made, the transformation began with the acquisition of Algorithmic Trading, a broker neutral electronic trading platform. At the time we were a cash equities business in a world where a growing percentage of clients were seeking high quality, independent electronic execution. This was followed by the 2013 acquisition of Dahlman Rose which provided us with additional research and markets expertise as well as greater connectivity with clients. In 2015 we entered the prime services space with the acquisitions of Concept Capital and Conifer Securities. In 2016 we added the macro team from Washington Research Group and expanded into fixed income sales and trading by acquiring certain businesses from CRT, a leader in distressed debt and special situation equities. Finally, with the 2017 acquisition of Convergex, a leading agency-focused global brokerage and trading related services provider, we doubled the size of our brokerage platform and have become a top broker of choice among clients who seek market liquidity through a non-conflicted agency model. The markets business is about both scale and excellence, especially as the buy side continues to consolidate their commissions towards those research providers that add the most value to their process. Our markets business today reflects our dedication to serving our clients’ needs in an evolving, complex market environment. Our dedication to providing premium quality research has always been a central pillar at Cowen. Today we are one of the largest research franchises on the Street and one of a few firms offering sophisticated, agenda-setting research. On average we experience 20% greater readership of our research compared to our peers. Our analysts are experts within their sectors and unafraid to challenge conventional wisdom. Our Ahead of the CurveTM reports are the hallmark of our research effort. These reports focus on a non-consensus idea or an investment controversy or a topic. Over the years we made significant improvements in our vote standing with our clients because of the great emphasis we place on research and the alignment of the firm’s efforts with those clients that find value in what we do. Heading into 2018, we believe we will be a major beneficiary of the reallocation of commission dollars given our differentiated equities franchise which offers both strong research capabilities and sophisticated, non-research based agency execution at scale. Investment Banking Capital raising has long been a core competency at Cowen but it took several years for us to achieve our respected position in equity financings generally and healthcare specifically. Early on, we recognized that a strong capital markets franchise would serve as the base upon which we could begin to build out our advisory capabilities and that could serve as a growth catalyst for our distribution capabilities. Beginning in 2011, our priority was to build an investment banking and capital markets business that provided impactful advice and access to high quality deal flow. We chose to align ourselves with companies in industries where we felt that our involvement would have a positive impact through our ability to advise and connect corporate clients with the right investors to foster their growth. Our initial efforts were focused on growing the sectors that we felt benefitted most from equity financings. Over the past 6 years, we have invested in building out other industries and product areas organically by investing in teams and individuals. Today not only are we one of the top equity underwriters in healthcare, but we have a growing presence in issuance and advisory in other verticals such as tech, consumer, and industrials. Indeed, the momentum we saw in advisory entering into 2017 resulted in our strongest revenue year yet. Investment Management Over the last two decades, the investment management industry has matured and asset allocators have become more discerning regarding the number of alpha generating capabilities available. In order to attract assets, investment funds need to provide differentiated offerings for a range of investors. Ramius was initially founded primarily as a multi-strategy and a fund of funds business. We were successful pursuing those strategies for many years but recognized the significant shift by allocators away from our core products following the financial crisis. Following the combination with Cowen, we set about to reformulate our business into a platform comprised of differentiated single strategy capabilities as we returned a significant portion of our multi-strategy and fund of fund assets to our investors. We pursued an affiliate strategy in an attempt to scale our investment businesses by utilizing in-house talent we had developed at Cowen as well as partnering with portfolio teams outside of the firm. By 2015 our platform grew to consist of ten affiliates with billions of dollars of capacity. While we found success in scaling certain affiliates, others proved to be more difficult. As a result, in 2017, with new senior management in place, we eliminated three strategies that were subscale (consumer long/short, managed futures and credit as well as global macro in early 2018) even as we launched a new strategy (private healthcare) and scaled those that were clearly differentiated. We ended the year with $11 billion in assets under management, which is an increase of $459 million from the prior year. Moving forward, we will be selective in how we grow by focusing on investment capabilities that are both saleable and scalable as we draw more closely upon the expertise and DNA of Cowen more broadly. Our new private healthcare strategy, which makes mid-to-late stage investments into innovative private biopharmaceutical and healthcare companies is an excellent example of “Cowen DNA.” The strategy, launched in late 2017 by our former head of investment banking, is the first to have been incubated internally and to capitalize on our well-regarded healthcare franchise. The solid investor interest we have seen thus far speaks to the Cowen brand as well as our track record in the strategy. DYNAMIC AND ENERGIZED Now, in 2018, we are at an amazing point in our history where we can further distinguish Cowen with the opportunities ahead. We are impacting the lives of our clients and partners in ways we could never have imagined in 2009 when Ramius merged into Cowen. It is gratifying to see those clients recognize that we are doing something different. While the growth in passive management makes the daily headlines, the truth is that allocations to active assets managers have never been greater. Therefore, we need to be at the top of our game in everything we do in order to extend our market position. While many things at Cowen are going well, we have more work to do. Our number one priority is to create shareholder value by improving our return on equity. We intend to increase our earnings power by scaling businesses that drive margin and by focusing on opportunities where we have strong domain expertise. We will look to improve consistency in our financial results by harmonizing our balance sheet activities with our operating businesses and improving our revenue diversification. We are taking steps to lower quarterly earnings volatility by growing the contribution from recurring revenue businesses while creating more predictability in income generated from our invested capital. And we will look to simplify our balance sheet to ensure our financial assets are rowing in the same direction as our business strategy. The impact of these objectives will take time to play out in our financial results, but we are already making progress. BUILT ON TRADITION As we enter our second century, the very same core values that have sustained Cowen over the past 100 years remain central to our mission today: vision, empathy, sustainability and tenacious teamwork. We will continue to drive positive change in a holistic manner for all of our most important constituents: our clients, our employees and our shareholders. The future is filled with opportunity and we are well positioned to take advantage. Thank you for your ongoing support. Peter A. Cohen Chairman Jeffrey M. Solomon Chief Executive Officer AN ADDITIONAL THOUGHT FROM PETER: As we announced in May, I have chosen not to stand for re-election as Chairman of Cowen at our upcoming annual meeting on June 26. First, to all of you that have been a part of my journey, I offer you a very big “thank you.” It has been a privilege to lead this organization and our outstanding professionals. Cowen’s future has never looked brighter. So, the timing is right for me to leave the Board so that I can devote the balance of my career to investments and opportunities that I will pursue personally and to leverage my 50-years of experience on Wall Street. Over the course of my career, I have always enjoyed acting as a principal even though I was in operating positions. I look forward to devoting my future to the investment side of the business even as I will continue to work with Cowen on our private investments on the balance sheet, as well as other areas. Jeff Solomon, with whom I have worked closely since 1990, and our team, have played a large part of helping our organization to get to where it is today. I am proud to know that under his leadership, Cowen will move to even higher levels. Since the founding of Ramius 24 years ago, we have been able to create a thriving and vibrant organization that makes a difference in the lives of our clients and each other. Nothing gives me more pride than knowing that I am leaving Cowen in the best position it has been in over two decades. Our announcement of first quarter results was our best since the Cowen / Ramius business combination in 2009 and reflects the many steps we have taken over the past few years to position our organization for success. 2018 not only marks the 100th anniversary of Cowen’s founding, but it also marks my 50th year on Wall Street. I am proud that I had the opportunity to work in businesses that helped to reshape our industry over the past five decades. Early on, I was fortunate to have worked side by side with great partners to create what ultimately became Shearson Lehman Hutton, which became the largest investment bank and retail brokerage business in world. When I founded Ramius, I had hopes that we would accomplish success by delivering innovative investment strategies for our clients, many of which were my friends and family. Not only did we accomplish that, but we built an organization that had staying power, even during the Great Recession. In 2009, when we combined our firm with Cowen, I found myself in the enviable position of getting another chance to engage in the business I first fell in love with when I was a research analyst in the late 1960s. I could not be more excited to see where Cowen will go from here. Thank you for your trust, support and faith in me over the years. Warmest regards, Peter UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended: December 31, 2017 Commission file number: 001-34516 Cowen Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 27-0423711 (I.R.S. Employer Identification No.) 599 Lexington Avenue New York, New York 10022 (212) 845-7900 (Address, including zip code, and telephone number, including area code, of registrant's principal executive office) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Exchange on Which Registered Class A Common Stock, par value $0.01 per share 7.35% Senior Notes due 2027 The Nasdaq Global Market The Nasdaq Global Market 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 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Annual Report on Form 10-K or any amendment to the Annual Report on Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated Accelerated filer Non-accelerated filer filer (Do not check if a smaller reporting company) 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 is a shell company (as defined in Rule 12b-2 of the Act). Yes No The aggregate market value of Class A common stock held by non-affiliates of the registrant on June 30, 2017, the last business day of the registrant's most recently completed second fiscal quarter, based upon the closing sale price of the Class A common stock on the NASDAQ Global Market on that date was $476,392,881. As of March 5, 2018 there were 28,985,051 shares of the registrant's common stock outstanding. Documents incorporated by reference: Part III of this Annual Report on Form 10-K incorporates by reference information (to the extent specific sections are referred to herein) from the Registrant's Proxy Statement for its 2018 Annual Meeting of Stockholders. [This Page Intentionally Left Blank] TABLE OF CONTENTS Item No. PART I PART II 1. Business 1A. Risk Factors 1B. Unresolved Staff Comments 2. Properties 3. Legal Proceedings 4. Mine Safety Disclosures Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 5. 6. Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations 7. 7A. Quantitative and Qualitative Disclosures about Market Risk 8. Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 9. 9A. Controls and Procedures 9B. Other Information PART III 10. Directors, Executive Officers and Corporate Governance 11. Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 12. 13. Certain Relationships and Related Transactions 14. Principal Accountant Fees and Services PART IV 15. Exhibits and Financial Statement Schedules 16. Form 10-K Summary Consolidated Financial Statements and Notes Supplemental Financial Information SIGNATURES EXHIBIT INDEX Page No. 1 6 26 26 27 28 28 30 32 68 70 70 70 71 71 71 71 71 71 72 72 F- 1 F- 78 i Special Note Regarding Forward-Looking Statements We have included or incorporated by reference into our Annual Report on Form 10-K (the "Annual Report"), and from time to time may make in our public filings, press releases or other public documents, certain statements, including (without limitation) those under Item 1—"Business," Item 1A—"Risk Factors," Item 3—"Legal Proceedings," Item 7—"Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 7A—"Quantitative and Qualitative Disclosures about Market Risk" that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward- looking terms such as "may," "might," "will," "would," "could," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "project," "possible," "potential," "intend," "seek" or "continue," the negative of these terms and other comparable terminology or similar expressions. In addition, our management may make forward-looking statements to analysts, representatives of the media and others. These forward-looking statements represent only the Company's beliefs regarding future events (many of which, by their nature, are inherently uncertain and beyond our control) and are predictions only, based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by the forward-looking statements. In particular, you should consider the risks outlined under Item 1A—"Risk Factors" in this Annual Report. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update any of these forward-looking statements after the date of this filing to conform our prior statements to actual results or revised expectations. ii When we use the terms "we," "us," "Cowen" and the "Company," we mean Cowen Inc., a Delaware corporation, its consolidated subsidiaries and entities in which it has a controlling financial interest, taken as a whole, as well as any predecessor entities, unless the context otherwise indicates. PART I Item 1. Business Overview Cowen Inc. (formerly Cowen Group, Inc.), a Delaware corporation formed in 2009, is a diversified financial services firm and, together with its consolidated subsidiaries (collectively, "Cowen" or the "Company"), provides investment management, investment banking, research, sales and trading, prime brokerage, global clearing and commission management services through its two business segments: investment management and broker-dealer. The investment management segment includes private funds, managed accounts, commodity pools, real estate funds, private equity structures, registered investment companies and listed vehicles and also manages a significant portion of the Company’s proprietary capital. The broker-dealer segment offers industry focused investment banking for growth-oriented companies including advisory and global capital markets origination and domain knowledge-driven research, sales and trading platform for institutional investors, global clearing and commission management services and also a comprehensive suite of prime brokerage services. The Company's investment management platform, which operates primarily under the Cowen Investment Management name (formerly "Ramius"), offers innovative investment products and solutions across the liquidity spectrum to institutional and private clients. The predecessor to this business was founded in 1994 and, through one of its subsidiaries, has been registered with the United States Securities and Exchange Commission (the “SEC”) as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act") since 1997. The Company's investment management business offers investors access to a number of strategies to meet their specific needs including long/short equity, merger arbitrage, activism, health care royalties, private healthcare and private real estate. The Company's investment management business focuses on attracting and retaining talented in-house and affiliated investment teams and providing seed capital and working capital, an institutional infrastructure, robust sales and marketing and industry knowledge. A significant portion of the Company’s capital is invested alongside the Company's investment management clients. The Company has also invested some of its capital in its aviation and reinsurance businesses. Our investment management business had approximately $11.0 billion of assets under management as of January 1, 2018. See the section titled "Assets Under Management and Fund Performance" for further analysis. Our broker-dealer businesses include investment banking, research, sales and trading, prime brokerage, global clearing and commission management services to companies and primarily institutional investor clients. Our primary target sectors ("Target Sectors") are healthcare, technology, media and telecommunications, information and technology services, consumer, aerospace and defense, industrials, energy and transportation. We provide research and brokerage services to over 4,000 domestic and international clients seeking to trade securities and other financial instruments, principally in our target sectors. The broker-dealer segment also offers a full-service suite of introduced prime brokerage services targeting emerging private fund managers. Historically, we have focused our investment banking efforts on small to mid-capitalization public companies as well as private companies. From time to time, the Company invests in private capital raising transactions of its investment banking clients. On December 5, 2016, the Company effected a one-for-four reverse stock split of our common stock. Except where the context indicates otherwise, all share and per share information has been retroactively adjusted to reflect the reverse stock split. Principal Business Lines Investment Management Products and Services Investment Management Strategies The Company's investment management strategies are focused on addressing the needs of institutional investors and high net worth individuals to preserve and grow allocated capital. The Company and its affiliated investment advisors offer a variety of investment management products that provide access to a number of strategies, including merger arbitrage, long/short equity, activism and private healthcare. The Company and one of its affiliated investment advisors also manage certain multi-strategy private funds that are currently in wind-down. The majority of assets remaining in these private funds include investments in private companies, real estate investments and special situations. Real Estate Our real estate business focuses on generating attractive, risk adjusted returns by creating and offering to investors vehicles that invest in real estate using an owner/manager approach. We underwrite securities issued by and provide advice and 1 financing in connection with redevelopment of all real estate property types and have done so since 1999. This approach emphasizes a focus on real estate fundamentals and potential market inefficiencies. The RCG Longview platform of real estate funds provides senior bridge loans, subordinated mortgages, mezzanine loans, and preferred equity through its debt fund series, and makes equity investments through its equity funds. As of December 31, 2017, the members of the general partners of the RCG Longview platform of funds and their affiliates, independent of the RCG Longview funds, collectively owned interests in and/or managed over 21,000 apartments and approximately 21 million square feet of commercial space for their own accounts. The Company's ownership interests in the various general partners of the RCG Longview funds range from 20% to 55%. HealthCare Royalty Partners The Company’s healthcare royalties business primarily purchases royalties and uses debt-like structures to invest in commercial or near-commercial stage life science assets (through the funds managed by HealthCare Royalty Partners). We share the net management fees from the HealthCare Royalty Partners funds equally with the founders of HealthCare Royalty Partners. In addition, we have interests in the general partners of the HealthCare Royalty Partners funds ranging from 25% to 40.2%. Broker-Dealer Business Investment Banking Our investment banking professionals are focused on providing strategic advisory and capital raising services to United States ("U.S.") and international public and private companies in our Target Sectors. By focusing on our Target Sectors over a long period of time, we have developed a significant understanding of the unique challenges and demands with respect to public and private capital raising and strategic advice in these sectors. Our advisory and capital raising capabilities begin at the early stages of a private company's accelerated growth phase and continue through its evolution as a public company. Our advisory business focuses on mergers and acquisitions, including providing fairness opinions and providing advice on other strategic transactions. Our capital markets capabilities include equity, including private investments in public equity and registered direct offerings, credit and fixed income, including public and private debt placements, exchange offers, consent solicitations and tender offers, as well as origination and distribution capabilities for convertible securities. We have a unified capital markets group which we believe allows us to be effective in providing cohesive solutions for our clients. Historically, a significant majority of our investment banking revenue has been earned from high-growth small and mid-capitalization companies. The Company, from time to time, may invest in private capital raising transactions of its clients. Brokerage Our team of brokerage professionals serves institutional investor clients in the U.S. and internationally. We trade common stocks, listed options, equity-linked securities and other financial instruments on behalf of our clients and offer a full-service suite of introduced prime brokerage services targeting emerging private fund managers. We provide our clients with an electronic execution suite. We provide global, multi-asset class algorithmic execution trading models to both buy side and sell side clients and also offer execution capabilities relating to these trading models through ATM Execution LLC ("ATM Execution"). We also provide our clients with commentary on political, economic and market conditions. We have relationships with over 4,000 institutional investor clients. Our brokerage team is comprised of experienced professionals dedicated to our Target Sectors, which allows us to develop a level of knowledge and focus that we believe differentiates our brokerage capabilities from those of many of our competitors. We tailor our account coverage to the unique needs of our clients. We believe that our sector traders are able to provide superior execution because of their knowledge of the interests of our institutional investor clients in specific companies in our Target Sectors. In connection with the brokerage services we provide, our sales professionals also provide our institutional investor clients with access to the management of our investment banking clients outside the context of financing transactions. These meetings are commonly referred to as non-deal road shows. Non-deal road shows allow our investment banking clients to increase their visibility within the institutional investor community while providing our institutional investor clients with the opportunity to further educate themselves on companies and industries through meetings with management. We believe our deep relationships with company management teams and our sector-focused approach provide us with broad access to management for the benefit of our institutional investor and investment banking clients. Research As of December 31, 2017, we had a research team of 49 senior analysts covering approximately 931 companies. Within our equity coverage universe, approximately 30% are healthcare companies, 23% are TMT (technology, media and telecom) companies, 16% are energy companies, 13% are capital goods and industrial companies, 4% are basic materials companies and 14% are consumer companies. Our differentiated approach to research focuses our analysts' efforts toward delivering specific investment ideas and de-emphasizes maintenance research. We place significant emphasis on analyst collaboration, both within and between sectors. We sponsor a number of conferences every year that are focused on our Target 2 Sectors and sub-sectors. During these conferences we highlight our investment research and provide significant investor access to corporate management teams. We provide research solely through our broker-dealers in connection with our provision of brokerage services. Information About Geographic Areas We are principally engaged in providing investment management services to global institutional investors and investment banking sales and trading and research services to corporations and institutional investor clients primarily in the United States. We provide brokerage services to companies and institutional investor clients in Europe through our broker-dealers located in the United Kingdom ("U.K.") Cowen International Limited ("Cowen International Ltd") and Convergex Limited (subsequently renamed to Cowen Execution Services Limited) (“Cowen Execution Ltd”). Employees As of March 5, 2018, the Company had 1,124 employees. Competition We compete with many other firms in all aspects of our business, including raising funds, seeking investment opportunities and hiring and retaining professionals, and we expect our business will continue to be highly competitive. The investment management and broker-dealer industries are currently undergoing contraction and consolidation, reducing the number of industry participants and generally resulting in the larger firms being better positioned to retain and gain market share. We compete in the United States and globally for investment opportunities, investor capital, client relationships, reputation and talent. We face competitors that are larger than we are and have greater financial, technical and marketing resources. Certain of these competitors continue to raise additional amounts of capital to pursue investment 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 networks of business relationships. Our competitive position depends on our reputation, our investment performance and processes, the breadth of our business platform and our ability to continue to attract and retain qualified employees while managing compensation and other costs. For additional information regarding the competitive risks that we face, see "Item 1A Risk Factors-Risks Related to the Company's Investment Management Business" and "Risk Factors-Risks Related to the Company's Broker-Dealer Business." Regulation and Compliance Our businesses, as well as the financial services industry generally, are subject to extensive regulation, including periodic examinations by governmental and self-regulatory organizations, in the United States and the jurisdictions in which we operate around the world. As a publicly traded company in the United States, we are subject to the U.S. federal securities laws and regulation by the SEC. Through our investment management and broker-dealer businesses we are subject to regulation by the SEC, the U.S. Commodity Futures Trading Commission (the "CFTC"), the Financial Industry Regulatory Authority, Inc. (“FINRA”) the National Futures Association (“NFA”), other self-regulatory organizations related to the financial services industry and the fifty state securities commissions in the U.S. and by the U.K. Financial Conduct Authority (“FCA”). Virtually all aspects of our business are subject to various laws and regulations both inside and outside the United States, some of which are summarized below. Regulatory bodies in the United States and the rest of the world are charged with safeguarding the integrity of the securities and other financial markets and with protecting the interests of customers participating in those markets. Governmental authorities in the United States and in the other countries in which we operate from time to time propose additional disclosure requirements and regulations covering our investment management funds, our broker-dealers and our asset management business. The rules governing the regulation of the various aspects of our business are very detailed and technical. Accordingly, the discussion below is general in nature, does not purport to be complete and is current only as of the date of this report. Rigorous legal and compliance analysis of our businesses and investments is important to our culture and risk management. We conduct regular training of our personnel to ensure that they are familiar with the laws and regulations governing our business and applicable to our clients as well as with our company's policies and procedures. In addition, we have adopted and implemented disclosure controls and procedures and internal controls over financial reporting, which have been documented, tested and assessed for design and operating effectiveness in compliance with the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act"). We strive to maintain a culture of compliance through the use of policies and procedures such as oversight compliance, codes of conduct, compliance systems, communication of compliance guidance, conduct of annual compliance reviews and on-going employee education and training. Our corporate risk management function further analyzes our business, investment and other key risks, reinforcing their importance in our environment. We have a compliance group that monitors our compliance with all of the regulatory requirements to which we are subject and manages our compliance policies 3 and procedures. Our General Counsel supervises our compliance group, which is responsible for addressing all regulatory and compliance matters that affect our activities. Our compliance policies and procedures address a variety of regulatory and compliance risks such as the handling of material non-public information, position reporting, personal securities trading, valuation of investments on a fund-specific basis, document retention, potential conflicts of interest and the allocation of investment opportunities. Our compliance group also monitors the information barriers that we maintain between those of our different businesses that we are required to conduct separately or which present conflicts of interest, which we address through the use of information barriers. We believe that our various businesses' access to the intellectual capital, contacts and relationships that reside throughout our company's benefits all of our businesses. However, in order to maximize that access without compromising our legal and contractual obligations, our compliance group oversees and monitors the communications between or among our company's different businesses to ensure that we maintain material non-public information, client information and other confidential information in strict confidence. All parts of our business, including our brokerage and our investment management businesses, from time to time are subject to regulatory exams, investigations and proceedings, and our broker-dealers have received fines and penalties for infractions of various regulations relating to our activities. For additional information regarding the regulatory and compliance risks that we face, see "Item 1A Risk Factors-Risks Related to the Company's Investment Management Business" and "Risk Factors-Risks Related to the Company's Broker-Dealer Business." Investment Management Business The investment advisers responsible for the Company's investment management business are all registered as investment advisers with the SEC or rely upon the registration of an affiliated adviser. In addition, two of our investment advisers are also registered as Commodity Pool Operators (“CPOs”) and therefore are also subject to regulation by the NFA and the CFTC in respect to the futures and commodity-related fund business conducted by it. Registered investment advisers are subject to the requirements of the Advisers Act and the regulations promulgated thereunder. Such requirements relate to, among other things, fiduciary duties to clients, maintaining an effective compliance program, operational and marketing requirements, disclosure obligations, conflicts of interest, fees and prohibitions on fraudulent activities. The NFA and the CFTC each also administer a comparable regulatory system covering futures contracts and various other financial instruments that provide exposure to commodities, including swaps in which certain investment management products operated by the Company or its investment advisory affiliates or subsidiaries may invest. The investment activities of our investment management business are also subject to regulation under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act of 1933, as amended (the "Securities Act"), the Investment Company Act of 1940, as amended ("the Investment Company Act") and various other statutes as well as the laws of the fifty states and the rules of various United States and non-United States securities exchanges related and self-regulatory organizations, including laws governing trading on inside information, market manipulation and a broad number of technical requirements (e.g., options and futures position limits, execution requirements and reporting obligations) and market regulation policies in the United States and globally. Congress, regulators, tax authorities and others continue to explore and implement regulations governing all aspects of the financial services industry. Most of our registered investment advisers are required to report certain information about a number of their investment management funds to the SEC and the two advisers registered as CPOs are also required to report certain information about a number of their commodity pools to the CFTC, pursuant to systemic risk reporting requirements adopted by both agencies. In addition, certain of our investment advisers act as a “fiduciaries” under the Employee Retirement Income Security Act of 1974 (“ERISA”) and similar state laws with respect to private and public benefit plan clients. As such, the advisers, and certain of the investment management funds they advise, may be subject to ERISA and similar state law requirements and to regulations promulgated thereunder. ERISA, similar state laws and applicable provisions of the Internal Revenue Code of 1986 (the “IRC”), which regulate services provided to individual retirement accounts, impose duties on persons who are fiduciaries and other types of service providers to benefit plans and individual retirement accounts under ERISA, such state laws and the IRC, prohibit specified transactions involving IRA and benefit plan clients subject to ERISA or similar state laws (absent the availability of specified exemptions) and provide monetary penalties for violations of these prohibitions. In 2016, the U.S. Department of Labor (the “DOL) adopted amendments to the definition of “fiduciary” under the ERISA, which became applicable in June 2017, but is subject to delays in enforcement of certain of the provisions, including with respect to the applicability date for certain exemptions that were published by the DOL in connection with the amendments to the fiduciary rule. The fiduciary rule impacts certain aspects of the Company’s business, including sales of interest in private funds to IRAs and structuring of financial services to ERISA plans and IRAs. The Company has restructured its documentation and aspects of its business to comply with the fiduciary rule and to ensure that the Company does not become an unintended fiduciary. Enacted on July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") was expansive in scope and led to the adoption of extensive regulations by the CFTC, the prudential regulators, the SEC and other governmental agencies. The current administration has suggested that it will seek to roll back some of this regulation, although it is not possible to predict whether changes will be made. Since its adoption, the Dodd-Frank Act has had an impact on the 4 costs associated with derivatives trading by the Company and its clients, including as a result of requirements that transactions be margined, trade reported and, in some cases, centrally cleared. The Dodd-Frank Act established the Financial Services Oversight Council (the "FSOC") to identify threats to the financial stability of the United States, promote market discipline, and respond to emerging risks to the stability of the United States financial system. The FSOC is empowered to determine whether the material financial distress or failure of a non-bank financial company would threaten the stability of the United States financial system, and such a determination can subject a non-banking finance company to supervision by the Board of Governors of the Federal Reserve and the imposition of standards and supervision including stress tests, liquidity requirements and enhanced public disclosures including the authority to require the supervision and regulation of systemically significant non-bank financial companies. We do not believe we are at risk of being considered a systemically significant non-bank financial company. The regulation of swaps and derivatives under the Dodd-Frank Act directly affects the manner by which our investment management business utilizes and trades swaps and other derivatives, and has generally increased the costs of derivatives trading conducted on behalf of our clients. The European Union ("E.U.") (and some other countries) are now in the process of implementing similar requirements that will affect derivatives transactions with a counterparty organized in that country or otherwise subject to that country’s derivatives regulation. The mandatory minimum margin requirements for bilateral derivatives adopted by the U.S. government and the E.U. came into effect in March 2017 in respect to variation margin and will be transitioned in through 2020 in respect to initial margin. Required margining of derivatives has affected our investment management business as these requirements generally increase costs associated with derivatives transactions and makes derivatives transactions more expensive. Given our investment and insurance activities are carried out around the globe, we are subject to a variety of regulatory regimes that vary country by country. Our captive insurance and reinsurance companies are regulated by both the New York State Department of Finance and the Luxembourg Commissariat aux Assurances, respectively. E.U. financial reforms included a number of initiatives to be reflected in new or updated directives and regulations, the most significant of which is the amendment to the pan-European regulatory regime, the Markets in Financial Instruments Directive (“MiFID II”), which went into effect in January 2018. MiFID II regulates the provision of investment services and activities throughout the European Economic Area. MiFID II requires that investment managers and investment advisers located in the E.U. “unbundle” research costs from commissions. As a result, investment firms subject to MiFID II may no longer pay for research using client commissions or “soft dollars.” Going forward, such costs must be paid directly by the investment firm or through a research payment account funded by clients and governed by a budget that is agreed by the client. In the U.S., our investment management business expects to continue to pay for research using soft dollars consistent with applicable law. The change in regulations has also impacted the provisions of research by our U.S. broker-dealers. Because the acceptance of hard dollar payments would, under U.S. law, require registration as an investment adviser, our broker-dealers are requiring clients to continue to pay for research on a soft dollar basis unless the client is subject to MiFID II and we can rely on SEC relief so as not to have to register as an investment adviser. Our businesses have operated for many years within a legal framework that requires us to be able to monitor and comply with a broad range of legal and regulatory developments that affect our activities both in the United States and abroad. As noted above, certain of our businesses are subject to compliance with laws and regulations of United States federal and state governments, foreign governments, their respective agencies and/or various self-regulatory organizations or exchanges relating to 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 the SEC, the CFTC, our other regulators and self- regulatory organizations or changes in the interpretation or enforcement of existing laws and rules, either in the United States or elsewhere, may directly affect the mode of our operation and profitability. The United States and non-United States government agencies and self-regulatory organizations, as well as state securities commissions in the United States, are empowered to conduct administrative proceedings that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion or deregulation of a broker-dealer, an investment advisor or its directors, officers or employees. Broker-Dealer Business Cowen and Company, LLC ("Cowen and Company") is a registered broker-dealer with the SEC and in all 50 states, the District of Columbia and Puerto Rico and is a member in good standing with FINRA. Self-regulatory organizations, including FINRA, adopt and enforce rules governing the conduct and activities of its member firms, including Cowen and Company, ATM Execution, and Cowen Prime Services LLC ("Cowen Prime"), Convergex Execution Solutions LLC (subsequently renamed to Cowen Execution Services LLC) ("Cowen Execution") and Westminster Research Associates LLC (“Westminster”). In addition, state securities regulators have regulatory or oversight authority over our broker-dealer entities. Accordingly, Cowen and Company, ATM Execution, Cowen Prime, Cowen Execution and Westminster are subject to regulation and oversight by the SEC and FINRA and Cowen Prime, Cowen Execution and Westminster are also registered with and subject to oversight by the NFA. The Company's U.S. broker-dealers are also members of, and subject to regulation by various exchanges, 5 based on their lines of business. Additionally, Cowen International Ltd and Cowen Execution Ltd are primarily regulated by the U.K. FCA. Broker-dealers are subject to regulations that cover all aspects of the securities business, including sales methods, trade practices among broker-dealers, use and safekeeping of customers' funds, conflicts of interest, securities and information, capital structure, research/banking interaction, record-keeping, the financing of customers' purchases and the conduct and qualifications of directors, officers and employees. In particular, as registered broker-dealers and members of various self- regulatory organizations, Cowen and Company, ATM Execution, Cowen Prime, Cowen Execution and Westminster are subject to the SEC's uniform net capital rule. Rule 15c3-1 specifies the minimum level of net capital a broker-dealer must maintain and also requires that a significant part of a broker-dealer's assets be kept in relatively liquid form. The SEC and various self- regulatory organizations impose rules that require notification when net capital falls below certain predefined criteria, limit the ratio of subordinated 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. Additionally, the SEC's uniform net capital rule requires us to give prior notice to the SEC for certain withdrawals of capital. As a result, our ability to withdraw capital from our broker-dealer subsidiaries may be limited. The effort to combat money laundering and terrorist financing is a priority in governmental policy with respect to financial institutions. The Bank Secrecy Act ("BSA"), as amended by Title III of the USA PATRIOT Act of 2001 and its implementing regulations ("Patriot Act"), requires broker-dealers and other financial services companies to maintain an anti- money laundering compliance program that includes written policies and procedures, designated compliance officer(s), appropriate training, independent review of the program, standards for verifying client identity at account opening and obligations to report suspicious activities and certain other financial transactions. Through these and other provisions, the BSA and Patriot Act seek to promote the identification of parties that may be involved in financing terrorism or money laundering. We must also comply with sanctions programs administered by the U.S. Department of Treasury's Office of Foreign Asset Control, which may include prohibitions on transactions with designated individuals and entities and with individuals and entities from certain countries. Anti-money laundering laws outside the United States contain similar diligence and verification provisions. The obligation of financial institutions, including ours, to identify their customers, watch for and report suspicious transactions, respond to requests for information by regulatory authorities and law enforcement agencies, and share information with other financial institutions, has required the implementation and maintenance of internal practices, procedures and controls that have increased, and may continue to increase, our costs. Any failure with respect to our programs in this area could subject us to serious regulatory consequences, including substantial fines, and potentially other liabilities. Available Information We routinely file annual, quarterly and current reports, proxy statements and other information required by the Exchange Act with the SEC. You may read and copy any document we file with the SEC at the SEC's public reference room located at 100 F Street, N.E., Washington, D.C. 20549, U.S.A. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings also are available to the public from the SEC's internet site at http://www.sec.gov. We maintain a public internet site at http://www.cowen.com and make available free of charge through this site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and Forms 3, 4 and 5 filed on behalf of directors and executive officers, as well as any amendments to those reports filed or furnished pursuant to the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We also post on our website the charters for our Board of Directors' Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, as well as our Corporate Governance Guidelines, our Code of Business Conduct and Ethics governing our directors, officers and employees and other related materials. The information on our website is not incorporated by reference into this Annual Report. Item 1A. Risk Factors Risks Related to the Company's Businesses and Industry For purposes of the following risk factors, references made to the Company's funds include the various investment management products advised by the Company’s investment management business, the investment management products through which the Company invests its own capital, and real estate funds. References to the Company's broker-dealer business include Cowen and Company, ATM Execution, Cowen Execution, Westminster and Cowen Prime. The Company The Company's investment management and broker-dealer businesses have incurred losses in prior periods and may incur losses in the future. 6 While the Company's broker-dealer business was profitable on an economic income basis for the year ended December 31, 2017, the Company's investment management business incurred a loss. In addition, the Company's broker-dealer business and investment management business have incurred losses in prior periods. For example, the Company's broker-dealer business incurred losses in each of the years ended December 31, 2016, 2013 and 2012. In addition, the Company's investment management business incurred losses in each of the years ended December 31, 2016, 2009 and 2008. The Company may incur losses in any of its future periods. Future losses may have a significant effect on the Company's liquidity as well as our ability to operate. In addition, we may incur significant expenses in connection with any expansion, strategic acquisition or investment with respect to our businesses. Specifically, we have invested, and will continue to invest, in our broker-dealer business, including hiring a number of senior professionals to expand our research, investment banking and sales and trading product offerings. Accordingly, the Company will need to increase its revenues at a rate greater than its expenses to achieve and maintain profitability. If the Company's revenues do not increase sufficiently, or even if its revenues increase but it is unable to manage its expenses, the Company will not achieve and maintain profitability in future periods. As an alternative to increasing its revenues, the Company may seek additional capital through the sale of additional common stock or other forms of debt or equity financing. The Company cannot be certain that it would have access to such financing on acceptable terms. The Company depends on its key senior personnel and the loss of their services would have a material adverse effect on the Company's businesses and results of operations, financial condition and prospects. The Company depends on the efforts, skill, reputations and business contacts of its principals and other key senior personnel, the information and investment activity these individuals generate during the normal course of their activities and the synergies among the diverse fields of expertise and knowledge held by the Company's senior professionals. Accordingly, the Company's continued success will depend on the continued service of these individuals. Key senior personnel may leave the Company in the future, and we cannot predict the impact that the departure of any key senior personnel will have on our ability to achieve our investment and business objectives. The loss of the services of any of them could have a material adverse effect on the Company's revenues, net income and cash flows and could harm our ability to maintain or grow assets under management in existing funds or raise additional funds in the future. Our senior and other key personnel possess substantial experience and expertise and have strong business relationships with investors in its funds, clients and other members of the business community. As a result, the loss of such personnel could have a material adverse effect on the Company's businesses and results of operations, financial condition and prospects. The Company's ability to retain its senior professionals is critical to the success of its businesses, and its failure to do so may materially affect the Company's reputation, business and results of operations. Our people are our most valuable resource. Our success depends upon the reputation, judgment, business generation capabilities and project execution skills of our senior professionals. Our employees' reputations and relationships with our clients are critical elements in obtaining and executing client engagements. The Company may encounter intense competition for qualified employees from other companies inside and outside of their industries. From time to time, the Company has experienced departures of professionals. Losses of key personnel have occurred and may occur in the future. In addition, if any of our client-facing employees or executive officers were to join an existing competitor or form a competing company, some of our clients could choose to use the services of that competitor instead of the services of the Company. The success of our businesses is based largely on the quality of our employees and we must continually monitor the market for their services and seek to offer competitive compensation. In challenging market conditions, which occurred in recent years, it may be difficult to pay competitive compensation without the ratio of our compensation and benefits expense to revenues becoming higher. In addition, a portion of the compensation of many of our employees takes the form of restricted stock or deferred cash that vest over a period of years, which is not as attractive to existing and potential employees as compensation consisting solely of cash or a lesser percentage of stock or other deferred compensation that may be offered by our competitors. Difficult market conditions, market disruptions and volatility have adversely affected, and may in the future adversely affect, the Company's businesses, results of operations and financial condition. The Company's businesses, by their nature, do not produce predictable earnings, and all of the Company's businesses may be materially affected by conditions in the global financial markets and by global economic conditions, such as interest rates, the availability of credit, inflation rates, economic uncertainty, changes in laws, commodity prices, asset prices (including real estate), currency exchange rates and controls and national and international political circumstances (including wars, terrorist acts, protests or security operations). Challenging market conditions could affect the level and volatility of securities prices and the liquidity and the value of investments in the Company's funds or other investments in which the Company has investments of its own capital, and the Company may not be able to effectively manage its investment management business's exposure to 7 challenging market conditions. Challenging market conditions can also adversely affect the Company's broker-dealer business as increased volatility and lower stock prices can make companies less likely to conduct transactions. Volatility in the value of the Company's investments and securities portfolios or other assets and liabilities, including funds, or negative returns from the investments made by the Company could adversely affect the Company's results of operations and statement of financial condition. The Company invests a significant portion of its capital base to help drive results and facilitate growth of its investment management and broker-dealer businesses. As of December 31, 2017, the Company's invested capital amounted to a net value $695.3 million (supporting a long market value of $1,063.8 million), representing approximately 93% of Cowen's stockholders' equity presented in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). In accordance with US GAAP, we define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. US GAAP also establishes a framework for measuring fair value and a valuation hierarchy based upon the transparency of inputs used in the valuation of an asset or liability. Changes in fair value are reflected in the statement of operations at each measurement period. Therefore, continued volatility in the value of the Company's investments and securities portfolios or other assets and liabilities, including funds, will result in volatility of the Company's results. In addition, the investments made by the Company may not generate positive returns. As a result, changes in value or negative returns from investments made by the Company may have an adverse effect on the Company's financial condition or operations in the future. If the Company were deemed an investment company under the U.S. Investment Company Act, applicable restrictions could make it impractical for the Company to continue its respective businesses as contemplated and could have a material adverse effect on the Company's businesses and prospects. We are primarily engaged in a non-investment company business and believe the nature of our assets and the sources of our income exclude us from the definition of an investment company under the Investment Company Act. The Investment Company Act and the rules thereunder contain detailed requirements for the organization and operation of investment companies. Among other things, the Investment Company Act and the rules thereunder limit transactions with affiliates, impose limitations on the issuance of debt and equity securities, generally prohibit the issuance of options and impose certain governance requirements. The Company intends to conduct its operations so that the Company will not be deemed to be an investment company under the Investment Company Act. If anything were to happen which would cause the Company to be deemed to be an investment company under the Investment Company Act, requirements imposed by the Investment Company Act, including limitations on its capital structure, ability to transact business with affiliates (including subsidiaries) and ability to compensate key employees, could make it impractical for the Company to continue its business as currently conducted, impair the agreements and arrangements between and among it, its subsidiaries and its senior personnel, or any combination thereof, and materially adversely affect its business, financial condition and results of operations. Accordingly, the Company may be required to limit the amount of investments that it makes as a principal or otherwise conduct its business in a manner that does not subject the Company to the registration and other requirements of the Investment Company Act. Limitations on access to capital by the Company and its subsidiaries could impair its liquidity and its ability to conduct its businesses. Liquidity, or ready access to funds, is essential to the operations of financial services firms. Failures of financial institutions have often been attributable in large part to insufficient liquidity. Liquidity is of particular importance to Cowen and Company's trading business and Cowen Execution's clearing business and perceived liquidity issues may affect the willingness of the Company's broker-dealer clients and counterparties to engage in brokerage transactions with Cowen and Company and Cowen Execution. Cowen and Company's and Cowen Execution's liquidity could be impaired due to circumstances that the Company may be unable to control, such as a general market disruption or an operational problem that affects Cowen and Company and Cowen Execution, its trading clients or third parties. Furthermore, the Company's ability to sell assets may be impaired if other market participants are seeking to sell similar assets at the same time. The Company primarily depends on its subsidiaries to fund its operations. Cowen and Company, ATM Execution, Cowen Prime, Cowen Execution, and Westminster are subject to the net capital requirements of the SEC and various self-regulatory organizations of which they are members. These requirements typically specify the minimum level of net capital a broker- dealer must maintain and also mandate that a significant part of its assets be kept in relatively liquid form. Cowen International Ltd, Ramius UK Ltd. ("Ramius UK"), Cowen Execution and the Company's U.K. registered broker-dealer subsidiaries, are subject to the capital requirements of the U.K. FCA. Any failure to comply with these capital requirements could impair the Company's ability to conduct its broker-dealer business. 8 The Company's investment management and broker-dealer businesses' subsidiaries may become subject to additional regulations which could increase the costs and burdens of compliance or impose additional restrictions which could have a material adverse effect on the Company's businesses and the performance of the Company's funds. Market disruptions like those experienced in 2008 have led to an increase in governmental as well as regulatory scrutiny from a variety of regulators, including the SEC, CFTC, FINRA, NFA, U.S. Treasury, the NYSE and state attorneys general. Penalties and fines sought by regulatory authorities have increased substantially over the last several years. In light of current conditions in the global financial markets and the global economy, regulators have increased their focus on the regulation of the financial services industry. The Company may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations. The Company also may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other U.S. or foreign governmental regulatory authorities or self-regulatory organizations that supervise the financial markets. The Company could be fined, prohibited from engaging in some of its business activities or subjected to limitations or conditions on its business activities. In addition, the Company could incur significant expense associated with compliance with any such legislation or regulations or the regulatory and enforcement environment generally. Substantial legal liability or significant regulatory action against the Company could have a material adverse effect on the financial condition and results of operations of the Company or cause significant reputational harm to the Company, which could seriously affect its business prospects. The activities of certain of the Company's subsidiaries and affiliates are regulated primarily within the U.S. by the SEC, FINRA, the NFA, the CFTC and other self-regulatory organizations, as well as various state agencies, and are also subject to regulation by other agencies in the various jurisdictions in which they operate and are offered, including the FCA and the European Securities and Markets Authority. Certain legislation proposing greater regulation of the industry is regularly considered by the U.S. Congress - as well as by the governing bodies of non-U.S. jurisdictions - and from time to time adopted as in the case of the Dodd-Frank Act in the U.S. and MiFID II in the E.U. The investment advisers responsible for the Company's investment management business are all registered as investment advisers with the SEC or rely upon the registration of an affiliated adviser. In addition, two of our investment advisers are also registered as CPOs and therefore subject to CFTC and NFA regulations. Certain investment advisors and/or the investment management products they advise are also subject to regulation by various regulatory authorities outside the U.S., including the U.K. FCA, the Swedish FCA and the European Securities and Markets Authority and may indirectly be subject to MiFID II regulations. Moreover, recent rulemaking by the SEC and certain non-U.S. regulatory bodies have imposed trading restrictions and reporting requirements on short selling, which have impacted certain of the investment strategies implemented on behalf of the Company's Funds, and continued restrictions on or further regulations of short sales could also negatively impact their performance. These and other regulators in these jurisdictions have broad regulatory powers dealing with all aspects of financial services including, among other things, the authority to make inquiries of companies regarding compliance with applicable regulations, to grant permits and to regulate marketing and sales practices and the maintenance of adequate financial resources as well as significant reporting obligations to regulatory authorities. Under the E.U. Alternative Investment Fund Managers Directive, the Company will only be permitted to actively market its funds in the E.U. if certain disclosure and reporting obligations are met, and certain cooperation arrangements with the domicile of the investment vehicle are in place. As such, the Company may need to modify its strategies or operations, face increased constraints on its investment management business or incur additional costs in order to satisfy new regulatory requirements or to compete in a changed business environment. It is difficult to predict the impact of such legislative initiatives on the Company and the markets in which it operates and/or invests. It is difficult to predict what other changes may be instituted in the future in the regulation of the Company or the markets in which they invest, or the counterparties with which it does business, in addition to those changes already proposed or adopted in the U.S. or other countries. Any such regulation could have a material adverse effect on the profit potential of the Company’s operations. Finally, financial services firms are subject to numerous perceived or actual conflicts of interest, which have drawn and which we expect will continue to draw scrutiny from the SEC and other federal and state regulators. For example, the research areas of investment banks have been and remain the subject of heightened regulatory scrutiny, which has led to increased restrictions on the interaction between equity research analysts and investment banking personnel at securities firms. Regulations have also been focusing on potential conflicts of interest or issues relating to impermissible disclosure of material nonpublic information. Appropriately dealing with conflicts of interest is complex and difficult, and our reputation could be damaged if it fails to do so. Such policies and procedures to address or limit actual or perceived conflicts may also result in increased costs, additional operational personnel and increased regulatory risk. Failure to adhere to these policies and procedures may result in regulatory sanctions or client litigation. 9 The Company is subject to third party litigation risk and regulatory risk which could result in significant liabilities and reputational harm which, in turn, could materially adversely affect its business, results of operations and financial condition. The Company depends to a large extent on its reputation for integrity and high-caliber professional services to attract and retain clients. As a result, if a client is not satisfied with the Company's services, it may be more damaging in its business than in other businesses. Moreover, the Company's role as advisor to clients on underwriting or merger and acquisition transactions involves complex analysis and the exercise of professional judgment, including rendering "fairness opinions" in connection with mergers and other transactions. Such activities may subject the Company to the risk of significant legal liabilities, not covered by insurance, to clients and aggrieved third parties, including stockholders of clients who could commence litigation against the Company. Although the Company's investment banking engagements typically include broad indemnities from its clients and provisions to limit exposure to legal claims relating to such services, these provisions may not protect the Company, may not be enforceable, or may be with foreign companies requiring enforcement in foreign jurisdictions which may raise the costs and decrease the likelihood of enforcement. As a result, the Company may incur significant legal and other expenses in defending against litigation and may be required to pay substantial damages for settlements and/or adverse judgments. In addition, in some instances Cowen Prime serves as a registered investment advisor providing advice to retail investors and retaining discretion over some retail investment accounts. The Company could be exposed to potential litigation and liability if any of these clients are not satisfied with the investment advisory services being provided. Substantial legal liability or significant regulatory action against the Company could have a material adverse effect on our results of operations or cause significant reputational harm, which could seriously harm our business and prospects. In general, the Company is exposed to risk of litigation by investors in its investment management business if the management of any of its funds is alleged to have been grossly negligent or fraudulent. Investors or beneficial owners of the Company’s funds could sue to recover amounts lost due to any alleged misconduct, up to the entire amount of the loss. In addition, the Company faces the risk of litigation from investors and beneficial owners of any of its funds if applicable restrictions are violated. In addition, the Company is exposed to risks of litigation or investigation relating to transactions that presented conflicts of interest that were not properly addressed. In the majority of such actions the Company would be obligated to bear legal, settlement and other costs, which may be in excess of any available insurance coverage. In addition, although the Company is contractually entitled to indemnification from its funds, our rights to indemnification may be challenged. If the Company is required to incur all or a portion of the costs arising out of litigation or investigations as a result of inadequate insurance proceeds, if any, or is not wholly indemnified, our business, results of operations and financial condition could be materially adversely affected. In its investment management business, the Company is exposed to the risk of litigation if a fund suffers catastrophic losses due to the failure of a particular investment strategy or due to the trading activity of an employee who has violated market rules or regulations. Any litigation arising in such circumstances is likely to be protracted, expensive and surrounded by circumstances which are materially damaging to the Company's reputation and businesses. The potential for conflicts of interest within the Company, and a failure to appropriately identify and deal with conflicts of interest could adversely affect our businesses. Due to the combination of our investment management and broker-dealer businesses, we face an increased potential for conflicts of interest, including situations where our services to a particular client or investor or our own interests in our investments conflict with the interests of another client. Such conflicts may also arise if our broker-dealer business has access to material non-public information that may not be shared with our investment management business or vice versa. Additionally, our regulators have the ability to scrutinize our activities for potential conflicts of interest, including through detailed examinations of specific transactions. Appropriately identifying and dealing with conflicts of interest is complex and difficult, and the willingness of clients to enter into transactions or engagements in which such a conflict might arise may be affected if we fail to identify and appropriately address potential conflicts of interest. In addition, potential or perceived conflicts could give rise to litigation or enforcement actions. Employee misconduct could harm the Company by, among other things, impairing the Company's ability to attract and retain investors and subjecting the Company to significant legal liability, reputational harm and the loss of revenue from its own invested capital. It is not always possible to detect and deter employee misconduct. The precautions that the Company takes to detect and prevent this activity may not be effective in all cases, and we may suffer significant reputational harm and financial loss for any misconduct by our employees. The potential harm to the Company's reputation and to our business caused by such misconduct is impossible to quantify. 10 There is a risk that the Company's employees or partners could engage in misconduct that materially adversely affects the Company's business, including a decrease in returns on its own invested capital. The Company is subject to a number of obligations and standards arising from its businesses. The violation of these obligations and standards by any of the Company's employees could materially adversely affect the Company and its investors. For instance, the Company's businesses require that the Company properly deal with confidential information. If the Company's employees were to improperly use or disclose confidential information, we could suffer serious harm to our reputation, financial position and current and future business relationships. If one of the Company's employees were to engage in misconduct or were to be accused of such misconduct, the business and reputation of the Company could be materially adversely affected. The Company may be unable to successfully identify, manage and execute future acquisitions, investments and strategic alliances, which could adversely affect our results of operations. We intend to continually evaluate potential acquisitions, investments and strategic alliances to expand our investment management and broker-dealer businesses. In the future, we may seek additional acquisitions, investments, strategic alliances or similar arrangements, which may expose us to risks such as: • • • • • • the difficulty of identifying appropriate acquisitions, investments, strategic allies or opportunities on terms acceptable to us; the possibility that senior management may be required to spend considerable time negotiating agreements and monitoring these arrangements; potential regulatory issues applicable to the financial services business; the loss or reduction in value of the capital investment; our inability to capitalize on the opportunities presented by these arrangements; and the possibility of insolvency of a strategic ally. Furthermore, any future acquisitions of businesses could entail a number of risks, including: • • • • • problems with the effective integration of operations; inability to maintain key pre-acquisition business relationships; increased operating costs; exposure to unanticipated liabilities; and difficulties in realizing projected efficiencies, synergies and cost savings. There can be no assurance that we would successfully overcome these risks or any other problems encountered with these acquisitions, investments, strategic alliances or similar arrangements. The Company's future results will suffer if the Company does not effectively manage its expanded operations. The Company may continue to expand its operations through new product and service offerings and through additional strategic investments, acquisitions or joint ventures, some of which may involve complex technical and operational challenges. The Company's future success depends, in part, upon its ability to manage its expansion opportunities, which pose numerous risks and uncertainties, including the need to integrate new operations into its existing business in an efficient and timely manner, to combine accounting and data processing systems and management controls and to integrate relationships with customers and business partners. In addition, future acquisitions or joint ventures may involve the issuance of additional shares of common stock of the Company, which may dilute the ownership of the Company's stockholders. The Company's failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on the Company's financial condition, results of operations and business and the price of our Class A common stock. The Sarbanes Oxley Act and the related rules require our management to conduct an annual assessment of the effectiveness of our internal control over financial reporting and require a report by our independent registered public accounting firm addressing our internal control over financial reporting. To comply with Section 404 of the Sarbanes Oxley Act, we are required to document formal policies, processes and practices related to financial reporting that are necessary to comply with Section 404. Such policies, processes and practices are important to ensure the identification of key financial reporting risks, assessment of their potential impact and linkage of those risks to specific areas and activities within our organization. If we fail for any reason to comply with the requirements of Section 404 in a timely manner, our independent registered public accounting firm may, at that time, issue an adverse report regarding the effectiveness of our internal control over financial reporting. Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor 11 confidence in us and the reliability of our financial statements. Any such event could adversely affect our financial condition, results of operations and business, and result in a decline in the price of our Class A common stock. Certain provisions of the Company's amended and restated certificate of incorporation and bylaws and Delaware law may have the effect of delaying or preventing an acquisition by a third party. The Company's amended and restated certificate of incorporation and bylaws contain several provisions that may make it more difficult for a third party to acquire control of the Company, even if such acquisition would be financially beneficial to the Company's stockholders. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in the Company's stockholders receiving a premium over the then-current trading price of our common stock. For example, the Company's amended and restated certificate of incorporation authorizes its board of directors to issue up to 10,000,000 shares of "blank check" preferred stock. Without stockholder approval, the board of directors has the authority to attach special rights, including voting and dividend rights, to this preferred stock. With these rights, preferred stockholders could make it more difficult for a third party to acquire the Company. In addition, the Company's amended and restated bylaws provide for an advance notice procedure with regard to the nomination of candidates for election as directors and with regard to business to be brought before a meeting of stockholders. The Company is also subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. Under these provisions, if anyone becomes an "interested stockholder," the Company may not enter into a "business combination" with that person for three years without special approval, which could discourage a third party from making a takeover offer and could delay or prevent a change of control. For the purposes of Section 203, "interested stockholder" means, generally, someone owning 15% or more of the Company's outstanding voting stock or an affiliate of the Company that owned 15% or more of our outstanding voting stock during the past three years, subject to certain exceptions as described in Section 203. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 has adversely affected, and may continue to adversely affect, the Company's business. Enacted on July 21, 2010, the Dodd-Frank Act was expansive in scope and led to the adoption of extensive regulations by the CFTC, the prudential regulators, the SEC and other governmental agencies. The current administration has suggested that it will seek to roll back some of this regulation, although it is not possible to predict whether changes will be made. Since its adoption, the Dodd-Frank Act has had an impact on the costs associated with derivatives trading by the Company and its clients, including as a result of requirements that transactions be margined, trade reported and, in some cases, centrally cleared. Heightened cyber-security risks may disrupt our businesses, result in losses or limit our growth. We may be subject to cyber-attacks on our critical data and we may not be able to anticipate or prevent all such attacks. We may not have the resources or technical sophistication to anticipate or prevent current or rapidly evolving types of cyber- attacks. Attacks may be targeted at us, our clients or our vendors. We may incur increasing costs in an effort to minimize these risks and could be held liable for any security breach or loss. While we have policies and procedures designed to prevent or limit the effect of the possible failure, interruption or security breach of our information and communication systems, there can be no assurance that any such failure, interruption or security breach will not occur or, if they do occur, that they will be adequately addressed. In addition, advances in computer capabilities, or other technological developments may result in the technology and security measures used by us to protect our systems being breached or compromised. Breaches can also occur as a result of non-technical issues, including intentional or inadvertent breach by our employees or by persons with whom we have commercial relationships. The occurrence of any failure, interruption or security breach of our information or communication systems could damage our reputation, result in a loss of business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability. If securities analysts stop publishing research or reports about us or our business or if they downgrade our common stock, the market price of our common stock and, consequently, the trading price of our other securities could decline. The market for our common stock relies in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. If any analyst who covers us downgrades our stock or lowers its future stock price targets or estimates of our operating results, our stock price could decline rapidly. Furthermore, if any analyst ceases to cover us, we could lose visibility in the market, which in turn could cause the market price of our securities to decline. Risks relating to the Company's financing transactions. We are a holding company and rely upon our subsidiaries for cash flow to make payments of principal and interest on our outstanding indebtedness. We are a holding company with no business operations or assets other than the capital stock of our direct and indirect subsidiaries. Consequently, we are dependent on dividends, distributions, loans and other payments from these subsidiaries to 12 make payments of principal and interest on all of our indebtedness including our senior notes due 2027 (the “2027 Notes”), our cash convertible notes due 2019 (the “2019 Convertible Notes”) and our convertible notes due 2022 (the "2022 Convertible Notes" and together with the 2019 Convertible Notes , the “Convertible Notes”)(the 2022 Convertible Notes, and together with the 2027 Notes and the 2019 Convertible Notes , the “Notes”). The ability of our subsidiaries to pay dividends and make other payments to us will depend on their cash flows and earnings, which, in turn, will be affected by all of the factors discussed in this annual report. The ability of our direct and indirect subsidiaries to pay dividends and make distributions to us may be restricted by, among other things, applicable laws and regulations and by the terms of any debt agreements or other agreements into which they enter. If we are unable to obtain funds from our direct and indirect subsidiaries as a result of restrictions under their debt or other agreements, applicable laws and regulations or otherwise, we may not be able to pay cash interest or principal on the Notes when due. Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt. Our ability to make scheduled payments of the principal to pay interest on or to refinance our indebtedness, including the Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. Despite our current consolidated debt levels, we may still incur substantially more debt or take other actions which would intensify the risks discussed above. Despite our current consolidated debt levels, we may be able to incur substantially more debt in the future, including secured debt. We are not restricted under the terms of the indentures governing the Notes from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking a number of other actions that are not limited by the terms of the indentures governing the Notes but that could diminish our ability to make payments on the Notes. Future sales of our common stock in the public market could adversely impact the trading price of our securities. In the future, we may sell additional shares of our common stock to raise capital. In addition, a substantial number of shares of our common stock are reserved for issuance upon vesting of restricted stock units and upon the conversion of the Convertible Notes. We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock. The issuance and sale of substantial amounts of common stock, or the perception that such issuances and sales may occur, could adversely affect the trading price of our securities and impair our ability to raise capital through the sale of additional equity securities. The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results. In the event the conditional conversion feature of the Convertible Notes is triggered, holders of Convertible Notes will be entitled to convert the Convertible Notes at any time during specified periods at their option. If one or more holders elect to convert their Convertible Notes, we may be required to pay cash to settle any such conversion, which could adversely affect our liquidity. The accounting method for convertible debt securities that may be settled in cash, such as the 2022 Convertible Notes, could have a material effect on our reported financial results. Accounting Standards Codification 470-20, Debt with Conversion and Other Options, or ASC 470-20 requires an entity to separately account for the liability and equity components of convertible debt instruments whose conversion may be settled entirely or partially in cash (such as the 2022 Convertible Notes) in a manner that reflects the issuer’s economic interest cost for non-convertible debt. The liability component of the 2022 Convertible Notes is valued at the fair value of a similar debt instrument that does not have an associated equity component and is reflected as a liability in our consolidated balance sheet. The equity component of the 2022 Convertible Notes is included in the additional paid-in capital section of our stockholders’ equity on our consolidated balance sheet, and the value of the equity component is treated as original issue discount for purposes of accounting for the debt component. This original issue discount will be amortized to non-cash interest expense over the term of the 2022 Convertible Notes, and we will record a greater amount of non-cash interest expense as a result of this amortization. Accordingly, we will report lower net income in our financial results because ASC 470-20 will require the interest expense associated with the 2022 Convertible Notes to include both amortization of the original issue discount and the 2022 Convertible Notes’ coupon interest, which could adversely affect our reported or future financial results and the trading price of our securities. 13 In addition, under certain circumstances, convertible debt instruments whose conversion may be settled entirely or partly in cash (such as the 2022 Convertible Notes) are currently accounted for using the treasury stock method. Under this method, the shares issuable upon conversion of the 2022 Convertible Notes are not included in the calculation of diluted earnings per share unless the conversion value of the 2022 Convertible Notes exceeds their principal amount at the end of the relevant reporting period. If the conversion value exceeds their principal amount, then, for diluted earnings per share purposes, the 2022 Convertible Notes are accounted for as if the number of shares of common stock that would be necessary to settle the excess, if we elected to settle the excess in shares, are issued. The accounting standards in the future may not continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares, if any, issuable upon conversion of the 2022 Convertible Notes, then our diluted earnings per share could be adversely affected. Notwithstanding the foregoing, because we may be required to elect to settle note conversions of the 2022 Convertible Notes solely in cash (or, subject to certain limitations, with a combination of cash and shares of our common stock) until we obtain the stockholder approval to issue shares of our common stock in full satisfaction of our conversion obligations, we have to separately account for the conversion option associated with the 2022 Convertible Notes as an embedded derivative under Accounting Standards Codification, or ASC, Topic 815, Derivatives and Hedging. Under this treatment, the 2022 Convertible Notes conversion option may be measured at its fair value and accounted for separately as a liability that is marked-to-market at the end of each reporting period. The initial value allocated to the conversion option will be treated as a debt discount that will be amortized into interest expense over the term of the Convertible Notes. For each financial statement period after the issuance of the 2022 Convertible Notes until we obtain the stockholder approval, a gain (or loss) will be reported in our statement of operations to the extent the valuation of the conversion option changes from the previous period. As a result, we may experience related non-cash volatility to our net income (loss). In addition, as a result of the amortization of the debt discount, the interest expense associated with the 2022 Convertible Notes will be greater than the coupon rate on the 2022 Convertible Notes, which will result in lower reported net income. If we obtain the stockholder approval referred to above, then we expect that the conversion option will qualify for equity treatment and will no longer be marked to market at the end of each reporting period. However, we may never obtain this stockholder approval. Certain provisions in the indentures governing the Convertible Notes could delay or prevent an otherwise beneficial takeover or takeover attempt of us. Certain provisions in the Convertible Notes and the indentures governing the Convertible Notes could make it more difficult or more expensive for a third party to acquire us. For example, if a takeover would constitute a fundamental change, holders of the Convertible Notes will have the right to require us to repurchase their Convertible Notes in cash. In addition, if a takeover constitutes a make-whole fundamental change, we may be required to increase the conversion rate for holders who convert their Convertible Notes in connection with such takeover. In either case, and in other cases, our obligations under the Convertible Notes and the indentures could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management. The ability to use our tax net operating loss ("NOL") carryforwards could be limited. As of December 31, 2017, we had NOL carryforwards of $248.4 million available for use in future years. Section 382 of the IRC, as amended, provides that if a loss corporation undergoes an “ownership change” the use of its pre-change losses is limited, generally, to an amount each year equal to the product of the value of the Company’s equity and the long-term tax- exempt rate for the month in which the ownership change occurs. An “ownership change” is defined as an increase in the ownership of the loss corporation by so-called 5% shareholders of more than 50% over a rolling three-year period. Cowen did not undergo an ownership change during 2017. Based on the facts in existence on the date hereof, we do not believe any material portion of our losses is subject to limitation under Section 382, or that conversion of the Convertible Notes into our common stock would trigger an ownership change. There can be no assurance that purchases or other acquisitions of our shares will not in the future trigger an ownership change, thereby substantially limiting our ability to use our NOLs going forward. We may not be able to realize the value of our deferred tax assets. At December 31, 2017, we have significant deferred tax assets that we have recognized based on differences between the financial statement carrying amounts and the tax basis of assets and liabilities. We have recognized deferred tax assets because management believes, based on earnings and financial projections, that it is more likely than not that we will have sufficient future earnings to utilize these assets to offset future income tax liabilities. We regularly review our deferred tax assets for recoverability based on our history of earnings, expectations for future earnings and expected timing of reversals of temporary differences. Realization of deferred tax assets requires us to apply significant judgment and is inherently speculative because it requires the future occurrence of circumstances that cannot be predicted with certainty and ultimately depends on the existence of sufficient future taxable income. There can be no assurance that we will achieve sufficient future taxable income as the basis for the ultimate realization of our deferred tax assets. Changes in facts and circumstances or unforeseen negative economic 14 developments could require us to establish a valuation allowance in the future, potentially causing a material adverse effect on our future operating results and financial condition. In addition, as was the case in 2017 pursuant to the Tax Cuts and Jobs Act that was enacted in the US in December 2017, changes in statutory tax rates may change our deferred tax asset or liability balances, with either favorable or unfavorable impacts on our effective tax rate. Our deferred tax assets may also be impacted by new legislation or regulation. The terms of our Series A Convertible Preferred Stock contains certain restrictions on our operations. The certificate of designations governing our Series A Convertible Preferred Stock contains certain restrictions on our and our subsidiaries’ ability to, among other things, pay dividends on, redeem or repurchase our Class A common stock and, under certain circumstances, our Series A Convertible Preferred Stock, and to issue additional preferred stock. Additionally, if dividends on our Series A Convertible Preferred Stock are in arrears and unpaid for at least six or more quarterly periods, the holders (voting as a single class) of our outstanding Series A Convertible Preferred Stock will be entitled to elect two additional directors to our Board of Directors until paid in full. Risks Related to the Company's Investment Management Business The Company's profitability may be adversely affected by decreases in revenue relating to changes in market and economic conditions. Market conditions have been and remain inherently unpredictable and outside of the Company's control, and may result in reductions in the Company's revenue and results of operations. Such reductions may be caused by a decline in assets under management, resulting in lower management fees and incentive income, an increase in the cost of financial instruments, lower investment returns or reduced demand for assets held by investment management products advised by the Company's investment management business, which would negatively affect its ability to realize value from such assets or continued investor redemptions, resulting in lower fees and increased difficulty in raising new capital. These factors may reduce the Company's revenue, revenue growth and income and may slow the growth of the investment management business or may cause the contraction of the investment management business. In particular, negative performance reduces assets under management, which decreases the management fees and incentive income that the Company ultimately earns. Negative performance of the Company's funds or its own proprietary investments also decreases revenue derived from the Company's returns on investment of its own capital. The Company's ability to increase revenues and improve profitability will depend on increasing assets under management in existing investment strategies and developing and marketing new investment products and strategies, including identifying and hiring or affiliating with new investment teams. The Company’s investment management business generates management and incentive fee income based on its assets under management. If the Company is unable to increase its assets under management in its existing products it may be difficult to increase its revenues. The Company may launch new investment management products and hire or affiliate with new investment teams focusing on new investment strategies. If these products or strategies are not successful, or if the Company is unable to hire or affiliate with new investment teams, or successfully manage its relationships with its affiliated investment teams, the Company's profitability could be adversely affected. The Company's revenues and, in particular, its ability to earn incentive income, would be adversely affected if its funds fall beneath their "high-water marks" as a result of negative performance. Incentive income, which has historically comprised a substantial portion of the Company’s investment management business annual revenues, is, in most cases, subject to "high-water marks" whereby incentive income is earned by the Company only to the extent that the net asset value of an investment advisory product at the end of a measurement period exceeds the highest net asset value as of the end of a preceding measurement period for which the Company earned incentive income. The Company's incentive allocations are also subject, in some cases, to performance hurdles or benchmarks. To the extent the Company's funds experience negative investment performance, the investors in or beneficial owners of these funds would need to recover cumulative losses before the Company can earn incentive income with respect to the investments of those who previously suffered losses. It may be difficult for the Company's investment management business to retain investment professionals during periods where market conditions make it more difficult to generate positive investment returns. Certain of the Company's funds face particular retention issues with respect to investment professionals whose compensation is tied, often in large part, to such performance thresholds. This retention risk is heightened during periods where market conditions make it more difficult to generate positive investment returns. For example, several investment professionals receive performance-based compensation at the end of each year based upon their annual investment performance, and this performance-based compensation represents substantially all of the compensation the professional is entitled to receive during 15 the year. If the investment professional's annual performance is negative, the professional may not be entitled to receive any performance-based compensation for the year. If the Company's funds produce investment results that are negative (or below the applicable hurdle or benchmark), the affected investment professionals may be incentivized to join a competitor because doing so would allow them to earn performance-based compensation without the requirement that they first satisfy the high- water mark. Investors and beneficial owners in the Company's funds can generally redeem investments with prior notice. The rate of redemptions could accelerate at any time. Historically, redemptions have created difficulties in managing the liquidity of certain of the Company's funds, reduced assets under management and adversely affected the Company's revenues, and may do so in the future. Investors and beneficial owners in the Company's funds may generally redeem their investments with prior notice, subject to certain initial holding periods. Investors may reduce the aggregate amount of their investments, or transfer their investments to other funds or asset managers with different fee rate arrangements, for any number of reasons, including investment performance, changes in prevailing interest rates and financial market performance. Furthermore, investors in the Company's funds may be investors in products managed by other asset managers where redemptions have been restricted or suspended. Such investors may redeem capital from Company's funds, even if the Company's funds' performance is superior, due to an inability to redeem capital from other managers. Increased volatility in global markets could accelerate the pace of redemptions. Redemptions of investments in the Company's funds could also take place more quickly than assets may be sold by those funds to meet the price of such redemptions, which could result in the relevant funds and/or the Company being in breach of applicable legal, regulatory and contractual requirements in relation to such redemptions, resulting in possible regulatory and investor actions against the Company and/or the Company's funds. If the Company's funds underperform, existing investors may decide to reduce or redeem their investments or transfer asset management responsibility to other asset managers and the Company may be unable to obtain new investment management business. Any such action could potentially cause further redemptions and/or make it more difficult to attract new investors. The redemption of investments in the Company's funds could also adversely affect the revenues of the Company's investment management business, which are substantially dependent upon its assets under management. If redemptions of investments cause revenues to decline, they would likely have a material adverse effect on our business, results of operations or financial condition. If market conditions, negative performance or other factors cause an increased level of redemption activity returns, it could become more difficult to manage the liquidity requirements of the Company's funds, making it more difficult or more costly for the Company's funds to liquidate positions rapidly to meet redemption requests or otherwise. This in turn may negatively impact the Company's returns on its own invested capital. In addition to the impact on the market value of assets under management, illiquidity and volatility of the global financial markets could negatively affect the ability of the Company's investment management business to manage inflows and outflows from the Company's funds. Several investment management managers, including the Company's investment management business, have in the past exercised, and may in the future exercise, their rights to limit, and in some cases, suspend, redemptions from the investment management products they advise. The Company's investment management business has also negotiated, and may in the future negotiate, with investors or exercise such rights in an attempt to limit redemptions or create a variety of other investor structures to bring assets and liquidity requirements into a more manageable balance. To the extent that the Company's investment management business has negotiated with investors to limit redemptions, it may be likely that such investors will continue to seek further redemptions in the future. Such actions may have an adverse effect on the ability of the Company's funds to attract new capital or to develop new investment platforms. Poor performance relative to other asset management firms may result in reduced investments in the Company's funds and increased redemptions. As a result, investment underperformance would likely have a material adverse effect on the Company's results of operations and financial condition. Investments made by private funds, including the investments of the Company's own capital in the Company's private funds, are subject to other additional risks. Investments by the Company's private funds are subject to certain risks that may result in losses. Decreases to assets under management as a result of investment losses or client redemptions may have a material adverse effect on the Company's revenues, net income and cash flows and could harm our ability to maintain or grow assets under management in existing funds or raise additional funds in the future. Additional risks include the following: • Generally, there are few limitations on private funds' investment strategies, which are often subject to the sole discretion of the management company or the general partner of such funds. • Private funds may engage in short selling, which is subject to a theoretically unlimited risk of loss because there is no limit on how much the price of a security sold short may appreciate before the short position is closed out. A fund may be subject to losses if a security lender demands return of the lent securities and an alternative lending source cannot 16 be found or if the fund is otherwise unable to borrow securities that are necessary to hedge its positions. Furthermore, the SEC and other regulatory authorities outside the United States have imposed trading restrictions and reporting requirements on short selling, which in certain circumstances may impair private funds' ability to use short selling effectively. • The efficacy of investment and trading strategies depend largely on the ability to establish and maintain an overall market position through a combination of financial instruments. A private fund's trading orders may not be executed in a timely and efficient manner due to various circumstances, including systems failures or human error. In such event, the fund might only be able to acquire some but not all of the components of the position, or if the overall position were in need of adjustment, the fund might not be able to make such an adjustment. As a result, a private fund would not be able to achieve the market position selected by the management company or general partner of such fund, and might incur a loss in liquidating its position. • Credit risk may arise through a default by one of several large institutions that are dependent on one another to meet their respective liquidity or operational needs, so that a default by one institution causes a series of defaults by the other institutions. This "systemic risk" may adversely affect the financial intermediaries (such as clearing agencies, clearing houses, banks, securities firms, other counterparties and exchanges) with which the private funds interact on a daily basis. • • • Private funds are subject to risks due to the potential illiquidity of assets. Private funds may make investments or hold trading positions in markets that are volatile and which may become illiquid. The timely sale of trading positions can be impaired by decreased trading volume, increased price volatility, concentrated trading positions, limitations on the ability to transfer positions in highly specialized or structured transactions to which they may be a party, and changes in industry and government regulations. It may be impossible or highly costly for private funds to liquidate positions rapidly to meet margin calls, redemption requests or otherwise, particularly if there are other market participants seeking to dispose of similar assets at the same time, if the relevant market is otherwise moving against a position or in the event of trading halts or daily price movement limitations on the market. In addition, increased levels of redemptions may result in increased illiquidity as more liquid assets are sold to fund redemptions. Private fund assets are subject to risks relating to investments in commodities, futures, options and other derivatives, the prices of which are highly volatile and may be subject to the theoretically unlimited risk of loss in certain circumstances. Price movements of commodities, futures and options contracts and payments pursuant to swap agreements are influenced by, among other things, interest rates, changing supply and demand relationships, trade, fiscal, monetary and exchange control programs and policies of governments and national and international political and economic events and policies. The value of futures, options and swap agreements also depends upon the price of the commodities underlying them. In addition, private funds' assets are subject to the risk of the failure of any of the exchanges on which their positions trade. Private fund assets that are not denominated in the U.S. dollar are subject to the risk that the value of a particular currency will change in relation to one or more other currencies. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments. Officials in foreign countries may, from time to time, take actions in respect of their currencies that could significantly affect the value of a private fund’s assets denominated in those currencies or the liquidity of such investments. For example, a foreign government may unilaterally devalue its currency against other currencies, which would typically have the effect of reducing the U.S. dollar value of investments denominated in that currency. A foreign government may also limit the convertibility or repatriation of its currency or assets denominated in that currency. While the Company generally expects to hedge its exposure to currencies other than the U.S. dollar, and may do so through foreign currency futures contracts and options thereon, forward foreign currency exchange contracts, swaps or any combination thereof, but there can be no assurance that such hedging strategies will be implemented, or if implemented, will be effective. While a private fund may enter into currency hedging transactions to seek to reduce risk, such transactions may result in a poorer overall performance than if it had not engaged in such hedging transactions. For a variety of reasons, the Company may not seek to establish a perfect correlation between the hedging instruments utilized and the portfolio holdings being hedged. Such an imperfect correlation may prevent the Company from achieving the intended hedge or expose a private fund to risk of loss. • Private funds are also subject to the risk that war, terrorism, and related geopolitical events may lead to increased short-term market volatility and have adverse long-term effects on the U.S. and world economies and markets generally, as well as adverse effects on issuers of securities and the value of investments. War, terrorism, and related geopolitical events have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term effects on U.S. and non-U.S. economies and markets generally. Those events, as well as other changes in U.S. and non-U.S. economic and political conditions, also could adversely affect individual issuers or 17 related groups of issuers, securities markets, interest rates, credit ratings, inflation, investor sentiment and other factors affecting the value of the private fund's assets. If the Company's fund's counterparty for any of its derivative or non-derivative contracts defaults on the performance of those contracts, the Company may not be able to cover its exposure under the relevant contract. The Company's funds enter into numerous types of financing arrangements with a wide array of counterparties around the world, including loans, hedge contracts, swaps, repurchase agreements and other derivative and non-derivative contracts. The terms of these contracts are generally complex and often customized and generally are not subject to regulatory oversight. The Company is subject to the risk that the counterparty to one or more of these contracts may default, either voluntarily or involuntarily, on its performance under the contract. Any such default may occur at any time without notice. Additionally, the Company may not be able to take action to cover its exposure if a counterparty defaults under such a contract, either because of a lack of the contractual ability or because market conditions make it difficult to take effective action. The impact of market stress or counterparty financial condition may not be accurately foreseen or evaluated and, as a result, the Company may not take sufficient action to reduce its risks effectively. Counterparty risk is accentuated where the investment management product has concentrated its transactions with a single or small group of counterparties. Generally, private funds are not restricted from concentrating any or all of their transactions with one counterparty. Moreover, the Company's internal review of the creditworthiness of their counterparties may prove inaccurate. The absence of a regulated market to facilitate settlement and the evaluation of creditworthiness may increase the potential for losses. In addition, these financing arrangements often contain provisions that give counterparties the ability to terminate the arrangements if any of a number of defaults occurs with respect to the Company's funds, including declines in performance or assets under management and losses of key management personnel, each of which may be beyond our control. In the event of any such termination, the Company's funds may not be able to enter into alternative arrangements with other counterparties and our business may be materially adversely affected. The Company may suffer losses in connection with the insolvency of prime brokers, custodians, administrators and other agents whose services the Company uses and who may hold assets of the Company's funds. All of the Company's funds use the services of prime brokers, custodians, administrators or other agents to carry out certain securities transactions and to conduct certain business of the Company's funds. In the event of the insolvency of a prime broker and/or custodian, the Company's funds might not be able to recover equivalent assets in full as they may rank among the prime broker's and custodian's unsecured creditors in relation to assets which the prime broker or custodian borrows, lends or otherwise uses. In addition, the Company's funds' cash held with a prime broker or custodian (if any) may not be segregated from the prime broker's or custodian's own cash, and the funds will therefore rank as unsecured creditors in relation thereto. Operational risks relating to the failure of data processing systems and other information systems and technology may disrupt our investment management business, result in losses and/or limit the business's operations and growth. The Company's investment management business and its funds rely heavily on financial, accounting, trading and other data processing systems to, among other things, execute, confirm, settle and record transactions across markets and geographic locations in a time-sensitive, efficient and accurate manner. If any of these systems does not operate properly or are disabled, the Company could suffer financial loss, a disruption of its business, liability to the Company's funds, regulatory intervention and/or reputational damage. In addition, the Company's investment management business is highly dependent on information systems and technology, and the cost of maintaining such systems may increase from its current level. Such a failure to accommodate the operational needs of the Company's investment management business, or an increase in costs related to such information systems, could have a material adverse effect on the Company, both with respect to a decrease in the operational performance of its investment management business and an increase in costs that may be necessary to improve such systems. The Company depends on its presence in New York, New York, where most of the Company's investment management personnel are located, for the continued operation of its business. We have taken precautions to limit the impact that a disruption to operations at our New York headquarters could cause (for example, by ensuring that the Company can operate independently of offices in other geographic locations). Although these precautions have been taken, a disaster or a disruption in the infrastructure that supports our investment management business, including a disruption involving electronic communications or other services used by the third parties with whom the Company's investment management business conducts business or directly affecting the New York, New York, headquarters, could have a material adverse impact on the Company's ability to continue to operate its investment management business without interruption. The Company's disaster recovery programs may not be sufficient to mitigate the harm that may result from such a disaster or disruption. In addition, insurance might only partially reimburse us for our losses, if at all. Finally, the Company relies on third party service providers for certain aspects of its business, including for certain information systems and technology and administration of the 18 Company's funds. Severe interruptions or deteriorations in the performance of these third parties or failures of their information systems and technology could impair the quality of the Company's investment management business operations and could impact the Company's reputation and materially adversely affect our investment management business. Certain of the Company's funds may invest in relatively high-risk, illiquid assets, and the Company may fail to realize any profits from these activities for a considerable period of time or lose some or all of the principal amounts of these investments. Certain of the Company's funds invest a portion of their assets in securities that are not publicly traded. In many cases, they may be prohibited by contract or by applicable securities laws from selling such securities for a period of time or there may not be a public market for such securities. Even if the securities are publicly traded, large holdings of securities can often be disposed of only over a substantial length of time, exposing the investment returns to risks of downward movement in market prices during the disposition period. Accordingly, under certain conditions, the Company's funds may be forced to either sell securities at lower prices than they had expected to realize or defer, potentially for a considerable period of time, sales that they had planned to make. Investing in these types of investments can involve a high degree of risk, and the Company's funds may lose some or all of the principal amount of such investments, including our own invested capital. Risk management activities may materially adversely affect the return on the Company's funds' investments if such activities do not effectively limit exposure to decreases in investment values or if such exposure is overestimated. When managing the Company's funds' exposure to market risks, the relevant investment management product may use forward contracts, options, swaps, caps, collars and floors or pursue other strategies or use other forms of derivative financial instruments to limit its exposure to changes in the relative values of investments that may result from market developments, including changes in interest rates, currency exchange rates and asset prices. The success of such derivative transactions generally will depend on the Company's ability to accurately predict market changes in a timely fashion, the degree of correlation between price movements of a derivative instrument, the position being hedged, the creditworthiness of the counterparty and other factors. As a result, these transactions may result in poorer overall investment performance than if they had not been executed. Such transactions may also limit the opportunity for gain if the value of a hedged position increases. A perfect correlation between the instruments used in a hedging or other derivative transaction and the position being hedged may not be attained. An imperfect correlation could give rise to a loss. Also, it may not be possible to fully or perfectly limit exposure against all changes in the value of an investment because the value of an investment is likely to fluctuate as a result of a number of factors, many of which will be beyond the Company's control or ability to hedge. Fluctuations in currency exchange rates could materially affect the Company's investment management business and its results of operations and financial condition. The Company uses U.S. dollars as its reporting currency. Investments in the Company's funds and managed accounts are made in different currencies, including Euros, Pounds Sterling, Australian Dollar and Yen. In addition, the Company's funds and managed accounts hold investments denominated in many foreign currencies. To the extent that the Company's revenues from its investment management business are based on assets under management denominated in such foreign currencies, our reported revenues may be significantly affected by the exchange rate of the U.S. dollar against these currencies. Typically, an increase in the exchange rate between U.S. dollars and these currencies will reduce the impact of revenues denominated in these currencies in the financial results of our investment management business. For example, management fee revenues derived from each Euro and Australian Dollar of assets under management denominated in Euros and Australian Dollar will decline in U.S. dollar terms if the value of the U.S. dollar appreciates against the Euro and Australian Dollar. In addition, the calculation of the amount of assets under management is affected by exchange rate movements as assets under management denominated in foreign currencies are converted to U.S. dollars. The Company's investment management business also incurs a portion of its expenditures in currencies other than U.S. dollars. As a result, our investment management business is subject to the effects of exchange rate fluctuations with respect to any currency conversions and the Company’s ability to hedge these risks and the cost of such hedging or the Company’s decision not to hedge could impact the performance of the Company's funds and our investment management business and its results of operations and financial condition. The due diligence process that the Company's investment management business undertakes in connection with investments by the Company's funds is inherently limited and may not reveal all facts that may be relevant in connection with making an investment. Before making investments, particularly investments in securities that are not publicly traded, the Company endeavors to conduct a due diligence review of such investment that it deems reasonable and appropriate based on the facts and circumstances applicable to each investment. When conducting due diligence, the Company is often required to evaluate critical and complex business, financial, tax, accounting, environmental and legal issues. Outside consultants, legal advisors, accountants, investment bankers and financial analysts may be involved in the due diligence process in varying degrees depending on the type of investment. Nevertheless, when conducting due diligence and making an assessment regarding an 19 investment, the Company is limited to the resources available, including information provided by the target of the investment and, in some circumstances, third party investigations. The due diligence investigation that the Company conducts with respect to any investment opportunity may not reveal or highlight all relevant facts that may be necessary or helpful in evaluating such investment opportunity. Moreover, such an investigation will not necessarily result in the investment being successful, which may adversely affect the performance of the Company's funds and the Company's ability to generate returns on its own invested capital from any such investment. The Company's real estate business is subject to the risks inherent in the ownership and operation of real estate and the construction and development of real estate. The Company's real estate business is subject to the risks inherent in the ownership and operation of real estate and real estate-related businesses and assets. These risks include those associated with general and local economic conditions, changes in supply of and demand for competing properties in an area, changes in environmental regulations and other laws, various uninsured or uninsurable risks, natural disasters, changes in real property tax rates, changes in interest rates, the reduced availability of mortgage financing which may render the sale or refinancing of properties difficult or impracticable, environmental liabilities, contingent liabilities on disposition of assets, terrorist attacks, war and other factors that are beyond our control. Further, the U.S. Environmental Protection Agency has found that global climate change could increase the severity and perhaps the frequency of extreme weather events, which could subject real property to increased weather-related risks in the coming years. There are also presently a number of current and proposed regulatory initiatives, both domestically and globally, that are geared towards limiting and scaling back the emission of greenhouse gases, which certain scientists have linked to global climate change. Although not known with certainty at this time, such regulation could adversely affect the costs to construct and operate real estate in the coming years, such as through increased energy costs. The commercial real estate markets in the United States generally have experienced major disruptions in the past due to the lack of available capital, in the form of either debt or equity, and declines in value as a result of overall economic decline. If these conditions were to occur again transaction volume may drop precipitously, negatively impacting the valuation and performance of the Company's real estate investments significantly. Additionally, if the Company's real estate business acquires direct or indirect interests in undeveloped land or underdeveloped real property, which may often be non-income producing, they will be subject to the risks normally associated with such assets and development activities, including risks relating to the availability and timely receipt of zoning and other regulatory or environmental approvals, the cost, potential for cost overruns and timely completion of construction (including risks beyond the control of the investor, such as weather or labor conditions or material shortages) and the availability of both construction and permanent financing on favorable terms. The investment management industry is intensely competitive, which may adversely affect the Company's ability to attract and retain investors and investment professionals. The investment management industry is extremely competitive. Competition includes numerous international, national, regional and local asset management firms and broker-dealers, commercial bank and thrift institutions, and other financial institutions. Many of these institutions offer products and services that are similar to, or compete with, those offered by us and have substantially more personnel and greater financial resources than the Company does. The key areas for competition include historical investment performance, the ability to identify investment opportunities, the ability to attract and retain the best investment professionals and the quality of service provided to investors. The Company's ability to compete may be adversely affected if it underperforms in comparison to relevant benchmarks, peer groups or competing asset managers. The competitive market environment may result in increased downward pressure on fees, for example, by reduced management fee and incentive allocation percentages. The future results of operations of the Company's investment management business are dependent in part on its ability to maintain appropriate fee levels for its products and services. In the current economic environment, many competing asset managers experienced substantial declines in investment performance, increased redemptions, or counterparty exposures which impaired their businesses. Some of these asset managers have reduced their fees in an attempt to avoid additional redemptions. Competition within the investment management industry could lead to pressure on the Company to reduce the fees that it charges its clients for investment management products and services. A failure to compete effectively may result in the loss of existing clients and business, and of opportunities to generate new business and grow assets under management, each of which could have a material adverse effect on the Company's investment management business and results of operations, financial condition and prospects. Furthermore, consolidation in the investment management industry may accelerate, as many asset managers are unable to withstand the substantial declines in investment performance, increased redemptions, and other pressures impacting their businesses, including increased regulatory, compliance and control requirements. Some competitors may acquire or combine with other competitors. The combined business may have greater resources than the Company does and may be able to compete more effectively against the Company and rapidly acquire significant market share. 20 Increased regulatory focus could result in regulation that may limit the manner in which the Company and its funds invest, materially impacting the Company's business. The Company's investment management business may be adversely affected if new or revised legislation or regulations are enacted, or by changes in the interpretation or enforcement of existing rules and regulations imposed by the SEC, other U.S. or foreign governmental regulatory authorities or self-regulatory organizations that supervise the financial markets and their participants. Such changes could place limitations on the type of investor that can invest in the Company's funds or on the conditions under which such investors may invest. Further, such changes may limit the scope of investing activities that may be undertaken by the Company's funds. It is impossible to determine the extent of the impact of any new or recently enacted laws, including the Dodd-Frank Act and MiFID II, or any other regulations or initiatives that may be proposed, or whether any proposed regulations or initiatives will become law. Compliance with any new laws or regulations could be difficult and expensive and affect the manner in which the Company's investment management business conducts itself, which may adversely impact its results of operations, financial condition and prospects. Additionally, as a result of highly publicized financial scandals, investors, regulators and the general public have exhibited concerns over the integrity of both the U.S. financial markets and the regulatory oversight of these markets. As a result, the business environment in which Company's investment management business operates is subject to heightened regulation. With respect to the Company's funds, in recent years, there has been debate in both U.S. and foreign governments about new rules or regulations, including increased oversight or taxation, in addition to the recently enacted legislation described above. As calls for additional regulation have increased, there may be a related increase in regulatory investigations of the trading and other investment activities of investment funds, including the Company's funds. Such investigations may impose additional expenses on the Company, may require the attention of senior management and may result in fines if any of the Company's funds are deemed to have violated any regulations. The Company's investment management business may suffer as a result of loss of business from key investors. The loss of all or a substantial portion of the business provided by key investors could have a material impact on income derived from management fees and incentive allocations and consequently have a material adverse effect on our investment management business and results of operations or financial condition. The success of our Cowen Aviation business depends on our ability to lease the aircraft we own and to dispose of the aircraft at the end of the lease terms. Our Cowen Aviation business leases specialized aircraft to various counterparties. We may incur losses if these counterparties do not renew their leases with us if we are unable to re-lease the aircraft to different counterparties. In addition, we may also incur losses if the residual value of the aircraft at the end of the lease terms is less than what we expected the value to be or if we are unable to dispose of the aircraft at the end of the lease term. Our third party reinsurance business could expose us to losses. We provide third party reinsurance coverage through our Luxembourg subsidiary, Hollenfels Re S.A (“Hollenfels”). We have written polices relating to property and casualty, workers' compensation, general liability and construction performance bonds and may issue reinsurance policies relating to other types of insurance. Because we write reinsurance, the success of our underwriting efforts depends, in part, upon the policies, procedures and expertise of the ceding companies making the original underwriting decisions. We face the risk that these ceding companies may fail to accurately assess the risks that they assume initially, which, in turn, may lead us to inaccurately assess the risks we assume. If we fail to establish and receive appropriate premium rates or the claims we receive exceed the premiums and retrocession recoverables we are able to collect, we will suffer losses. We may be unable to purchase retrocession reinsurance and our retrocession agreements subject us to third-party credit risk. We may enter into retrocession agreements with third parties in order to limit our exposure to losses from the reinsurance coverage provided by Hollenfels. Changes in the availability and cost of retrocession reinsurance, which are subject to market conditions that are outside of our control, may reduce to some extent our ability to use retrocession reinsurance to balance exposures across our reinsurance operations. Accordingly, we may not be able to obtain our desired amounts of retrocession reinsurance. In addition, even if we are able to obtain such reinsurance, we may not be able to negotiate terms that we deem appropriate or acceptable or obtain such reinsurance from entities with satisfactory creditworthiness. While we seek to do business with creditworthy counterparties, if the parties who provide us with retrocession are not able to meet their obligations to us or fail to make timely payments under the terms of our retrocession agreements, we could be materially and adversely affected because we may remain liable under the terms. 21 Risks Related to the Company's Broker-Dealer Business The Company's broker-dealer business focuses principally on specific sectors of the economy, and deterioration in the business environment in these sectors or a decline in the market for securities of companies within these sectors could materially affect our broker-dealer business. The Company focuses principally on the Target Sectors of the economy. Therefore, volatility in the business environment in these sectors or in the market for securities of companies within these sectors could substantially affect the Company's financial results. The business environment for companies in these sectors has been subject to substantial volatility, and the Company's financial results have consequently been subject to significant variations from year to year. The market for securities in each of the Company's target sectors may also be subject to industry-specific risks. For example, changes in policies of the United States Food and Drug Administration, along with changes to Medicare and government reimbursement policies, may affect the market for securities of healthcare companies, and changes to how the U.S. government reviews foreign acquisitions of U.S. based companies may make executing M&A transactions more difficult. As an investment bank which focuses primarily on specific growth sectors of the economy, the Company also depends significantly on private company transactions for sources of revenues and potential business opportunities. To the extent the pace of these private company transactions slows or the average size declines due to a decrease in private equity financings, difficult market conditions in the Company's target sectors or other factors, the Company's business and results of operations may be adversely affected. The financial results of the Company's broker-dealer business may fluctuate substantially from period to period. The Company has experienced, and we expect to experience in the future, significant periodic variations in its revenues and results of operations. These variations may be attributed in part to the fact that its investment banking revenues are typically earned upon the successful completion of a transaction, the timing of which is uncertain and beyond the Company's control. In most cases, the Company receives little or no payment for investment banking engagements that do not result in the successful completion of a transaction. As a result, our broker-dealer business is highly dependent on market conditions as well as the decisions and actions of its clients and interested third parties. For example, a client's acquisition transaction may be delayed or terminated because of a failure to agree upon final terms with the counterparty, failure to obtain necessary regulatory consents or board or stockholder approvals, failure to secure necessary financing, adverse market conditions or unexpected financial or other problems in the client's or counterparty's business. If the parties fail to complete a transaction on which the Company is advising or an offering in which the Company is participating, we will earn little or no revenue from the transaction, and we may incur significant expenses that may not be recouped. This risk may be intensified by the Company's focus on growth companies in the Target Sectors as the market for securities of these companies has experienced significant variations in the number and size of equity offerings. Many companies initiating the process of an IPO are simultaneously exploring other strategic alternatives, such as a merger and acquisition transaction. The Company's broker-dealer revenues would be adversely affected in the event that an IPO for which it is acting as an underwriter is preempted by the company's sale if the Company is not also engaged as a strategic advisor in such sale. As a result, our broker-dealer business is unlikely to achieve steady and predictable earnings on a quarterly basis. Pricing and other competitive pressures may impair the revenues of the Company's brokerage business. The Company's brokerage business accounted for approximately 56% of the broker-dealer segment's revenues during 2017. Along with other firms, the Company has experienced price competition in this business in recent years. In particular, the ability to execute trades electronically and through alternative trading systems has increased the pressure on trading commissions and spreads. We expect to continue to experience competitive pressures in these and other areas in the future as some of our competitors in the investment banking industry seek to obtain market share by competing on the basis of price or use their own capital to facilitate client trading activities. In addition, the Company faces pressure from larger competitors, who may be better able to offer a broader range of complementary products and services to clients in order to win their trading or prime brokerage business. We are committed to maintaining and improving the Company's comprehensive research coverage to support its brokerage business and the Company may be required to make additional investments in the Company's research capabilities. The Company faces strong competition from larger firms. The research, brokerage and investment banking industries are intensely competitive, and the Company expects them to remain so. The Company competes on the basis of a number of factors, including client relationships, reputation, the abilities of the Company's professionals, market focus and the relative quality and price of the Company's services and products. The Company has experienced intense price competition in some of its businesses, including trading commissions and spreads in its brokerage business. In addition, pricing and other competitive pressures in investment banking, including the trends toward 22 multiple book runners, co-managers and financial advisors, and a larger share of the underwriting fees and discounts being allocated to the book-runners, could adversely affect the Company's revenues from its broker-dealer business. The Company is a relatively small investment bank. Many of the Company's competitors in the research, brokerage and investment banking industries have a broader range of products and services, greater financial resources, larger customer bases, greater name recognition and marketing resources, a larger number of senior professionals to serve their clients' needs, greater global reach and more established relationships with clients than the Company has. These larger competitors may be better able to respond to changes in the research, brokerage and investment banking industries, to compete for skilled professionals, to finance acquisitions, to fund internal growth and to compete for market share generally. The scale of our competitors in the investment banking industry has increased in recent years as a result of substantial consolidation among companies in the research, brokerage and investment banking industries. In addition, a number of large commercial banks and other broad-based financial services firms have established or acquired underwriting or financial advisory practices and broker-dealers or have merged with other financial institutions. These firms have the ability to offer a wider range of products than the Company does which may enhance their competitive position. They also have the ability to support their investment banking and advisory groups with commercial banking and other financial services in an effort to gain market share, which has resulted, and could further result, in pricing pressure in the Company's businesses. If we are unable to compete effectively with our competitors in the investment banking industry, the Company's business and results of operations may be adversely affected. The Company's capital markets and strategic advisory engagements are singular in nature and do not generally provide for subsequent engagements. The Company's investment banking clients generally retain the Company on a short-term, engagement-by-engagement basis in connection with specific capital markets or mergers and acquisitions transactions, rather than on a recurring basis under long-term contracts. As these transactions are typically singular in nature and the Company's engagements with these clients may not recur, the Company must seek out new engagements when its current engagements are successfully completed or are terminated. As a result, high activity levels in any period are not necessarily indicative of continued high levels of activity in any subsequent period. If the Company is unable to generate a substantial number of new engagements that generate fees from new or existing clients, the Company's broker-dealer business and results of operations would likely be adversely affected. Larger and more frequent capital commitments in the Company's trading and underwriting businesses increase the potential for significant losses. There has been a trend toward larger and more frequent commitments of capital by financial services firms in many of their activities. For example, in order to compete for certain transactions, investment banks may commit to purchase large blocks of stock from publicly traded issuers or significant stockholders, instead of the more traditional marketed underwriting process in which marketing is completed before an investment bank commits to purchase securities for resale. To the extent the total net capital of the Company's broker-dealers allows it, the Company anticipates participating in this trend and, as a result, the Company will be subject to increased risk as it commits capital to facilitate business. Furthermore, the Company may suffer losses as a result of the positions taken in these transactions even when economic and market conditions are generally favorable for others in the industry. The Company may enter into large transactions in which it commits its own capital as part of its trading business to facilitate client trading activities. The number and size of these large transactions may materially affect the Company's results of operations in a given period. Market fluctuations may also cause the Company to incur significant losses from its trading activities. To the extent that the Company owns assets (i.e., has long positions), a downturn in the value of those assets or in the markets in which those assets are traded could result in losses. Conversely, to the extent that the Company has sold assets it does not own (i.e., has short positions), in any of those markets, an upturn in the value of those assets or in markets in which those assets are traded could expose the Company's broker-dealer business to potentially large losses as it attempts to cover short positions by acquiring assets in a rising market. Operational risks relating to the failure of data processing systems and other information systems and technology or other infrastructure may disrupt the Company's broker-dealer business and result in losses or limit our operations and growth in the industry. The Company's broker-dealer business is highly dependent on its ability to process, on a daily basis, a large number of transactions across diverse markets, and the transactions that the Company processes have become increasingly complex. The inability of the Company's systems to accommodate an increasing volume of transactions could also constrain the Company's ability to expand its broker-dealer business. If any of these systems do not operate properly or are disabled, or if there are other shortcomings or failures in the Company's internal processes, people or systems, the Company could suffer impairments, financial loss, a disruption of its broker-dealer business, liability to clients, regulatory intervention or reputational damage. 23 The Company has outsourced certain aspects of its technology infrastructure including data centers and wide area networks, as well as some trading applications. The Company is dependent on its technology providers to manage and monitor those functions. A disruption of any of the outsourced services would be out of the Company's control and could negatively impact our broker-dealer business. The Company has experienced disruptions on occasion, none of which has been material to the Company's operations and results. However, there can be no guarantee that future material disruptions with these providers will not occur. The Company also faces the risk of operational failure of or termination of relations with any of the clearing agents, exchanges, clearing houses or other financial intermediaries that the Company uses to facilitate its securities transactions. Any such failure or termination could adversely affect the Company's ability to effect transactions and to manage its exposure to risk. In addition, the Company's ability to conduct its broker-dealer business may be adversely impacted by a disruption in the infrastructure that supports Company and the communities in which we are located. This may affect, among other things, the Company's financial, accounting or other data processing systems. This may include a disruption involving electrical, communications, transportation or other services used by us or third parties with which the Company conducts business, whether due to fire, other natural disaster, power or communications failure, act of terrorism or war or otherwise. Nearly all of our broker-dealer employees in our primary locations in New York, Boston, San Francisco and London work in close proximity to each other. Although the Company has a formal disaster recovery plan in place, if a disruption occurs in one location and our broker-dealer employees in that location are unable to communicate with or travel to other locations, the Company's ability to service and interact with its clients may suffer, and the Company may not be able to implement successfully contingency plans that depend on communication or travel. Our broker-dealer business also relies on the secure processing, storage and transmission of confidential and other information in its computer systems and networks. The Company's computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code and other events that could have a security impact. If one or more of such events occur, this could jeopardize our or our broker-dealer clients' or counterparties' confidential and other information processed and stored in, and transmitted through, the Company's computer systems and networks, or otherwise cause interruptions or malfunctions in our broker-dealer business', its clients', its counterparties' or third parties' operations. The Company may be required to expend significant additional resources to modify its protective measures, to investigate and remediate vulnerabilities or other exposures or to make required notifications, and the Company may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by the Company. Our business could be adversely affected by the recent implementation of MiFID II in Europe. MiFID II, which went into effect in January 2018, regulates the provision of investment services and activities throughout the European Economic Area. MiFID II requires that investment managers and investment advisors located in the E.U. “unbundle” research costs from commissions. As a result, investment firms subject to MiFID II may no longer pay for research using client commissions or “soft dollars”. Going forward, such costs must be paid directly by the investment firm or through a research payment account funded by clients and governed by a budget that is agreed by the client. Because the MiFID II requirements are just taking effect, we cannot predict the effects that this new regulation will have on our research and sales and trading businesses. If investment managers and investment advisors decide to reduce their spending on research or decide to trade with other broker-dealers as a result of the new MiFID II regulations our business could be adversely affected. The market structure in which our market-making business operates may make it difficult for this business to maintain profitability. Market structure changes have had an adverse effect on the results of operations of our market-making business. These changes may make it difficult for us to maintain and/or predict levels of profitability of, or may cause us to generate losses in, our market-making business. The growth of electronic trading and the introduction of new technology in the markets in which our market-making business operates may adversely affect this business and may increase competition. The continued growth of electronic trading and the introduction of new technologies is changing our market-making business and presenting new challenges. Securities, futures and options transactions are increasingly occurring electronically, through alternative trading systems. It appears that the trend toward alternative trading systems will continue to accelerate. This acceleration could further increase program trading, increase the speed of transactions and decrease our ability to participate in transactions as principal, which would reduce the profitability of our market-making business. Some of these alternative trading systems compete with our market-making business and with our algorithmic trading platform, and we may experience continued competitive pressures in these and other areas. Significant resources have been invested in the development of our 24 electronic trading systems, which includes our ATM business, but there is no assurance that the revenues generated by these systems will yield an adequate return on the investment, particularly given the increased program trading and increased percentage of stocks trading off of the historically manual trading markets. We are subject to potential losses and default risks as a result of our clearing and execution activities. As a clearing member firm providing services to certain of our brokerage customers, we are ultimately responsible for their financial performance in connection with various securities transactions. Our clearing operations require a commitment of our capital and involve risks of losses due to the potential failure of our customers to perform their obligations under these transactions. We are required to finance customers’ unsettled positions from time to time, and we could be held responsible for the defaults of those customers. If customers default on their obligations, we remain financially liable for such obligations, and while some of these obligations may be collateralized, we are still subject to market risk in the liquidation of customer collateral to satisfy those obligations. While we have risk management procedures designed to mitigate certain risks, there can be no assurance that our risk management procedures will be adequate. Although we regularly review our credit exposure to customers, default risk may arise from events or circumstances that may be difficult to detect or foresee. Default by our customers may also give rise to the Company incurring penalties imposed by execution venues, regulatory authorities and clearing and settlement organizations. Any liability arising from clearing operations could have a material adverse effect on our business, financial condition and results of operations. We are also exposed to credit risk from third parties that owe us money, securities or other obligations, including our trading counterparties. These parties may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons, and we could be held responsible for such defaults. In addition, customer trading errors may cause us to incur financial losses, which customers may be unable or unwilling to cover. Volatile securities markets, credit markets and regulatory changes may increase our exposure to our customers’ and counterparties’ credit profiles, which could adversely affect our financial condition and operating results. Our review of the credit risk of customers and trading counterparties may not be adequate to provide sufficient protection from these risks. Our securities business and related clearing operations expose us to material liquidity risk. We may be required to provide considerable additional funds with clearing and settlement organizations of which we are members, such as the National Securities Clearing Corporation or Depository Trust and Clearing Corporation in the U.S., especially during periods of high market volatility. In addition, regulatory agencies have recently required these clearing and settlement organizations to increase the level of margin deposit requirements, and they may continue to do so in the future. We rely on our excess cash, certain established credit facilities and the use of outsourced clearing arrangements to meet or reduce these demands. While we have historically met requests for additional margin deposits, there is no guarantee that our excess cash and our established credit facilities and clearing arrangements will be sufficient for future needs, particularly if there is an increase in requirements. There is also no guarantee that these established credit facilities will be extended beyond their expiration. As a clearing member firm of securities clearing houses in the U.S., we are also exposed to clearing member credit risk. Securities clearing houses require member firms to deposit cash and/or government securities to a clearing fund. If a clearing member defaults in its obligations to the clearing house in an amount larger than its own margin and clearing fund deposits, the shortfall is absorbed pro rata from the deposits of the other clearing members. The clearing houses of which we are members also have the authority to assess their members for additional funds if the clearing fund is depleted. A large clearing member default could result in a substantial cost to us if we are required to pay such assessments. In certain jurisdictions we are dependent on third-party clearing agents and any failures by such clearing agents could materially impact our business and operating results. In certain jurisdictions we are dependent on agents for the clearing and settlement of securities transactions. If our agents fail to properly facilitate the clearing and settlement of our customer trades, we could be subject to financial, legal and regulatory risks and costs that may impact our business and operating results. In addition, it could cause our clients to reduce or cease their trading with us, which would adversely affect our revenues and financial results. Moreover, certain of the clearing agreements provide our clearing agents with rights to increase our deposit requirements or to terminate the agreements upon short notice. There is no guarantee we will be able to satisfy any increased deposit requirements within the time frames demanded by our clearing agents, and if we fail to satisfy such demands on a timely basis, it could constitute a default under our clearing agreements. If our clearing agents terminate a clearing agreement on short notice, there is no guarantee that we could obtain alternative services in a timely manner and any interruption of the normal course of our trading and clearing operations could have a material impact on our business and results of operations. 25 Our clearing and execution operations are global and international market events could materially adversely impact our financial results. Because we offer brokerage products and services on a global basis, our revenues derived from non-U.S. operations are subject to risk of loss from social or political instability, changes in government policies or policies of central banks, downgrades in the credit ratings of sovereign countries, expropriation, nationalization, confiscation of assets and unfavorable legislative and political developments in such non-U.S. jurisdictions. Revenues from the trading of non-U.S. securities may be subject to negative fluctuations as a result of the above factors. The impact of these fluctuations on our results could be magnified because generally non-U.S. trading markets, particularly in emerging market countries, are smaller, less liquid and more volatile than U.S. trading markets. Decreases in equity trading activity by active fund managers and declining securities prices could harm our business and profitability. Declines in the trading activity of active fund managers generally result in lower revenues from our brokerage products and services. In addition, securities’ price declines adversely affect our trading commissions outside North America, which are based on the value of transactions. The demand for our brokerage products and services is directly affected by factors such as economic, regulatory and political conditions that may lead to decreased trading activity and prices in the securities markets in the U.S. and in all of the foreign markets we serve. Significant flows of investments out of actively managed equity funds has curtailed their trading activity, which has weighed on our buy side trading volumes and the use of some of our higher value services. Volatility levels also impact the amount of trading activity. Sustained periods of low volatility can result in lower levels of trading activity. In addition, trading activity tends to decline in periods following extreme levels of volatility. The U.K. electorate voted in favor of a U.K. exit from the E.U. in a referendum, which could adversely impact our business, results of operations and financial condition. The U.K. has voted in an advisory referendum to leave the European Union (commonly referred to as “Brexit”) and at the end of March 2017 the U.K. provided formal notice of withdrawal to the E.U. Under the process for withdrawing from the E.U. contemplated in the Treaty on European Union, the U.K. will remain a member state until a withdrawal agreement is entered into or, if later (and no extension is agreed), two years following the date notification of the U.K.’s intention to withdraw was provided to the E.U. The effects of Brexit on us will depend on any agreements the U.K. makes to retain access to E.U. markets (including for financial services) either during a transitional period or more permanently. Brexit is expected to significantly affect the fiscal, monetary and regulatory landscape in the U.K., and could have a material impact on its economy and the future growth of its various industries, including the financial services industry in which we operate. We conduct business in Europe primarily through our U.K. subsidiaries. Depending on the terms of Brexit, we could face new regulatory costs and challenges. For instance, our U.K. subsidiaries may not be able to rely on the existence of a “passporting” regime that allows immediate access to the single E.U. market. If this occurred, we may need to establish one or more new regulated subsidiaries in the E.U. in order to provide our trading platform and certain post-trade services to clients in the E.U. Changes to U.K. immigration policy could likewise occur as a result of Brexit. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate. Any such new laws and regulations in the U.K. may be difficult and/or costly to implement. Although it is not possible at this point in time to predict the effects of an exit of the U.K. from the E.U., any of the foregoing factors could have a material adverse effect on our business, financial condition and results of operations. In addition, Brexit may impact our ability to comply with the extensive government regulation to which we are subject. Item 1B. Unresolved Staff Comments None. Item 2. Properties Our principal offices, all of which are leased, are located in New York City, Boston, San Francisco and London. Our other offices, all of which are leased, are located in Atlanta, Chicago, Cleveland, Greenwich, Houston, Jersey City, Menlo Park, Orlando, Stamford, Washington D.C., Luxembourg, Belfast, and other various locations. Our corporate headquarters are located in New York, New York and comprise approximately 98,000 square feet of leased space pursuant to a lease agreement through 2022. Our additional New York locations are comprised of approximately 77,000 square feet pursuant to a lease agreement through 2019 and approximately 41,000 square feet pursuant to a lease agreement through 2022. We lease approximately 19,000 square feet of space in Boston pursuant to a lease agreement expiring in 2023, which is used primarily by our broker-dealer segment. In San Francisco, we lease approximately 26,000 square feet of space, pursuant to a lease agreement expiring in 2025 which is used by our broker-dealer segment. Our London offices are subject to lease agreements expiring in 2022 which are used by our investment management and broker-dealer segments. 26 Item 3. Legal Proceedings In the ordinary course of business, we are named as defendants in, or as parties to, various legal actions and proceedings. Certain of these actions and proceedings assert claims or seek relief in connection with alleged violations of securities, banking, anti-fraud, anti-money laundering, employment and other statutory and common laws. Certain of these actual or threatened legal actions and proceedings include claims for substantial or indeterminate compensatory or punitive damages, or for injunctive relief. In the ordinary course of business, we are also subject to governmental and regulatory examinations, information gathering requests (both formal and informal), certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. Certain of our affiliates and subsidiaries are investment banks, registered broker-dealers, futures commission merchants, investment advisers or other regulated entities and, in those capacities, are subject to regulation by various U.S., state and foreign securities, commodity futures and other regulators. In connection with formal and informal inquiries by these regulators, we receive requests, and orders seeking documents and other information in connection with various aspects of our regulated activities. Due to the global scope of our operations, and presence in countries around the world, we may be subject to litigation, and governmental and regulatory examinations, information gathering requests, investigations and proceedings (both formal and informal), in multiple jurisdictions with legal and regulatory regimes that may differ substantially, and present substantially different risks, from those we are subject to in the United States. The Company seeks to resolve all litigation and regulatory matters in the manner management believes is in the best interests of the Company and its shareholders, and contests liability, allegations of wrongdoing and, where applicable, the amount of damages or scope of any penalties or other relief sought as appropriate in each pending matter. In accordance with US GAAP, the Company establishes reserves for contingencies when the Company believes that it is probable that a loss has been incurred and the amount of loss can be reasonably estimated. The Company discloses a contingency if there is at least a reasonable possibility that a loss may have been incurred and there is no reserve for the loss because the conditions above are not met. The Company's disclosure includes an estimate of the reasonably possible loss or range of loss for those matters, for which an estimate can be made. Neither a reserve nor disclosure is required for losses that are deemed remote. The Company appropriately reserves for certain matters where, in the opinion of management, the likelihood of liability is probable and the extent of such liability is reasonably estimable. Such amounts are included within accounts payable, accrued expenses and other liabilities in the accompanying consolidated statements of financial condition. Estimates, by their nature, are based on judgment and currently available information and involve a variety of factors, including, but not limited to, the type and nature of the litigation, claim or proceeding, the progress of the matter, the advice of legal counsel, the Company's defenses and its experience in similar cases or proceedings as well as its assessment of matters, including settlements, involving other defendants in similar or related cases or proceedings. The Company may increase or decrease its legal reserves in the future, on a matter-by-matter basis, to account for developments in such matters. The Company accrues legal fees as incurred. The following information reflects developments with respect to the Company’s legal proceedings that occurred during the year ended December 31, 2017. On December 27, 2013, Landol Fletcher filed a putative class action lawsuit against Convergex Holdings, LLC, Convergex Group, LLC, Cowen Execution, Convergex Global Markets Limited and G-Trade Services LLC (collectively, “Convergex”) in the United States District Court for the Southern District of New York (Landol Fletcher and all others similarly situated v. Convergex Group LLC, Cowen Execution, Convergex Global Markets Ltd., Convergex Holdings LLC, G-Trade Services LLC, & Does 1-10, No. 1:13-CV-09150-LLS). The suit alleges breaches of fiduciary duty and prohibited transactions under ERISA and seeks to maintain a class action on behalf of all ERISA plan participants, beneficiaries and named fiduciaries whose plans were impacted by net trading by Convergex Global Markets Limited from October 2006 to December 2011. On April 11, 2014, Landol Fletcher and Frederick P. Potter Jr., filed an amended complaint raising materially similar allegations. This matter was assumed by the Company as a result of the Company’s previously announced acquisition of Convergex Group, which was completed on June 1, 2017. On February 17, 2016, the District Court granted Convergex’s motion to dismiss the amended complaint. Plaintiffs filed an appeal to the Second Circuit, and the AARP and Department of Labor filed amicus briefs on plaintiffs' behalf. The appeal was argued on December 12, 2016. On February 10, 2017, the Second Circuit Court of Appeals (1) reversed the District Court, finding that plaintiff has constitutional standing in a “representative” capacity to sue for damages to the ERISA defined benefit plan in which he is a participant, and (2) remanded to the District Court to reconsider, in light of the Circuit Court’s decision, the issue whether plaintiff has standing to pursue claims on behalf of ERISA plans in which plaintiff is not a participant. Convergex filed a petition for rehearing, and the Court of Appeals denied the petition. On June 30, 2017, the Company filed a notice of motion and memorandum of law in support of a motion to stay the proceedings in the District Court pending resolution of its petition for writ of certiorari, which the Company intended to file with the U.S. 27 Supreme Court. On August 16, 2017, the District Court granted the Company’s motion to stay the proceedings in the District Court pending resolution of the Company’s petition for writ of certiorari. On September 1, 2017, the Company filed a petition with the United States Supreme Court for a writ of certiorari requesting review of the decision of the Court of Appeals. On January 8, 2018, the U.S. Supreme Court denied the Company’s petition for a writ of certiorari. The previously granted stay of the proceedings in the District Court will now lift and the case will proceed in the District Court. We are indemnified against losses arising from this matter pursuant to, and subject to, the provisions of the purchase agreement relating to the acquisition of Convergex Group. Because the case is in its preliminary stages, the Company cannot predict the outcome at this time, but it does not currently expect this case to have a material effect on its financial position or its results of operations. Item 4. Mine Safety Disclosures Not Applicable. PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Stock Price Information and Stockholders Our Class A common stock is listed and trades on the NASDAQ Global Market under the symbol "COWN." As of March 5, 2018, there were approximately 43 holders of record of our Class A common stock. This number does not include stockholders for whom shares were held in "nominee" or "street" name. The following table contains historical quarterly price information for the year ended December 31, 2017. On December 5, 2016, we effected a one-for-four reverse stock split. On March 5, 2018, the last reported sale price of our Class A common stock was $14.45. 2017 Fiscal Year First Quarter Second Quarter Third Quarter Fourth Quarter 2016 Fiscal Year First Quarter Second Quarter Third Quarter Fourth Quarter Dividend Policy $ $ High Low 16.65 $ 16.95 17.95 18.25 High Low 15.88 $ 15.56 15.32 16.75 12.45 13.00 15.00 13.50 9.88 10.92 11.48 11.60 We have never declared or paid any cash dividends on Class A common stock or any other class of common stock. Any payment of cash dividends on stock in the future will be at the discretion of our board of directors and will depend upon our results of operations, earnings, capital requirements, financial condition, future prospects, contractual restrictions and other factors deemed relevant by our board of directors. We currently intend to retain any future earnings to fund the operation, development and expansion of our business, and therefore we do not anticipate paying any cash dividends on common stock in the foreseeable future. Issuer Purchases of Equity Securities: Sales of Unregistered Securities As of December 31, 2017, the Company's Board of Directors has approved a share repurchase program that authorizes the Company to purchase up to $138.3 million of Cowen Class A common stock from time to time through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws. During the year ended December 31, 2017, through the share repurchase program, the Company repurchased 1,401,866 shares of Cowen Class A common stock at an average price of $13.90 per share. The table below sets forth the information with respect to purchases made by or on the behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act, as amended), of our common stock during the year ended December 31, 2017. All amounts have been retroactively updated to reflect the one-for-four reverse stock split, which was effective December 5, 2016. 28 Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs Period Month 1 (January 1, 2017 – January 31, 2017) Common stock repurchases(1) Employee transactions(2) Total Month 2 (February 1, 2017 – February 28, 2017) Common stock repurchases(1) Employee transactions(2) Total Month 3 (March 1, 2017 – March 31, 2017) Common stock repurchases(1) Employee transactions(2) Total Month 4 (April 1, 2017 – April 30, 2017) Common stock repurchases(1) Employee transactions(2) Total Month 5 (May 1, 2017 – May 31, 2017) Common stock repurchases(1) Employee transactions(2) Total Month 6 (June 1, 2017 – June 30, 2017) Common stock repurchases(1) Employee transactions(2) Total Month 1 (July 1, 2017 – July 31, 2017) Common stock repurchases(1) Employee transactions(2) Total Month 2 (August 1, 2017 – August 31, 2017) Common stock repurchases(1) Employee transactions(2) Total Month 3 (September 1, 2017 – September 30, 2017) Common stock repurchases(1) Employee transactions(2) Total Month 10 (October 1, 2017 – October 31, 2017) Common stock repurchases(1) Employee transactions(2) Other (3) Total Month 11 (November 1, 2017 – November 30, 2017) Common stock repurchases(1) Employee transactions(2) Total Month 12 (December 1, 2017 – December 31, 2017) Common stock repurchases(1) Employee transactions(2) Total Total (January 1, 2017 – December 31, 2017) Common stock repurchases(1) Employee transactions(2) Other (3) Total — $ 19,626 19,626 $ $ — $ 6,355 6,355 $ $ — $ 302,257 302,257 $ $ — $ 5,324 5,324 $ $ — $ 337,798 337,798 111,029 111,029 $ $ $ $ $ — 14.84 14.84 — 15.79 15.79 — 13.44 13.44 — 13.49 13.49 — 15.00 15.00 — 15.19 15.19 — $ — — 17 17 9,321 9,321 $ $ $ $ — $ 134 97,612 97,746 $ $ $ — $ 152 152 1,401,866 30,983 1,432,849 1,401,866 822,996 97,612 2,322,474 $ $ $ $ $ $ $ $ $ 15.00 15.00 16.55 16.55 — 17.95 16.66 16.66 — 14.75 14.75 13.90 14.56 13.91 13.90 14.45 16.66 — — — — — — — — — — — — — — — — — — — — — 1,401,866 — 20,916,234 — 20,916,234 — 20,916,234 — 20,916,234 — 20,916,234 — 20,916,234 — 20,916,234 — 20,916,234 — 20,916,234 — 20,916,234 — — 20,916,234 — 1,430,297 — 1,401,866 1,430,297 — — — — 14.21 $ 1,401,866 29 (1) (2) (3) The Company's Board of Directors have authorized the repurchase, subject to market conditions, of up to $138.3 million of the Company's outstanding common stock. Represents shares of common stock withheld in satisfaction of tax withholding obligations upon the vesting of equity awards or other similar transactions. Represents shares of common stock distributed to the Company from an escrow account established to satisfy the Company’s indemnification claims arising under the terms of the purchase agreement entered into in connection with the Company’s acquisition of Convergex Group, LLC. Item 6. Selected Financial Data The following table sets forth our selected consolidated financial and other data for the years ended December 31, 2017, 2016, 2015, 2014, and 2013. The selected consolidated statements of financial condition data and consolidated statements of operations data as of and for the years ended December 31, 2017, 2016, 2015, 2014, and 2013 have been derived from our audited consolidated financial statements. Our selected consolidated financial data are only a summary and should be read in conjunction with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. 30 Consolidated Statements of Operations Data: Revenues Investment banking Brokerage Management fees Incentive income Interest and dividends Reimbursement from affiliates Aircraft lease revenue Reinsurance premiums Other revenues Consolidated Funds revenues Total revenues Expenses Year Ended December 31, 2017 2016 2015 2014 2013 (in thousands except per share data) $ 223,614 $ 133,279 $ 222,781 $ 170,506 $ 293,610 199,180 157,722 140,132 33,245 5,383 49,440 2,860 3,751 30,996 8,561 7,321 40,612 8,334 14,732 10,504 4,161 32,459 22,355 5,949 41,906 1,466 13,796 21,557 — — 3,726 1,613 40,627 2,785 48,870 12,495 — — 9,446 2,915 105,333 114,593 37,303 12,586 39,454 10,434 — — 5,418 3,398 658,781 471,565 464,567 427,776 328,519 Employee compensation and benefits Non-compensation expense Reinsurance claims, commissions and amortization of deferred acquisition costs Goodwill impairment Consolidated Funds expenses Total expenses Other income (loss) Net gains (losses) on securities, derivatives and other investments Bargain purchase gain Gain/(loss) on debt extinguishment Consolidated Funds net gains (losses) Total other income (loss) Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds Net income (loss) attributable to Cowen Inc. Preferred stock dividends Net income (loss) attributable to Cowen Inc. common stockholders Weighted average common shares outstanding: Basic (a) Diluted (a) Earnings (loss) per share: Basic (a) Diluted (a) $ $ $ 404,087 310,499 30,486 — 12,526 757,598 76,179 6,914 (16,039) 38,725 105,779 6,962 44,053 (37,091) 23,791 (60,882) 6,792 310,038 198,112 29,904 — 9,064 547,118 23,381 — — 20,685 44,066 (31,487) (19,092) (12,395) 6,882 (19,277) 6,792 321,386 180,678 — — 2,310 504,374 305,483 180,740 — 2,334 1,634 490,191 36,789 104,928 — — 14,497 51,286 11,479 (47,496) 58,975 15,246 43,729 4,075 — — 15,323 120,251 57,836 (124,944) 182,780 15,564 167,216 — (67,674) $ (26,069) $ 39,654 $ 167,216 $ 29,492 29,492 26,857 26,857 27,522 29,043 28,731 29,871 207,248 151,630 — — 2,039 360,917 39,651 — — 11,044 50,695 18,297 457 17,840 13,193 4,647 — 4,647 29,175 30,279 (2.29) (2.29) $ $ (0.97) (0.97) $ $ 1.44 1.37 $ $ 5.82 5.60 $ $ 0.16 0.15 (a) Share and per share amounts have been retroactively updated to reflect the one-for-four reverse stock split effective as of December 5, 2016. Consolidated Statements of Financial Condition Data: Total assets Total liabilities Redeemable non-controlling interests Total Stockholders' Equity As of December 31, 2017 2016 2015 2014 2013 (dollars in thousands) $ $ 3,296,252 $ 2,018,523 $ 1,787,659 $ 2,399,718 $ 2,107,629 440,604 866,668 379,205 810,755 186,911 1,635,967 86,076 748,019 $ 772,650 $ 789,993 $ 677,675 $ 1,842,000 1,248,420 85,814 507,766 31 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our audited consolidated financial statements and the related notes that appear elsewhere in this Annual Report. In addition to historical information, this discussion includes forward- looking information that involves risks and assumptions, which could cause actual results to differ materially from management's expectations. See "Special Note Regarding Forward-Looking Statements" included elsewhere in this Annual Report on Form 10-K. Overview Cowen Inc. (formerly Cowen Group, Inc.), a Delaware corporation formed in 2009, is a diversified financial services firm and, together with its consolidated subsidiaries (collectively, "Cowen" or the "Company"), provides investment management, investment banking, research, sales and trading, prime brokerage, global clearing and commission management services through its two business segments: investment management and broker-dealer. The investment management segment includes private funds, managed accounts, commodity pools, real estate funds, private equity structures, registered investment companies and listed vehicles and also manages a significant portion of the Company’s proprietary capital. The broker-dealer segment offers industry focused investment banking for growth-oriented companies including advisory and global capital markets origination and domain knowledge-driven research, sales and trading platform for institutional investors, global clearing and commission management services and also a comprehensive suite of prime brokerage services. The Company's investment management platform, which operates primarily under the Cowen Investment Management name (formerly "Ramius"), offers innovative investment products and solutions across the liquidity spectrum to institutional and private clients. The predecessor to this business was founded in 1994 and, through one of its subsidiaries, has been registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act") since 1997. The Company's investment management business offers investors access to a number of strategies to meet their specific needs including long/short equity, merger arbitrage, activism, health care royalties, private healthcare and private real estate. The Company's investment management business focuses on attracting and retaining talented in-house and affiliated investment teams and providing seed capital and working capital, an institutional infrastructure, robust sales and marketing and industry knowledge. A significant portion of the Company’s capital is invested alongside the Company's investment management clients. The Company has also invested some of its capital in its aviation and reinsurance businesses. Our investment management business had approximately $11.0 billion of assets under management as of January 1, 2018. See the section titled "Assets Under Management and Fund Performance" for further analysis. Our broker-dealer businesses include investment banking, research, sales and trading, prime brokerage, global clearing and commission management services to companies and primarily institutional investor clients. Our primary target sectors ("Target Sectors") are healthcare, technology, media and telecommunications, information and technology services, consumer, aerospace and defense, industrials, energy and transportation. We provide research and brokerage services to over 4,000 domestic and international clients seeking to trade securities and other financial instruments, principally in our target sectors. The broker-dealer segment also offers a full-service suite of introduced prime brokerage services targeting emerging private fund managers. Historically, we have focused our investment banking efforts on small to mid-capitalization public companies as well as private companies. From time to time, the Company invests in private capital raising transactions of its investment banking clients. On December 5, 2016, the Company effected a one-for-four reverse stock split of our common stock. Except where the context indicates otherwise, all share and per share information has been retroactively adjusted to reflect the reverse stock split. Certain Factors Impacting Our Business Our investment management business and results of operations are impacted by the following factors: • Assets under management. Our revenues from management fees are directly linked to assets under management. As a result, the future performance of our investment management business will depend on, among other things, our ability to retain assets under management and to grow assets under management from existing and new products. In addition, positive performance increases assets under management which results in higher management fees. • Investment performance. Our revenues from incentive income are linked to the performance of the funds and accounts that we manage. Performance also affects assets under management because it influences investors' decisions to invest assets in, or withdraw assets from, the funds and accounts managed by us. • Fee and allocation rates. Our management fee revenues are linked to the management fee rates we charge as a percentage of assets under management. Our incentive income revenues are linked to the incentive allocation rates we charge as a percentage of performance-driven asset growth. Our incentive allocations are generally subject to “high- water marks,” whereby incentive income is generally earned by us only to the extent that the net asset value of a fund 32 at the end of a measurement period exceeds the highest net asset value as of the end of the earlier measurement period for which we earned incentive income. Our incentive allocations, in some cases, are subject to performance hurdles. • Investment performance of our own capital. We invest our own capital and the performance of such invested capital affects our revenues. Our broker-dealer business and results of operations are impacted by the following factors: • Underwriting, private placement and strategic/financial advisory fees. Our revenues from investment banking are directly linked to the underwriting fees we earn in equity and debt securities offerings in which the Company acts as an underwriter, private placement fees earned in non-underwritten transactions, sales commissions earned in at-the- market offerings and success fees earned in connection with advising both buyers and sellers, principally in mergers and acquisitions. As a result, the future performance of our investment banking business will depend on, among other things, our ability to secure lead manager and co-manager roles in clients' capital raising transactions as well as our ability to secure mandates as a client's strategic financial advisor. • Commissions. Our commission revenues depend for the most part on our customer trading volumes and on the notional value of the non-U.S. securities traded by our customers. • Principal transactions. Principal transactions revenue includes net trading gains and losses from the Company's market-making activities and net trading gains and losses on inventory and other Company positions. Commissions associated with these transactions are also included herein. In certain cases, the Company provides liquidity to clients buying or selling blocks of shares of listed stocks without previously identifying the other side of the trade at execution, which subjects the Company to market risk. • Equity and credit research fees. Equity and credit research fees are paid to the Company for providing equity and credit research. The Company also permits institutional customers to allocate a portion of their commissions to pay for research products and other services provided by third parties. Our ability to generate revenues relating to our equity and credit research depends on the quality of our research and its relevance to our institutional customers and other clients. • • Investment performance of our own capital. Investment income in the broker-dealer business includes gains and losses generated by the capital the Company invests in private capital raising transactions of its investment banking clients. Our revenues from investment income are linked to the performance of the underlying investments. Liquidity. As a clearing broker-dealer in the U.S., we are subject to cash deposit requirements with clearing organizations, brokers and banks that may be large in relation to our total liquid assets. External Factors Impacting Our Business Our financial performance is highly dependent on the environment in which our businesses operate. We believe a favorable business environment is characterized by many factors, including a stable geopolitical climate, transparent financial markets, low inflation, low interest rates, low unemployment, strong business profitability and high business and investor confidence. Unfavorable or uncertain economic or market conditions can be caused by declines in economic growth, business activity or investor or business confidence, limitations on the availability (or increases in the cost of) credit and capital, increases in inflation or interest rates, exchange rate volatility, unfavorable global asset allocation trends, outbreaks of hostilities or other geopolitical instability, corporate, political or other scandals that reduce investor confidence in the capital markets, or a combination of these or other factors. Our businesses and profitability have been and may continue to be adversely affected by market conditions in many ways, including the following: • Our broker-dealer business has been, and may continue to be, adversely affected by market conditions. Increased competition continues to affect our investment banking and capital markets businesses. The same factors also affect trading volumes in secondary financial markets, which affect our brokerage business. Commission rates, market volatility, increased competition from larger financial firms and other factors also affect our brokerage revenues and may cause these revenues to vary from period to period. • Our broker-dealer business focuses primarily on small to mid-capitalization and private companies in specific industry sectors. These sectors may experience growth or downturns independent of general economic and market conditions, or may face market conditions that are disproportionately better or worse than those impacting the economy and markets generally. In addition, increased government regulation has had, and may continue to have, a disproportionate effect on capital formation by smaller companies. Therefore, our broker-dealer business could be affected differently than overall market trends. • Our investment management business can be adversely affected by unanticipated levels of requested redemptions. We experienced significant levels of requested redemptions during the 2008 financial crisis and, while the environment for 33 investing in investment management products has since improved, it is possible that we could intermittently experience redemptions above historical levels, regardless of fund performance. Our businesses, by their nature, do not produce predictable earnings. Our results in any period can be materially affected by conditions in global financial markets and economic conditions generally. We are also subject to various legal and regulatory actions that impact our business and financial results. Recent Developments On December 27, 2017, Jeffrey M. Solomon became Chief Executive Officer of the Company, pursuant to the Company’s succession plan. Peter A. Cohen remains Chairman of the Board of Directors of the Company. On December 8, 2017 the Company completed a public offering of $120.0 million of 7.35% senior notes due 2027. On December 14, 2017 the underwriters exercised in full their option to purchase an additional $18.0 million principal amount of the notes. The net proceeds of the offering, after deducting the underwriting discount and estimated offering expenses payable by the Company, were approximately $133.0 million and were used to redeem the Company’s outstanding ($63.25 million principal amount) 8.25% senior notes due 2021 (the “2021 Notes”) following which the 2021 Notes were delisted from NASDAQ. On December 14, 2017, the Company issued $135.0 million aggregate principal amount of 3.00% convertible senior notes due 2022. The Company used the net proceeds from the offering, together with cash on hand, for general corporate purposes, including the repurchase or repayment of $115.1 million of the Company’s outstanding 3.0% cash convertible senior notes due 2019 and the repurchase of approximately $19.5 million of the Company’s shares of its common stock from purchasers of the notes in privately negotiated transactions, which were consummated substantially concurrently with the closing of the offering. Basis of presentation The consolidated financial statements of the Company in this Form 10-K are prepared in accordance with US GAAP as promulgated by the Financial Accounting Standards Board ("FASB") through Accounting Standards Codification as the source of authoritative accounting principles in the preparation of financial statements and include the accounts of the Company, its subsidiaries, and entities in which the Company has a controlling financial interest or a substantive, controlling general partner interest. All material intercompany transactions and balances have been eliminated in consolidation. Certain fund entities that are consolidated in the consolidated financial statements, are not subject to these consolidation provisions with respect to their own investments pursuant to their specialized accounting. The Company serves as the managing member/general partner and/or investment manager to affiliated fund entities which it sponsors and manages. Certain of these funds in which the Company has a substantive, controlling general partner interest are consolidated with the Company pursuant to US GAAP as described below (the “Consolidated Funds”). Consequently, the Company's consolidated financial statements reflect the assets, liabilities, income and expenses of these funds on a gross basis. The ownership interests in these funds which are not owned by the Company are reflected as redeemable non-controlling interests in consolidated subsidiaries in the consolidated financial statements appearing elsewhere in this Form 10-K. The management fees and incentive income earned by the Company from these funds are eliminated in consolidation. Acquisition On June 1, 2017, the Company, through its wholly owned subsidiary Cowen CV Acquisition LLC, entered into a securities purchase agreement with, among others, Convergex Holdings LLC to acquire all the outstanding interests in Convergex Group, LLC ("Convergex Group") (subsequently renamed to Cowen Execution Holdco LLC). This acquisition was accounted for under the acquisition method of accounting in accordance with US GAAP. As such, results of operations for Convergex Group are included in the accompanying consolidated statements of operations since the date of acquisition, and the assets acquired and liabilities assumed were recorded at their fair value as of the acquisition date. On May 6, 2016, the Company completed its previously announced acquisition of the credit products, credit research, special situations and emerging markets units from CRT Capital Group LLC (“CRT”). The acquisition was completed for a combination of cash of $6.3 million and contingent consideration payable annually based on future revenues exceeding specific targets. The acquisition was accounted for under the acquisition method of accounting in accordance with US GAAP. As such, the results of operations of the businesses acquired are included in the accompanying consolidated statements of operations since the date of the acquisition and the assets acquired, liabilities assumed and the resulting goodwill were recorded at their fair values within their respective line items on the accompanying consolidated statement of financial condition. On April 22, 2016, Cowen Aviation Finance Holdings Inc. ("Cowen Aviation Finance") entered into a transaction whereby Cowen Aviation Finance acquired Low Country III, LLC, which is comprised of a portfolio of four specialized aircraft currently on lease in exchange for an immaterial upfront payment and a minority equity interest in Cowen Aviation Finance. As part of 34 the transaction Cowen Aviation Finance also acquired the associated debt financing and lease contracts for each aircraft. Separate from the transaction, Cowen Aviation Finance entered into services agreements with Tempus Applied Solutions, Inc., a related party through common directors, which, among other services, will provide marketing, maintenance, and lease administration services for Cowen Aviation Finance's current aircraft fleet. This acquisition was accounted for as an asset acquisition in accordance with US GAAP because, upon separation from the seller, the acquired assets do not meet the definition of a business. Divestitures On September 23, 2016, the Company and the portfolio managers of Ramius Alternative Solutions LLC ("RASL") completed the sale of their respective ownership interests in RASL, an investment advisor, and RASL was deconsolidated as of that date. RASL offered a range of customized hedge fund investment solutions with approximately $2.5 billion in client assets. As the Company will continue to offer its investment management platform to institutional and retail investors, the sale was not presented as discontinued operations. The overall impact on the consolidated financial position, results of operations and cash flows is not expected to be significant. Effective as of August 2017, Cowen and the relevant sub-adviser, Archview Investment Group LP, elected to close the Ramius Archview Credit & Distressed Fund, to which Cowen had been a sponsor and held a significant minority interest. Effective as of the beginning of the fourth quarter of 2017, Cowen withdrew from its partnership with Caerus Investors, LLC, an equity long short strategy in which Cowen had a significant minority interest. Effective as of January 31, 2018, Cowen withdrew from its partnership with Quadratic Capital Management LLC, an options-based discretionary macro strategy in which Cowen had a significant minority interest. Revenue recognition Our principal sources of revenue are derived from two segments: an investment management segment and a broker-dealer segment, as more fully described below. Our investment management segment generates revenue through three principal sources: management fees, incentive income and investment income from the Company's own capital. Our broker-dealer segment generates revenue through three principal sources: investment banking, brokerage and investment income. Management fees The Company earns management fees from affiliated private funds and certain managed accounts that it serves as the investment manager based on assets under management. The actual management fees received vary depending on distribution fees or fee splits paid to third parties either in connection with raising the assets or structuring the investment. Several management companies of the private funds are owned jointly by the Company and third parties. Accordingly, the management fees generated by these funds are split between the Company and these third parties. Pursuant to US GAAP, these fees received by the management companies that are accounted for under the equity method of accounting and are reflected under net gains (losses) on securities, derivatives and other investments in the accompanying consolidated statements of operations. Management fees are generally paid on a quarterly basis at the beginning of each quarter in arrears and are prorated for capital inflows and redemptions. While some investors may have separately negotiated fees, in general the management fees are as follows: • Private Funds. Management fees for the Company's private funds, including the private healthcare fund, are generally charged at an annual rate of up to 2% of assets under management or notional trading level. Management fees are generally calculated monthly based on assets under management at the end of each month before incentive income. • Real Estate. Management fees from the Company's real estate business are generally charged at an annual rate from 0.25% to 1.50% of total capital commitments during the investment period and of invested capital or net asset value of the applicable fund after the investment period has ended. Management fees are typically paid to the general partners on a quarterly basis, at the beginning of the quarter in arrears, and are prorated for changes in capital commitments throughout the investment period and invested capital after the investment period. • HealthCare Royalty Partners. In HealthCare Royalty Partners main funds, during the investment period (as defined in the relevant partnership agreements), management fees are generally charged at an annual rate of 1% to 2% of committed capital. After the investment period, management fees for these funds are generally charged at an annual rate of 0.5% to 2% of the net asset value or the aggregate cost basis of the unrealized investments held by the funds. 35 For the other funds (and managed accounts) managed by Healthcare Royalty Partners, the management fee ranges from 0.2% to 1% and there is no adjustment based on an investment period. Management fees for the HealthCare Royalty Partners funds are calculated on a quarterly basis. • Cowen Trading Strategies. Advisory fees for the Company's collateral management advisory business are typically paid quarterly based on assets under management but generally subject to a minimum fee. Incentive income The Company earns incentive income based on net profits (as defined in the respective investment management agreements) with respect to certain of the Company's investment management products, allocable for each fiscal year that exceeds cumulative unrecovered net losses, if any, that have been carried forward from prior years. For the products we offer, incentive income earned is typically up to 20% for private funds (in certain cases on performance in excess of a benchmark), of the net profits earned for the full year that are attributable to each fee-paying investor. Generally, incentive income on real estate funds is earned after the investor has received a full return of their invested capital, plus a preferred return. However, for certain real estate funds, the Company is entitled to receive incentive fees earlier, provided that the investors have received their preferred return on a current basis or on an investor by investor basis. These funds are generally subject to a potential clawback of these incentive fees upon the liquidation of the fund if the investor has not received a full return of its invested capital plus the preferred return thereon. Incentive income in the HealthCare Royalty Partners funds is generally earned only after investors receive a full return of their capital plus a preferred return. Several general partners of the Company's private funds are jointly owned by the Company and third parties. Accordingly, the incentive fees generated by these funds are split between the Company and these third parties. Pursuant to US GAAP, incentive income received by the general partners that are accounted for under the equity method of accounting are reflected under net gains (losses) on securities, derivatives and other investments in the accompanying consolidated statements of operations. In periods following a period of a net loss attributable to an investor, the Company generally does not earn incentive income on any future profits attributable to that investor until the accumulated net loss from prior periods is recovered, an arrangement commonly referred to as a “high-water mark.” The Company has elected to record incentive income revenue in accordance with “Method 2” of US GAAP. Under Method 2, the incentive income from the Company's investment management products for any period is based upon the net profits of those investment management products at the reporting date. Any incentive income recognized in the accompanying consolidated statement of operations may be subject to future reversal based on subsequent negative performance prior to the conclusion of the fiscal year, when all contingencies have been resolved. Carried interest in the real estate funds and HealthCare Royalty Partners funds are subject to clawback to the extent that the carried interest actually distributed to date exceeds the amount due to the Company based on cumulative results. As such, the accrual for potential repayment of previously received carried interest, which is a component of accounts payable, accrued expenses and other liabilities, represents all amounts previously distributed to the Company, less an assumed tax liability, that would need to be repaid to certain funds if these funds were to be liquidated based on the current fair value of the underlying funds' investments as of the reporting date. The actual clawback liability does not become realized until the end of a fund's life. Investment Banking The Company earns investment banking revenue primarily from fees associated with public and private capital raising transactions and providing strategic advisory services. Investment banking revenues are derived primarily from small and mid- capitalization companies within the Company's Target Sectors. Investment banking revenue consists of underwriting fees, strategic/financial advisory fees and placement and sales agent fees. • Underwriting fees. The Company earns underwriting fees in securities offerings in which the Company acts as an underwriter, such as initial public offerings, follow-on equity offerings, debt offerings, and convertible security offerings. Fee revenue relating to underwriting commitments is recorded when all significant items relating to the underwriting process have been completed and the amount of the underwriting revenue has been determined. This generally is the point at which all of the following have occurred: (i) the issuer's registration statement has become effective with the SEC or the other offering documents are finalized; (ii) the Company has made a firm commitment for the purchase of securities from the issuer; and (iii) the Company has been informed of the number of securities that it has been allotted. When the Company is not the lead manager for an underwriting transaction, management must estimate the Company's share of transaction-related expenses incurred by the lead manager in order to recognize revenue. Transaction-related expenses are deducted from the underwriting fee and therefore reduce the revenue the Company 36 recognizes as co-manager. Such amounts are adjusted to reflect actual expenses in the period in which the Company receives the final settlement, typically within 90 days following the closing of the transaction. • Strategic/financial advisory fees. The Company's strategic advisory revenues include success fees earned in connection with advising companies, principally in mergers, acquisitions and restructuring transactions. The Company also earns fees for related advisory work such as providing fairness opinions. The Company records strategic advisory revenues when the services for the transactions are completed under the terms of each assignment or engagement and collection is reasonably assured. Expenses associated with such transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded. • Placement and sales agent fees. The Company earns agency placement fees and sales agent commissions in non- underwritten transactions such as private placements of loans and debt and equity securities, including, private investment in public equity transactions (“PIPEs”), and as sales agent in at-the-market offerings of equity securities. The Company records placement revenues (which may be in cash and/or securities) when the services for the transactions are completed under the terms of each assignment or engagement and collection is reasonably assured. The Company records sales agent commissions on a trade date basis. Expenses associated with such transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded. Brokerage Brokerage revenue consists of commissions, principal transactions, equity and credit research fees and trade conversion revenue. • Commissions. Commission revenue includes fees from executing and clearing client transactions and commission sharing arrangements. These fees are recognized on a trade date basis. The Company permits institutional customers to allocate a portion of their commissions to pay for research products and other services provided by third parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. Commissions on soft dollar brokerage are recorded net of the related expenditures on an accrual basis. The costs of commission recapture arrangements are recorded on an accrual basis for each eligible trade and shown net of commission revenue. Commission revenues also includes fees from making algorithms available to clients. • Principal transactions. Principal transactions revenue includes net trading gains and losses from the Company's market-making activities in over-the-counter equity and fixed income securities, trading of convertible securities, and trading gains and losses on inventory and other Company positions, which include warrants previously received as part of investment banking transactions. In certain cases, the Company provides liquidity to clients by buying or selling blocks of shares of listed stocks without previously identifying the other side of the trade at execution, which subjects the Company to market risk. These positions are typically held for a very short duration. • Equity and credit research fees. Equity and credit research fees are paid to the Company for providing equity and credit research. Revenue is recognized once an arrangement exists, access to research has been provided, the fee amount is fixed or determinable, and collection is reasonably assured. • Trade conversion revenue. Trade conversion revenue includes the fee earned from converting foreign securities into an American Depository Receipt (“ADR”) and the fee earned from converting an ADR into foreign securities on behalf of customers, and margins earned from facilitating customer foreign exchange transactions. Trade conversion revenue is recognized on a trade date basis. Investment Income Investment income earned by the investment management and broker-dealer segments are earned from investing the Company's capital in various strategies and from investments in private capital raising transactions of its investment banking clients. Interest and Dividends Interest and dividends are earned by the Company from various sources. The Company receives interest and dividends primarily from securities finance activities and securities held by the Company for purposes of investing capital, investments held by its Consolidated Funds and its brokerage balances. Interest is recognized on an accrual basis and interest income is recognized on the debt of those issuers that is deemed collectible. Interest income and expense includes premiums and discounts amortized and accreted on debt investments based on criteria determined by the Company using the effective yield method, which assumes the reinvestment of all interest payments. Dividends are recognized on the ex-dividend date. 37 Reimbursement from Affiliates The Company allocates, at its discretion, certain expenses incurred on behalf of its private fund and real estate businesses. These expenses relate to the administration of such subsidiaries and assets that the Company manages for its funds. In addition, pursuant to the funds' offering documents, the Company charges certain allowable expenses to the funds, including charges and personnel costs for legal, compliance, accounting, tax compliance, risk and technology expenses that directly relate to administering the assets of the funds. Such expenses that have been reimbursed at their actual costs are included in the consolidated statements of operations as employee compensation and benefits, professional, advisory and other fees, communications, occupancy and equipment, client services and business development and other. Aircraft lease revenue Aircraft lease revenue associated with the Company's aircraft leasing business is recorded on a straight-line basis over the term of the lease, net of deferred rent and/or prepaid initial direct costs. Reinsurance premiums Premiums for insurance-related contracts are earned over the coverage period. In most cases, premiums are recognized as revenues ratably over the term of the contract with unearned premiums computed on a monthly basis. In accordance with US GAAP, for each of its contracts, the Company determines if the contract provides indemnification against loss or liability relating to insurance risk. If the Company determines that a contract does not expose it to a reasonable possibility of a significant loss from insurance risk, the Company records the contract under the deposit method of accounting with any net amount receivable reflected as an asset in other assets, and any net amount payable reflected as a liability within accounts payable, accrued expenses and other liabilities on the consolidated statements of financial condition. The liabilities for losses and loss adjustment expenses are recorded at the estimated ultimate payment amounts, including reported losses. Estimated ultimate payment amounts are based upon (1) reports of losses from policyholders, (2) individual case estimates and (3) estimates of incurred but not reported losses. Provisions for losses and loss adjustment expenses are charged to earnings after deducting amounts recovered and estimates of recoverable amounts and are included in other expenses on the consolidated statements of operations. Costs of acquiring new policies, which vary with and are directly related to the production of new policies, have been deferred to the extent that such costs are deemed recoverable from future premiums or gross profits. Such costs include commissions and allowances as well as certain costs of policy issuance and underwriting and are included within other assets on the consolidated statements of financial condition. Expenses The Company's expenses consist of compensation and benefits, interest and dividends, reinsurance costs, general, administrative and other, and consolidated fund expenses. • Compensation and Benefits. Compensation and benefits is comprised of salaries, benefits, discretionary cash bonuses and equity-based compensation. Annual incentive compensation is variable, and the amount paid is generally based on a combination of employees' performance, their contribution to their business segment, and the Company's performance. Generally, compensation and benefits comprise a significant portion of total expenses, with annual incentive compensation comprising a significant portion of total compensation and benefits expenses. • Interest and Dividends. Interest and dividends expense relates primarily to securities finance activities, trading activity with respect to the Company's investments and interest expense on debt. • Reinsurance claims, commissions and amortization of deferred acquisition costs. Reinsurance related expenses reflect loss and claim reserves, acquisition costs and other expenses incurred with respect to our insurance and reinsurance operations. • General, Administrative and Other. General, administrative and other expenses are primarily related to professional services, occupancy and equipment, business development expenses, communications, expenses associated with our reinsurance business and other miscellaneous expenses. These expenses may also include certain one-time charges and non-cash expenses. • Consolidated Funds Expenses. Certain funds are consolidated by the Company pursuant to US GAAP. As such, the Company's consolidated financial statements reflect the expenses of these consolidated entities and the portion attributable to other investors is allocated to a redeemable non-controlling interest. 38 Income Taxes The taxable results of the Company’s U.S. operations are subject to U.S. federal, state and city taxation as a corporation. The Company is also subject to foreign taxation on income it generates in certain countries. The Company records deferred tax assets and liabilities for the future tax benefit or expense that will result from differences between the carrying value of its assets for income tax purposes and for financial reporting purposes, as well as for operating or capital loss and tax credit carryovers. A valuation allowance is recorded to bring the net DTA to a level that, in management’s view, is more likely than not to be realized in the foreseeable future. This level will be estimated based on a number of factors, especially the amount of net deferred tax assets of the Company that are actually expected to be realized, for tax purposes, in the foreseeable future. Deferred tax liabilities that cannot be realized in a similar future time period and thus that cannot offset the Company’s deferred tax assets are not taken into account when calculating the Company’s net DTA. In December 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted. The 2017 Tax Act represents major tax reform legislation that, among other provisions, reduces the U.S. corporate tax rate. Certain income tax effects of the 2017 Tax Act, including $46.6 million of tax expense recorded principally due to the re-measurement of our net deferred tax assets at this new rate, are reflected in our financial results in accordance with Staff Accounting Bulletin No. 118 (SAB 118), which provides SEC staff guidance regarding the application of Accounting Standards Codification (ASC) Topic 740, Income Taxes, in the reporting period in which the 2017 Tax Act became law. See Note 21 to the consolidated financial statements for further information on the financial statement impact of the 2017 Tax Act. Redeemable Non-controlling Interests Redeemable non-controlling interests represent the pro rata share of the income or loss of the non-wholly owned consolidated entities attributable to the other owners of such entities. Due to the fact that the non-controlling interests are redeemable at the option of the holder they have been classified as temporary equity. Assets Under Management and Fund Performance Assets Under Management Assets under management refer to all of our investment management products, solutions and services including private funds, managed accounts, commodity pools, real estate funds, private equity structures, registered investment companies and listed vehicles. The Company's investment management segment includes such strategies as long/short equity, merger arbitrage, activism, health care royalties, private healthcare and private real estate. Assets under management also include the fair value of assets the Company manages pursuant to separately managed accounts, collateralized debt obligations for which the Company is the collateral manager, and, as indicated in the footnotes to the table below, proprietary assets which the Company has invested in these products. Also, as indicated, assets under management for certain products may represent committed capital or committed funding that may not be under our control but forms part of the investment management product’s trading level. As of January 1, 2018, the Company had assets under management of $11.0 billion, a 4.4% increase as compared to assets under management of $10.5 billion as of January 1, 2017. The $0.5 billion increase in assets under management during the year ended December 31, 2017 primarily resulted from subscriptions in private funds and real estate and offset by distributions or redemptions in the healthcare royalty and private funds businesses. The following table is a breakout of total assets under management by platform as of January 1, 2018 (which excludes cross investments from other Ramius platforms): 39 Private Funds (a) (b) (g) Alternative Solutions (a) Cowen Trading Strategies (h) Real Estate (a) (d) (i) Healthcare Royalty Partners (c) (d) (i) Private Healthcare (d) (i) (k) Other (j) Total Platform January 1, 2015 $ 4,218 $ 3,784 $ Subscriptions 2,725 Redemptions Performance (e) (572) (781) 997 (810) (419) 147 — (49) (3) (dollars in millions) $ 1,707 $ 2,582 $ — $ — (65) — — (178) 5 — — — 48 — (14) — $ 12,486 3,722 (1,688) (1,198) Net Return (f) (18.52)% (11.07)% (2.04)% —% 0.19 % —% —% (9.59)% January 1, 2016 Subscriptions Redemptions Performance (e) 5,590 1,537 (714) 362 3,552 — (3,641) 89 95 — (40) (3) Net Return (f) 6.48 % 2.51 % (3.16)% January 1, 2017 6,775 Subscriptions 823 Redemptions (1,168) Performance (e) 430 — — — — 52 163 (59) 1 1,642 — (220) — —% 1,422 583 — — 2,409 — (137) 10 — — — — 34 — (21) — 13,322 1,537 (4,773) 458 0.42 % —% —% 3.44 % 2,282 — (521) (26) — 179 (12) 15 13 51 — — 10,544 1,799 (1,760) 420 Net Return (f) 6.35 % — % 1.92 % —% (1.14)% —% —% 3.98 % January 1, 2018 $ 6,860 $ — $ 157 $ 2,005 $ 1,735 $ 182 $ 64 $ 11,003 (a) The Company owns between 20% and 55% of the general partners, investment managers or managing members of the real estate business, the activist business, and the global macro business and the equity long/short business. The Company does not possess unilateral control over any of the foregoing businesses. The Company owns 100% of the investment manager of the event-driven equity business. On September 23, 2016, the Company completed the sale of its interest in the alternative solutions business, thereby reducing the Company’s estimated assets under management by approximately $2.5 billion. (b) These amounts include the Company's invested capital of approximately $160.9 million, $176.6 million and $173.6 million as of January 1, 2018, January 1, 2017 and 2016, respectively (including interests in both a registered investment company and an Undertakings for Collective Investment Trust (UCITS), each of which pursues a private fund-style strategy). Assets under management amounts are as of January 1, 2018 and include approximately $611.2 million of committed but undrawn capital that will be charged fees when invested. (c) These amounts include the Company's invested capital of approximately $5.6 million, $10.5 million and $20.2 million as of January 1, 2018, January 1, 2017 and 2016, respectively. (d) This amount includes unfunded capital commitments. (e) Performance and net returns are net of all management and incentive fees and includes the effect of any foreign exchange translation adjustments and leverage in certain funds. (f) Performance net returns are calculated on the platform as a whole. Net return of individual funds will vary. (g) The Company’s actively marketed private fund products have varying liquidity terms typically ranging from daily to quarterly liquidity with less liquidity applying to certain co-investment vehicles. In 2010, the Company suspended redemption rights with respect to certain private funds that are being wound down. The private funds that have suspended redemption rights represent approximately 3.13% of the total private fund assets under management. (h) Cowen Trading Strategies advised a managed futures mutual fund that was fully liquidated as of April 30, 2017. The Company began managing the assets of a Collateralized Debt Obligation ("CDO") on May 4, 2017. The CDO is an amortizing pool of assets with cash returned to investors in periodic distributions as it becomes available. Assets under management reflects the outstanding face amount of such CDO. The Company owns 100% of the investment manager of the Cowen Trading Strategies business. 40 (i) The real estate, healthcare royalty and private healthcare funds do not provide investors with redemption rights. Investors receive distributions upon dispositions of the funds’ underlying investments. (j) Includes the assets of separate accounts managed by the Company for non-institutional clients that had been managed prior to July 1, 2017 but had not previously been included in the Company’s calculation of its assets under management. Prior to June 1, 2017, “Other” assets under management included the assets of a CDO managed by the Company, which are now part of the Cowen Trading Strategies business. (k) The Company began managing a private healthcare funds in September 2015. This amount includes the Company’s investment of $36.9 million as of January 1, 2018. The Company owns 100% of the investment manager of the private healthcare business. Fund Performance For the quarter ended December 31, 2017 the Company's investment strategies had mixed results, with performance varying in comparison to relevant benchmarks. As had been the case throughout the year, there were no significant drawdowns in any strategy. Our activist strategy had positive performance for the quarter and for the year. The merger arbitrage strategy finished the quarter with modestly negative results, primarily due to hedging costs earlier in the quarter, followed by spread widening after the government’s decision to contest the Time Warner / AT&T transaction but there was some recovery in December and overall the strategy had modest positive results for the year. The UCITS Merger Fund, in partnership with Bank of America Merrill Lynch, also had positive performance for the year. The fund has met expectations for its more diversified portfolio since the July 2016 launch. Our options-based global macro strategy had modestly negative performance for the quarter and the year, given the persistence of continued low levels of implied volatility across multiple asset classes. Depressed volatility, especially in equities, has been a dominant condition throughout both 2016 and 2017. Our equity long/short affiliate, which follows a multi-sector approach with a focus on technology and consumer companies, finished the quarter with positive results, led by a strong month in October. The strategy had positive results for the year. The internally managed multi-strategy vehicles continued to execute opportunistic sales of certain holdings throughout the year. In addition, the maturity of certain real estate loans and the elimination of a currency hedge on European private equity positions allowed for three distributions of capital to investors during 2017. With regard to the longer-dated investment vehicles in real estate, the largest legacy real estate debt and equity vehicles experienced minimal changes in value for the fourth quarter and the year. Certain of the legacy real estate funds, inclusive of these two, are in the process of returning capital to investors. The fifth, and most recent, real estate debt vehicle remains active, with interim results meeting performance expectations and a sixth fund completed its capital raising during the fourth quarter. Our healthcare royalty strategy’s third fund still remains in its investment period. Ongoing opportunities in the pharmaceutical and healthcare sectors remain robust. As a result, the strategy has been able to invest significant capital in both its latest commingled fund and separate managed accounts. Our new health care portfolio team, having produced strong results in its first fund, launched a second fund in November 2017 which completed its capital raising in January 2018. The strategy invests in private companies with potentially transformative therapeutics. The fund is a medium-term vehicle with private equity drawdown features. Invested Capital The Company invests a significant portion of its capital base to help drive results and facilitate the growth of its investment management and broker-dealer businesses. Management allocates capital to three primary investment categories: (i) trading strategies; (ii) merchant banking investments; and (iii) real estate investments. The Company seeks to make strategic and opportunistic investments in varying capital structures across a diverse array of businesses, private funds and mutual funds. Much of the Company's trading strategy portfolio is invested alongside the Company's investment management clients and includes liquid investment strategies such as corporate credit trading, event driven, macro trading, and enhanced cash management. Within its merchant banking investments, management generally takes a long-term view that typically involves investing directly in public and private companies globally, private equity funds and alongside its investment management clients. In addition, from time to time the Company makes investments in private capital raising transactions of its investment banking clients. The Company's real estate investment strategy focuses on making investments alongside the investment management clients invested in the RCG Longview funds, as well as in direct investments in commercial real estate projects. As of December 31, 2017, the Company's invested capital amounted to a net value of $695.3 million (supporting a long market value of $1,063.8 million), representing approximately 93% of Cowen's stockholders' equity presented in accordance 41 with US GAAP. The table below presents the Company's invested equity capital by strategy and as a percentage of Cowen's stockholders' equity as of December 31, 2017. The net values presented in the table below do not tie to Cowen's consolidated statement of financial condition as of December 31, 2017 because they are included in various line items of the accompanying consolidated statement of financial condition, including “securities owned, at fair value”, “other investments”, “cash and cash equivalents”, and “consolidated funds-securities owned, at fair value”. Strategy Trading Merchant Banking Real Estate Total Stockholders' Equity $ $ Net Value % of Stockholders' Equity (dollars in millions) 503.7 148.8 42.8 695.3 748.0 67% 20% 6% 93% 100% The allocations shown in the table above will change over time. Results of Operations To provide comparative information of the Company's operating results for the periods presented, a discussion of Economic Income (Loss) (which is a non-GAAP measure) of our investment management and broker-dealer segments follows the discussion of our total consolidated US GAAP results. Economic Income (Loss) reflects, on a consistent basis for all periods presented in the Company's consolidated financial statements, income earned from the Company's funds and managed accounts and from its own invested capital. Economic Income (Loss) excludes certain adjustments required under US GAAP. See the section titled “Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company-Segment Analysis and Economic Income (Loss),” and Note 27 to the accompanying Company's consolidated financial statements, appearing elsewhere in this Form 10-K, for a reconciliation of Economic Income (Loss) to total Company US GAAP net income (loss). 42 Year Ended December 31, 2017 Compared with Year Ended December 31, 2016 Consolidated Statements of Operations Year Ended December 31, Period to Period 2017 2016 $ Change % Change (dollars in thousands) Revenues Investment banking Brokerage Management fees Incentive income Interest and dividends Reimbursement from affiliates Aircraft lease revenue Reinsurance premiums Other revenues Consolidated Funds revenues Total revenues Expenses $ 223,614 $ 133,279 $ 293,610 199,180 33,245 5,383 49,440 2,860 3,751 30,996 8,561 7,321 40,612 8,334 14,732 10,504 4,161 32,459 22,355 5,949 658,781 471,565 Employee compensation and benefits Interest and dividends Reinsurance claims, commissions and amortization of deferred acquisition costs Operating, general, administrative and other expenses Depreciation and amortization expense Restructuring costs Consolidated Funds expenses Total expenses Other income (loss) Net gains (losses) on securities, derivatives and other investments Bargain purchase gain, net of tax Gain/(loss) on debt extinguishment Consolidated Funds net gains (losses) Total other income (loss) Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds Net income (loss) attributable to Cowen Inc. Preferred stock dividends 404,087 60,949 30,486 227,709 13,078 8,763 12,526 757,598 76,179 6,914 (16,039) 38,725 105,779 6,962 44,053 (37,091) 23,791 (60,882) 6,792 310,038 29,308 29,904 156,091 12,713 — 9,064 547,118 23,381 — — 20,685 44,066 (31,487) (19,092) (12,395) 6,882 (19,277) 6,792 90,335 94,430 (7,367) (2,951) 34,708 (7,644) (410) (1,463) (13,794) 1,372 187,216 94,049 31,641 582 71,618 365 8,763 3,462 210,480 52,798 6,914 (16,039) 18,040 61,713 38,449 63,145 (24,696) 16,909 (41,605) — Net income (loss) attributable to Cowen Inc. common stockholders $ (67,674) $ (26,069) $ (41,605) 68 % 47 % (18 )% (35 )% 236 % (73 )% (10 )% (5 )% (62 )% 23 % 40 % 30 % 108 % 2 % 46 % 3 % NM 38 % 38 % 226 % NM NM 87 % 140 % 122 % 331 % (199)% 246 % (216 )% — % (160)% Revenues Investment Banking Investment banking revenues increased $90.3 million to $223.6 million for the year ended December 31, 2017 compared with $133.3 million in the prior year period. During the year ended December 31, 2017, the Company completed 103 underwriting transactions, 16 strategic advisory transactions and two debt capital market transactions. During the year ended December 31, 2016, the Company completed 76 underwriting transactions, 15 strategic advisory transactions and seven debt capital market transactions. The average underwriting fee per transaction was 33.8% greater for the year ended December 31, 2017 as compared to the prior year period. Brokerage Brokerage revenues increased $94.4 million to $293.6 million for the year ended December 31, 2017 compared with $199.2 million in the prior year period. This was attributable to an increase in revenues due to the initiation of the credit trading 43 business in May 2016 and the acquisition of Convergex Group in June 2017. Customer trading volumes across the industry (according to Bloomberg) decreased 11% for the year ended December 31, 2017 compared to the prior year period. Management Fees Management fees decreased $7.4 million to $33.2 million for the year ended December 31, 2017 compared with $40.6 million in the prior year period. This decrease in management fees was primarily related to the sale of our interest in the alternative solutions business during the third quarter of 2016 and a decrease in management fees from the real estate business. Incentive Income Incentive income decreased $2.9 million to $5.4 million for the year ended December 31, 2017, compared with $8.3 million in the prior year period. This decrease was primarily related to a decrease in performance fees from the multi-strategy business. Interest and Dividends Interest and dividends increased $34.7 million to $49.4 million for the year ended December 31, 2017 compared with $14.7 million in the prior year period. This was primarily attributable to securities financing activities during the second half of the year from the June 2017 acquisition of Convergex Group. Reimbursements from Affiliates Reimbursements from affiliates decreased $7.6 million to $2.9 million for the year ended December 31, 2017 compared with $10.5 million in the prior year period. The decrease is primarily related to a decrease in reimbursements from the activist business. Aircraft Lease Revenues Aircraft lease revenues decreased to $3.8 million for the year ended December 31, 2017 compared to $4.2 million in the prior year period. This decrease was related to the sale of one plane during the third quarter of 2017. Reinsurance Premiums Reinsurance premiums decreased $1.5 million to $31.0 million for the year ended December 31, 2017 compared with $32.5 million in the prior year period. This decrease reflects the reduction, in 2017, of our quota share participation in one of the reinsurance policies. Other Revenues Other revenues decreased $13.8 million to $8.6 million for the year ended December 31, 2017 compared with $22.4 million in the prior year period. The decrease primarily relates to the sale of our interest in the alternative solutions business and the principal owners of Starboard Value exercising their right to acquire a portion of the Company’s ownership interest in the activist business in the prior year. Consolidated Funds Revenues Consolidated Funds revenues increased $1.4 million to $7.3 million for the year ended December 31, 2017 compared with $5.9 million in the prior year period. The increase is due to interest and dividends income from the consolidated funds. Expenses Employee Compensation and Benefits Employee compensation and benefits expenses increased $94.0 million to $404.1 million for the year ended December 31, 2017 compared with $310.0 million in the prior year period. The increase is primarily due to $187.2 million higher total revenues and $61.7 million more other income (loss) during 2017 as compared to 2016 resulting in a higher compensation and benefits accrual. The compensation to revenue ratio, including other income (loss), was 53% for the year ended December 31, 2017, compared with 60% in the prior year period. Interest and Dividends Interest and dividends expenses increased $31.6 million to $60.9 million for the year ended December 31, 2017 compared with $29.3 million in the prior year period. This was primarily attributable to securities finance activities during the second half of the year from the June 2017 acquisition of Convergex Group, an increase in debt, an increase in the number of investments sold short and an increase in margin balances during 2017 as compared to 2016. 44 Reinsurance Claims, Commissions and Amortization of Deferred Acquisition Costs Reinsurance related expenses increased $0.6 million to $30.5 million for the year ended December 31, 2017 compared with $29.9 million in the prior year period. This increase was predominantly due to higher than expected claims that resulted from severe weather events in the US in the third and fourth quarters of 2017. General, Administrative and Other Expenses General, administrative and other expenses increased $71.6 million to $227.7 million for the year ended December 31, 2017 compared with $156.1 million in the prior year period. The increase is primarily related to higher floor brokerage and trade execution costs, due to higher brokerage revenue, and increased marketing and business development expenses, legal and other professional fees and increased occupancy costs, which are mostly related to the acquisition of Convergex Group during June 2017. Depreciation and Amortization Expenses Depreciation and amortization expenses increased $0.4 million to $13.1 million for the year ended December 31, 2017 compared with $12.7 million in the prior year period. The increase is primarily related to an increase in amortization of intangible assets related to recent acquisitions. Restructuring Costs Restructuring costs expenses were $8.8 million for the year ended December 31, 2017. In conjunction with the integration of the acquired businesses of Convergex Group, the Company evaluated the combined broker-dealer businesses and operations and incurred integration and restructuring costs which primarily related to exit and disposal costs, discontinuation of redundant technology services and severance costs. Consolidated Funds Expenses Consolidated Funds expenses increased $3.4 million to $12.5 million for the year ended December 31, 2017 compared with $9.1 million in the prior year period. The increase is due to increased interest and dividends expense in one of the consolidated funds. Other Income (Loss) Other income (loss) increased $61.7 million to $105.8 million for the year ended December 31, 2017 compared with $44.1 million in the prior year period. The increase primarily relates to an increase in performance of the Company's own invested capital and the bargain purchase gain related to the acquisition of Convergex Group during June 2017 partially offset by costs associated with extinguishing debt. The gains and losses shown under Consolidated Funds reflect the consolidated total performance for such funds, and the portion of those gains or losses that are attributable to other investors is allocated to redeemable non-controlling interests. Income Taxes Income tax expense increased $63.0 million to $44.1 million for the year ended December 31, 2017 compared with an income tax benefit of $19.1 million in the prior year period. This increase in expense is primarily attributable to the impact of the federal tax reform enacted in 2017 and higher non-deductible expenses. Income (Loss) Attributable to Redeemable Non-controlling Interests Income (loss) attributable to redeemable non-controlling interests increased $16.9 million to $23.8 million for the year ended December 31, 2017 compared with $6.9 million in the prior year period. The increase was primarily the result of losses incurred by one of the consolidated funds in the prior year period. Non-controlling interests represent the pro rata share of the income or loss of the non-wholly owned consolidated entities attributable to the other owners of such entities. Preferred Stock Dividends On May 19, 2015, the Company completed its offering of 120,750 shares of the Company's 5.625% Series A cumulative perpetual convertible preferred stock. Each share of the Series A Convertible Preferred Stock is entitled to dividends at a rate of 5.625% per annum. The Company may, at its option, pay dividends in cash, common stock or a combination thereof. 45 Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015 Consolidated Statements of Operations Year Ended December 31, Period to Period 2016 2015 $ Change % Change (dollars in thousands) Revenues Investment banking Brokerage Management fees Incentive income Interest and dividends Reimbursement from affiliates Aircraft lease revenue Reinsurance premiums Other revenues Consolidated Funds revenues Total revenues Expenses Employee compensation and benefits Interest and dividends Reinsurance claims, commissions and amortization of deferred acquisition costs Depreciation and amortization General, administrative and other expenses Consolidated Funds expenses Total expenses Other income (loss) Net gain (loss) on securities, derivatives and other investments Consolidated Funds net gains (losses) Total other income (loss) Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds Net income (loss) attributable to Cowen Inc. Preferred stock dividends $ 133,279 $ 222,781 $ 199,180 40,612 8,334 14,732 10,504 4,161 32,459 22,355 5,949 471,565 310,038 29,308 29,904 12,713 156,091 9,064 547,118 23,381 20,685 44,066 (31,487) (19,092) (12,395) 6,882 (19,277) 6,792 157,722 41,906 1,466 13,796 21,557 — — 3,726 1,613 464,567 321,386 26,220 — 9,498 144,960 2,310 504,374 36,789 14,497 51,286 11,479 (47,496) 58,975 15,246 43,729 4,075 Net income (loss) attributable to Cowen Inc. common stockholders $ (26,069) $ 39,654 $ Revenues Investment Banking (89,502) 41,458 (1,294) 6,868 936 (11,053) 4,161 32,459 18,629 4,336 6,998 (11,348) 3,088 29,904 3,215 11,131 6,754 42,744 (13,408) 6,188 (7,220) (42,966) 28,404 (71,370) (8,364) (63,006) 2,717 (65,723) (40 )% 26 % (3 )% 468 % 7 % (51 )% NM NM 500 % 269 % 2 % (4 )% 12 % NM 34 % 8 % 292 % 8 % (36 )% 43 % (14)% (374)% 60 % (121)% (55 )% (144 )% 67 % (166)% Investment banking revenues decreased $89.5 million to $133.3 million for the year ended December 31, 2016 compared with $222.8 million in the prior year period. During the year ended December 31, 2016, the Company completed 76 underwriting transactions, 15 strategic advisory transactions and seven debt capital market transactions. During the year ended December 31, 2015, the Company completed 129 underwriting transactions, 13 strategic advisory transactions and seven debt capital market transactions. The average underwriting fee per transaction was 12.2% less for the twelve months ended December 31, 2016 as compared to the prior year. Brokerage Brokerage revenues increased $41.5 million to $199.2 million for the year ended December 31, 2016 compared with $157.7 million in the prior year period. This was attributable to higher commissions due to an increase in customer trading volumes, the initiation of the prime brokerage businesses in the third and fourth quarters of 2015 and the initiation of the credit trading business in May 2016. Customer trading volumes across the industry (according to Bloomberg) increased 6% for the twelve months ended December 31, 2016 compared to the prior year. 46 Management Fees Management fees decreased $1.3 million to $40.6 million for the year ended December 31, 2016 compared with $41.9 million in the prior year period. The decrease was primarily related to lower management fees from the alternative solutions business (due to the sale of our interest in the business) offset partially by an increase in management fees from the prime services business (acquired during the fourth quarter of 2015) and the macro options business. Incentive Income Incentive income increased $6.8 million to $8.3 million for the year ended December 31, 2016, compared with $1.5 million in the prior year period. This increase was primarily related to an increase in performance fees from certain private investments. Interest and Dividends Interest and dividends increased $0.9 million to $14.7 million for the year ended December 31, 2016 compared with $13.8 million in the prior year period. This was primarily attributable to an increase in the number of investments in interest bearing securities during 2016 as compared to 2015. Reimbursements from Affiliates Reimbursements from affiliates decreased $11.1 million to $10.5 million for the year ended December 31, 2016 compared with $21.6 million in the prior year period. The decrease is primarily related to a decrease in reimbursements from the activist business. Aircraft lease revenues Aircraft lease revenues were $4.2 million for the year ended December 31, 2016 relating to the new aircraft leasing business which began during 2016. Reinsurance premiums Reinsurance premiums of $32.5 million relate to premiums from the insurance-related business (which was entered into at the end of the fourth quarter of 2015). Other Revenues Other revenues increased $18.7 million to $22.4 million for the year ended December 31, 2016 compared with $3.7 million in the prior year period. The increase primarily relates to the sale of our interest in the alternative solutions business. Consolidated Funds Revenues Consolidated Funds revenues increased $4.3 million to $5.9 million for the year ended December 31, 2016 compared with $1.6 million in the prior year period. The increase is due to the consolidation of new funds during 2016. Expenses Employee Compensation and Benefits Employee compensation and benefits expenses decreased $11.3 million to $310.0 million for the year ended December 31, 2016 compared with $321.4 million in the prior year period. The decrease is primarily due to $7.0 million higher total revenues offset by $7.2 million lower other income (loss) during 2016 as compared to 2015, resulting in a lower compensation and benefits accrual. The compensation to revenue ratio, including other income (loss), was 60% for the year ended December 31, 2016, compared with 62% in the prior year period. Interest and Dividends Interest and dividends expenses increased $3.1 million to $29.3 million for the year ended December 31, 2016 compared with $26.2 million in the prior year period. This was primarily attributable to an increase in the number of debt securities held during 2016 as compared to 2015. Reinsurance claims, commissions and amortization of deferred acquisition costs Reinsurance related expenses of $29.9 million relate to loss and claim reserves, acquisition costs and other expenses related to the insurance and reinsurance related policies entered into during the second quarter of 2016 and are related to our respective businesses which commenced at the end of the fourth quarter of 2015. General, Administrative and Other Expenses General, administrative and other expenses increased $11.1 million to $156.1 million for the year ended December 31, 2016 compared with $145.0 million in the prior year period. The increase is primarily related to higher floor brokerage and 47 trade execution costs, due to higher brokerage revenue, and increased marketing and business development expenses, legal and other professional fees and increased occupancy costs, some of which is related to acquisitions during late 2015 and during 2016. Depreciation and Amortization Expenses Depreciation and amortization expenses increased $3.2 million to $12.7 million for the year ended December 31, 2016 compared with $9.5 million in the prior year period. The increase is primarily related to an increase in amortization on intangible assets related to recent acquisitions. Consolidated Funds Expenses Consolidated Funds expenses increased $6.8 million to $9.1 million for the year ended December 31, 2016 compared with $2.3 million in the prior year period. The increase is due to the consolidation of new funds during 2016. Other Income (Loss) Other income (loss) decreased $7.2 million to $44.1 million for the year ended December 31, 2016 compared with $51.3 million in the prior year period. The decrease primarily relates to decrease in performance of the Company's own invested capital. The gains and losses shown under Consolidated Funds reflect the consolidated total performance for such funds, and the portion of those gains or losses that are attributable to other investors is allocated to redeemable non-controlling interests. Income Taxes Income tax benefit decreased $28.4 million to $19.1 million for the year ended December 31, 2016 compared with an income tax benefit of $47.5 million in the prior year period. This decrease in benefit is primarily attributable to the deferred tax benefit recognized by the Company’s Luxembourg subsidiary in 2015, partially offset by the reversal of a basis difference in the Company’s Luxembourg subsidiaries in 2016. Income (Loss) Attributable to Redeemable Non-controlling Interests Income (loss) attributable to redeemable non-controlling interests decreased $8.4 million to income of $6.9 million for the year ended December 31, 2016 compared with income of $15.2 million in the prior year period. The decrease was primarily the result of losses incurred by one of the consolidated funds. Non-controlling interests represent the pro rata share of the income or loss of the non-wholly owned consolidated entities attributable to the other owners of such entities. Preferred Stock Dividends On May 19, 2015, the Company completed its offering of 120,750 shares of the Company's 5.625% Series A cumulative perpetual convertible preferred stock. Each share of the Series A Convertible Preferred Stock is entitled to dividends at a rate of 5.625% per annum. The Company may, at its option, pay dividends in cash, common stock or a combination thereof. Segment Analysis and Economic Income (Loss) Segments The Company conducts its operations through two segments: an investment management segment and a broker-dealer segment. For the years ended December 31, 2017, 2016, and 2015, the Company's investment management segment includes private funds, managed accounts, commodity pools, real estate funds, private equity structures, registered investment companies and listed vehicles operating results and other investment platforms operating results. For the years ended December 31, 2017, 2016, and 2015, the Company's broker-dealer segment includes investment banking, research, sales and trading, prime brokerage, global clearing and commission management services businesses' operating results. Economic Income (Loss) The performance measure used by the Company for each segment is Economic Income (Loss), which management uses to evaluate the financial performance of and to make operating decisions for the Company as a whole and each segment. Accordingly, management assesses its business by analyzing the performance of each segment and believes that investors should review the same performance measure that it uses to analyze its segment and business performance. In addition, management believes that Economic Income (Loss) is helpful to gain an understanding of its segment results of operations because it reflects such results on a consistent basis for all periods presented. Our Economic Income (Loss) may not be comparable to similarly titled measures used by other companies. We use Economic Income (Loss) as a measure of each segment's operating performance, not as a measure of liquidity. Economic Income (Loss) should not be considered in isolation or as a substitute for operating income, net income, operating cash flows, 48 investing and financing activities, or other income or cash flow statement data prepared in accordance with US GAAP. As a result of the adjustments made to arrive at Economic Income (Loss), Economic Income (Loss) has limitations in that it does not take into account certain items included or excluded under US GAAP, including our Consolidated Funds. Economic Income (Loss) is considered by management as a supplemental measure to the US GAAP results to provide a more complete understanding of each segment's performance as measured by management. For a reconciliation of Economic Income (Loss) to US GAAP net income (loss) for the periods presented and additional information regarding the reconciling adjustments discussed above, see Note 27 to the Company's consolidated financial statements included elsewhere in this Form 10-K. In general, Economic Income (Loss) is a pre-tax measure that (i) eliminates the impact of consolidation for consolidated funds and excludes (ii) goodwill and intangible impairment (iii) certain other transaction-related adjustments and/or reorganization expenses (iv) the bargain purchase gain which resulted from the Convergex Group acquisition (v) certain costs associated with debt and (vi) preferred stock dividends. In addition, Economic Income (Loss) revenues include investment income that represents the income the Company has earned in investing its own capital, including realized and unrealized gains and losses, interest and dividends, net of associated investment related expenses. For US GAAP purposes, these items are included in each of their respective line items. Economic Income (Loss) revenues also include management fees, incentive income and investment income earned through the Company's investment as a general partner in certain real estate entities and the Company's investment in the activist business. For US GAAP purposes, all of these items are recorded in other income (loss). In addition, Economic Income (Loss) expenses are reduced by reimbursement from affiliates, which for US GAAP purposes is presented gross as part of revenue. Economic Income (Loss) Revenues The Company's principal sources of Economic Income (Loss) revenues are derived from activities in the following business segments: Our investment management segment generates Economic Income (Loss) revenues through three principal sources: management fees, incentive income and investment income from our own capital. Management fees are directly impacted by any increase or decrease in assets under management, while incentive income is impacted by our funds' performance and resulting increase or decrease in assets under management. Investment income from the Company's own capital is impacted by the performance of the funds and other securities in which our capital is invested. Our broker-dealer segment generates Economic Income (Loss) revenues through two principal sources: investment banking and brokerage. The Company earns investment banking revenue primarily from fees associated with public and private capital raising transactions and providing strategic advisory services. Investment banking revenues are derived primarily from small and mid-capitalization companies within the Company's Target Sectors: healthcare, technology, media and telecommunications, information and technology services, consumer, aerospace and defense, industrials, energy and transportation. The Company's brokerage revenues consist of commissions, principal transactions and fees paid for equity and credit research and trade conversion. Cowen's broker-dealer segment also offers a full-service suite of prime brokerage services. Management reviews brokerage revenue on a combined basis as the vast majority of the revenue is derived from the same group of clients. The Company derives its brokerage revenue primarily from trading equity and equity-linked securities on behalf of institutional investors. The majority of the Company's trading gains and losses are a result of activities that support the facilitation of client orders in both listed and over-the-counter securities, although all trading gains and losses are recorded in brokerage revenue in the accompanying consolidated statement of operations. Economic Income (Loss) Expenses The Company's Economic Income (Loss) expenses consist of non-interest expenses and interest expense. Non-interest expenses consist of compensation and benefits and non-compensation expenses (fixed and variable), less reimbursement from affiliates. Interest expense is primarily interest from indebtedness, not trading activity (which is included within investment income (loss)). Non-controlling Interests Non-controlling interests represent the pro rata share of the income or loss of the non-wholly owned consolidated entities attributable to the partners of such entities. 49 Year Ended December 31, 2017 Compared with Year Ended December 31, 2016 Year Ended December 31, Investment Management 2017 Broker- Dealer Total Investment Management 2016 Broker- Dealer Total Period-to-Period $ Total Change % Change (dollars in thousands) Economic Income Revenues Investment banking $ — $ 223,614 $ 223,614 $ — $ 133,279 $ 133,279 $ 90,335 38 52,239 26,028 31,447 1,575 312,742 312,780 3,148 — 13,695 1,656 55,387 26,028 45,142 3,231 — 64,086 26,274 3,015 29,202 207,040 207,040 105,740 3,162 — 1,008 565 67,248 26,274 4,023 (11,861) (246) 41,119 29,767 (26,536) 68 % 51 % (18 )% (1 )% NM (89 )% $ 111,327 $ 554,855 $ 666,182 $ 122,577 $ 345,054 467,631 198,551 42 % Brokerage Management fees Incentive income (loss) Investment income (loss) Other income (loss) Total economic income revenues Economic Income (Loss) Total Economic Income (Loss) was $15.8 million for the year ended December 31, 2017, an increase of $44.6 million compared to Economic Income (Loss) which was a loss of $28.7 million in the prior year period. Total Economic Income (Loss) revenues were $666.2 million for the year ended December 31, 2017, an increase of $198.6 million compared to Economic Income (Loss) revenues of $467.6 million in the prior year period. This was related to an increase in investment banking and brokerage activity and an increase in performance in investment income. Investment Management Segment Revenues Investment management segment Economic Income (Loss) revenues were $111.3 million for the year ended December 31, 2017, a decrease of $11.3 million compared to Economic Income (Loss) revenues of $122.6 million in the prior year period. Management Fees. Management fees for the segment decreased $11.9 million to $52.2 million for the year ended December 31, 2017 compared with $64.1 million in the prior year period. This decrease in management fees was primarily related to the sale of our interest in the alternative solutions business during the third quarter of 2016 and a decrease in management fees from the real estate business. Incentive Income (Loss). Incentive income for the segment decreased $0.3 million to $26.0 million for the year ended December 31, 2017 compared with $26.3 million in the prior year period. This decrease was related to a decrease in performance fees from the multi-strategy business offset partially by an increase in performance from the activist business. Investment Income (Loss). Investment income for the segment increased $28.4 million to income of $31.4 million for the year ended December 31, 2017 compared with $3.0 million in the prior year period. The increase primarily relates to an increase in performance of the Company's own invested capital. Other Income (Loss). Other income (loss) for the segment decreased $27.6 million to $1.6 million for the year ended December 31, 2017 compared with $29.2 million in the prior year period. The decrease primarily relates to the sale of our interest in the alternative solutions business and the principal owners of Starboard Value exercising their right to acquire a portion of the Company’s ownership interest in the activist business in the prior year. Broker-Dealer Segment Revenues Broker-dealer segment Economic Income (Loss) revenues were $554.9 million for the year ended December 31, 2017, an increase of $209.8 million compared with Economic Income (Loss) revenues of $345.1 million in the prior year. Investment Banking. Investment banking revenues increased $90.3 million to $223.6 million for the year ended December 31, 2017 compared with $133.3 million in the prior year period. During the year ended December 31, 2017, the Company completed 103 underwriting transactions, 16 strategic advisory transactions and two debt capital market transactions. During the year ended December 31, 2016, the Company completed 76 underwriting transactions, 15 strategic advisory transactions and seven debt capital market transactions. The average underwriting fee per transaction was 33.8% greater for the year ended December 31, 2017 as compared to the prior year period. 50 Brokerage. Brokerage revenues increased $105.7 million to $312.7 million for the year ended December 31, 2017, compared with $207.0 million in the prior year period. This was attributable to an increase in revenues due to the initiation of the credit trading business in May 2016 and the acquisition of Convergex Group in June 2017. Customer trading volumes across the industry (according to Bloomberg) decreased 11% for the year ended December 31, 2017 compared to the prior year period. Investment Income (Loss). Investment income for the segment increased $12.7 million to $13.7 million for the year ended December 31, 2017, compared with $1.0 million in the prior year period. Other Income (Loss). Other income (loss) for the segment increased $1.1 million to $1.7 million for the year ended December 31, 2017, compared with $0.6 million in the prior year period. Non-Interest Expenses Non-interest expenses. Total non-interest expenses increased $154.0 million to $625.4 million for the year ended December 31, 2017, compared with $471.4 million in the prior year period. Compensation and benefits expenses. Compensation and benefits expenses, included within non-interest expenses, increased $87.6 million to $388.0 million for the year ended December 31, 2017 compared with $300.4 million in the prior year period. The increase is due to $198.6 million higher revenues during 2017 as compared to 2016 which resulted in a higher compensation and benefits accrual. The compensation to revenue ratio was 58% for the year ended December 31, 2017 compared with 64% in the prior year period. Non-compensation Expenses—Fixed. Fixed non-compensation expenses, included within non-interest expenses, increased $21.1 million to $122.1 million for the year ended December 31, 2017 compared with $101.0 million in the prior year period. The increase is primarily related to the acquisition of Convergex Group during June 2017. The following table shows the components of the non-compensation expenses—fixed, for the year ended December 31, 2017 and 2016: Non-compensation expenses—fixed: Communications Professional, advisory and other fees Occupancy and equipment Service fees Expenses from equity investments Other Total Year Ended December 31, Period-to-Period 2017 2016 $ Change % Change (dollars in thousands) $ $ 23,378 $ 17,752 $ 20,944 33,928 14,896 11,156 17,819 17,280 29,975 7,831 15,844 12,297 122,121 $ 100,979 $ 5,626 3,664 3,953 7,065 (4,688) 5,522 21,142 32 % 21 % 13 % 90 % (30)% 45 % 21 % Depreciation and amortization expenses. Depreciation and amortization expenses increased $0.6 million to $11.6 million for the year ended December 31, 2017 compared with $11.0 million in the prior year period. Non-compensation Expenses—Variable. Variable non-compensation expenses, included within non-interest expenses, which primarily are comprised of expenses which are incurred as a direct result of the processing and soliciting of revenue generating activities, increased $44.6 million to $105.8 million for the year ended December 31, 2017 compared with $61.2 million in the prior year period. The increase is primarily related to higher floor brokerage and trade execution costs, related to the acquisition of Convergex Group during June 2017. The following table shows the components of the non-compensation expenses—variable, for the year ended December 31, 2017 and 2016: 51 Non-compensation expenses—Variable: Floor brokerage and trade execution HealthCare Royalty Partners syndication costs Expenses related to Luxembourg companies Marketing and business development Other Total Year Ended December 31, Period-to-Period 2017 2016 $ Change % Change (dollars in thousands) $ $ 73,133 $ 29,432 $ 43,701 528 3,279 27,336 1,510 528 2,406 26,163 2,649 105,786 $ 61,178 $ — 873 1,173 (1,139) 44,608 148 % — % 36 % 4 % (43)% 73 % Reimbursement from Affiliates. Reimbursements from affiliates, included within non-interest expenses, which relate to the investment management segment decreased $0.3 million to $2.0 million for the year ended December 31, 2017 compared to $2.3 million in the prior year period. Interest expense Interest expense increased $1.7 million to $18.9 million for the year ended December 31, 2017 compared with $17.2 million in the prior year period. Interest expense primarily relates to debt issued during 2014 and 2017. Non-Controlling Interest Income (loss) attributable to redeemable non-controlling interests decreased by $1.7 million to $6.1 million for the year ended December 31, 2017 compared with $7.8 million in the prior year period. Non-Controlling interest represents the portion of the net income or loss attributable to certain non-wholly owned subsidiaries that is allocated to our partners in those subsidiaries. Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015 Year Ended December 31, Investment Management 2016 Broker- Dealer Total Investment Management 2015 Broker- Dealer Total Period-to-Period $ Total Change % Change (dollars in thousands) Economic Income Revenues Investment banking $ — $ 133,279 $ 133,279 $ — $ 222,781 $ 222,781 $(89,502) — 64,086 26,274 3,015 29,202 207,040 207,040 — 160,436 160,436 46,604 3,162 — 1,008 565 67,248 26,274 4,023 29,767 68,989 (1,544) 49,244 14,492 1,026 70,015 (2,767) — (1,544) 27,818 1,802 % 13,352 890 62,596 15,382 (58,573) 14,385 (94 )% 94 % (40 )% 29 % (4 )% 122,577 345,054 467,631 131,181 398,485 529,666 (62,035) (12)% Brokerage Management fees Incentive income (loss) Investment income (loss) Other income (loss) Total economic income revenues Economic Income (Loss) Total Economic Income (Loss) was a loss of $28.7 million for the year ended December 31, 2016, a decrease of $63.2 million compared to Economic Income (Loss) of $34.5 million in the prior year period. Total Economic Income (Loss) revenues were $467.6 million for the year ended December 31, 2016, a decrease of $62.1 million compared to Economic Income (Loss) revenues of $529.7 million in the prior year period. This was related to a decrease in investment banking activity and a decrease in performance in investment income offset partially by an increase in brokerage activity, incentive fees and other income. Investment Management Segment Revenues Investment management segment Economic Income (Loss) revenues were $122.6 million for the year ended December 31, 2016, a decrease of $8.6 million compared to Economic Income (Loss) revenues of $131.2 million in the prior year period. Management Fees. Management fees for the segment decreased $4.9 million to $64.1 million for the year ended December 31, 2016 compared with $69.0 million in the prior year period. This decrease was primarily related to a decrease in 52 management fees for the alternative solutions and the activist businesses offset partially by an increase in management fees from the macro options and equities businesses. Incentive Income (Loss). Incentive income for the segment increased $27.8 million to $26.3 million for the year ended December 31, 2016 compared with a loss of $1.5 million in the prior year period. This increase was primarily related to an increase in performance from the activist business and certain private investments. Investment Income (Loss). Investment income for the segment decreased $46.2 million to $3.0 million for the year ended December 31, 2016 compared with $49.2 million in the prior year period. The decrease primarily relates to a prior year deferred tax benefit recorded pursuant to the acquisition of Hollenfels and a decrease in performance of the Company's own invested capital. Other Income (Loss). Other income (loss) for the segment increased $14.7 million to $29.2 million for the year ended December 31, 2016 compared with $14.5 million in the prior year period. This increase is primarily related to the sale of our interest in the alternative solutions business and the principal owners of Starboard Value exercising their right to acquire a portion of the Company’s ownership interest in the activist business. Broker-Dealer Segment Revenues Broker-dealer segment Economic Income (Loss) revenues were $345.1 million for the year ended December 31, 2016, a decrease of $53.4 million compared with Economic Income (Loss) revenues of $398.5 million in the prior year. Investment Banking. Investment banking revenues decreased $89.5 million to $133.3 million for the year ended December 31, 2016 compared with $222.8 million in the prior year period. During the year ended December 31, 2016, the Company completed 76 underwriting transactions, 15 strategic advisory transactions and seven debt capital market transactions. During the year ended December 31, 2015, the Company completed 129 underwriting transactions, 13 strategic advisory transactions and seven debt capital market transactions. The average underwriting fee per transaction was 12.2% less for the twelve months ended December 31, 2016 as compared to the prior year. Brokerage. Brokerage revenues increased $46.6 million to $207.0 million for the year ended December 31, 2016, compared with $160.4 million in the prior year period. This was attributable to higher commissions due to an increase in customer trading volumes, the initiation of the prime brokerage businesses in the third and fourth quarters of 2015 and the initiation of the credit trading business in May 2016. Customer trading volumes across the industry (according to Bloomberg) increased 6% for the twelve months ended December 31, 2016 compared to the prior year. Investment Income (Loss). Investment income for the segment decreased $12.4 million to $1.0 million for the year ended December 31, 2016, compared with $13.4 million in the prior year period. The decrease is a result of a decrease in overall investment income which is allocated amongst the segments. Other Income (Loss). Other income (loss) for the segment decreased $0.3 million to $0.6 million for the year ended December 31, 2016, compared with $0.9 million in the prior year period. Non-Interest Expenses Non-interest expenses. Total non-interest expenses increased $1.6 million to $471.4 million for the year ended December 31, 2016, compared with $469.8 million in the prior year period. Compensation and benefits expenses. Compensation and benefits expenses, included within non-interest expenses, decreased $17.2 million to $300.4 million for the year ended December 31, 2016 compared with $317.6 million in the prior year period. The decrease is due to $62.1 million lower revenues during 2016 as compared to 2015 which resulted in a lower compensation and benefits accrual. The compensation to revenue ratio was 64% for the year ended December 31, 2016 compared with 60% in the prior year period. Non-compensation Expenses—Fixed. Fixed non-compensation expenses, included within non-interest expenses, increased $6.8 million to $101.0 million for the year ended December 31, 2016 compared with $94.2 million in the prior year period. This increase was primarily due to higher communications and increased occupancy costs both of which are primarily related to acquisitions during late 2015 and during 2016. 53 The following table shows the components of the non-compensation expenses—fixed, for the year ended December 31, 2016 and 2015: Non-compensation expenses—fixed: Communications Professional, advisory and other fees Occupancy and equipment Service fees Expenses from equity investments Other Total Year Ended December 31, Period-to-Period 2016 2015 $ Change % Change (dollars in thousands) $ $ 17,752 $ 14,320 $ 17,280 29,975 7,831 15,844 12,297 17,605 26,739 7,503 14,156 13,913 100,979 $ 94,236 $ 3,432 (325) 3,236 328 1,688 (1,616) 6,743 24 % (2)% 12 % 4 % 12 % (12)% 7 % Depreciation and amortization expenses. Depreciation and amortization expenses increased $1.5 million to $11.0 million for the year ended December 31, 2016 compared with $9.5 million in the prior year period. The increase is primarily related to an increase in amortization of intangible assets related to acquisitions during late 2015 and during 2016. Non-compensation Expenses—Variable. Variable non-compensation expenses, included within non-interest expenses, which primarily are comprised of expenses which are incurred as a direct result of the processing and soliciting of revenue generating activities, increased $5.0 million to $61.2 million for the year ended December 31, 2016 compared with $56.2 million in the prior year period. The increase is primarily related to higher floor brokerage and trade execution costs, due to higher brokerage revenue, and increased marketing and business development expenses, some of which is related to acquisitions during late 2015 and during 2016. Costs related to the 2015 acquisition of Hollenfels also decreased. The following table shows the components of the non-compensation expenses—variable, for the year ended December 31, 2016 and 2015: Non-compensation expenses—Variable: Floor brokerage and trade execution HealthCare Royalty Partners syndication costs Expenses related to Luxembourg companies Marketing and business development Other Total Year Ended December 31, Period-to-Period 2016 2015 $ Change % Change (dollars in thousands) $ $ 29,432 $ 24,054 $ 528 2,406 26,163 2,649 528 5,475 23,367 2,726 61,178 $ 56,150 $ 5,378 — (3,069) 2,796 (77) 5,028 22 % — % (56)% 12 % (3)% 9 % Reimbursement from Affiliates. Reimbursements from affiliates, included within non-interest expenses, which relate to the investment management segment, decreased $5.4 million to $2.3 million for the year ended December 31, 2016 compared with $7.7 million in the prior year period. Interest expense Interest expense, which primarily relates to debt issued during the first and fourth quarters of 2014, increased $0.6 million to $17.2 million for the year ended December 31, 2016 compared with $16.6 million in the prior year period. Non-Controlling Interest Income (loss) attributable to redeemable non-controlling interests decreased by $1.0 million to $7.8 million for the year ended December 31, 2016 compared with $8.8 million in the prior year period. Non-Controlling interest represents the portion of the net income or loss attributable to certain non-wholly owned subsidiaries that is allocated to our partners in those subsidiaries. Liquidity and Capital Resources We continually monitor our liquidity position. The working capital needs of the Company's business have been met through current levels of equity capital, current cash and cash equivalents, and anticipated cash generated from our operating activities, including management fees, incentive income, returns on the Company's own capital, investment banking fees and 54 brokerage commissions. The Company expects that its primary working capital liquidity needs over the next twelve months will be: • • pay our operating expenses, primarily consisting of compensation and benefits, interest on debt and other general and administrative expenses; and provide capital to facilitate the growth of our existing business. Based on our historical results, management's experience, our current business strategy and current assets under management, the Company believes that its existing cash resources will be sufficient to meet its anticipated working capital and capital expenditure requirements for at least the next twelve months. Our cash reserves include cash, cash equivalents and assets readily convertible into cash such as our securities held in inventory. Securities inventories are stated at fair value and are generally readily marketable. As of December 31, 2017, we had cash and cash equivalents of $130.1 million and net liquid investment assets of $400.6 million, which includes cash and cash equivalents and short-term investments held by foreign subsidiaries as of December 31, 2017 of $15.6 million. The Company continues to permanently reinvest the capital and accumulated earnings of its United Kingdom and Hong Kong subsidiaries. The timing of cash bonus payments to our employees may significantly affect our cash position and liquidity from period to period. While our employees are generally paid salaries semi-monthly during the year, cash bonus payments, which can make up a significant portion of total compensation, are generally paid once a year by March 15th. As a clearing member firm providing services to certain of our brokerage customers, we are subject to cash deposit requirements with clearing organizations, brokers and banks that may be large in relation to total liquid assets and may fluctuate significantly based upon the nature and size of customers’ trading activity and market volatility. At December 31, 2017, we had security deposits totaling $94.0 million with clearing organizations in the U.S. for the settlement of equity trades. In the normal course of our U.S. settlement activities, we may also need to temporarily finance customer securities positions from short settlements or delivery failures. Unfunded commitments The following table summarizes unfunded commitments as of December 31, 2017: Entity Unfunded Commitments Commitment term Real estate (a) HealthCare Royalty Partners funds (b) Eclipse Ventures Fund I, L.P. (formerly Formation8 Partners Hardware Fund I, L.P.) Lagunita Biosciences, LLC Eclipse Fund II, L.P. Eclipse Continuity Fund I, L.P. (dollars in millions) $ 19.5 6.2 0.4 2.0 0.9 0.6 (a) 2 years 7 years 3 years 8 years 9 years (a) The Company had unfunded commitments pertaining to capital commitments in six real estate investments held by the Company, all of which pertain to related party investments. Such commitments can be called at any time up to four years, subject to advance notice. (b) The Company is a limited partner of the HealthCare Royalty Partners funds (which are managed by Healthcare Royalty Management) and is a member of HealthCare Royalty Partners General Partners. The Company will make its pro-rata investment in the HealthCare Royalty Partners funds along with the other limited partners. Due to the nature of the securities business and our role as a market-maker and execution agent, the amount of our cash and short-term investments, as well as operating cash flow, may vary considerably due to a number of factors, including the dollar value of our positions as principal, whether we are net buyers or sellers of securities, the dollar volume of executions by our customers and clearing house requirements, among others. Certain regulatory requirements constrain the use of a portion of our liquid assets for financing, investing or operating activities. Similarly, due to the nature of our business lines, the capital necessary to maintain current operations and our current funding needs subject our cash and cash equivalents to different requirements and uses. Preferred Stock and Purchase of Capped Call Option On May 19, 2015, the Company completed its offering of 120,750 shares of the Company's 5.625% Series A cumulative perpetual convertible preferred stock ("Series A Convertible Preferred Stock") that provided $117.2 million of proceeds, net of underwriting fees and issuance costs of $3.6 million. Each share of the Series A Convertible Preferred Stock is entitled to dividends at a rate of 5.625% per annum which will be payable, when and if declared by the board of directors of the Company, quarterly, in arrears, on February 15, May 15, August 15 and November 15 of each year. The Company may, at its option, pay dividends in cash, common stock or a combination thereof. 55 Each share of Series A Convertible Preferred Stock is non-voting and has a liquidity preference over the Company's Class A common stock and ranks senior to all classes or series of the Company's Class A common stock, but junior to all of the Company's existing and future indebtedness with respect to divided rights and rights upon the Company's involuntary liquidation, dissolution or winding down. Each share of Series A Convertible Preferred Stock is convertible, at the option of the holder, into a number of shares of our Class A common stock equal to the liquidation preference of $1,000 divided by the conversion rate. The initial conversion rate (subsequent to the December 5, 2016 reverse stock split) is 38.0619 shares (which equates to $26.27 per share) of the Company's Class A common stock for each share of the Series A Convertible Preferred Stock. At any time on or after May 20, 2020, the Company may elect to convert all outstanding shares of the Series A Convertible Preferred Stock into shares of the Company’s Class A common stock, cash or a combination thereof, at the Company’s election, in each case, based on the then- applicable conversion rate, if the last reported sale price of the Company’s Class A common stock equals or exceeds 150% of the then-current conversion price on at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days (including on the last trading day of such period) immediately prior to such election. At the time of conversion, the conversion rate may be adjusted based on certain events including but not limited to the issuance of cash dividends or Class A common stock as a dividends to the Company's Class A common shareholders or a share split or combination. In connection with the issuance and sale of the Series A Convertible Preferred Stock, the Company entered into a capped call option transaction (the “Capped Call Option Transaction”) with Nomura Global Financial Products Inc. (the “option counterparty”) for $15.9 million. The Capped Call Option Transaction is expected generally to reduce the potential dilution to the Company’s Class A common stock (if the Company elects to convert to common shares) and/or offset any cash payments that the Company is required to make upon conversion of any Series A Convertible Preferred Stock. The Capped Call Option Transaction has an initial effective strike price of $26.27 per share, which matches the initial conversion price of the Series A Convertible Preferred Stock, and a cap price of $33.54 per share. However, to the extent that the market price of Class A common stock, as measured under the terms of the Capped Call Option Transaction, exceeds the cap price thereof, there would nevertheless be dilution and/or such cash payments would not be offset. As the Capped Call Option Transaction is a free standing derivative that is indexed to the Company's own stock price and the Company controls if it is settled in cash or stock it qualifies for equity classification as a reduction to additional paid in capital. The Company may also incur additional indebtedness or raise additional capital under certain circumstances to respond to market opportunities and challenges. Current market conditions may make it more difficult or costly to borrow additional funds or raise additional capital. Regulation As registered broker-dealers, Cowen and Company, Cowen Execution, ATM Execution, Cowen Prime and Westminster are subject to the SEC's Uniform Net Capital Rule 15c3-1 (the “Rule”), which requires the maintenance of minimum net capital. Each registered broker-dealer has elected to compute net capital under the alternative method permitted by the Rule. Under the alternative method Cowen and Company's minimum net capital requirement, as defined in (a)(4) of the Rule, is $1.0 million. Cowen Execution, ATM Execution, Cowen Prime and Westminster are required to maintain minimum net capital, as defined in (a)(1)(ii) of the Rule, equal to the greater of $250,000 or 2% of aggregate debits arising from customer transactions. Advances to affiliates, repayment of borrowings, distributions, dividend payments and other equity withdrawals are subject to certain notification and other requirements of the Rule and other regulatory bodies. Cowen Execution is also subject to Commodity Futures Trading Commission Regulation 1.17 (“Regulation 1.17”) and Options Clearing Corporation (“OCC”) Rule 302. Regulation 1.17 requires Cowen Execution to maintain net capital equal to or in excess of $45,000 or the amount of net capital required by Rule 15c3-1, whichever is greater. OCC Rule 302 requires maintenance of net capital equal to the greater of $2,000,000 or 2% of aggregate debit items. At December 31, 2017, the Company had $108.7 million of net capital in excess of this minimum requirement. Ramius UK, Cowen International Ltd and Cowen Execution Ltd are subject to the capital requirements of the FCA of the U.K. Financial Resources, as defined, must exceed the requirement of the FCA. As of December 31, 2017, these regulated broker-dealers had regulatory net capital or financial resources, regulatory net capital requirements or minimum FCA requirement and excess as follows: 56 Subsidiary Net Capital Net Capital Requirement (dollars in millions) Excess Net Capital Cowen and Company Cowen Execution ATM Execution Cowen Prime Westminster Ramius UK Cowen International Ltd Cowen Execution Ltd $ $ $ $ $ $ $ $ 40.2 111.4 1.0 12.3 7.6 0.2 11.5 3.8 $ $ $ $ $ $ $ $ 1.0 2.7 0.3 0.3 0.3 0.1 7.1 2.6 $ $ $ $ $ $ $ $ 39.2 108.7 0.7 12.0 7.3 0.1 4.4 1.2 Cowen and Company, Cowen Prime and ATM Execution claim exemption from SEC Rule 15c3-3 subparagraph (k)(2)(ii) of the Securities Exchange Act of 1934 since they clear their securities transactions on a fully disclosed basis and promptly transmits all customer funds and securities to the clearing broker-dealer that carries the accounts. Cowen and Company, Cowen Prime and Westminster claim exemption from SEC Rule 15c3-3 subparagraph (k)(2)(i) of the Securities Exchange Act of 1934 since they conduct primarily all financial transactions with their customers through a bank account designated as Special Account for the Exclusive Benefit of Customers. In accordance with the requirements of SEC Rule 15c3-3, Cowen Execution may be required to deposit in a Special Reserve Account, cash or acceptable qualified securities for the exclusive benefit of customers. As of December 31, 2017, Cowen Execution had segregated approximately $20.3 million of cash, while its required deposit was $10.5 million. As a clearing broker-dealer, Cowen Execution is required to compute a reserve requirement for proprietary accounts of broker-dealers (“PAB”), as defined in SEC Rule 15c3-3. PAB calculation is completed to allow each correspondent firm that uses Cowen Execution as its clearing broker-dealer to classify its assets held by Cowen Execution as allowable assets in the correspondent's net capital calculation. At December 31, 2017, Cowen Execution had $29.7 million of cash on deposit in special reserve bank accounts for PAB, which was in excess of its required deposit of $17.1 million. PAB held at external clearing brokers are considered allowable assets for net capital purposes, pursuant to agreements between Cowen and Company, ATM Execution, Cowen Prime, and their clearing brokers, which require, among other things, that those clearing brokers perform computations for PAB and segregate certain balances on behalf of Cowen and Company, ATM Execution and Cowen Prime, if applicable. Cowen’s Luxembourg reinsurance companies, Vianden RCG Re SCA (“Vianden”) and Hollenfels, are required to maintain a solvency capital ratio as calculated by relevant European Commission directives and local regulatory rules in Luxembourg. Each company’s solvency capital ratio as of December 31, 2017 was in excess of this minimum requirement. Based on minimum capital and surplus requirements pursuant to the laws of the state of New York that apply to captive insurance companies, RCG Insurance Company, Cowen’s captive insurance company incorporated and licensed in the state of New York, was required to maintain capital and surplus of approximately $0.3 million as of December 31, 2017. RCG Insurance Company’s capital and surplus as of December 31, 2017 totaled approximately $28.7 million. Cash Flows Analysis The Company's primary sources of cash are derived from its operating activities, fees and realized returns on its own invested capital. The Company's primary uses of cash include compensation and general and administrative expenses. Operating Activities. Net cash used by operating activities of $116.4 million for the year ended December 31, 2017 was primarily related to (i) purchases of securities owned, at fair value and an increase in receivable from brokers, dealers and clearing organizations partially offset by an increase in payable to customers, cash acquired through acquisitions and sales of securities owned, at fair value. Net cash used in operating activities of $354.5 million for the year ended December 31, 2016 was primarily related to purchases of other investments and cash used to pay for year end bonuses. Net cash used in operating activities of $68.6 million for the year ended December 31, 2015 was primarily related to purchases of securities and other investments partially offset by a decrease in cash held at other brokers. Investing Activities. Net cash used in investing activities of $2.4 million for the year ended December 31, 2017 was primarily related to the purchase of Convergex Group, loans issued and purchases of other investments offset partially by sales of other investments and fixed assets. Net cash provided by investing activities of $58.5 million for the year ended December 31, 2016 was primarily related to repayment of certain loans made for investing purposes and sales of other investments offset partially by the purchases of other investments and fixed assets. Net cash used in investing activities of $47.4 million for the year ended December 31, 2015 was primarily related to the purchases of businesses, other investments and fixed assets partially offset by proceeds from sales of other investments. 57 Financing Activities. Net cash provided by financing activities for the year ended December 31, 2017 of $137.9 million was primarily related to proceeds from the issuance of convertible debt, borrowings on notes and other debt and contributions from non-controlling interests in Consolidated Funds offset partially by repayments on convertible debt, notes and other debt, withdrawals from non-controlling interests in Consolidated Funds and purchase of treasury stock. Net cash provided by financing activities for the year ended December 31, 2016 of $249.8 million was primarily related to contributions from non- controlling interests in Consolidated Funds. Net cash provided by financing activities for the year ended December 31, 2015 of $143.8 million was primarily related to the proceeds from issuance of preferred stock and contributions from non-controlling interests in Consolidated Funds offset partially by repurchase of shares of our common stock. Debt Convertible Debt 2022 Convertible Notes The Company, on December 14, 2017, issued $135.0 million aggregate principal amount of 3.00% convertible senior notes due 2022 (the “2022 Convertible Notes”). The 2022 Convertible Notes are due on December 15, 2022 unless earlier repurchased by the Company or converted by the holder in accordance with their terms prior to such date. The interest on the 2022 Convertible Notes is payable semi-annually on December 15 and June 15 of each year. The notes are senior unsecured obligations of Cowen. The 2022 Convertible Notes may be converted into cash or shares of Class A common stock at the Company's election based on the current conversion price. The 2022 Convertible Notes were issued with an initial conversion price of $17.375 per share of Cowen’s Class A common stock. The Company used the net proceeds, together with cash on hand, from the offering for general corporate purposes, including the repurchase or repayment of $115.1 million of the Company’s outstanding 3.0% cash convertible senior notes due 2019 (the "2019 Convertible Notes") and the repurchase of approximately $19.5 million of the Company’s shares of its Class A common stock, which were consummated substantially concurrently with the closing of the offering. The Company recorded interest expense of $0.2 million for the year ended December 31, 2017. The Company recognized the embedded cash conversion option at issuance date fair value, which also represents the initial unamortized discount on the 2022 Convertible Notes of $23.4 million and is shown net in convertible debt in the accompanying consolidated statements of financial condition. Amortization on the discount, included within interest expense in the accompanying consolidated statements of operations is $0.2 million for the year ended December 31, 2017, based on an effective interest rate of 7.13%. The Company capitalized the debt issuance costs in the amount of $2.1 million, which is a direct deduction from the carrying value of the debt and will be amortized over the life of the 2022 Convertible Notes. 2019 Convertible Notes On March 10, 2014, the Company issued $149.5 million of 3.0% cash convertible senior notes (the "2019 Convertible Notes"). The 2019 Convertible Notes are due on March 15, 2019 unless earlier repurchased by the Company or converted by the holder into cash in accordance with their terms prior to such date. The interest on the 2019 Convertible Notes is payable semi-annually on March 15 and September 15 of each year. The 2019 Convertible Notes are senior unsecured obligations of the Company. The 2019 Convertible Notes may be converted into cash, upon the occurrence of certain events, whereby a holder will receive, per $1,000 principal amount of notes being converted, an amount equal to the sum of principal amount outstanding and the conversion amount based on the current conversion price (the "Conversion Option"). The 2019 Convertible Notes were issued with an initial conversion price of $21.32 per share (per share amounts have been retroactively updated to reflect the one-for-four reverse stock split effective as of December 5, 2016). During December 2017, the Company repurchased and extinguished $115.1 million of the outstanding balance of the 2019 Convertible Notes. The Company recorded interest expense of $4.3 million, $4.5 million and $4.5 million for the years ended December 31, 2017, 2016 and 2015, respectively. The initial unamortized discount on the 2019 Convertible Notes was $35.7 million and is shown net in convertible debt in the accompanying consolidated statements of financial condition. Amortization on the discount, included within interest expense in the accompanying consolidated statements of operations is $7.3 million, $6.9 million and $6.3 million for the years ended December 31, 2017, 2016, and 2015, respectively, based on an effective interest rate of 8.89%. The Company capitalized the debt issuance costs in the amount of $0.9 million, which is a direct deduction from the carrying value of the debt and will be amortized over the life of the 2019 Convertible Notes. In conjunction with the partial extinguishment of the 2019 Convertible Notes, the Company accelerated the pro-rata unamortized discount and capitalized debt issuance costs. The Company recognized $11.6 million of gain/ (loss) on debt extinguishment. Of the net proceeds from the sale of the 2019 Convertible Notes, approximately $20.5 million was applied to pay the net cost of a cash convertible note economic hedge and warrant transaction, which increased the effective conversion price to $28.72 (see Note 6) (per share amounts have been retroactively updated to reflect the one-for-four reverse stock split effective 58 as of December 5, 2016), and approximately $0.3 million was applied to repurchase shares of Cowen Class A common stock. The remainder of the net proceeds is being used for general corporate purposes. Note Payable 2027 Notes On December 8, 2017, the Company completed its public offering of $120 million of 7.35% senior notes due 2027 (the “2027 Notes”) and subsequently the underwriters exercised in full their option to purchase an additional $18.0 million principal amount of the 2027 Notes. Interest on the 2027 Notes is payable quarterly in arrears on March 15, June 15, September 15 and December 15. The Company recorded interest expense of $0.6 million for the year ended December 31, 2017. The Company capitalized debt issuance costs of approximately $5.1 million which is a direct deduction from the carrying value of the debt and will be amortized over the life of the 2027 Notes. The net proceeds of the offering, after deducting the underwriting discount and estimated offering expenses payable by the Company were used to redeem all of its 8.25% senior notes due 2021 (the "2021 Notes") and for general corporate purposes. 2021 Notes The Company redeemed the Company's outstanding $63.25 million principal amount of the 2021 Notes, following which the 2021 Notes were delisted from NASDAQ. The redemption was made pursuant to the terms of the 2021 Notes and the indenture governing the 2021 Notes. The redemption price for the 2021 Notes was equal to 106.188% of the principal amount of the 2021 Notes plus accrued and unpaid interest. The Company recorded interest expense of $5.3 million, $5.2 million and $5.2 million for the years ended December 31, 2017, 2016, and 2015 respectively. In conjunction with the extinguishment of the 2021 Notes, the Company expensed the unamortized capitalized debt issuance costs. The Company recognized $5.6 million of loss on debt extinguishment. Term Loan On June 30, 2017, the Company borrowed $28.2 million to fund general corporate purposes. This term loan has an effective interest rate of LIBOR plus 3.75% with a lump sum payment of the entire principal amount due on June 29, 2018. The loan is secured by the value of the Company's limited partnership interests in two affiliated funds. The Company has provided a guarantee for this loan. The Company recorded interest expense of $0.7 million for the year ended December 31, 2017. Other Notes Payable During January 2017, the Company borrowed $2.1 million to fund insurance premium payments. This note has an effective interest rate of 1.50% and is due on December 31, 2017, with monthly payment requirements of $0.2 million. As of December 31, 2017, the note was fully repaid. Interest expense for the year ended December 31, 2017 was insignificant. The Company has entered into various financing for its aircraft. The aircraft financing, net of debt costs, is recorded in notes payable and short-term borrowings in the accompanying consolidated statements of financial condition. The debt maturities ranged from January 2019 to April 2021 and interest rates ranged from 4.21% to 7.25%. As of December 31, 2017, and 2016, the remaining balance on the aircraft financing agreements was $8.2 million and $14.4 million, respectively. Interest expense was $0.7 million and $0.8 million for the years ended December 31, 2017 and 2016, respectively. Capital Lease Obligations The Company has entered into a capital lease for computer equipment, which amounted to $6.9 million and is recorded in fixed assets as capital lease obligations. In addition, as part of the Convergex Group acquisition, the Company holds two capital leases for computer equipment which amounted to $0.8 million and are recorded as capital lease obligations. These capital lease obligations are included in short-term borrowings and other debt in the accompanying consolidated statements of financial condition, and have lease terms that range from 48 to 60 months and interest rates that range from 3.70% to 5.69%. As of December 31, 2017, the remaining balance on these capital leases was $4.1 million. Interest expense was $0.1 million, $0.1 million, $0.2 million for the years ended December 31, 2017, 2016, and 2015, respectively. Letters of Credit As of December 31, 2017, the Company has the following eight irrevocable letters of credit, related to leased office space, for which there is cash collateral pledged, which the Company pays a fee on the stated amount of the letter of credit. The Company also has pledged as collateral, $11.8 million, as of December 31, 2017, and $5.5 million, as of December 31, 2016, due between March 2018 and March 2021, for reinsurance agreements. 59 Location Amount Maturity (dollars in thousands) Connecticut Boston New York New York New York New York New York San Francisco $ $ $ $ $ $ $ $ 65 382 355 70 596 2,250 1,600 710 January 2018 March 2018 April 2018 May 2018 October 2018 October 2018 November 2018 January 2019 To the extent any letter of credit is drawn upon, interest will be assessed at the prime commercial lending rate. As of December 31, 2017 and 2016, there were no amounts due related to these letters of credit. Contractual Obligations The following tables summarize the Company's contractual cash obligations as of December 31, 2017: Equipment/Aircraft Leases, Service Payments and Facility Leases Real Estate Service Payments Equipment leases Aircraft Total Debt Convertible Debt Note Payable Term Loan Other Notes Payable Total Clawback obligations Total < 1 Year 1-3 Years 3-5 Years More Than 5 Years (dollars in thousands) $ 101,927 $ 25,960 $ 39,079 $ 29,534 $ 7,354 34,494 4,843 1,995 143,259 190,915 239,627 28,901 9,317 21,631 2,251 1,260 51,102 4,840 10,340 28,901 2,032 12,526 1,533 735 53,873 42,975 20,286 — 4,773 337 1,059 — 30,930 143,100 20,286 — 2,512 — — — 7,354 — 188,715 — — $ 468,760 $ 46,113 $ 68,034 $ 165,898 $ 188,715 For financial reporting purposes, the general partners of a real estate fund have recorded a liability for potential clawback obligations to the limited partners, due to changes in the unrealized value of the fund's remaining investments and where the fund's general partner has previously received carried interest distributions. The clawback liability, however, is not realized until the end of the fund's life. The life of the real estate funds with a potential clawback obligation is currently in a winding-up phase whereby the remaining assets of the fund are being liquidated as promptly as possible so as to maximize value, however a final date for liquidation has not been set. The fund is currently winding-down as of December 31, 2017 and the clawback obligations were $6.2 million (see Note 6 to the Company's consolidated financial statements). Minimum payments for all debt outstanding Annual scheduled maturities of debt and minimum payments for all debt outstanding as of December 31, 2017, are as follows: 60 2018 2019 2020 2021 2022 Thereafter Subtotal Less (a) Total Convertible Debt Note Payable Term Loan Other Note Payable Capital Lease Obligation (dollars in thousands) $ 4,840 $ 10,340 $ — $ 2,032 $ 2,059 38,925 4,050 4,050 139,050 — 190,915 (49,413) 10,143 10,143 10,143 10,143 188,715 239,627 (106,657) 28,901 — — — — 28,901 (780) 3,410 1,363 2,512 — — 9,317 (1,070) $ 141,502 $ 132,970 $ 28,121 $ 8,247 $ 717 639 639 420 — 4,474 (354) 4,120 (a) Amount necessary to reduce net minimum payments to present value calculated at the Company's implicit rate at inception. This amount also includes capitalized debt costs and the unamortized discount on the convertible debt. Off-Balance Sheet Arrangements We have no material off-balance sheet arrangements as of December 31, 2017. However, through indemnification provisions in our clearing agreements, customer activities may expose us to off-balance-sheet credit risk. Pursuant to the clearing agreements, we are required to reimburse our clearing broker, without limit, for any losses incurred due to a counterparty's failure to satisfy its contractual obligations. However, these transactions are collateralized by the underlying security, thereby reducing the associated risk to changes in the market value of the security through the settlement date. Cowen and Company, Cowen Prime, Cowen Execution and ATM Execution are members of various securities exchanges and clearing organizations. Under the standard membership agreement, members are required to guarantee the performance of other members and, accordingly, if another member becomes unable to satisfy its obligations to the various securities exchange and clearing organizations, all other members would be required to meet the shortfall. The Company's liability under these arrangements is not quantifiable. Accordingly, no contingent liability is carried in the accompanying consolidated statements of financial condition for these arrangements. Critical Accounting Policies and Estimates Critical accounting policies are those that require the Company to make significant judgments, estimates or assumptions that affect amounts reported in its consolidated financial statements or the notes thereto. The Company bases its judgments, estimates and assumptions on current facts, historical experience and various other factors that the Company believes to be reasonable and prudent. Actual results may differ materially from these estimates. The following is a summary of what the Company believes to be its most critical accounting policies and estimates. Consolidation These consolidated financial statements include the accounts of the Company, its subsidiaries, and entities in which the Company has a controlling financial interest, including the Consolidated Funds, in which the Company has a controlling general partner interest. All material intercompany transactions and balances have been eliminated in consolidation. The Company’s funds are not subject to these consolidation provisions with respect to their investments pursuant to their specialized accounting. The Company’s consolidated financial statements reflect the assets, liabilities, revenues, expenses and cash flows of the Consolidated Funds on a gross basis. The management fees and incentive income earned by the Company from the Consolidated Funds were eliminated in consolidation; however, the Company’s allocated share of net income from these funds was increased by the amount of this eliminated income. Hence, the consolidation of these funds had no net effect on the Company’s net earnings. The Company consolidates all entities that it controls through a majority voting interest or otherwise, including those funds in which the Company either directly or indirectly has a controlling financial interest. In addition, the Company consolidates all variable interest entities for which it is the primary beneficiary. In accordance with these standards, during the twelve months ended December 31, 2017 the Company consolidated seven funds for which it acts (or acted) as the general partner and investment manager. As of December 31, 2017 the Company consolidated the following funds: Ramius Enterprise LP (“Enterprise LP”), Ramius Merger Fund LLC (the "Merger Fund"), Cowen Private Investments LP ("Cowen Private"), Cowen Healthcare Investments Fund II LP ("Cowen Healthcare II"), Caerus 61 Select Fund LP ("Caerus LP") (between May 1, 2016 through March 1, 2017 when the fund was liquidated), Ramius Archview Credit and Distressed Master Fund ("Archview Master Fund") (from December 31, 2015 through July 31, 2017 when the fund was liquidated) and Ramius Merger Arbitrage UCITS Fund ("UCITS Fund") (collectively the "Consolidated Funds"). The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting operating entity ("VOE") or a variable interest entity ("VIE") under US GAAP. Voting Operating Entities—VOEs are entities in which (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (ii) the equity holders at risk have the obligation to absorb losses, the right to receive residual returns and the right to direct the activities of the entity that most significantly impact the entity's economic performance. Under US GAAP, the usual condition for a controlling financial interest in a VOE is ownership of a majority voting interest. Accordingly, the Company consolidates all VOEs in which it owns a majority of the entity's voting shares or units. Variable Interest Entities—VIEs are entities that lack one or more of the characteristics of a VOE. In accordance with US GAAP, an enterprise must consolidate all VIEs of which it is the primary beneficiary. Under the US GAAP consolidation model for VIEs, an enterprise that (1) has the power to direct the activities of a VIE that most significantly impacts the VIE's economic performance, and (2) has an obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE, is considered to be the primary beneficiary of the VIE and thus is required to consolidate it. The Company reconsiders whether it is the primary beneficiary of a VIE by performing a periodic qualitative and/or quantitative analysis of the VIE that includes a review of, among other things, its capital structure, contractual agreements between the Company and the VIE, the economic interests that create or absorb variability, related party relationships and the design of the VIE. In the ordinary course of business, the Company also sponsors various other entities that it has determined to be VIEs. These VIEs are primarily funds and real estate entities for which the Company serves as the general partner, managing member and/or investment manager with decision-making rights. The Company does not consolidate certain entities that are VIEs as it has concluded that it is not the primary beneficiary in each instance. Fund investors are entitled to all of their economics of these VIEs with the exception of the management fee and incentive income, if any, earned by the Company. The Company's involvement with funds and real estate entities that are unconsolidated VIEs is limited to providing investment management services in exchange for management fees and incentive income. Although the Company may advance amounts and pay certain expenses on behalf of the funds and real estate entities that it considers to be VIEs, it does not provide, nor is it required to provide, any type of substantive financial support to these entities outside of regular investment management services. Equity Method Investments—For operating entities over which the Company exercises significant influence but which do not meet the requirements for consolidation as outlined above, the Company uses the equity method of accounting. The Company's investments in equity method investees are recorded in other investments in the accompanying consolidated statements of financial condition. The Company's share of earnings or losses from equity method investees is included in net gains (losses) on securities, derivatives and other investments in the accompanying consolidated statements of operations. The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. The difference between the carrying value of the equity method investment and its estimated fair value is recognized as an impairment charge when the loss in value is deemed other than temporary. Other—If the Company does not consolidate an entity, apply the equity method of accounting or account for an investment under the cost method, the Company accounts for such entities (primarily, all securities of such entity which are bought and held principally for the purpose of selling them in the near term as trading securities) in accordance with US GAAP, at fair value with unrealized gains (losses) resulting from changes in fair value reflected within net gains (losses) on securities, derivatives and other investments in the accompanying consolidated statements of operations. Retention of Specialized Accounting—The Consolidated Funds and certain other consolidated companies are investment companies and apply specialized industry accounting for investment companies. The Company has retained this specialized accounting for these funds pursuant to US GAAP. The Company reports its investments on the consolidated statements of financial condition at their estimated fair value, with unrealized gains (losses) resulting from changes in fair value reflected within net realized and unrealized gains (losses) on investments and other transactions. Accordingly, the accompanying consolidated financial statements reflect different accounting policies for investments depending on whether or not they are held through a consolidated investment company. In addition, the Company's broker-dealer subsidiaries apply the specialized 62 industry accounting for brokers and dealers in securities also prescribed under US GAAP. The Company also retains specialized accounting upon consolidation. Valuation of investments and derivative contracts US GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. 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 fair value hierarchy are as follows: Level 1 Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date; Level 2 Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; and Level 3 Fair value is determined based on pricing inputs that are unobservable and includes situations where there is little, if any, market activity for the asset or liability. The determination of fair value for assets and liabilities in this category requires significant management judgment or estimation. Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Company. The Company considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Company's perceived risk of that instrument. For additional information regarding the use of unobservable inputs to fair value assets and liabilities see Note 7 in the accompanying consolidated Financial Statement in Part 1 Item 1. The Company and its operating subsidiaries act as the manager for the Consolidated Funds. Both the Company and the Consolidated Funds hold certain investments which are valued by the Company, acting as the investment manager. The fair value of these investments is generally estimated based on proprietary models developed by the Company, which include discounted cash flow analysis, public market comparables, and other techniques and may be based, at least in part, on independently sourced market information. The material estimates and assumptions used in these models include the timing and expected amount of cash flows, the appropriateness of discount rates used, and, in some cases, the ability to execute, timing of, and estimated proceeds from expected financings. Significant judgment and estimation goes into the selection of an appropriate valuation methodology as well as the assumptions used in these models, and the timing and actual values realized with respect to investments could be materially different from values derived based on the use of those estimates. The valuation methodologies applied impact the reported value of the Company's investments and the investments held by the Consolidated Funds in the consolidated financial statements. Certain of the Company's investments are relatively illiquid or thinly traded and may not be immediately liquidated on demand if needed. Fair values assigned to these investments may differ significantly from the fair values that would have been used had a ready market for the investments existed and such differences could be material. The Company primarily uses the “market approach” to value its financial instruments measured at fair value. In determining an instrument's level within the hierarchy, the Company categorizes the Company's financial instruments into three categories: securities, derivative contracts and other investments. To the extent applicable, each of these categories can further be divided between those held long or sold short. The Company has the option to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period. The election is made on an instrument by instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. The Company has elected the fair value option for certain of its investments held by its operating companies. This option has been elected because the Company believes that it is consistent with the manner in which the business is managed as well as the way that financial instruments in other parts of the business are recorded. Securities— Securities with values based on quoted market prices in active markets for identical assets are classified within level 1 of the fair value hierarchy. These securities include active listed equities, certain U.S. government and sovereign obligations, Exchange Traded Funds ("ETFs"), mutual funds and certain money market securities. The Company does not adjust the quoted price for such instruments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price. 63 Certain positions for which trading activity may not be readily visible, consisting primarily of convertible debt, corporate debt and loans and restricted equities, are stated at fair value and classified within level 2 of the fair value hierarchy. The estimated fair values assigned by management are determined in good faith and are based on available information considering, trading activity, broker quotes, quotations provided by published pricing services, counterparties and other market participants, and pricing models using quoted inputs, and do not necessarily represent the amounts which might ultimately be realized. As level 2 investments include positions that are not always traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability. Derivative contracts—Derivative contracts can be exchange-traded or privately negotiated over-the-counter (“OTC”). Exchange-traded derivatives, such as futures contracts and exchange-traded option contracts, are typically classified within level 1 or level 2 of the fair value hierarchy depending on whether or not they are deemed to be actively traded. OTC derivatives, such as generic forwards, swaps and options, have inputs which can generally be corroborated by market data and are therefore classified within level 2. OTC derivatives, such as swaps and options where market data is not readily available or observable are classified as level 3. Other investments—Other investments consist primarily of portfolio funds, real estate investments and equity method investments, which are valued as follows: i. Portfolio funds—Portfolio funds (“Portfolio Funds”) include interests in funds and investment companies which may be managed by the Company or its affiliates. The Company follows US GAAP regarding fair value measurements and disclosures relating to investments in certain entities that calculate net asset value (“NAV”) per share (or its equivalent). The guidance permits, as a practical expedient, an entity holding investments in certain entities that either are investment companies as defined by the American Institute of Certified Public Accountants ("AICPA") Audit and Accounting Guide, Investment Companies, or have attributes similar to an investment company, and calculate net asset value per share or its equivalent for which the fair value is not readily determinable, to measure the fair value of such investments on the basis of that NAV per share, or its equivalent, without adjustment. In accordance with US GAAP, investments which are valued using NAV per share as a practical expedient are not categorized within the fair value hierarchy. ii. Real estate investments—Real estate debt and equity investments are valued at fair value. The fair value of real estate investments are estimated based on the price that would be received to sell an asset in an orderly transaction between marketplace participants at the measurement date. Real estate investments without a public market are valued based on assumptions and valuation techniques used by the Company. Such valuation techniques may include discounted cash flow analysis, prevailing market capitalization rates or earnings multiples applied to earnings from the investment, analysis of recent comparable sales transactions, actual sale negotiations and bona fide purchase offers received from third parties, consideration of the amount that currently would be required to replace the asset, as adjusted for obsolescence, as well as independent external appraisals. In general, the Company considers several valuation techniques when measuring the fair value of a real estate investment. However, in certain circumstances, a single valuation technique may be appropriate. Real estate investments are reviewed on a quarterly basis by the Company for significant changes at the property level or a significant change in the overall market which would impact the value of the real estate investment resulting in unrealized appreciation or depreciation. Real estate and capital markets are cyclical in nature. Property and investment values are affected by, among other things, the availability of capital, occupancy rates, rental rates and interest and inflation rates. In addition, the Company invests in real estate and real estate related investments for which no liquid market exists. The market prices for such investments may be volatile and may not be readily ascertainable. Amounts ultimately realized by the Company from investments sold may differ from the fair values presented, and the differences could be material. The Company's real estate investments are typically categorized as level 3 investments within the fair value hierarchy as management uses significant unobservable inputs in determining their estimated fair value. Revenue recognition The Company's principal sources of revenue are derived from two segments: an investment management segment and a broker-dealer segment, as more fully described below. Our investment management segment generates revenue through three principal sources: management fees, incentive income and investment income from the Company's own capital. Our broker-dealer segment generates revenue through three principal sources: investment banking, brokerage and investment income. 64 Management fees The Company earns management fees from affiliated private funds and certain managed accounts that it serves as the investment manager based on assets under management. The actual management fees received vary depending on distribution fees or fee splits paid to third parties either in connection with raising the assets or structuring the investment. Several management companies of the private funds are owned jointly by the Company and third parties. Accordingly, the management fees generated by these funds are split between the Company and these third parties. Pursuant to US GAAP, these fees received by the management companies that are accounted for under the equity method of accounting and are reflected under net gains (losses) on securities, derivatives and other investments in the accompanying consolidated statements of operations. Management fees are generally paid on a quarterly basis at the beginning of each quarter in arrears and are prorated for capital inflows and redemptions. While some investors may have separately negotiated fees, in general the management fees are as follows: • Private Funds. Management fees for the Company's private funds, including the private healthcare fund, are generally charged at an annual rate of up to 2% of assets under management or notional trading level. Management fees are generally calculated monthly based on assets under management at the end of each month before incentive income. • Real Estate. Management fees from the Company's real estate business are generally charged at an annual rate from 0.25% to 1.50% of total capital commitments during the investment period and of invested capital or net asset value of the applicable fund after the investment period has ended. Management fees are typically paid to the general partners on a quarterly basis, at the beginning of the quarter in arrears, and are prorated for changes in capital commitments throughout the investment period and invested capital after the investment period. • HealthCare Royalty Partners. In HealthCare Royalty Partners main funds, during the investment period (as defined in the relevant partnership agreements), management fees are generally charged at an annual rate of 1% to 2% of committed capital. After the investment period, management fees for these funds are generally charged at an annual rate of 0.5% to 2% of the net asset value or the aggregate cost basis of the unrealized investments held by the funds. For the other funds (and managed accounts) managed by Healthcare Royalty Partners, the management fee ranges from 0.2% to 1% and there is no adjustment based on an investment period. Management fees for the HealthCare Royalty Partners funds are calculated on a quarterly basis. • Cowen Trading Strategies. Advisory fees for the Company's collateral management advisory business are typically paid quarterly based on assets under management but generally subject to a minimum fee. Incentive income The Company earns incentive income based on net profits (as defined in the respective investment management agreements) with respect to certain of the Company's investment management products, allocable for each fiscal year that exceeds cumulative unrecovered net losses, if any, that have been carried forward from prior years. For the products we offer, incentive income earned is typically up to 20% for private funds (in certain cases on performance in excess of a benchmark), of the net profits earned for the full year that are attributable to each fee-paying investor. Generally, incentive income on real estate funds is earned after the investor has received a full return of their invested capital, plus a preferred return. However, for certain real estate funds, the Company is entitled to receive incentive fees earlier, provided that the investors have received their preferred return on a current basis or on an investor by investor basis. These funds are generally subject to a potential clawback of these incentive fees upon the liquidation of the fund if the investor has not received a full return of its invested capital plus the preferred return thereon. Incentive income in the HealthCare Royalty Partners funds is generally earned only after investors receive a full return of their capital plus a preferred return. Several general partners of the Company's private funds are jointly owned by the Company and third parties. Accordingly, the incentive fees generated by these funds are split between the Company and these third parties. Pursuant to US GAAP, incentive income received by the general partners that are accounted for under the equity method of accounting are reflected under net gains (losses) on securities, derivatives and other investments in the accompanying consolidated statements of operations. In periods following a period of a net loss attributable to an investor, the Company generally does not earn incentive income on any future profits attributable to that investor until the accumulated net loss from prior periods is recovered, an arrangement commonly referred to as a “high-water mark.” The Company has elected to record incentive income revenue in accordance with “Method 2” of US GAAP. Under Method 2, the incentive income from the Company's investment management products for any period is based upon the net profits of those investment management products at the reporting date. Any incentive income recognized in the accompanying consolidated statement of operations may be subject to future 65 reversal based on subsequent negative performance prior to the conclusion of the fiscal year, when all contingencies have been resolved. Carried interest in the real estate funds and HealthCare Royalty Partners funds are subject to clawback to the extent that the carried interest actually distributed to date exceeds the amount due to the Company based on cumulative results. As such, the accrual for potential repayment of previously received carried interest, which is a component of accounts payable, accrued expenses and other liabilities, represents all amounts previously distributed to the Company, less an assumed tax liability, that would need to be repaid to certain funds if these funds were to be liquidated based on the current fair value of the underlying funds' investments as of the reporting date. The actual clawback liability does not become realized until the end of a fund's life. Investment Banking The Company earns investment banking revenue primarily from fees associated with public and private capital raising transactions and providing strategic advisory services. Investment banking revenues are derived primarily from small and mid- capitalization companies within the Company's Target Sectors. Investment banking revenue consists of underwriting fees, strategic/financial advisory fees and placement and sales agent fees. • Underwriting fees. The Company earns underwriting fees in securities offerings in which the Company acts as an underwriter, such as initial public offerings, follow-on equity offerings, debt offerings, and convertible security offerings. Fee revenue relating to underwriting commitments is recorded when all significant items relating to the underwriting process have been completed and the amount of the underwriting revenue has been determined. This generally is the point at which all of the following have occurred: (i) the issuer's registration statement has become effective with the SEC or the other offering documents are finalized; (ii) the Company has made a firm commitment for the purchase of securities from the issuer; and (iii) the Company has been informed of the number of securities that it has been allotted. When the Company is not the lead manager for an underwriting transaction, management must estimate the Company's share of transaction-related expenses incurred by the lead manager in order to recognize revenue. Transaction-related expenses are deducted from the underwriting fee and therefore reduce the revenue the Company recognizes as co-manager. Such amounts are adjusted to reflect actual expenses in the period in which the Company receives the final settlement, typically within 90 days following the closing of the transaction. • Strategic/financial advisory fees. The Company's strategic advisory revenues include success fees earned in connection with advising companies, principally in mergers, acquisitions and restructuring transactions. The Company also earns fees for related advisory work such as providing fairness opinions. The Company records strategic advisory revenues when the services for the transactions are completed under the terms of each assignment or engagement and collection is reasonably assured. Expenses associated with such transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded. • Placement and sales agent fees. The Company earns agency placement fees and sales agent commissions in non- underwritten transactions such as private placements of loans and debt and equity securities, including, private investment in public equity transactions (“PIPEs”), and as sales agent in at-the-market offerings of equity securities. The Company records placement revenues (which may be in cash and/or securities) when the services for the transactions are completed under the terms of each assignment or engagement and collection is reasonably assured. The Company records sales agent commissions on a trade date basis. Expenses associated with such transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded. Brokerage Brokerage revenue consists of commissions, principal transactions, equity and credit research fees and trade conversion revenue. • Commissions. Commission revenue includes fees from executing and clearing client transactions and commission sharing arrangements. These fees are recognized on a trade date basis. The Company permits institutional customers to allocate a portion of their commissions to pay for research products and other services provided by third parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. Commissions on soft dollar brokerage are recorded net of the related expenditures on an accrual basis. The costs of commission recapture arrangements are recorded on an accrual basis for each eligible trade and shown net of commission revenue. • Principal transactions. Principal transactions revenue includes net trading gains and losses from the Company's market-making activities in over-the-counter equity and fixed income securities, trading of convertible securities, and 66 trading gains and losses on inventory and other Company positions, which include warrants previously received as part of investment banking transactions. In certain cases, the Company provides liquidity to clients by buying or selling blocks of shares of listed stocks without previously identifying the other side of the trade at execution, which subjects the Company to market risk. These positions are typically held for a very short duration. • Equity and credit research fees. Equity and credit research fees are paid to the Company for providing equity and credit research. Revenue is recognized once an arrangement exists, access to research has been provided, the fee amount is fixed or determinable, and collection is reasonably assured. • Trade conversion revenue. Trade conversion revenue includes the fee earned from converting foreign securities into an American Depository Receipt (“ADR”) and the fee earned from converting an ADR into foreign securities on behalf of customers, and margins earned from facilitating customer foreign exchange transactions. Trade conversion revenue is recognized on a trade date basis. Investment Income Investment income earned by the investment management and broker-dealer segments are earned from investing the Company's capital in various strategies and from investments in private capital raising transactions of its investment banking clients. Goodwill and Intangible Assets Goodwill represents the excess of the purchase price consideration of acquired companies over the estimated fair value assigned to the individual assets acquired and liabilities assumed. Goodwill is allocated to the Company's reporting units at the date the goodwill is initially recorded. Once goodwill has been allocated to the reporting units, it generally no longer retains its identification with a particular acquisition, but instead becomes identifiable with the reporting unit. As a result, all of the fair value of each reporting unit is available to support the value of goodwill allocated to the unit. In accordance with US GAAP, the Company tests goodwill for impairment on an annual basis or at an interim period if events or changed circumstances would more likely than not reduce the fair value of a reporting unit below its carrying amount. Under US GAAP, the Company first assesses the qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amounts as a basis for determining if it is necessary to perform the two-step approach. The first step requires a comparison of the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit exceeds its carrying value, the related goodwill is not considered impaired and no further analysis is required. If the carrying value of the reporting unit exceeds the fair value, there is an indication that the related goodwill might be impaired and the step two is performed to measure the amount of impairment, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with its carrying amount to measure the amount of impairment, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In other words, the estimated fair value of the reporting unit is allocated to all of its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment is recognized in an amount equal to that excess. Goodwill impairment tests involve significant judgment in determining the estimates of future cash flows, discount rates, economic forecast and other assumptions which are then used in acceptable valuation techniques, such as the market approach (earning and or transactions multiples) and/or income approach (discounted cash flow method). Changes in these estimates and assumptions could have a significant impact on the fair value and any resulting impairment of goodwill. Intangible assets with finite lives are amortized over their estimated average useful lives. The Company does not have any intangible assets deemed to have indefinite lives. Intangible assets are tested for potential impairment whenever events or changes in circumstances suggest that an asset or asset group's carrying value may not be fully recoverable. An impairment loss, calculated as the difference between the estimated fair value and the carrying value of an asset or asset group, is recognized in the consolidated statements of operations if the sum of the estimated discounted cash flows relating to the asset or asset group is less than the corresponding carrying value. Income taxes The Company accounts for income taxes in accordance with US GAAP which requires the recognition of tax benefits or expenses based on the estimated future tax effects of temporary differences between the financial statement and tax basis of its assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date. Valuation allowances are established to reduce deferred tax assets to an amount that is more likely than not to be realized. We evaluate our deferred tax assets for recoverability considering negative and positive evidence, including our historical financial performance, projections of future taxable income, future reversals of existing taxable 67 temporary differences, and tax planning strategies. We record a valuation allowance against our deferred tax assets to bring them to a level that it is more likely than not to be utilized. In evaluating the need for a valuation allowance, we estimate future taxable income based on management approved business plans. This process involves significant management judgment about assumptions that are subject to change from period to period. Because the recognition of deferred tax assets requires management to make significant judgments about future earnings, the periods in which items will impact taxable income and the application of inherently complex tax laws, we have identified the assessment of deferred tax assets and the need for any related valuation allowance as a critical accounting estimate. Legal Reserves The Company estimates potential losses that may arise out of legal and regulatory proceedings and records a reserve and takes a charge to income when losses with respect to such matters are deemed probable and can be reasonably estimated, in accordance with US GAAP. These amounts are reported in other expenses, net of recoveries, in the consolidated statements of operations. See Note 22 "Commitments and Contingencies" in our accompanying consolidated financial statements for the annual ended December 31, 2017 for further discussion. Recently adopted and future adoption of accounting pronouncements For a detailed discussion, see Note 3 "Recently issued accounting pronouncements" in our accompanying consolidated financial statements for the annual ended December 31, 2017. Item 7A. Quantitative and Qualitative Disclosures about Market Risk The Company's primary exposure to market risk is a function of our role as investment manager for our funds and managed accounts, our role as a financial intermediary in customer trading and market making activities, as well as the fact that a significant portion of our own capital is invested in securities. Adverse movements in the prices of securities that are either owned or sold short may negatively impact the Company's management fees and incentive income, as well as the value of our own invested capital. The market value of the assets and liabilities in our funds and managed accounts, as well as the Company's own securities, may fluctuate in response to changes in equity prices, interest rates, credit spreads, currency exchange rates, commodity prices, implied volatility, dividends, prepayments, recovery rates and the passage of time. The net effect of market value changes caused by fluctuations in these risk factors will result in gains (losses) for our funds and managed accounts which will impact our management fees and incentive income and for the Company's securities which will impact the value of our own invested capital as well as the capital utilized in facilitating customer trades. The Company's risk measurement and risk management processes are an integral part of our proprietary investment process as well as market making and customer facilitation trading activities. These processes are implemented at the individual position, strategy and total portfolio levels and are designed to provide a complete picture of the risks of the Company's balance sheet. The key elements of our risk reporting include sensitivities, exposures, stress testing and profit and loss attribution. As a result of our views of levels of risk being taken, the Company may undertake to hedge out some or all of any or all risks at either the individual position, strategy or total portfolio levels. Impact on Management Fees The Company's management fees are generally based on the net asset value of the Company's funds and managed accounts. Accordingly, management fees will change in proportion to changes in the market value of investments held by the Company's funds and managed accounts. Impact on Incentive Income The Company's incentive income is generally based on a percentage of the profits of the Company's various funds and managed accounts, which is impacted by global economies and market conditions as well as other factors. Consequently, incentive income cannot be readily predicted or estimated. Custody and prime brokerage risks There are risks involved in dealing with the custodians or prime brokers who settle trades. Under certain circumstances, including certain transactions where the Company's assets are pledged as collateral for leverage from a non-broker-dealer custodian or a non-broker-dealer affiliate of the prime broker, or where the Company's assets are held at a non-U.S. prime broker, the securities and other assets deposited with the custodian or broker may be exposed to credit risk with regard to such parties. In addition, there may be practical or timing problems associated with enforcing the Company's rights to its assets in the case of an insolvency of any such party. 68 Market risk Market risk represents the risk of loss that may result from the change in value of a financial instrument due to fluctuations in its market price. Market risk may be exacerbated in times of trading illiquidity when market participants refrain from transacting in normal quantities and/or at normal bid-offer spreads. Our exposure to market risk is primarily related to the fluctuation in the fair values of securities owned and sold, but not yet purchased in the Company's funds and our role as a financial intermediary in customer trading and to our market making and investment activities. Market risk is inherent in financial instruments and risks arise in options, warrants and derivative contracts from changes in the fair values of their underlying financial instruments. Securities sold, but not yet purchased, represent obligations of the Company's funds to deliver specified securities at contracted prices and thereby create a liability to repurchase the securities at prevailing future market prices. We trade in equity securities as an active participant in both listed and over the counter markets. We typically maintain securities in inventory to facilitate our market making activities and customer order flow. We may use a variety of risk management techniques and hedging strategies in the ordinary course of our trading business to manage our exposures. In connection with our trading business, management also reviews reports appropriate to the risk profile of specific trading activities. Typically, market conditions are evaluated and transaction details and securities positions are reviewed. These activities are intended to ensure that our trading strategies are conducted within acceptable risk tolerance parameters, particularly when we commit our own capital to facilitate client trading. Activities include price verification procedures, position reconciliations and reviews of transaction booking. We believe these procedures, which stress timely communications between traders, trading management and senior management, are important elements of the risk management process. A 10% change in the fair value of the investments held by the Company's funds as of December 31, 2017 would result in a change of approximately $1.1 billion in our assets under management and would impact management fees by approximately $5.3 million on an annual basis. This number is an estimate. The amount would be dependent on the fee structure of the particular fund or funds that experienced such a change. Currency risk The Company is also exposed to foreign currency fluctuations. Currency risk arises from the possibility that fluctuations in foreign currency exchange rates will affect the value of such financial instruments, including direct or indirect investments in securities of non-U.S. companies. A 10% weakening or strengthening of the U.S. dollar against all or any combination of currencies to which the Company's investments or the Company's funds have exposure to exchange rates would not have a material effect on the Company's revenues, net loss or Economic Income. Inflation risk Because our assets are, to a large extent, liquid in nature, they are not significantly affected by inflation. However, the rate of inflation affects such expenses as employee compensation and communications charges, which may not be readily recoverable in the prices of services we offer. To the extent inflation results in rising interest rates and has other adverse effects on the securities markets, it may adversely affect our financial condition and results of operations in certain businesses. Leverage and interest rate risk There is no guarantee that the Company's borrowing arrangements or other arrangements for obtaining leverage will continue to be available, or if available, will be available on terms and conditions acceptable to the Company. Unfavorable economic conditions also could increase funding costs, limit access to the capital markets or result in a decision by lenders not to extend credit to the Company. In addition, a decline in market value of the Company's assets may have particular adverse consequences in instances where we have borrowed money based on the market value of those assets. A decrease in market value of those assets may result in the lender (including derivative counterparties) requiring the Company to post additional collateral or otherwise sell assets at a time when it may not be in the Company's best interest to do so. Credit risk The Company clears all of its securities transactions through clearing brokers on a fully disclosed basis. Pursuant to the terms of the agreements between the Company and the clearing brokers, the clearing brokers have the right to charge the Company for losses that result from a counterparty's failure to fulfill its contractual obligations. As the right to charge the Company has no maximum amount and applies to all trades executed through the clearing brokers, we believe there is no maximum amount assignable to this right. Accordingly, at December 31, 2017, the Company had recorded no liability. Credit risk is the potential loss the Company may incur as a result of the failure of a counterparty or an issuer to make payments according to the terms of a contract. The Company's exposure to credit risk at any point in time is represented by the fair value of the amounts reported as assets at such time. In the normal course of business, our activities may include trade execution for our clients as well as agreements to borrow or lend securities. These activities may expose us to risk arising from price volatility which can reduce clients' ability to 69 meet their obligations. To the extent investors are unable to meet their commitments to us, we may be required to purchase or sell financial instruments at prevailing market prices to fulfill clients' obligations. In accordance with industry practice, client trades are settled generally three business days after trade date. Should either the client or the counterparty fail to perform, we may be required to complete the transaction at prevailing market prices. We manage credit risk by monitoring the credit exposure to and the standing of each counterparty, requiring additional collateral where appropriate, and using master netting agreements whenever possible. Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. We outsource all or a portion of certain critical business functions, such as clearing. Accordingly, we negotiate our agreements with these firms with attention focused not only on the delivery of core services but also on the safeguards afforded by back-up systems and disaster recovery capabilities. We make specific inquiries on any relevant exceptions noted in a service provider's System and Organization Controls (SOC) report on the state of its internal controls, when available. Our service offerings in electronic and algorithmic trading require us to maintain consistent levels of speed and accuracy in the management of orders generated by our models. We monitor these activities on a continuous basis and do not believe that they comprise a material risk. Our Internal Audit department oversees, monitors, measures, analyzes and reports on operational risk across the Company. The scope of Internal Audit encompasses the examination and evaluation of the adequacy and effectiveness of the Company's system of internal controls and is sufficiently broad to help determine whether the Company's network of risk management, control and governance processes, as designed by management, is adequate and functioning as intended. Internal Audit works with the senior management to help ensure a transparent, consistent and comprehensive framework exists for managing operational risk within each area, across the Company and globally. We are focused on maintaining our overall operational risk management framework and minimizing or mitigating these risks through a formalized control assessment process to ensure awareness and adherence to key policies and control procedures. Primary responsibility for management of operational risk is with the businesses and the business managers therein. The business managers, generally, maintain processes and controls designed to identify, assess, manage, mitigate and report operational risk. As new products and business activities are developed and processes are designed and modified, operational risks are considered. Legal risk Legal risk includes the risk of non-compliance with applicable legal and regulatory requirements and standards. Legal risk also includes contractual and commercial risk such as the risk that a counterparty's performance obligations will be unenforceable. The Company has established procedures based on legal and regulatory requirements that are designed to achieve compliance with applicable statutory and regulatory requirements. The Company, principally through the Legal and Compliance Division, also has established procedures that are designed to require that the Company's policies relating to conduct, ethics and business practices are followed. In connection with its businesses, the Company has and continuously develops various procedures addressing issues such as regulatory capital requirements, sales and trading practices, new products, potential conflicts of interest, use and safekeeping of customer funds and securities, money laundering, privacy and recordkeeping. In addition, the Company has established procedures to mitigate the risk that a counterparty's performance obligations will be unenforceable, including consideration of counterparty legal authority and capacity, adequacy of legal documentation, the permissibility of a transaction under applicable law and whether applicable bankruptcy or insolvency laws limit or alter contractual remedies. The legal and regulatory focus on the financial services industry presents a continuing business challenge for the Company. Item 8. Financial Statements and Supplementary Data The financial statements and supplementary data required by this item are listed in Item 15—"Exhibits and Financial Statement Schedules" of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act 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 our management, including our Chief Executive Officer and Chief Financial 70 Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As of December 31, 2017, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and were operating at the reasonable assurance level. For Management's report on internal control over financial reporting see page F-2, and attestation report of our independent registered public accounting firm see page F-3. In addition, there were no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, that occurred in the fourth quarter. Item 9B. Other Information None. Item 10. Directors, Executive Officers and Corporate Governance PART III The information in the definitive proxy statement for our 2018 annual meeting of stockholders under the captions "Executive Officers," "Board of Directors," "Information Regarding the Board of Directors and Corporate Governance— Committees of the Board—Audit Committee," "Information Regarding the Board of Directors and Corporate Governance— Director Nomination Process," "Information Regarding the Board of Directors and Corporate Governance—Procedures for Nominating Director Candidates," "Information Regarding the Board of Directors and Corporate Governance—Code of Business Conduct and Ethics" and "Section 16(a) Beneficial Ownership Reporting Compliance" is incorporated herein by reference. Item 11. Executive Compensation The information in the definitive proxy statement for our 2018 annual meeting of stockholders under the captions "Executive Compensation—Compensation and Benefits Committee Report," "Certain Relationships and Related Transactions —Compensation and Benefits Committee Interlocks and Insider Participation" and "Information Regarding the Board of Directors and Corporate Governance—Compensation Program for Non-Employee Directors" is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information in the definitive proxy statement for our 2018 annual meeting of stockholders under the captions "Security Ownership—Beneficial Ownership of Directors, Nominees and Executive Officers," "Security Ownership— Beneficial Owners of More than Five Percent of our Common Stock" and "Securities Authorized for Issuance Under Equity Compensation Plans" are incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The information in the definitive proxy statement for our 2018 annual meeting of stockholders under the captions "Information Regarding the Board of Directors and Corporate Governance—Director Independence," "Certain Relationships and Related Transactions—Transactions with Related Persons," and "Certain Relationships and Related Transactions—Review and Approval of Transactions with Related Persons" is incorporated herein by reference. Item 14. Principal Accountant Fees and Services The information in the definitive proxy statement for our 2018 annual meeting of stockholders under the captions "Audit Committee Report and Payment of Fees to Our Independent Auditor—Auditor Fees" and "Audit Committee Report and Payment of Fees to Our Independent Auditor—Auditor Services Pre-Approval Policy" is incorporated herein by reference. 71 Item 15. Exhibits and Financial Statement Schedules (a) Documents filed as part of this Annual Report on Form 10-K: 1. Consolidated Financial Statements PART IV The consolidated financial statements required to be filed in the Annual Report on Form 10-K are listed on page F-1 hereof. The required financial statements appear on pages F-1 through F-78 hereof. 2. Financial Statement Schedules Separate financial statement schedules have been omitted either because they are not applicable or because the required information is included in the consolidated financial statements. 3. Exhibits See the Exhibit Index on pages E-1 through E-2 for a list of the exhibits being filed or furnished with or incorporated by reference into this Annual Report on Form 10-K. Item 16. Form 10-K Summary Not Applicable. 72 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Financial Statements Management's Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Statements of Financial Condition Consolidated Statements of Operations Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Note 1—Organization and Business Note 2—Acquisition and Divestitures Note 3—Significant Accounting Policies Note 4—Cash Collateral Pledged Note 5— Segregated Cash Note 6—Investments of Operating Entities and Consolidated Funds Note 7—Fair Value Measurements for Operating Entities and Consolidated Funds Note 8—Deposits with Clearing Organizations, Brokers and Banks Note 9—Receivable from and Payable to Brokers Note 10—Receivable From and Payable to Customers Note 11—Fixed Assets Note 12—Goodwill and Intangible Assets Note 13—Other Assets Note 14—Commission Management Payable Note 15—Accounts Payable, Accrued Expenses and Other Liabilities Note 16—Redeemable Non-controlling Interests in Consolidated Subsidiaries and Funds Note 17—Reinsurance Note 18—Other Revenues and Expenses Note 19—Share-Based and Deferred Compensation and Employee Ownership Plans Note 20—Defined Contribution Plans Note 21—Income Taxes Note 22—Commitments and Contingencies Note 23—Convertible Debt and Notes Payable Note 24—Stockholder's Equity Note 25—Accumulated Other Comprehensive Income (Loss) Note 26—Earnings Per Share Note 27—Segment Reporting Note 28—Regulatory Requirements Note 29—Related Party Transactions Note 30—Guarantees and Off-Balance Sheet Arrangements Note 31—Subsequent Events F- 1 Page F- 2 F- 3 F- 6 F- 8 F- 10 F- 11 F- 12 F- 14 F- 14 F- 14 F- 17 F- 31 F- 31 F- 31 F- 42 F- 50 F- 50 F- 51 F- 51 F- 52 F- 54 F- 54 F- 55 F- 55 F- 55 F- 56 F- 56 F- 58 F- 58 F- 62 F- 64 F- 67 F- 69 F- 69 F- 70 F- 74 F- 75 F- 76 F- 77 Management's Report on Internal Control over Financial Reporting Management of Cowen Inc. (the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting is a process designed under the supervision of the Company's principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. As of the end of the Company's 2017 fiscal year, management conducted an assessment of the Company's internal control over financial reporting based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company's internal control over financial reporting as of December 31, 2017 was effective. Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on our financial statements. The Company's internal control over financial reporting as of December 31, 2017 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report included herein, which expresses an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2017. F- 2 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Cowen Inc.: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated statement of financial condition of Cowen Inc. and subsidiaries (the “Company”) as of December 31, 2017, the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for the year ended December 31, 2017, and the related notes (collectively, the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for the year ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Basis for Opinion The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. F- 3 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We have served as the Company’s auditor since 2017. /s/ KPMG LLP New York, New York March 6, 2018 F- 4 Report of Independent Registered Public Accounting Firm To the Board of Directors and Member of Cowen Inc.: In our opinion, the consolidated balance sheet as of December 31, 2016 and the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for each of the two years in the period ended December 31, 2016 present fairly, in all material respects, the financial position of Cowen Inc. and its subsidiaries as of December 31, 2016, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP New York, New York February 27, 2017 F- 5 Cowen Inc. Consolidated Statements of Financial Condition (dollars in thousands, except share and per share data) As of December 31, 2017 As of December 31, 2016 Assets Cash and cash equivalents Cash collateral pledged Segregated cash Securities owned, at fair value Receivable on derivative contracts, at fair value Securities borrowed Other investments Deposits with clearing organizations, brokers and banks Receivable from brokers, dealers and clearing organizations Receivable from customers, net of allowance of $1,550 and $0 respectively Fees receivable, net of allowance of $1,736 and $0, respectively Due from related parties Fixed assets, net of accumulated depreciation and amortization of $28,355 and $23,867, respectively Goodwill Intangible assets, net of accumulated amortization of $33,081 and $29,418, respectively Deferred tax asset, net Other assets Consolidated Funds Cash and cash equivalents Securities owned, at fair value Receivable on derivative contracts, at fair value Other investments Receivable from brokers Other assets Total Assets Liabilities and Stockholders' Equity Liabilities Securities sold, not yet purchased, at fair value Payable for derivative contracts, at fair value Securities loaned Payables to brokers, dealers and clearing organizations Payable to customers Commission management payable Compensation payable Notes payable and other debt Convertible debt Fees payable Due to related parties Accounts payable, accrued expenses and other liabilities Consolidated Funds Securities sold, not yet purchased, at fair value Payable for derivative contracts, at fair value Payable to brokers Contributions received in advance Capital withdrawals payable Accounts payable, accrued expenses and other liabilities Total Liabilities F- 6 $ 130,052 $ 17,888 116,268 673,221 69,177 443,148 141,548 93,996 508,178 49,891 111,784 34,814 40,496 60,678 29,955 116,323 88,268 21,988 165,916 2,520 374,111 5,644 388 110,990 13,342 1,024 700,876 22,901 — 157,279 8,939 78,898 — 45,883 39,629 42,408 60,678 25,769 165,656 38,406 17,761 79,237 893 401,465 5,978 511 $ $ 3,296,252 $ 2,018,523 342,527 $ 42,750 456,831 252,153 352,467 70,451 150,206 173,458 141,502 8,047 570 96,533 — 7,130 751 — 11,931 322 266,090 20,762 — 210,309 — 3,590 98,084 77,030 130,029 3,272 573 47,525 883 572 3,700 2,000 1,408 841 $ 2,107,629 $ 866,668 Cowen Inc. Consolidated Statements of Financial Condition (dollars in thousands, except share and per share data) As of December 31, 2017 As of December 31, 2016 (continued) Commitments and Contingencies (Note 22) Redeemable non-controlling interests Stockholders' equity Preferred stock, par value $0.01 per share: 10,000,000 shares authorized, 120,750 shares issued and outstanding as of December 31, 2017 (aggregate liquidation preference of $120,750,000) and 10,000,000 shares authorized, 120,750 shares issued and outstanding as of as of December 31, 2016 (aggregate liquidation preference of $120,750,000), respectively Class A common stock, par value $0.01 per share: 62,500,000 shares authorized, 41,765,296 shares issued and 29,632,020 outstanding as of December 31, 2017 and 62,500,000 shares authorized, 36,542,091 shares issued and 26,731,289 outstanding as of December 31, 2016, respectively (including 191,962 and 162,176 restricted shares, respectively) Class B common stock, par value $0.01 per share: 62,500,000 authorized, no shares issued and outstanding as of December 31, 2017 and 2016, respectively Additional paid-in capital (Accumulated deficit) retained earnings Accumulated other comprehensive income (loss) Less: Class A common stock held in treasury, at cost, 12,133,276 and 9,810,802 shares, respectively Total Stockholders' Equity Total Liabilities and Stockholders' Equity $ $ $ $ 440,604 $ 379,205 1 $ 324 — 1,004,664 (70,116) (8) (186,846) 748,019 3,296,252 $ $ 1 292 — 928,646 (2,442) (2) (153,845) 772,650 2,018,523 The accompanying notes are an integral part of these consolidated financial statements. F- 7 Cowen Inc. Consolidated Statements of Operations (dollars in thousands, except per share data) Year Ended December 31, 2017 2016 2015 $ 223,614 $ 133,279 $ 293,610 199,180 Revenues Investment banking Brokerage Management fees Incentive income Interest and dividends Reimbursement from affiliates Aircraft lease revenue Reinsurance premiums Other revenues Consolidated Funds Interest and dividends Other revenues Total revenues Expenses Employee compensation and benefits Floor brokerage and trade execution Interest and dividends Professional, advisory and other fees Service fees Communications Occupancy and equipment Depreciation and amortization Client services and business development Reinsurance claims, commissions and amortization of deferred acquisition costs Restructuring costs Other expenses Consolidated Funds Interest and dividends Professional, advisory and other fees Floor brokerage and trade execution Other expenses Total expenses Other income (loss) 222,781 157,722 41,906 1,466 13,796 21,557 — — 3,726 1,086 527 40,612 8,334 14,732 10,504 4,161 32,459 22,355 4,792 1,157 33,245 5,383 49,440 2,860 3,751 30,996 8,561 5,870 1,451 658,781 471,565 464,567 404,087 310,038 321,386 75,601 60,949 31,942 14,999 23,460 35,184 13,078 28,327 30,486 8,763 18,196 9,836 1,145 318 1,227 32,286 29,308 23,190 7,918 17,768 32,286 12,713 27,828 29,904 — 14,815 6,434 1,148 431 1,051 27,460 26,220 25,578 7,535 14,325 29,055 9,498 25,413 — — 15,594 1,104 654 51 501 757,598 547,118 504,374 23,381 36,789 Net gains (losses) on securities, derivatives and other investments Bargain purchase gain, net of tax Gain/(loss) on debt extinguishment Consolidated Funds Net realized and unrealized gains (losses) on investments and other transactions Net realized and unrealized gains (losses) on derivatives Net gains (losses) on foreign currency transactions Total other income (loss) Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds Net income (loss) attributable to Cowen Inc. Preferred stock dividends 76,179 6,914 (16,039) 19,660 19,476 (411) 105,779 6,962 44,053 (37,091) 23,791 (60,882) 6,792 — — 7,085 13,503 97 44,066 (31,487) (19,092) (12,395) 6,882 (19,277) 6,792 — — 12,517 2,071 (91) 51,286 11,479 (47,496) 58,975 15,246 43,729 4,075 39,654 Net income (loss) attributable to Cowen Inc. common stockholders $ (67,674) $ (26,069) $ F- 8 (continued) Weighted average common shares outstanding: Basic (a) Diluted (a) Earnings (loss) per share: Basic (a) Diluted (a) Cowen Inc. Consolidated Statements of Operations (dollars in thousands, except per share data) Year Ended December 31, 2017 2016 2015 29,492 29,492 26,857 26,857 $ $ (2.29) $ (2.29) $ (0.97) $ (0.97) $ 27,522 29,043 1.44 1.37 (a) Share and per share amounts have been retroactively updated to reflect the one-for-four reverse stock split effective as of December 5, 2016. The accompanying notes are an integral part of these consolidated financial statements. F- 9 F - 1 0 T h e a c c o m p a n y i n g n o t e s a r e a n i n t e g r a l p a r t o f t h e s e c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s . N e t i n c o m e ( l o s s ) C o m p r e h e n s i v e i n c o m e ( l o s s ) F o r e i g n c u r r e n c y t r a n s l a t i o n O t h e r c o m p r e h e n s i v e i n c o m e ( l o s s ) , n e t o f t a x : T o t a l o t h e r c o m p r e h e n s i v e i n c o m e ( l o s s ) , n e t o f t a x ( 6 ) $ $ ( 3 7 , 0 9 7 ) ( 6 ) ( 3 7 , 0 9 1 ) ( 2 ) $ $ ( 1 2 , 3 9 7 ) ( 2 ) ( 1 2 , 3 9 5 ) ( 1 7 ) $ $ , 5 8 9 5 8 ( 1 7 ) , 5 8 9 7 5 Y e a r E n d e d D e c e m b e r 3 1 , 2 0 1 7 Y e a r E n d e d D e c e m b e r 3 1 , 2 0 1 6 Y e a r E n d e d D e c e m b e r 3 1 , 2 0 1 5 ( d o l l a r s i n t h o u s a n d s ) C o n s o l i d a t e d S t a t e m e n t s o f C o m p r e h e n s i v e I n c o m e ( L o s s ) C o w e n I n c . e l b a m e e d e R g n i l l o r t n o c - n o N t s e r e t n I l a t o T ' s r e d l o h k c o t S y t i u q E / s g n i n r a E d e n i a t e R r e h t O d e t a l u m u c c A l a n o i t i d d A d e t a l u m u c c A ( ) t i c i f e d e v i s n e h e r p m o C ) s s o L ( e m o c n I n i - d i a P l a t i p a C y r u s a e r T k c o t S d e r r e f e r P k c o t S d e r r e f e r P s e r a h S g n i d n a t s t u O n o m m o C k c o t S n o m m o C s e r a h S g n i d n a t s t u O y t i u q E n i s e g n a h C f o s t n e m e t a t S d e t a d i l o s n o C ) a t a d e r a h s t p e c x e , s d n a s u o h t n i s r a l l o d ( . c n I n e w o C — 6 7 0 , 6 8 — 6 4 2 , 5 1 8 7 1 , 0 1 1 ) 9 8 5 , 4 2 ( — — — — — — — — — — ) 7 1 ( — — — 8 0 0 , 3 ) 5 8 5 , 7 5 ( 5 9 1 , 7 1 1 ) 5 7 0 , 4 ( ) 8 7 8 , 5 1 ( 5 9 3 6 0 8 , 3 0 4 7 , 1 2 — — — — — — — — — — — — ) 5 7 0 , 4 ( 9 2 7 , 3 4 9 2 7 , 3 4 $ 5 7 6 , 7 7 6 $ ) 7 2 0 , 6 1 ( $ — — 2 8 8 , 6 3 2 9 , 6 7 2 ) 9 6 4 , 8 1 ( ) 2 4 0 , 3 7 ( — — — — ) 7 7 2 , 9 1 ( ) 7 7 2 , 9 1 ( — ) 2 ( — — — — ) 9 8 4 , 6 1 ( ) 2 2 8 ( ) 2 9 7 , 6 ( 9 3 0 , 6 2 — — — — — — — — — ) 2 9 7 , 6 ( 1 1 9 , 6 8 1 $ 3 9 9 , 9 8 7 $ 7 2 6 , 3 2 $ 7 1 — — ) 7 1 ( — — — — — — — — — — — — — — ) 2 ( — — — — — — — — $ 6 6 1 3 7 7 , $ ) 1 7 7 9 7 ( , $ — — — — — 6 0 0 3 , — 4 9 1 7 1 1 , ) 8 7 8 5 1 ( , 5 9 3 6 0 8 3 , 0 4 7 1 2 , — — — — — — — — — — — — — ) 5 8 5 7 5 ( , $ 9 2 4 3 0 9 , $ , ) 6 5 3 7 3 1 ( $ — — — — — — — — — — — — — — ) 2 2 8 ( 9 3 0 6 2 , — — — ) 9 8 4 6 1 ( , 5 0 2 , 9 7 3 $ 0 5 6 , 2 7 7 $ ) 2 4 4 , 2 ( $ ) 2 ( $ 6 4 6 8 2 9 , $ , ) 5 4 8 3 5 1 ( $ — ) 2 8 8 , 0 6 ( ) 2 8 8 , 0 6 ( — 1 9 7 , 3 2 2 1 1 , 9 1 1 ) 4 0 5 , 1 8 ( — — — — — — ) 6 ( — — — 7 0 6 , 7 4 ) 1 0 0 , 3 3 ( ) 2 9 7 , 6 ( 3 4 4 , 8 2 — — — — — — — — ) 2 9 7 , 6 ( — — ) 6 ( — — — — — — — — — — — — — — — 5 7 5 7 4 , 3 4 4 8 2 , 4 0 6 , 0 4 4 $ 9 1 0 , 8 4 7 $ ) 6 1 1 , 0 7 ( $ ) 8 ( $ , 4 6 6 4 0 0 1 , — — — — — — — — — ) 1 0 0 3 3 ( , $ , ) 6 4 8 6 8 1 ( $ — — — — — — — — — 1 — — — — — 1 — — — — — — — — — — — 1 — — — — — — — — — — 1 $ — — — — — — — — — — — — — — 0 5 7 0 2 1 , 0 9 2 $ , 9 9 7 2 2 9 , 7 2 4 1 0 2 , 1 3 r e b m e c e D , e c n a l a B — — — — — 2 — — — — — — — — — — — 6 5 1 7 3 1 , 7 2 2 , 8 6 0 , 1 , ) 9 1 0 2 5 7 , 2 ( — — — — — 0 0 0 , 5 2 g n i l l o r t n o c - n o n e l b a m e e d e r o t e l b a t u b i r t t a ) s s o l ( e m o c n i t e N s d n u f d n a s e i r a i d i s b u s d e t a d i l o s n o c n i s t s e r e t n i . c n I n e w o C o t e l b a t u b i r t t a ) s s o l ( e m o c n i t e N n o i t a l s n a r t y c n e r r u c n g i e r o F s n o i t u b i r t n o c l a t i p a C s l a w a r d h t i w l a t i p a C d e u s s i s d r a w a k c o t s d e t c i r t s e R ) 4 2 e t o N e e S ( s t s o c e c n a u s s i f o t e n , e c n a u s s i k c o t s d e r r e f e r P ) 2 e t o N e e S ( n o i t i s i u q c a n o p u e c n a u s s i k c o t s n o m m o C t s o c t a , k c o t s y r u s a e r t f o e s a h c r u P n o i t a s n e p m o c d e s a b e r a h s m o r f t c e f f e x a t e m o c n I n o i t a s n e p m o c d e s a b e r a h s f o n o i t a z i t r o m A ) 4 2 e t o N e e S ( n o i t c a s n a r t n o i t p o l l a c d e p p a C ) 4 2 e t o N e e S ( s d n e d i v i d k c o t s d e r r e f e r P d e s i c r e x e s n o i t p o k c o t S $ 0 5 7 0 2 1 , 2 9 2 $ , 3 6 1 1 0 4 , 6 2 5 1 0 2 , 1 3 r e b m e c e D , e c n a l a B — — — — — — — — — — — $ 0 5 7 0 2 1 , — — — — — — — — — — — — — — — — — — — 2 9 2 — — — — — 2 3 — — — — — — — — — — — — — 5 9 9 , 1 1 5 , 1 , ) 9 6 8 1 8 1 , 1 ( g n i l l o r t n o c - n o n e l b a m e e d e r o t e l b a t u b i r t t a ) s s o l ( e m o c n i t e N s d n u f d n a s e i r a i d i s b u s d e t a d i l o s n o c n i s t s e r e t n i . c n I n e w o C o t e l b a t u b i r t t a ) s s o l ( e m o c n i t e N n o i t a s n e p m o c d e s a b e r a h s m o r f t c e f f e x a t e m o c n I n o i t a s n e p m o c d e s a b e r a h s f o n o i t a z i t r o m A ) 4 2 e t o N e e S ( s d n e d i v i d k c o t s d e r r e f e r P t s o c t a , k c o t s y r u s a e r t f o e s a h c r u P d e u s s i s d r a w a k c o t s d e t c i r t s e R n o i t a l s n a r t y c n e r r u c n g i e r o F y t i t n e f o n o i t a d i l o s n o c e D s n o i t u b i r t n o c l a t i p a C s l a w a r d h t i w l a t i p a C $ , 9 8 2 1 3 7 , 6 2 6 1 0 2 , 1 3 r e b m e c e D , e c n a l a B — — — — — — — 8 7 2 , 2 6 1 , 3 7 2 9 , 0 6 0 , 2 , ) 4 7 4 2 2 3 , 2 ( g n i l l o r t n o c - n o n e l b a m e e d e r o t e l b a t u b i r t t a ) s s o l ( e m o c n i t e N s d n u f d n a s e i r a i d i s b u s d e t a d i l o s n o c n i s t s e r e t n i . c n I n e w o C o t e l b a t u b i r t t a ) s s o l ( e m o c n i t e N ) 2 e t o N e e S ( n o i t i s i u q c a n o p u e c n a u s s i k c o t s n o m m o C n o i t a s n e p m o c d e s a b e r a h s f o n o i t a z i t r o m A ) 4 2 e t o N e e S ( s d n e d i v i d k c o t s d e r r e f e r P t s o c t a , k c o t s y r u s a e r t f o e s a h c r u P d e u s s i s d r a w a k c o t s d e t c i r t s e R n o i t a l s n a r t y c n e r r u c n g i e r o F s n o i t u b i r t n o c l a t i p a C s l a w a r d h t i w l a t i p a C $ 0 5 7 0 2 1 , 4 2 3 $ , 0 2 0 2 3 6 , 9 2 7 1 0 2 , 1 3 r e b m e c e D , e c n a l a B . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e s e h t f o t r a p l a r g e t n i n a e r a s e t o n g n i y n a p m o c c a e h T 1 1 - F Cowen Inc. Consolidated Statements of Cash Flows (dollars in thousands) Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by / (used in) operating activities: Bargain purchase gain, net of tax Depreciation and amortization Net gain on sale of divested business Amortization of debt issuance costs Amortization of debt discount Gain / (loss) on extinguishment of debt Tax (benefit) expense from share-based payment arrangements Share-based compensation Deferred tax benefit Deferred rent obligations Net loss (gain) on disposal of fixed assets Contingent liability adjustment Purchases of securities owned, at fair value Proceeds from sales of securities owned, at fair value Proceeds from sales of securities sold, not yet purchased, at fair value Payments to cover securities sold, not yet purchased, at fair value Net (gains) losses on securities, derivatives and other investments Consolidated Funds Purchases of securities owned, at fair value Proceeds from sales of securities owned, at fair value Proceeds from sales of securities sold, not yet purchased, at fair value Payments to cover securities sold, not yet purchased, at fair value Purchases of other investments Proceeds from sales of other investments Net realized and unrealized (gains) losses on investments and other transactions (Increase) decrease in operating assets: Cash acquired through acquisition Cash collateral pledged Segregated Cash Securities owned, at fair value, held at broker-dealer Receivable on derivative contracts, at fair value Securities borrowed Deposits with clearing organizations, brokers and banks Receivable from brokers, dealers and clearing organizations Receivable from customers, net of allowance Fees receivable, net of allowance Due from related parties Other assets Consolidated Funds Cash and cash equivalents Receivable on derivative contracts, at fair value Receivable from brokers Other assets Increase (decrease) in operating liabilities: Securities sold, not yet purchased, at fair value, held at broker-dealer Payable for derivative contracts, at fair value Securities loaned Payable to brokers, dealers and clearing organizations Payable to customers Commission management payable Compensation payable Fees payable Due to related parties F- 12 Year Ended December 31, 2017 2016 2015 $ (37,091) $ (12,395) $ 58,975 (6,914) 13,078 — 1,261 7,435 10,551 — 28,443 45,856 (2,192) (2,346) — — 12,713 (15,638) 1,208 6,885 — (822) 26,039 (21,274) (880) — 2,139 — 9,498 — 1,163 6,302 — 3,806 21,740 (17,966) (2,333) 54 (200) (4,943,394) (4,483,975) (5,856,112) 5,131,938 2,455,876 4,447,094 3,016,934 6,039,719 2,730,939 (2,444,010) (3,054,869) (2,674,153) (78,303) (28,878) (34,495) (385,544) 338,268 217 (899) (26,206) 64,867 (28,267) 30,562 (4,546) 13,781 (102,137) (46,277) (184,827) (32,460) (366,297) (6,422) (29,669) 4,815 (33,454) (4,227) (1,627) 334 123 19,226 (1,399) 170,472 (32,440) 340,666 (15,857) 9,150 (639) (3) (113,653) (25,000) 73,011 2,226 (1,799) (221,897) 17,116 (17,402) — (3,257) 229 (17,005) 16,717 — (1,874) 31,795 — (12,632) (176) (10,048) (3,827) (893) (5,978) 152 7,160 (421) — 78,520 — 242 (60,279) (2,366) 244 — — — (92,305) 31,417 (13,552) — (1,779) (1,253) 14,877 10,259 676,100 (6,965) (20,785) — 11,099 (13,344) 4,580 (13,433) — — 770 (11,747) (20,147) (682,493) (204,186) — 2,225 5,540 (693) (145) Cowen Inc. Consolidated Statements of Cash Flows (dollars in thousands) Year Ended December 31, 2017 2016 2015 (continued) Accounts payable, accrued expenses and other liabilities 13,046 (9,133) (5,337) Consolidated Funds Contributions received in advance Payable to brokers Payable for derivative contracts, at fair value Due to related parties Accounts payable, accrued expenses and other liabilities Net cash provided by / (used in) operating activities Cash flows from investing activities: Purchases of other investments Purchase of business (Note 2) Proceeds from sales of other investments Loans issued Proceeds from loans held for investment Proceeds from divested business, net of cash divested Purchase of fixed assets Sale of fixed assets Net cash provided by / (used in) investing activities Cash flows from financing activities: Proceeds from issuance of convertible debt Repayments on convertible debt Proceeds from issuance of preferred stock, net of issuance costs Capped call option transaction Deferred debt issuance cost Borrowings on notes and other debt Repayments on notes and other debt Income tax effect from share-based payment arrangements Proceeds from stock options exercised Purchase of treasury stock Cash paid to acquire net assets (contingent liability payment) Capital contributions by redeemable non-controlling interests in operating entities Capital withdrawals to redeemable non-controlling interests in operating entities Consolidated Funds Capital contributions by redeemable non-controlling interests in Consolidated Funds Capital withdrawals to redeemable non-controlling interests in Consolidated Funds Net cash provided by / (used in) financing activities Change in cash and cash equivalents Total cash beginning of period Total cash at end of period Supplemental information Cash paid during the year for interest Cash paid during the year for taxes Supplemental non-cash information Conversion option value on 2022 Convertible Notes Purchase of treasury stock, at cost, through net settlement (See Note 24) Preferred stock dividends declared (See Note 24) Net assets (liabilities) acquired upon acquisition (net of cash) (See Note 2) Common stock issuance upon close of acquisition (see Note 2) Notes payable increase through asset acquisition Net assets of deconsolidated entities Conversion of redeemable non-controlling interest to loan receivable (2,000) (2,949) 6,558 (189) (330) 1,150 3,699 572 453 528 850 — — 3 (98) (116,392) (354,545) (68,605) $ (10,419) $ (55,049) 71,749 (13,745) 3,203 — (5,986) 7,850 (2,397) 135,000 (115,140) — — (7,176) 171,148 (72,757) — — (19,662) (393) — (5,178) 117,812 (65,803) 137,851 19,062 110,990 (33,786) (6,258) 54,068 — 42,800 17,303 (15,613) — 58,514 — — — — — 30,638 (29,800) (822) — (7,654) (2,358) 10 (6,995) 276,914 (10,144) 249,789 (46,242) 157,232 130,052 $ 110,990 $ (14,149) (38,416) 58,166 (46,000) — — (7,030) — (47,429) — — 117,194 (15,878) — 7,140 (3,299) 3,806 394 (48,678) (1,725) 5,644 (13,860) 104,533 (11,514) 143,757 27,723 129,509 157,232 26,632 2,172 23,387 11,889 6,792 77,790 47,607 $ $ $ $ $ $ $ — $ — $ 1,299 $ 17,540 5,085 $ $ 17,525 4,161 — $ 8,835 6,792 $ $ — $ — $ 7,164 73,042 $ $ — $ — 8,907 4,075 22,468 3,008 — — — $ $ $ $ $ $ $ $ $ $ $ The accompanying notes are an integral part of these consolidated financial statements. F- 13 Cowen Inc. Notes to Consolidated Financial Statements 1. Organization and Business Cowen Inc. (formerly Cowen Group, Inc.), a Delaware corporation formed in 2009, is a diversified financial services firm which, together with its consolidated subsidiaries (collectively, “Cowen,” or the “Company”), operates through its two business segments: investment management and broker-dealer. The Company's investment management segment, includes private funds, managed accounts, commodity pools, real estate funds, private equity structures, registered investment companies and listed vehicles. The Company's broker-dealer segment offers investment banking, research, sales and trading, prime brokerage, global clearing and commission management services to companies and primarily institutional investor clients. The Company's primary target sectors are healthcare, technology, media and telecommunications, information and technology services, consumer, aerospace and defense, industrials, energy and transportation. On December 5, 2016, the Company effected a one-for-four reverse stock split of the Company's common stock. Except where the context indicates otherwise, all share and per share information has been retroactively adjusted to reflect the reverse stock split. 2. Acquisitions and Divestiture Acquisitions Convergex Group On April 2, 2017, the Company, through its wholly owned subsidiary Cowen CV Acquisition LLC, entered into a securities purchase agreement with, among others, Convergex Holdings LLC to acquire all the outstanding interests in Convergex Group, LLC ("Convergex Group") (subsequently renamed to Cowen Execution Holdco LLC), a provider of agency based execution services and trading technology to middle market institutional investors and broker-dealers. Convergex Group's operations were primarily conducted through two U.S. Securities Exchange Commission ("SEC") registered broker- dealers, Convergex Execution Solutions LLC (subsequently renamed to Cowen Execution Services LLC) ("Cowen Execution") and Westminster Research Associates LLC ("Westminster") and also Convergex Limited (subsequently renamed to Cowen Execution Services Limited) ("Cowen Execution Ltd"), which is based in the United Kingdom and regulated by the Financial Conduct Authority ("FCA"). The purchase price was paid approximately 50% in cash and 50% in Cowen Inc. Class A common stock. The acquisition was consummated effective as of June 1, 2017. The adjusted aggregate estimated purchase price was $98.0 million, which was determined based on closing date tangible book value of Convergex Group, less certain closing adjustments. A portion of the preliminary purchase price was deposited into escrow as a reserve for any future claims against the sellers of Convergex Group. On closing, the Company paid cash of $48.6 million and issued 3,162,278 of the Company’s Class A common stock determined based on the 30-day volume-weighted average price per share of $15.05 as of May 30, 2017. Subsequent to the closing date, adjustments were identified and the sellers and the Company agreed to settle all of the outstanding closing date adjustments. The acquisition was accounted for under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). As such, results of operations for Convergex Group are included in the accompanying consolidated statements of operations since the date of acquisition, and the assets acquired and liabilities assumed were recorded at their fair value as of the acquisition date. Subsequent to the acquisition, the operations of Convergex Group were integrated within the Company's existing businesses. F- 14 Cowen Inc. Notes to Consolidated Financial Statements (Continued) The table below summarizes the preliminary purchase price allocation of net tangible and intangible assets acquired and liabilities assumed as of June 1, 2017: (dollars in thousands) Cash and cash equivalents Segregated cash Securities owned, at fair value Securities borrowed Deposits from clearing organizations Receivable from brokers Receivable from customers Fees receivable Fixed assets, net Intangible assets Other assets Securities sold, not yet purchased, at fair value Securities loaned Payable to brokers Payable to customers Commission management payable Compensation payable Notes payable and other debt Fees payable Accounts payable, accrued expenses and other liabilities Total identifiable net assets acquired and liabilities assumed Goodwill/(Bargain purchase gain) Total estimated purchase price $ $ 30,562 129,025 3,417 258,321 52,596 62,983 43,469 36,232 1,325 10,270 7,528 (71) (286,359) (74,284) (11,801) (82,718) (31,083) (857) (5,414) (33,570) 109,571 (11,609) 97,962 The Company believes that all of the acquired receivables and contractual amounts receivable as reflected above in the allocation of the purchase price are recorded at fair value. See Note 22 for further information on legal matters relating to the acquisition. As of the acquisition date, the estimated fair value of the Company's intangible assets, as acquired through the acquisition, was $10.3 million. The allocation of the intangible assets is shown within the following table. Intangible asset class Trade name Intellectual property Customer relationships Total intangible assets Estimated intangible assets acquired Estimated average remaining useful lives (dollars in thousands) (in years) $ $ 760 1,790 7,720 10,270 0.6 - 2.6 5 9 F- 15 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Amortization expense for the year ended December 31, 2017 is $1.4 million and is included in depreciation and amortization in the accompanying consolidated statements of operations. The estimated amortization expense related to these intangible assets in future periods is as follows: 2018 2019 2020 2021 2022 Thereafter (dollars in thousands) $ $ 1,258 1,239 1,216 1,216 1,007 2,931 8,867 Based on the June 1, 2017 estimated purchase price allocation, the fair value of the net identifiable assets acquired and liabilities assumed of $109.6 million exceeded the estimated purchase price of $98.0 million. As a result, the Company has recognized a bargain purchase gain of $11.6 million related to the acquisition. The bargain purchase gain is shown net of $4.7 million of associated tax in the accompanying consolidated statements of operations. In addition to the purchase price consideration, for the year ended December 31, 2017, the Company has incurred acquisition related expenses of $6.0 million including financial advisory, legal and valuation services, which are included in professional, advisory and other fees in the consolidated statements of operations. Subsequent to the acquisition, certain of Convergex Group's businesses were integrated within the broker-dealer businesses of the Company and therefore they are included within their respective line items in the accompanying consolidated statements of operations from June 1, 2017 through December 31, 2017. The following table provides unaudited supplemental pro forma financial information for the years ended December 31, 2017 and 2016, as if the acquisition were completed as of January 1, 2016. This unaudited supplemental pro forma information has been prepared for comparative purposes only and is not intended to be indicative of what the Company's financial results would have been had the acquisition been completed on January 1, 2016, nor does it purport to be indicative of any future results. Revenues Net income (loss) attributable to Cowen Inc. stockholders Net income (loss) per common share: Basic (a) Diluted (a) Year Ended December 31, 2017 2016 (dollars in thousands, except per share data) $ $ (unaudited) 733,744 $ (84,671) (2.75) $ (2.75) 681,655 (50,516) (1.68) (1.68) (a) Share and per share amounts have been retroactively updated to reflect the one-for-four reverse stock split effective as of December 5, 2016. In conjunction with the integration of the acquired businesses of Convergex Group, the Company evaluated the combined broker-dealer businesses and operations and incurred approximately $8.8 million of integration and restructuring costs which primarily related to exit and disposal costs, discontinuation of redundant technology services and severance costs. During the year ended December 31, 2017, the Company continued to integrate the businesses acquired through Convergex Group and consolidated certain similar businesses. Low Country On April 22, 2016, Cowen Aviation Finance Holdings Inc. ("Cowen Aviation Finance") entered into a transaction whereby Cowen Aviation Finance acquired Low Country III, LLC, which is comprised of a portfolio of four specialized aircraft currently on lease in exchange for an immaterial upfront payment and a non-controlling equity interest in Cowen Aviation Finance. As part of the transaction Cowen Aviation Finance also acquired the associated debt financing and lease contracts for each aircraft. Separate from the transaction, Cowen Aviation Finance entered into services agreements with Tempus Applied Solutions, Inc., a related party through common directors, which, among other services, will provide marketing, maintenance, and lease administration services for Cowen Aviation Finance's current aircraft fleet. This acquisition was accounted for as an asset F- 16 Cowen Inc. Notes to Consolidated Financial Statements (Continued) acquisition in accordance with US GAAP because, upon separation from the seller, the acquired assets do not meet the definition of a business. CRT business On May 6, 2016, the Company completed its previously announced acquisition of the credit products, credit research, special situations and emerging markets units from CRT Capital Group LLC (“CRT”). The acquisition was completed for a combination of cash of $6.3 million and contingent consideration payable annually based on future revenues exceeding specific targets. In the aggregate, the purchase price, assets acquired and liabilities assumed were not significant and the near term impact to the Company and its consolidated results of operations and cash flows is not expected to be significant. Following the acquisition, the businesses acquired from CRT are included in the broker-dealer segment. In accordance with the terms of the purchase agreement, the Company is required to pay to the sellers a portion of future revenue of the business exceeding specified targets over the period from the acquisition date through June 2018. The Company estimated the contingent consideration using the income approach (discounted cash flow method) which requires the Company to make estimates and assumptions regarding the future cash flows. Changes in these estimates and assumptions could have a significant impact on the amount recognized. On the acquisition date, the undiscounted amount ranged from zero to $8.0 million. The acquisition was accounted for under the acquisition method of accounting in accordance with US GAAP. As such, the results of operations of the businesses acquired are included in the accompanying consolidated statements of operations since the date of the acquisition and the assets acquired, liabilities assumed and the resulting goodwill were recorded at their fair values within their respective line items on the accompanying consolidated statement of financial condition (see Note 12). The Company recognized approximately $0.4 million of acquisition-related costs, including legal, accounting, and valuation services. These costs are included in professional, advisory and other fees in the accompanying consolidated statements of operations. The Company also assumed contractual obligations, of up to $6 million, toward certain employees which vested over a 12 month period. These obligations are recorded as compensation expenses on a straight line basis. The results of operations of the businesses acquired from CRT for the period from May 6, 2016 through December 31, 2017 are integrated with the broker-dealer business and are included within their respective line items. Included in the accompanying consolidated statements of operations for the year ended December 31, 2017 are revenues of $33.2 million, respectively and net income of $9.3 million, respectively (excluding corporate allocated expenses) related to the businesses acquired from CRT. Divestiture On September 23, 2016, the Company and the portfolio managers of Ramius Alternative Solutions LLC ("RASL") completed the sale of their respective ownership interests in RASL, an investment advisor, and RASL was deconsolidated as of that date. RASL offered a range of customized private fund investment solutions with approximately $2.5 billion in client assets. In accordance with the terms of the agreement, the Company was only required to transfer an immaterial target working capital balance on the closing date. The net consideration received by the Company was approximately $17.3 million. Along with the target working capital transferred at closing, the Company also allocated a portion of goodwill associated with the investment management segment to the sale price which is shown net in other revenues in the accompanying consolidated statements of operations. As the Company will continue to offer its investment management platform to institutional and retail investors, the sale was not presented as discontinued operations. The overall impact on the consolidated financial position, results of operations and cash flows was not significant. 3. Significant Accounting Policies a. Basis of Presentation These consolidated financial statements are prepared in accordance with US GAAP as promulgated by the Financial Accounting Standards Board ("FASB") through the Accounting Standards Codification as the source of authoritative accounting principles in the preparation of financial statements, and include the accounts of the Company, its operating and other subsidiaries, and entities in which the Company has a controlling financial interest or a general partner interest. All material intercompany transactions and balances have been eliminated on consolidation. Certain fund entities that are consolidated in these accompanying consolidated financial statements, as further discussed below, are not subject to the consolidation provisions with respect to their own controlled investments pursuant to their specialized accounting. F- 17 Cowen Inc. Notes to Consolidated Financial Statements (Continued) The Company serves as the managing member/general partner and/or investment manager to affiliated fund entities which it sponsors and manages. Funds in which the Company has a controlling financial interest are consolidated with the Company pursuant to US GAAP as described below. Consequently, the Company's consolidated financial statements reflect the assets, liabilities, income and expenses of these funds on a gross basis. The ownership interests in these funds that are not owned by the Company are reflected as redeemable non-controlling interests in consolidated subsidiaries in the accompanying consolidated financial statements. The management fees and incentive income earned by the Company from these funds are eliminated in consolidation. Certain reclassifications have been made to prior period amounts in order to conform to current period presentation. b. Principles of consolidation The Company consolidates all entities that it controls through a majority voting interest or otherwise, including those funds in which the Company either directly or indirectly has a controlling financial interest. In addition, the Company consolidates all variable interest entities for which it is the primary beneficiary. In accordance with these standards, during the twelve months ended December 31, 2017 the Company consolidated seven funds for which it acts (or acted) as the general partner and investment manager. As of December 31, 2017 the Company consolidated the following funds: Ramius Enterprise LP (“Enterprise LP”), Ramius Merger Fund LLC (the "Merger Fund"), Cowen Private Investments LP ("Cowen Private"), Cowen Healthcare Investments Fund II LP ("Cowen Healthcare II"), Caerus Select Fund LP ("Caerus LP") (between May 1, 2016 through March 1, 2017 when the fund was liquidated), Ramius Archview Credit and Distressed Master Fund ("Archview Master Fund") (from December 31, 2015 through July 31, 2017 when the fund was liquidated) and Ramius Merger Arbitrage UCITS Fund ("UCITS Fund") (collectively the "Consolidated Funds"). The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting operating entity ("VOE") or a variable interest entity ("VIE") under US GAAP. Voting Operating Entities—VOEs are entities in which (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (ii) the equity holders at risk have the obligation to absorb losses, the right to receive residual returns and the right to direct the activities of the entity that most significantly impact the entity's economic performance. Under US GAAP, the usual condition for a controlling financial interest in a VOE is ownership of a majority voting interest. Accordingly, the Company consolidates all VOEs in which it owns a majority of the entity's voting shares or units. Variable Interest Entities—VIEs are entities that lack one or more of the characteristics of a VOE. In accordance with US GAAP, an enterprise must consolidate all VIEs of which it is the primary beneficiary. Under the US GAAP consolidation model for VIEs, an enterprise that (1) has the power to direct the activities of a VIE that most significantly impacts the VIE's economic performance, and (2) has an obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE, is considered to be the primary beneficiary of the VIE and thus is required to consolidate it. The Company reconsiders whether it is the primary beneficiary of a VIE by performing a periodic qualitative and/or quantitative analysis of the VIE that includes a review of, among other things, its capital structure, contractual agreements between the Company and the VIE, the economic interests that create or absorb variability, related party relationships and the design of the VIE. As of December 31, 2017 and 2016, the total net assets of the consolidated VIEs were $482.8 million and $461.6 million, respectively. The VIEs act as investment managers and/or investment companies that may be managed by the Company or the Company may have equity interest in those investment companies. The VIEs are financed through their operations and/or loan agreements with the Company. As of December 31, 2017 the Company holds variable interests in Ramius Enterprise Master Fund Ltd (“Enterprise Master”) and Ramius Merger Master Fund Ltd ("Merger Master") (collectively the “Unconsolidated Master Funds”) through the Consolidated Funds. Investment companies, which account for their investments under the specialized industry accounting guidance for investment companies prescribed under US GAAP, are not subject to the consolidation provisions for their investments. Therefore, the Company has not consolidated the Unconsolidated Master Funds. In the ordinary course of business, the Company also sponsors various other entities that it has determined to be VIEs. These VIEs are primarily funds and real estate entities for which the Company serves as the general partner, managing member and/or investment manager with decision-making rights. The Company does not consolidate the Unconsolidated Master Funds or real estate entities that are VIEs as it has concluded that it is not the primary beneficiary in each instance. Fund investors are entitled to all of their economics of these F- 18 Cowen Inc. Notes to Consolidated Financial Statements (Continued) VIEs with the exception of the management fee and incentive income, if any, earned by the Company. The Company's involvement with funds and real estate entities that are unconsolidated VIEs is limited to providing investment management services in exchange for management fees and incentive income. Although the Company may advance amounts and pay certain expenses on behalf of the funds and real estate entities that it considers to be VIEs, it does not provide, nor is it required to provide, any type of substantive financial support to these entities outside of regular investment management services (see Note 6 for additional disclosures on VIEs). Equity Method Investments—For operating entities over which the Company exercises significant influence but which do not meet the requirements for consolidation as outlined above, the Company uses the equity method of accounting. The Company's investments in equity method investees are recorded in other investments in the accompanying consolidated statements of financial condition. The Company's share of earnings or losses from equity method investees is included in net gains (losses) on securities, derivatives and other investments in the accompanying consolidated statements of operations. The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. The difference between the carrying value of the equity method investment and its estimated fair value is recognized as an impairment charge when the loss in value is deemed other than temporary. Other—If the Company does not consolidate an entity, apply the equity method of accounting or account for an investment under the cost method, the Company accounts for such entities (primarily, all securities of such entity which are bought and held principally for the purpose of selling them in the near term as trading securities) in accordance with US GAAP, at fair value with unrealized gains (losses) resulting from changes in fair value reflected within net gains (losses) on securities, derivatives and other investments in the accompanying consolidated statements of operations. Retention of Specialized Accounting—The Consolidated Funds and certain other consolidated companies are investment companies and apply specialized industry accounting for investment companies. The Company has retained this specialized accounting for these funds pursuant to US GAAP. The Company reports its investments on the consolidated statements of financial condition at their estimated fair value, with unrealized gains (losses) resulting from changes in fair value reflected within net realized and unrealized gains (losses) on investments and other transactions. Accordingly, the accompanying consolidated financial statements reflect different accounting policies for investments depending on whether or not they are held through a consolidated investment company. In addition, the Company's broker-dealer subsidiaries, Cowen and Company, LLC ("Cowen and Company"), Cowen Execution, Westminster, Cowen Execution Ltd, ATM Execution LLC ("ATM Execution"), Cowen International Limited ("Cowen International Ltd"), Ramius UK Ltd. ("Ramius UK") and Cowen Prime Services LLC ("Cowen Prime") apply the specialized industry accounting for brokers and dealers in securities also prescribed under US GAAP. The Company also retains specialized accounting upon consolidation. c. Use of estimates The preparation of the accompanying consolidated financial statements in conformity with US GAAP requires the management of the Company to make estimates and assumptions that affect the fair value of securities and other investments, the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the accompanying consolidated financial statements, the accounting for goodwill and identifiable intangible assets and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. d. Cash and cash equivalents The Company considers investments in money market funds and other highly liquid investments with original maturities of three months or less which are deposited with a bank or prime broker to be cash equivalents. Cash and cash equivalents held at Consolidated Funds, although not legally restricted, are not available to fund the general liquidity needs of the Company. The Company may also be exposed to credit risk as a result of cash being held at several banks. e. Allowance for doubtful accounts The allowance for doubtful accounts is based on the Company’s assessment of the collectability of receivables related to securities transactions, prepaid research and other receivables. The Company considers factors such as historical experience, credit quality, age of balances and current economic conditions that may affect collectability in determining the allowance for doubtful accounts. Specifically for prepaid research, the Company reviews clients' historical, current and forecasted trading activity in determining the allowance for doubtful accounts. Expense related to the allowance for doubtful accounts as well as any recoveries of amounts previously charged is reflected in other expenses in the accompanying consolidated statements of operations. F- 19 Cowen Inc. Notes to Consolidated Financial Statements (Continued) f. Valuation of investments and derivative contracts US GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. 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 fair value hierarchy are as follows: Level 1 Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date; Level 2 Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; and Level 3 Fair value is determined based on pricing inputs that are unobservable and includes situations where there is little, if any, market activity for the asset or liability. The determination of fair value for assets and liabilities in this category requires significant management judgment or estimation. Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Company. The Company considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Company's perceived risk of that instrument. The Company and its operating subsidiaries act as the manager for the Consolidated Funds. Both the Company and the Consolidated Funds hold certain investments which are valued by the Company, acting as the investment manager. The fair value of these investments is generally estimated based on proprietary models developed by the Company, which include discounted cash flow analysis, public market comparables, and other techniques and may be based, at least in part, on independently sourced market information. The material estimates and assumptions used in these models include the timing and expected amount of cash flows, the appropriateness of discount rates used, and, in some cases, the ability to execute, timing of, and estimated proceeds from expected financings. Significant judgment and estimation goes into the selection of an appropriate valuation methodology as well as the assumptions used in these models, and the timing and actual values realized with respect to investments could be materially different from values derived based on the use of those estimates. The valuation methodologies applied impact the reported value of the Company's investments and the investments held by the Consolidated Funds in the consolidated financial statements. Certain of the Company's investments are relatively illiquid or thinly traded and may not be immediately liquidated on demand if needed. Fair values assigned to these investments may differ significantly from the fair values that would have been used had a ready market for the investments existed and such differences could be material. The Company primarily uses the “market approach” to value its financial instruments measured at fair value. In determining an instrument's level within the hierarchy, the Company categorizes the Company's financial instruments into three categories: securities, derivative contracts and other investments. To the extent applicable, each of these categories can further be divided between those held long or sold short. The Company has the option to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period. The election is made on an instrument by instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. The Company has elected the fair value option for certain of its investments held by its operating companies. This option has been elected because the Company believes that it is consistent with the manner in which the business is managed as well as the way that financial instruments in other parts of the business are recorded. Securities—Securities with values based on quoted market prices in active markets for identical assets are classified within level 1 of the fair value hierarchy. These securities include active listed equities, certain U.S. government and sovereign obligations, Exchange Traded Funds ("ETFs"), mutual funds and certain money market securities. The Company does not adjust the quoted price for such instruments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price. F- 20 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Certain positions for which trading activity may not be readily visible, consisting primarily of convertible debt, corporate debt and loans and restricted equities, are stated at fair value and classified within level 2 of the fair value hierarchy. The estimated fair values assigned by management are determined in good faith and are based on available information considering, trading activity, broker quotes, quotations provided by published pricing services, counterparties and other market participants, and pricing models using quoted inputs, and do not necessarily represent the amounts which might ultimately be realized. As level 2 investments include positions that are not always traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability. Derivative contracts—Derivative contracts can be exchange-traded or privately negotiated over-the-counter (“OTC”). Exchange-traded derivatives, such as futures contracts and exchange-traded option contracts, are typically classified within level 1 or level 2 of the fair value hierarchy depending on whether or not they are deemed to be actively traded. OTC derivatives, such as generic forwards, swaps and options, have inputs which can generally be corroborated by market data and are therefore classified within level 2. OTC derivatives, such as swaps and options where market data is not readily available or observable are classified as level 3. Other investments—Other investments consist primarily of portfolio funds, real estate investments and equity method investments, which are valued as follows: i. Portfolio funds—Portfolio funds (“Portfolio Funds”) include interests in funds and investment companies which may be managed by the Company or its affiliates. The Company follows US GAAP regarding fair value measurements and disclosures relating to investments in certain entities that calculate net asset value (“NAV”) per share (or its equivalent). The guidance permits, as a practical expedient, an entity holding investments in certain entities that either are investment companies as defined by the American Institute of Certified Public Accountants ("AICPA") Audit and Accounting Guide, Investment Companies, or have attributes similar to an investment company, and calculate net asset value per share or its equivalent for which the fair value is not readily determinable, to measure the fair value of such investments on the basis of that NAV per share, or its equivalent, without adjustment. In accordance with US GAAP, investments which are valued using NAV per share as a practical expedient are not categorized within the fair value hierarchy. ii. Real estate investments—Real estate debt and equity investments are valued at fair value. The fair value of real estate investments are estimated based on the price that would be received to sell an asset in an orderly transaction between marketplace participants at the measurement date. Real estate investments without a public market are valued based on assumptions and valuation techniques used by the Company. Such valuation techniques may include discounted cash flow analysis, prevailing market capitalization rates or earnings multiples applied to earnings from the investment, analysis of recent comparable sales transactions, actual sale negotiations and bona fide purchase offers received from third parties, consideration of the amount that currently would be required to replace the asset, as adjusted for obsolescence, as well as independent external appraisals. In general, the Company considers several valuation techniques when measuring the fair value of a real estate investment. However, in certain circumstances, a single valuation technique may be appropriate. Real estate investments are reviewed on a quarterly basis by the Company for significant changes at the property level or a significant change in the overall market which would impact the value of the real estate investment resulting in unrealized appreciation or depreciation. Real estate and capital markets are cyclical in nature. Property and investment values are affected by, among other things, the availability of capital, occupancy rates, rental rates and interest and inflation rates. In addition, the Company invests in real estate and real estate related investments for which no liquid market exists. The market prices for such investments may be volatile and may not be readily ascertainable. Amounts ultimately realized by the Company from investments sold may differ from the fair values presented, and the differences could be material. The Company's real estate investments are typically categorized as level 3 investments within the fair value hierarchy as management uses significant unobservable inputs in determining their estimated fair value. See Notes 6 and 7 for further information regarding the Company's investments, including equity method investments, and fair value measurements. g. Due from/due to related parties The Company may advance amounts and pay certain expenses on behalf of employees of the Company or other affiliates of the Company. These amounts settle in the ordinary course of business. Such amounts are included in due from and due to related parties, respectively, on the accompanying consolidated statements of financial condition. F- 21 Cowen Inc. Notes to Consolidated Financial Statements (Continued) h. Receivable from and payable to brokers Receivable from and payable to brokers, includes cash held at clearing brokers, amounts receivable or payable for unsettled transactions, monies borrowed and proceeds from short sales equal to the fair value of securities sold, but not yet purchased. Pursuant to the Company's prime broker agreements, these balances are presented net (assets less liabilities) across balances with the same broker. i. Fees receivable Fees related to security transactions are reported net of an allowance for doubtful debts. An allowance for doubtful debts is taken on any commission receivables aged over 180 days. Corporate finance and syndicate receivables, include receivables relating to the Company’s investment banking and advisory engagements net of allowance for doubtful accounts. The Company records this allowance for doubtful accounts on these receivables on a specific identification basis. The future collectability of the receivables is reviewed on a monthly basis based on the following factors: aging (usually if outstanding greater than 90 days), known financial stability of the paying company as well as any other factors that might impact the collection of the outstanding fees. Management and incentive fees are earned as the managing member, general partner and/or investment manager to the Company's funds and are recognized on an accrual basis when earned. j. Securities borrowed and securities loaned Securities borrowed and securities loaned are carried at the amounts of cash collateral advanced or received on a gross basis. The related rebates are recorded in the accompanying consolidated statements of operations as interest and dividends income and interest and dividends expense. Securities borrowed transactions require the Company to deposit cash collateral with the lender. With respect to securities loaned, the Company receives cash collateral from the borrower. The initial collateral advanced or received approximates or is greater than the market value of securities borrowed or loaned. The Company monitors the market value of securities borrowed and loaned on a daily basis, with additional collateral obtained or returned, as necessary. Securities borrowed and loaned may also result in credit exposures for the Company in an event that the counterparties are unable to fulfill their contractual obligations. The Company minimizes its credit risk by continuously monitoring its credit exposure and collateral values by demanding additional or returning excess collateral in accordance with the netting provisions available in the master securities lending contracts in place with the counterparties. Fees and interest received or paid are recorded in interest and dividends income and interest and dividends expense, respectively, on an accrual basis in the accompanying consolidated statements of operations. In cases where the fair value basis of accounting is elected, any resulting change in fair value would be reported in net gains (losses) on securities, derivatives and other investments in the accompanying consolidated statements of operations. Accrued interest income and expense are recorded in receivable from brokers, dealers and clearing organizations and payable to brokers, dealers and clearing organizations, respectively, on an accrual basis in the accompanying consolidated statements of financial condition. At December 31, 2017, the Company did not have any securities lending transactions for which fair value basis of accounting was elected. k. Fixed Assets Fixed assets are stated at cost less accumulated depreciation or amortization. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful life or lease term. When the Company commits to a plan to abandon fixed assets or leasehold improvements before the end of its original useful life, the estimated depreciation or amortization period is revised to reflect the shortened useful life of the asset. Other fixed assets are depreciated on a straight-line basis over their estimated useful lives. Aircraft and related equipment, which are leased out under operating leases, are carried at cost less accumulated depreciation and are depreciated to estimated residual value using the straight-line method over the lease term or estimated useful life of the asset. Any assets received at the end of the lease are marked to the lower of cost or fair value with the adjustment recorded in other income. F- 22 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Asset Telephone and computer equipment Computer software Furniture and fixtures Leasehold improvements Capitalized lease asset Aircraft and related equipment Modifications to aircraft l. Goodwill and intangible assets Depreciable Lives Depreciation and/or Amortization Method 3-5 years 3-8 years 5 years 2-15 years 5 years 10-20 years 4-10 years Straight-line Straight-line Straight-line Straight-line Straight-line Straight-line Straight-line Goodwill represents the excess of the purchase price consideration of acquired companies over the estimated fair value assigned to the individual assets acquired and liabilities assumed. Goodwill is allocated to the Company's reporting units at the date the goodwill is initially recorded. Once goodwill has been allocated to the reporting units, it generally no longer retains its identification with a particular acquisition, but instead becomes identifiable with the reporting unit. As a result, all of the fair value of each reporting unit is available to support the value of goodwill allocated to the unit. In accordance with US GAAP, the Company tests goodwill for impairment on an annual basis, at December 31st each year, or at an interim period if events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Under US GAAP, the Company tests goodwill for impairment by assessing the qualitative factors including, macroeconomic environment, industry and market specific conditions, financial performance and events specific to the reporting unit to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. Based on the results of the qualitative assessment the Company performs the two-step goodwill impairment test. The first step requires a comparison of the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit exceeds its carrying value, the related goodwill is not considered impaired and no further analysis is required. If the carrying value of the reporting unit exceeds the fair value, there is an indication that the related goodwill might be impaired and the step two is performed to measure the amount of impairment, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with its carrying amount to measure the amount of impairment, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In other words, the estimated fair value of the reporting unit is allocated to all of its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment is recognized in an amount equal to that excess. Goodwill impairment tests involve significant judgment in determining the estimates of future cash flows, discount rates, economic forecast and other assumptions which are then used in acceptable valuation techniques, such as the market approach (earning and/or transactions multiples) and/or income approach (discounted cash flow method). Changes in these estimates and assumptions could have a significant impact on the fair value and any resulting impairment of goodwill. See Note 12 for further discussion. Intangible assets with finite lives are amortized over their estimated average useful lives. The Company does not have any intangible assets deemed to have indefinite lives. Intangible assets are tested for potential impairment whenever events or changes in circumstances suggest that an asset or asset group's carrying value may not be fully recoverable. Similar to goodwill impairment test, an impairment loss, calculated as the difference between the estimated fair value and the carrying value of an asset or asset group, is recognized in the accompanying consolidated statements of operations if the sum of the estimated undiscounted cash flows relating to the asset or asset group is less than the corresponding carrying value. m. Debt Long-term debt is carried at the principal amount borrowed net of any unamortized discount/premium. The discount is accreted to interest expense using the effective interest method over the remaining life of the underlying debt obligations. Accrued but unpaid coupon interest is included in accounts payable, accrued expenses and other liabilities in the accompanying consolidated statements of financial condition. n. Deferred rent Deferred rent primarily consists of step rent, allowances from landlords and valuing the Company's lease properties acquired through business combinations in accordance with US GAAP. Step rent represents the difference between actual operating lease payments due and straight-line rent expense, which is recorded by the Company over the term of the lease, F- 23 Cowen Inc. Notes to Consolidated Financial Statements (Continued) including the build-out period. This amount is recorded as deferred rent in the early years of the lease, when cash payments are generally lower than straight-line rent expense, and reduced in the later years of the lease when payments begin to exceed the straight-line expense. Landlord allowances are generally comprised of amounts received and/or promised to the Company by landlords and may be received in the form of cash or free rent. These allowances are part of the negotiated terms of the lease. The Company records a receivable from the landlord and a deferred rent liability when the allowances are earned. This deferred rent is amortized into income (through lower rent expense) over the term (including the pre-opening build-out period) of the applicable lease, and the receivable is reduced as amounts are received from the landlord. Liabilities resulting from valuing the Company's leased properties acquired through business combinations are quantified by comparing the current fair value of the leased space to the current rental payments on the date of acquisition. Deferred rent, included in accounts payable, accrued expenses and other liabilities in the accompanying consolidated statements of financial condition, as of December 31, 2017 and 2016 is $12.8 million and $10.3 million, respectively. o. Legal reserves In accordance with US GAAP, the Company establishes reserves for contingencies when the Company believes that it is probable that a loss has been incurred and the amount of loss can be reasonably estimated. The Company discloses a contingency if there is at least a reasonable possibility that a loss may have been incurred and there is no reserve for the loss because the conditions above are not met. The Company's disclosure includes an estimate of the reasonably possible loss or range of loss for those matters, for which an estimate can be made. Neither reserve nor disclosure is required for losses that are deemed remote. p. Capital withdrawals payable Capital withdrawals from the Consolidated Funds are recognized as liabilities, net of any incentive income, when the amount requested in the withdrawal notice represents an unconditional obligation at a specified or determined date (or dates) or upon an event certain to occur. This generally may occur either at the time of the receipt of the notice, or on the last day of a reporting period, depending on the nature of the request. As a result, withdrawals paid after the end of the year, but based upon year-end capital balances are reflected as liabilities at the balance sheet date. q. Redeemable non-controlling interests in consolidated subsidiaries Redeemable non-controlling interests represent the pro rata share of the book value of the financial positions and results of operations attributable to the other owners of the consolidated subsidiaries. Redeemable non-controlling interests related to Consolidated Funds are generally subject to annual, semi-annual or quarterly withdrawals or redemptions by investors in these funds, sometimes following the expiration of a specified period of time (generally one year), or may only be withdrawn subject to a redemption fee (generally ranging from 1% to 5%). Likewise, non-controlling interests related to certain other consolidated entities are generally subject to withdrawal, redemption, transfer or put/call rights that permit such non-controlling investors to withdraw from the entities on varying terms and conditions. Because these non-controlling interests are redeemable at the option of the non-controlling interests, they have been classified as temporary equity in the accompanying consolidated statements of financial condition. When redeemed amounts become legally payable to investors on a current basis, they are reclassified as a liability. r. Treasury stock In accordance with US GAAP relating to repurchases of an entity's own outstanding common stock, the Company records the purchases of stock held in treasury at cost and reports them separately as a deduction from total stockholders' equity on the accompanying consolidated statements of financial condition and changes in equity. s. Comprehensive income (loss) Comprehensive income (loss) consists of net income and other comprehensive income (loss). The Company's other comprehensive income (loss) is comprised of foreign currency cumulative translation adjustments. t. Revenue recognition The Company's principle sources of revenue are derived from two segments: an investment management segment and a broker-dealer segment, as more fully described below. Our investment management segment generates revenue through three principle sources: management fees, incentive income and investment income from the Company's own capital. F- 24 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Our broker-dealer segment generates revenue through three principle sources: investment banking, brokerage and investment income. Management fees The Company earns management fees from affiliated private funds and certain managed accounts that it serves as the investment manager based on assets under management. The actual management fees received vary depending on distribution fees or fee splits paid to third parties either in connection with raising the assets or structuring the investment. Several management companies of the private funds are owned jointly by the Company and third parties. Accordingly, the management fees generated by these funds are split between the Company and these third parties. Pursuant to US GAAP, these fees received by the management companies that are accounted for under the equity method of accounting and are reflected under net gains (losses) on securities, derivatives and other investments in the accompanying consolidated statements of operations. Management fees are generally paid on a quarterly basis at the beginning of each quarter in arrears and are prorated for capital inflows and redemptions. While some investors may have separately negotiated fees, in general the management fees are as follows: • Private Funds. Management fees for the Company's private funds, including the private healthcare fund, are generally charged at an annual rate of up to 2% of assets under management or notional trading level. Management fees are generally calculated monthly based on assets under management at the end of each month before incentive income. • Real Estate. Management fees from the Company's real estate business are generally charged at an annual rate from 0.25% to 1.50% of total capital commitments during the investment period and of invested capital or net asset value of the applicable fund after the investment period has ended. Management fees are typically paid to the general partners on a quarterly basis, at the beginning of the quarter in arrears, and are prorated for changes in capital commitments throughout the investment period and invested capital after the investment period. • HealthCare Royalty Partners. In HealthCare Royalty Partners main funds, during the investment period (as defined in the relevant partnership agreements), management fees are generally charged at an annual rate of 1% to 2% of committed capital. After the investment period, management fees for these funds are generally charged at an annual rate of 0.5% to 2% of the net asset value or the aggregate cost basis of the unrealized investments held by the funds. For the other funds (and managed accounts) managed by Healthcare Royalty Partners, the management fee ranges from 0.2% to 1% and there is no adjustment based on an investment period. Management fees for the HealthCare Royalty Partners funds are calculated on a quarterly basis. • Cowen Trading Strategies. Advisory fees for the Company's collateral management advisory business are typically paid quarterly based on assets under management but generally subject to a minimum fee. Incentive income The Company earns incentive income based on net profits (as defined in the respective investment management agreements) with respect to certain of the Company's funds and managed accounts, allocable for each fiscal year that exceeds cumulative unrecovered net losses, if any, that have been carried forward from prior years. For the products the Company offers, incentive income earned is typically up to 20% for private funds (in certain cases on performance in excess of a benchmark), of the net profits earned for the full year that are attributable to each fee-paying investor. Generally, incentive income on real estate funds is earned after the investor has received a full return of their invested capital, plus a preferred return. However, for certain real estate funds, the Company is entitled to receive incentive fees earlier, provided that the investors have received their preferred return on a current basis or on an investor by investor basis. These funds are generally subject to a potential clawback of these incentive fees upon the liquidation of the fund if the investor has not received a full return of its invested capital plus the preferred return thereon. Incentive income in the HealthCare Royalty Partners funds is generally earned only after investors receive a full return of their capital plus a preferred return. Several general partners of the Company's private funds are jointly owned by the Company and third parties. Accordingly, the incentive fees generated by these funds are split between the Company and these third parties. Pursuant to US GAAP, incentive income received by the general partners that are accounted for under the equity method of accounting are reflected under net gains (losses) on securities, derivatives and other investments in the accompanying consolidated statements of operations. In periods following a period of a net loss attributable to an investor, the Company generally does not earn incentive income on any future profits attributable to that investor until the accumulated net loss from prior periods is recovered, an arrangement commonly referred to as a “high-water mark.” The Company has elected to record incentive income revenue in F- 25 Cowen Inc. Notes to Consolidated Financial Statements (Continued) accordance with “Method 2” of US GAAP. Under Method 2, the incentive income from the Company's investment management products for any period is based upon the net profits of those investment management products at the reporting date. Any incentive income recognized in the accompanying consolidated statement of operations may be subject to future reversal based on subsequent negative performance prior to the conclusion of the fiscal year, when all contingencies have been resolved. Carried interest in the real estate funds and HealthCare Royalty Partners funds are subject to clawback to the extent that the carried interest actually distributed to date exceeds the amount due to the Company based on cumulative results. As such, the accrual for potential repayment of previously received carried interest, which is a component of accounts payable, accrued expenses and other liabilities, represents all amounts previously distributed to the Company, less an assumed tax liability, that would need to be repaid to certain funds if these funds were to be liquidated based on the current fair value of the underlying funds' investments as of the reporting date. The actual clawback liability does not become realized until the end of a fund's life. Investment Banking The Company earns investment banking revenue primarily from fees associated with public and private capital raising transactions and providing strategic advisory services. Investment banking revenues are derived primarily from small and mid- capitalization companies within the Company's Target Sectors. Investment banking revenue consists of underwriting fees, strategic/financial advisory fees and placement and sales agent fees. • Underwriting fees. The Company earns underwriting fees in securities offerings in which the Company acts as an underwriter, such as initial public offerings, follow-on equity offerings, debt offerings, and convertible security offerings. Fee revenue relating to underwriting commitments is recorded when all significant items relating to the underwriting process have been completed and the amount of the underwriting revenue has been determined. This generally is the point at which all of the following have occurred: (i) the issuer's registration statement has become effective with the SEC or the other offering documents are finalized; (ii) the Company has made a firm commitment for the purchase of securities from the issuer; and (iii) the Company has been informed of the number of securities that it has been allotted. When the Company is not the lead manager for an underwriting transaction, management must estimate the Company's share of transaction-related expenses incurred by the lead manager in order to recognize revenue. Transaction-related expenses are deducted from the underwriting fee and therefore reduce the revenue the Company recognizes as co-manager. Such amounts are adjusted to reflect actual expenses in the period in which the Company receives the final settlement, typically within 90 days following the closing of the transaction. • Strategic/financial advisory fees. The Company's strategic advisory revenues include success fees earned in connection with advising companies, principally in mergers, acquisitions and restructuring transactions. The Company also earns fees for related advisory work such as providing fairness opinions. The Company records strategic advisory revenues when the services for the transactions are completed under the terms of each assignment or engagement and collection is reasonably assured. Expenses associated with such transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded. • Placement and sales agent fees. The Company earns agency placement fees and sales agent commissions in non- underwritten transactions such as private placements of loans and debt and equity securities, including, private investment in public equity transactions (“PIPEs”), and as sales agent in at-the-market offerings of equity securities. The Company records placement revenues (which may be in cash and/or securities) when the services for the transactions are completed under the terms of each assignment or engagement and collection is reasonably assured. The Company records sales agent commissions on a trade date basis. Expenses associated with such transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded. Brokerage Brokerage revenue consists of commissions, principal transactions, equity and credit research fees and trade conversion revenue. • Commissions. Commission revenue includes fees from executing and clearing client transactions and commission sharing arrangements. These fees are recognized on a trade date basis. The Company permits institutional customers to allocate a portion of their commissions to pay for research products and other services provided by third parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. Commissions on soft F- 26 Cowen Inc. Notes to Consolidated Financial Statements (Continued) dollar brokerage are recorded net of the related expenditures on an accrual basis. The costs of commission recapture arrangements are recorded on an accrual basis for each eligible trade and shown net of commission revenue. Commission revenues also includes fees from making algorithms available to clients. • Principal transactions. Principal transactions revenue includes net trading gains and losses from the Company's market-making activities in over-the-counter equity and fixed income securities, trading of convertible securities, and trading gains and losses on inventory and other Company positions, which include warrants previously received as part of investment banking transactions. In certain cases, the Company provides liquidity to clients by buying or selling blocks of shares of listed stocks without previously identifying the other side of the trade at execution, which subjects the Company to market risk. These positions are typically held for a very short duration. • Equity and credit research fees. Equity and credit research fees are paid to the Company for providing equity and credit research. Revenue is recognized once an arrangement exists, access to research has been provided, the fee amount is fixed or determinable, and collection is reasonably assured. • Trade conversion revenue. Trade conversion revenue includes the fee earned from converting foreign securities into an American Depository Receipt (“ADR”) and the fee earned from converting an ADR into foreign securities on behalf of customers, and margins earned from facilitating customer foreign exchange transactions. Trade conversion revenue is recognized on a trade date basis. Interest and dividends Interest and dividends are earned by the Company from various sources. The Company receives interest and dividends primarily from securities finance activities and securities held by the Company for purposes of investing capital, investments held by its Consolidated Funds and its brokerage balances. Interest is recognized on an accrual basis and interest income is recognized on the debt of those issuers that is deemed collectible. Interest income and expense includes premiums and discounts amortized and accreted on debt investments based on criteria determined by the Company using the effective yield method, which assumes the reinvestment of all interest payments. Dividends are recognized on the ex-dividend date. Reimbursement from affiliates The Company allocates, at its discretion, certain expenses incurred on behalf of its private fund and real estate businesses. These expenses relate to the administration of such subsidiaries and assets that the Company manages for its funds. In addition, pursuant to the funds' offering documents, the Company charges certain allowable expenses to the funds, including charges and personnel costs for legal, compliance, accounting, tax compliance, risk and technology expenses that directly relate to administering the assets of the funds. Such expenses that have been reimbursed at their actual costs are included in the accompanying consolidated statements of operations as employee compensation and benefits, professional, advisory and other fees, communications, occupancy and equipment, client services and business development and other. Aircraft lease revenue Aircraft lease revenue associated with the Company's aircraft leasing business is recorded on a straight-line basis over the term of the lease, net of deferred rent and/or prepaid initial direct costs. Reinsurance-related contracts Premiums for reinsurance-related contracts are earned over the coverage period. In most cases, premiums are recognized as revenues ratably over the term of the contract with unearned premiums computed on a monthly basis. For each of its contracts, the Company determines if the contract provides indemnification against loss or liability relating to insurance risk, in accordance with US GAAP. If the Company determines that a contract does not expose it to a reasonable possibility of a significant loss from insurance risk, the Company records the contract under the deposit method of accounting with any net amount receivable reflected as an asset in other assets, and any net amount payable reflected as a liability within accounts payable, accrued expenses and other liabilities on the consolidated statements of financial condition. The liabilities for losses and loss adjustment expenses are recorded at the estimated ultimate payment amounts, including reported losses. Estimated ultimate payment amounts are based upon (1) reports of losses from policyholders, (2) individual case estimates and (3) estimates of incurred but not reported losses. Provisions for losses and loss adjustment expenses are charged to earnings after deducting amounts recovered and estimates of recoverable amounts and are included in other expenses on the consolidated statements of operations. F- 27 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Costs of acquiring new policies, which vary with and are directly related to the production of new policies, have been deferred to the extent that such costs are deemed recoverable from future premiums or gross profits. Such costs include commissions and allowances as well as certain costs of policy issuance and underwriting and are included within other assets on the consolidated statements of financial condition. u. Investments transactions and related income/expenses Purchases and sales of securities, net of commissions, and derivative contracts, and the related revenues and expenses are recorded on a trade date basis with net trading gains and losses included as a component of net gains (losses) on securities, derivatives and other investments, and with respect to the Consolidated Funds and other real estate entities as a component of net realized and unrealized gains (losses) on investments and other transactions and net realized and unrealized gains (losses) on derivatives, respectively, in the accompanying consolidated statements of operations. v. Share-based compensation The Company accounts for its share-based awards granted to individuals as payment for employee services in accordance with US GAAP and values such awards based on grant date fair value. Unearned compensation associated with share-based awards is amortized over the vesting period of the option or award. The Company estimates forfeiture for equity-based awards that are not expected to vest. See Note 19 for further information regarding the Company's share-based compensation plans. w. Leases The Company leases certain facilities and equipment used in its operations. The Company evaluates and classifies its leases as operating or capital leases for financial reporting purposes. Assets held under capital leases are included in fixed assets. Operating lease expense is recorded on a straight-line basis over the lease term. Landlord incentives are recorded as deferred rent and amortized, as reductions to lease expense, on a straight-line basis over the life of the applicable lease. x. Income taxes The Company accounts for income taxes in accordance with US GAAP which requires the recognition of tax benefits or expenses based on the estimated future tax effects of temporary differences between the financial statement and tax basis of its assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date. Valuation allowances are established to reduce deferred tax assets to an amount that is more likely than not to be realized. We evaluate our deferred tax assets for recoverability considering negative and positive evidence, including our historical financial performance, projections of future taxable income, future reversals of existing taxable temporary differences, and tax planning strategies. We record a valuation allowance against our deferred tax assets to bring them to a level that it is more likely than not to be utilized. In evaluating the need for a valuation allowance, we estimate future taxable income based on management approved business plans. This process involves significant management judgment about assumptions that are subject to change from period to period. Because the recognition of deferred tax assets requires management to make significant judgments about future earnings, the periods in which items will impact taxable income and the application of inherently complex tax laws, we have identified the assessment of deferred tax assets and the need for any related valuation allowance as a critical accounting estimate. US GAAP clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements, requiring the Company to determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant taxing authority. The Company recognizes accrued interest and penalties related to its uncertain tax positions as a component of income tax expense. In accordance with federal and state tax laws, the Company and its subsidiaries file consolidated federal, state, and local income tax returns as well as stand-alone state and local tax returns. The Company also has subsidiaries that are resident in foreign countries where tax filings have to be submitted on a stand-alone or combined basis. These subsidiaries are subject to tax in their respective countries and the Company is responsible for and, thus, reports all taxes incurred by these subsidiaries in the consolidated statement of operations. The countries where the Company owns subsidiaries and has tax filing obligations are the United Kingdom, Luxembourg, and Hong Kong. y. Foreign currency transactions The Company consolidates certain foreign subsidiaries that have designated a foreign currency as their functional currency. For entities that have designated a foreign currency as their functional currency, assets and liabilities are translated F- 28 Cowen Inc. Notes to Consolidated Financial Statements (Continued) into U.S. dollars based on current rates, which are the spot rates prevailing at the end of each statement of financial condition date, and revenues and expenses are translated at historical rates, which are the average rates for the relevant periods. The resulting translation gains and losses, and the tax effects of such gains and losses, are recorded in accumulated other comprehensive income (loss), a separate component of stockholders' equity. For subsidiaries that have designated the U.S. Dollar as their functional currency, securities and other assets and liabilities denominated in foreign currencies are translated into U.S. Dollar amounts at the date of valuation. Purchases and sales of securities and other assets and liabilities and the related income and expenses denominated in foreign currencies are translated into U.S. Dollar amounts on the respective dates of the transactions. The Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on these balances from fluctuations arising from changes in market prices of securities and other assets/liabilities held or sold. Such fluctuations are included in the accompanying consolidated statements of operations as a component of net gains (losses) on securities, derivatives and other investments. Gains and losses primarily relating to foreign currency broker balances are included in Other income (loss) in the accompanying consolidated statements of operations. z. Recently issued accounting pronouncements In May 2014, the FASB issued guidance which amends and supersedes the revenue recognition requirements and most industry-specific guidance related to revenue recognition and creates a single source of guidance. The new guidance outlines the principles an entity must apply to measure and recognize revenue and related cash flows. The guidance also provides a model for the measurement and recognition of gains and losses on the sale of certain non-financial assets. For public business entities, the guidance is effective for reporting periods beginning after December 15, 2017. The Company has identified its revenues and costs that are within the scope of the new guidance and concluded that the guidance is not applicable to financial instruments, lease and insurance contracts and therefore, will not impact investment income, lease or reinsurance revenue. The Company continues to implement and evaluate the potential impact of the guidance on the consolidated results of operations, related disclosures and internal controls over financial reporting. For its investment management businesses, the Company will recognize performance / incentive fees when such revenue is not subject to significant reversal in the future. For certain of the funds offered by the Company, primarily the closed ended funds, the Company will defer the recognition of performance fees until such fees are no longer subject to reversal or clawback, which will cause a delay in the recognition of these fees as revenue. Certain of the Company's funds qualify for the equity method of accounting treatment in line with the conclusions reached by AICPA’s Revenue Recognition Task Force. Therefore, the Company elected to account for the revenue as equity pick up under equity method of accounting. The placement fees paid to certain placement agents for its capital raising activities will qualify to be capitalized and amortized as part of contract acquisition costs. The Company does not currently anticipate that its current methods of recognizing investment banking revenues will be materially impacted by the new guidance. The current broker-dealer industry treatment of netting deal expenses with investment banking revenues will change under the new guidance. As a result of adopting of the new guidance, deal expenses will generally be presented on a gross basis in the consolidated statements of operations, resulting in higher revenues and higher non-compensation expenses with no impact on net income. The Company is closely monitoring the AICPA's industry task forces on broker-dealers and asset management, the AICPA’s Revenue Recognition Working Group and the AICPA’s Financial Reporting Executive Committee as they continue to issue interpretive guidance. The Company has adopted this guidance effective as of January 1, 2018 using the modified retrospective approach under which the cumulative effect of applying the standard would be recognized at the date of initial application. In May 2017, the FASB issued guidance to clarify the application of modification accounting for stock compensation. The guidance was issued to reduce the diversity in practice under the current guidance. The new guidance requires an entity to apply modification accounting when there is a change in the fair value of the modified award and the original award, vesting conditions and the classification of the original awards. The amendments in this guidance are effective prospectively for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company will apply the new guidance for any modifications on or after the adoption date. In March 2017, the FASB issued guidance to amend the amortization period for certain purchased callable debt securities held at a premium. Under current guidance, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. The new guidance shortened the amortization period for the premium 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 amendments in this guidance are effective for public business entities for fiscal years beginning after December F- 29 Cowen Inc. Notes to Consolidated Financial Statements (Continued) 15, 2018 and interim periods within those fiscal years. The Company is currently evaluating the impact of this guidance on the Company’s consolidated financial statements and does not expect this guidance to have a material impact on its statement of financial condition or its statement of operations as the Company does not hold any material callable debt securities. In January 2017, the FASB issued guidance that simplifies the subsequent measurement of goodwill. The new guidance eliminated Step 2 from the goodwill impairment test which was required in computing the implied fair value of goodwill. Instead, under the new amendments, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge 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. If applicable, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. The amendments in this guidance are effective for public business entities for annual and interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019 with early adoption permitted after January 1, 2017. The Company is currently evaluating the impact of this guidance on the Company’s consolidated financial statements. The Company expects this guidance to simplify its goodwill impairment analysis. In January 2017, the FASB issued guidance which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the current guidance, there are three elements of a business-inputs, processes, and outputs. While an integrated set of assets and activities (collectively, a “set”) that is a business usually has outputs, outputs are not required to be present. In addition, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs, for example, by integrating the acquired set with their own inputs and processes. The new guidance provides a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. For public business entities, the guidance is effective prospectively for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company will use the new definition of a business for its future business combination activities. In November 2016, the FASB issued guidance which reduces the diversity in practice as to how changes in restricted cash are presented and classified in the statement of cash flows. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The guidance does not provide a definition of restricted cash or restricted cash equivalents. For public business entities, the guidance is effective prospectively for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company currently presents its restricted cash and changes in its restricted cash, separately on its consolidated statements of financial condition and consolidated statements of cash flows respectively. Since the guidance only affects the presentation of restricted cash on the statement of cash flows, the Company does not expect this guidance to have any impact on its consolidated financial statements and will present total cash and cash equivalents from the adoption date. In August 2016, the FASB issued guidance which reduces the diversity in practice as to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance addresses eight specific cash flow issues with the objective of reducing the existing and potential future diversity in practice. The amendments in this guidance are effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company is currently evaluating the impact of this guidance on the Company’s cash flows presentation. Since the guidance only affects the presentation of statement of cash flows, the Company does not expect this guidance to have any impact on consolidated financial statements. The Company notes that its current presentation is already in line with most of the specific cash flow issues identified in the guidance. In February 2016, the FASB issued guidance which amends and supersedes its previous guidance regarding leases. The new guidance requires the lessee to recognize the right to use assets and lease liabilities that arise from leases and present them in its statement of financial condition. The recognition of these lease assets and lease liabilities represents a change from previous US GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous US GAAP. There continues to be a differentiation between finance leases and operating leases. However, the principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases should be recognized in the statement of financial condition. For public business entities the guidance is effective for reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact of this guidance on the Company’s financial F- 30 Cowen Inc. Notes to Consolidated Financial Statements (Continued) condition and its disclosures. The Company notes that a significant majority of the Company’s leases represent operating real estate leases for its respective offices and will require the gross up on its statement of financial condition. 4. Cash Collateral Pledged As of December 31, 2017 and 2016, the Company pledged cash collateral in the amount of $6.1 million and $7.8 million, respectively, which relates to letters of credit issued to the landlords of the Company's premises in New York City, Boston, Stamford and San Francisco. The Company also has pledged as collateral, $11.8 million, as of December 31, 2017, and $5.5 million, as of December 31, 2016, due between March 2018 and March 2021, for reinsurance agreements (See Note 23). 5. Segregated Cash As of December 31, 2017 and 2016, cash segregated in compliance with federal regulations and other restricted deposits of $116.3 million and $1.0 million, respectively, consisted of cash deposited in special bank accounts for the benefit of customers under SEC Rule 15c3-3 and cash held in accounts designated as Special Reserve Bank Accounts for Proprietary Accounts of Broker-Dealers ("PAB"). 6. Investments of Operating Entities and Consolidated Funds a. Operating Entities Securities owned, at fair value Securities owned, at fair value are held by the Company and are considered held for trading. Substantially all equity securities are pledged to the clearing brokers under terms which permit the clearing broker to sell or re-pledge the securities to others subject to certain limitations. As of December 31, 2017 and 2016, securities owned, at fair value consisted of the following: Common stocks (b) Preferred stock (b) Warrants and rights (b) U.S. Government securities (a) Corporate bonds (d) Convertible bonds (c) Trade claims Mutual funds (b) As of December 31, 2017 2016 (dollars in thousands) 640,065 $ 9,604 9,604 2,807 4,909 282 5,950 — 669,655 15,811 8,335 3,780 2,477 250 562 6 673,221 $ 700,876 $ $ (a) As of December 31, 2017, maturities ranged from February 2018 to June 2018 with an interest rate of 0%. As of December 31, 2016, maturities ranged from February 2017 to December 2017 with an interest rate of 0%. (b) The Company has elected the fair value option for investments in securities of preferred and common stocks with a fair value of $6.0 million and $5.2 million, respectively, at December 31, 2017 and $7.0 million and $5.2 million, respectively, at December 31, 2016. At December 31, 2017, the Company elected the fair value option for investments in warrants and rights with a fair value of $2.4 million. At December 31, 2016 the Company elected the fair value option for investments in mutual funds with a fair value of $0.1 million. (c) As of December 31, 2017, maturities ranged from February 2018 to March 2018 and interest rates ranged from 5% to 12%. As of December 31, 2016, the maturity was March 2018 with an interest rate of 8%. (d) As of December 31, 2017, maturities ranged from October 2018 to May 2040 and interest rates ranged from 0.00% to 10.75%. As of December 31, 2016, maturities ranged from January 2017 to January 2036 and interest rates ranged from 6.25% to 13.00%. Receivable on and Payable for derivative contracts, at fair value The Company's direct involvement with derivative financial instruments includes total return swaps, futures, currency forwards, equity swaps, credit default swaps and options. The Company's derivatives trading activities exposes the Company to F- 31 Cowen Inc. Notes to Consolidated Financial Statements (Continued) certain risks, such as price and interest rate fluctuations, volatility risk, credit risk, counterparty risk, foreign currency movements and changes in the liquidity of markets. Upon issuance of the Company's 3% cash convertible senior notes due 2022 in December 2017 ("2022 Convertible Notes") (See Note 23), the Company recognized the embedded cash conversion option at fair value of $23.4 million which is valued as of December 31, 2017 at $22.1 million and is included in payable for derivative contracts in the accompanying consolidated statement of financial condition. Upon issuance of the Company's 3% cash convertible senior notes due 2019 in March 2014 (the "2019 Convertible Notes") (See Note 23), the Company recognized the embedded cash conversion option at fair value of $35.7 million which is valued as of December 31, 2017 at $0.3 million and is included in payable for derivative contracts in the accompanying consolidated statement of financial condition. Also, on the date of issuance of the 2019 Convertible Notes, the Company entered into a separate cash convertible note economic hedge transaction (the "Hedge Transaction") with a counterparty (the “Option Counterparty”) whereby, the Company purchased a cash settled option contract with terms identical to the conversion option embedded in the 2019 Convertible Notes and simultaneously sold an equity settled warrant with a higher strike price. The Hedge Transaction is expected to reduce the Company’s exposure to potential cash payments in excess of the principal amount of converted notes that the Company may be required to make upon conversion of the 2019 Convertible Notes. The Company paid a premium of $35.7 million for the option under the Hedge Transaction and received a premium of $15.2 million for the equity settled warrant transaction, for a net cost of $20.5 million. The Hedge Transaction is valued at $1.5 million as of December 31, 2017 and is included in receivable on derivative contracts in the accompanying consolidated statement of financial condition. Aside from the initial premium paid, the Company will not be required to make any cash payments under the Hedge Transaction and could be entitled to receive an amount of cash from the Option Counterparty generally equal to the amount by which the market price per share of common stock exceeds the strike price of the Hedge Transaction during the relevant valuation period. The warrants cover 7,012,196 shares of the Company's Class A common stock and have an initial exercise price of $28.72 per share (share and per share amounts have been retroactively updated to reflect the one-for-four reverse stock split effective as of December 5, 2016). The warrants expire over a period of 80 trading days beginning on November 14, 2018. The warrant transaction could have a dilutive effect to the extent that the market value per share of the Company’s Class A common stock exceeds the applicable strike price of the warrants. The Company's long and short exposure to derivatives is as follows: Receivable on derivative contracts Futures Currency forwards Swaps Options other (a) Foreign currency options As of December 31, 2017 2016 Number of contracts / Notional Value Fair value Number of contracts / Notional Value Fair value $ $ $ $ 3,819 $ 233 164,664 283,112 — (dollars in thousands) $ $ $ 58 5 10,942 58,172 — $ 12,421 $ 80,608 46,462 256,097 57,051 $ 69,177 $ 104 592 468 21,539 198 22,901 (a) Includes index, equity, commodity future and cash conversion options. Payable for derivative contracts Futures Currency forwards Swaps Options other (a) As of December 31, 2017 2016 Number of contracts / Notional Value Fair value Number of contracts / Notional Value Fair value (dollars in thousands) 16,796 $ 62,439 11,595 57,043 $ 242 874 71 $ $ $ 41,563 42,750 38,345 $ — 9,533 23,726 $ 642 — 181 19,939 20,762 $ $ $ F- 32 Cowen Inc. Notes to Consolidated Financial Statements (Continued) (a) Includes index, equity, commodity future and cash conversion options. The following tables present the gross and net derivative positions and the related offsetting amount, as of December 31, 2017 and 2016. This table does not include the impact of over collateralization. Gross amounts not offset in the Consolidated Statement of Financial Condition Gross amounts offset on the Consolidated Statements of Financial Condition (a) Net amounts included on the Consolidated Statements of Financial Condition Gross amounts recognized Financial instruments Cash Collateral pledged (b) Net amounts (dollars in thousands) As of December 31, 2017 Receivable on derivative contracts, at fair value $ 69,177 $ Payable for derivative contracts, at fair value 42,750 As of December 31, 2016 Receivable on derivative contracts, at fair value Payable for derivative contracts, at fair value 22,901 20,762 — $ — — — 69,177 $ — $ 10,948 $ 58,229 42,750 22,901 20,762 — — — 1,031 41,719 1,382 181 21,519 20,581 (a) Includes financial instruments subject to enforceable master netting provisions that are permitted to be offset to the extent an event of default has occurred. (b) Includes the amount of collateral held or posted. The realized and unrealized gains/(losses) related to derivatives trading activities were $3.9 million, $(11.2) million and $(5.6) million for the years ended December 31, 2017, 2016, and 2015, respectively, and are included in other income in the accompanying consolidated statements of operations. Pursuant to the various derivatives transactions discussed above, except for the cash convertible note hedge (see Note 23) and exchange traded derivatives, the Company is required to post/receive collateral. As of December 31, 2017 and 2016, collateral consisting of $13.5 million and $17.1 million of cash, respectively, is included in receivable from brokers, dealers and clearing organizations and payable to brokers, dealers and clearing organizations on the accompanying consolidated statements of financial condition. As of December 31, 2017 and 2016 all derivative contracts were with multiple major financial institutions. Other investments As of December 31, 2017 and 2016, other investments included the following: Portfolio Funds, at fair value (1) Equity method investments (2) Lehman claims, at fair value As of December 31, 2017 2016 (dollars in thousands) $ $ 100,148 $ 41,099 301 141,548 $ 120,023 36,991 265 157,279 F- 33 Cowen Inc. Notes to Consolidated Financial Statements (Continued) (1) Portfolio Funds, at fair value The Portfolio Funds, at fair value as of December 31, 2017 and 2016, included the following: Starboard Value and Opportunity Fund LP (c)(*) $ Formation8 Partners Fund I, L.P. (f) RCG Longview Debt Fund V, L.P. (i)(*) HealthCare Royalty Partners LP (a)(*) Eclipse Ventures Fund I, L.P. (g) Lagunita Biosciences, LLC (n) RCG LPP2 PNW5 Co-Invest, L.P. (j)(*) Starboard Leaders Fund LP (e)(*) HealthCare Royalty Partners II LP (a)(*) Quadratic Fund LLC (k) (*) RCGL 12E13th LLC (i)(*) RCG Park Liberty GP Member LLC (i) (*) RCG Longview Debt Fund VI, LP (i) (*) Green Energy Metals Fund, LP (h) Starboard Partners Fund LP (d)(*) Orchard Square Partners Credit Fund LP (b) Other private investment (l)(*) Other affiliated funds (m)(*) As of December 31, 2017 2016 (dollars in thousands) 32,079 $ 28,243 8,892 3,452 3,428 2,400 3,493 1,276 873 906 237 750 1,022 — — — 10,133 2,964 $ 100,148 $ 27,424 22,234 16,187 7,147 1,790 1,698 3,152 1,231 2,091 6,729 348 598 — 6,241 5,067 4,327 8,548 5,211 120,023 * These portfolio funds are affiliates of the Company. The Company has no unfunded commitments regarding the portfolio funds held by the Company except as noted in Note 22. (a) HealthCare Royalty Partners, L.P. and HealthCare Royalty Partners II, L.P. are private equity funds and therefore distributions will be made when cash flows are received from the underlying investments, typically on a quarterly basis. (b) Orchard Square Partners Credit Fund LP had a quarterly redemption policy with a 60 day notice period and a 4% penalty on redemptions of investments of less than a year in duration. (c) Starboard Value and Opportunity Fund LP permits quarterly withdrawals upon 90 days' notice. (d) Starboard Partners Fund LP permitted redemptions on a semi-annual basis on 180 days' prior written notice subsequent to an initial two year lock up. (e) Starboard Leaders Fund LP does not permit withdrawals, but instead allows terminations with respect to capital commitments upon 30 days' prior written notice at any time following the first anniversary of an investors' initial capital contribution. (f) Formation8 Partners Fund I, L.P. is a private equity fund which invests in early stage and growth transformational information and energy technology companies. Distributions will be made when the underlying investments are liquidated. (g) Eclipse Ventures Fund I, L.P. is a private equity fund which invests in early stage and growth hardware companies. Distributions will be made when the underlying investments are liquidated. (h) The Green Energy Metals Fund, LP invested the vast majority of its capital in physical off-exchange traded minor metals that are crucial to the production and sustainability of clean energy, emerging technology and energy efficiency. The Company was invested in a managed account specifically targeting cobalt. The Green Energy Metals Fund, LP is a private equity structure and therefore distributions were made when the underlying investments were liquidated. F- 34 Cowen Inc. Notes to Consolidated Financial Statements (Continued) (i) RCGL 12E13th LLC, RCG Longview Debt Fund V, L.P., RCG Park Liberty GP Member LLC, and RCG Longview Debt Fund VI, LP are real estate private equity structures and therefore distributions will be made when the underlying investments are liquidated. (j) RCG LPP2 PNW5 Co-Invest, L.P. is a single purpose entity formed to participate in a joint venture which acquired five multi-unit residential rental properties located in the Pacific Northwest. RCG LPP2 PNW5 Co-Invest, L.P. is a private equity structure and therefore distributions will be made when the underlying investments are liquidated. (k) Quadratic Fund LLC permits redemptions 30 days prior written notice. (l) Other private investment represents the Company's closed end investment in a portfolio fund that invests in a wireless broadband communication provider in Italy. (m) The majority of these funds are affiliates of the Company or are managed by the Company and the investors can redeem from these funds as investments are liquidated. (n) Lagunita Biosciences, LLC, a healthcare investment company that creates and grows early stage companies to commercialize impactful translational science that addresses significant clinical needs, is a private equity structure and therefore distributions will be made when the underlying investments are liquidated. (2) Equity method investments Equity method investments include investments held by the Company in several operating companies whose operations primarily include the day to day management of a number of real estate funds, including the portfolio management and administrative services related to the acquisition, disposition, and active monitoring of the real estate funds' underlying debt and equity investments. The Company's ownership interests in these equity method investments range from 20% to 57%. The Company holds a majority of the outstanding ownership interest (i.e., more than 50%) in RCG Longview Partners II, LLC and 43% in Surf House Ocean Views Holdings, LLC (which is a joint venture in a real estate development project). The operating agreement that governs the management of day-to-day operations and affairs of these entities stipulates that certain decisions require support and approval from other members in addition to the support and approval of the Company. As a result, all operating decisions made in these entities requires the support of both the Company and an affirmative vote of a majority of the other managing members who are not affiliates of the Company. As the Company does not possess control over any of these entities, the presumption of consolidation has been overcome pursuant to current accounting standards and the Company accounts for these investments under the equity method of accounting. Also included in equity method investments are the investments in (a) HealthCare Royalty Partners General Partners and (b) Starboard Value (and certain related parties) which serves as an operating company whose operations primarily include the day to day management (including portfolio management) of several activist private funds and related managed accounts. As part of its equity method investment in operating companies, the Company incurs certain expenses on behalf of its equity method investees. These expenses reflect direct and indirect costs associated with the respective business and are included in their respective line items in the accompanying consolidated statements of operations. For the years ended December 31, 2017, 2016, and 2015, the Company incurred $7.1 million, $8.5 million and $14.1 million of these costs, respectively. The Company recorded no impairment charges in relation to its equity method investments for the years ended December 31, 2017, 2016 and 2015. F- 35 Cowen Inc. Notes to Consolidated Financial Statements (Continued) The following table summarizes equity method investments held by the Company: Surf House Ocean Views Holdings, LLC Starboard Value LP RCG Longview Debt Fund V Partners, LLC RCG Longview Management, LLC HealthCare Royalty GP, LLC HealthCare Royalty GP II, LLC RCG Longview Debt Fund IV Management, LLC HealthCare Royalty GP III, LLC RCG Kennedy House, LLC RCG Longview Equity Management, LLC RCG LPP II GP, LLC RCG Park Liberty GP Member Manager, LLC Other As of December 31, 2017 2016 (dollars in thousands) $ 14,179 $ 13,202 9,284 1,149 281 148 331 764 154 114 487 428 578 $ 41,099 $ 13,522 12,501 7,256 656 583 354 331 208 183 114 — 141 1,142 36,991 For the period ended December 31, 2017, three equity method investments have met the significance criteria as defined under Regulation S-X Rule 4-08(g) of the SEC guidance. As such, the Company is presenting the following summarized financial information for the significant investees for the years ended December 31, 2017, 2016, and 2015, and such information is as follows: Assets Cash Performance & management fee receivable Investments in Portfolio Funds, at fair value Other assets Liabilities Equity Revenues Expenses Net realized and unrealized gains (losses) Net Income As of December 31, 2017 2016 (dollars in thousands) $ $ 6,046 $ 110,064 11,251 1,060 74,256 54,165 $ 5,766 48,145 7,493 1,122 21,250 41,276 Year Ended December 31, 2017 2016 2015 (dollars in thousands) $ $ 132,862 $ 87,371 $ 35,268 (32,354) 9,264 (34,490) (20,658) 9,383 4,259 109,772 $ 62,264 $ 18,869 For the period ended December 31, 2017, equity method investments held by the Company in aggregate have met the significance criteria as defined under SEC guidance. As such, the Company is required to present summarized financial information for these significant investees for the years ended December 31, 2017, 2016 and 2015, and such information is as follows: Assets Liabilities Equity As of December 31, 2017 2016 (dollars in thousands) $ $ 155,936 74,316 81,620 $ $ 88,965 22,504 66,461 F- 36 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Revenues Expenses Net realized and unrealized gains (losses) Net Income Year Ended December 31, 2017 2016 2015 (dollars in thousands) $ $ 137,052 $ 90,337 $ 38,571 (32,354) 10,149 (34,490) (6,305) (20,658) 9,715 114,847 $ 49,542 $ 27,628 As of December 31, 2017 and 2016, the Company's share of losses in its equity method investment in RCG Longview Partners II, LLC has exceeded the carrying amount recorded in this investee. These amounts are included in accounts payable, accrued expenses and other liabilities in the accompanying consolidated statements of financial condition. RCG Longview Partners II, LLC, as general partner to a real estate fund, has reversed previously recorded incentive income allocations and has recorded a current clawback obligation to the limited partners in the fund. This obligation is due to a change in unrealized value of the fund on which there have previously been distributed carried interest realizations; however, the settlement of a potential obligation is not due until the end of the life of the respective fund. As the Company is obligated to return previous distributions it received from RCG Longview Partners II, LLC, it has continued to record its share of gains/losses in the investee including reflecting its share of the clawback obligation in the amount of $6.2 million. The Company's income (loss) from equity method investments was $21.3 million, $14.4 million, and $3.4 million for the years ended December 31, 2017, 2016, and 2015 respectively, and is included in net gains (losses) on securities, derivatives and other investments on the accompanying consolidated statements of operations. Securities sold, not yet purchased, at fair value Securities sold, not yet purchased, at fair value represent obligations of the Company to deliver a specified security at a contracted price and, thereby, create a liability to purchase that security at prevailing prices. The Company's liability for securities to be delivered is measured at their fair value as of the date of the consolidated financial statements. However, these transactions result in off-balance sheet risk, as the Company's ultimate cost to satisfy the delivery of securities sold, not yet purchased, at fair value may exceed the amount reflected in the accompanying consolidated statements of financial condition. Substantially all equity securities and options are pledged to the clearing broker under terms which permit the clearing broker to sell or re-pledge the securities to others subject to certain limitations. As of December 31, 2017 and 2016, securities sold, not yet purchased, at fair value consisted of the following: Common stocks Corporate bonds (a) Preferred stock Warrants and rights As of December 31, 2017 2016 (dollars in thousands) 342,328 $ 122 77 — 342,527 $ 263,460 2,591 — 39 266,090 $ $ (a) As of December 31, 2017, the maturities ranged from July 2025 to January 2036 with interest rates ranged from 3.78% to 5.55%. As of December 31, 2016, the maturities ranged from April 2021 to January 2036 with interest rates ranged from 5.50% to 6.25%. Securities lending and borrowing transactions The following tables present the contractual gross and net securities borrowing and lending agreements and the related offsetting amount, as of December 31, 2017. F- 37 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Gross amounts not offset on the Consolidated Statements of Financial Condition Gross amounts offset on the Consolidated Statements of Financial Condition (a) Net amounts included on the Consolidated Statements of Financial Condition Gross amounts recognized Additional Amounts Available Financial instruments Cash Collateral pledged (b) Net amounts (dollars in thousands) As of December 31, 2017 Securities borrowed $ 443,148 $ — $ 443,148 $ — $ 414,778 $ — $ 28,370 Securities loaned 456,831 — 456,831 — 439,228 — 17,603 (a) Includes financial instruments subject to enforceable master netting provisions that are permitted to be offset to the extent an event of default has occurred. (b) Includes the amount of cash collateral held/posted. The following tables present gross obligations for securities loaned transactions by remaining contractual maturity and class of collateral pledged as of December 31, 2017: As of December 31, 2017 Equities Variable Interest Entities Open and Overnight Up to 30 days 31 - 90 days Greater than 90 days Total (dollars in thousands) $ 456,831 $ — $ — $ — $ 456,831 The total assets and liabilities of the variable interest entities for which the Company has concluded that it holds a variable interest, but for which it is not the primary beneficiary, are $5.2 billion and $445.6 million as of December 31, 2017 and $5.3 billion and $997.3 million as of December 31, 2016, respectively. In addition, the maximum exposure relating to these variable interest entities as of December 31, 2017 was $471.3 million, and as of December 31, 2016 was $508.1 million, all of which is included in other investments, at fair value in the accompanying consolidated statements of financial condition. The exposure to loss primarily relates to the Consolidated Feeder Funds' investment in their Unconsolidated Master Funds and the Company's investment in unconsolidated investment companies. b. Consolidated Funds Securities owned, at fair value As of December 31, 2017 and 2016, securities owned, at fair value, held by the Consolidated Funds consisted of the following: Preferred stock Common stocks U.S. Government securities (a) Corporate bonds (b) Term Loan Warrants and rights As of December 31, 2017 2016 (dollars in thousands) 50,445 $ 77,702 34,201 — — 3,568 165,916 $ 37,343 28,474 6,994 4,214 2,209 3 79,237 $ $ (a) As of December 31, 2017, maturities ranged from January 2018 2017 to April 2022 and interest rates ranged from 0% to 5.75%. As of December 31, 2016, the maturity was March 2017 with an interest rate of 0%. (b) As of December 31, 2016, maturities ranged from October 2017 to June 2038 and interest rates ranged from 0% and 14.37%. F- 38 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Securities sold, not yet purchased, at fair value As of December 31, 2017, there were no securities sold, not yet purchased, at fair value. As of December 31, 2016, securities sold, not yet purchased, at fair value, held by the Consolidated Funds consisted of the following: Corporate bonds (a) Common stocks As of December 31, 2016 (dollars in thousands) $ $ 672 211 883 (a) As of December 31, 2016, maturities ranged from September 2019 to September 2023 and interest rates ranged from 4.38% to 9.25%. Receivable on derivative contracts As of December 31, 2017 and 2016, receivable on derivative contracts, at fair value, held by the Consolidated Funds are comprised of: Currency forwards Equity swaps Options As of December 31, 2017 2016 (dollars in thousands) $ $ 524 $ 1,754 242 2,520 $ 18 731 144 893 Payable for derivative contracts As of December 31, 2017 and 2016, payable for derivative contracts, at fair value, held by the Consolidated Funds are comprised of: Currency forwards Equity swaps Options As of December 31, 2017 2016 (dollars in thousands) $ $ 11 $ 7,042 77 7,130 $ 10 495 67 572 Other investments, at fair value Investments in Portfolio Funds, at fair value As of December 31, 2017 and 2016, investments in Portfolio Funds, at fair value, included the following: Investments of Enterprise LP Investments of Merger Fund Investments of Caerus LP As of December 31, 2017 2016 (dollars in thousands) $ $ 87,221 $ 286,890 — 374,111 $ 114,159 281,572 5,734 401,465 Consolidated portfolio fund investments of Enterprise LP Enterprise LP operates under a “master-feeder” structure, whereby Enterprise Master's shareholders are Enterprise LP and RCG II Intermediate Fund, L.P. The consolidated investments in Portfolio Funds include Enterprise LP's investment of $87.2 million and $114.2 million in Enterprise Master as of December 31, 2017 and 2016, respectively. On May 12, 2010, the F- 39 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Company announced its intention to close Enterprise Master. Prior to this announcement, strategies utilized by Enterprise Master included merger arbitrage and activist investing, investments in distressed securities, convertible hedging, capital structure arbitrage, equity market neutral, investments in private placements of convertible securities, proprietary mortgages, structured credit investments, investments in mortgage backed securities and other structured finance products, investments in real estate and real property interests, structured private placements and other relative value strategies. Enterprise Master had broad investment powers and maximum flexibility in seeking to achieve its investment objective. Enterprise Master was permitted to invest in equity securities, debt instruments, options, futures, swaps, credit default swaps and other derivatives. As Enterprise Master winds down its positions, it will return capital to its investors. There are no unfunded commitments at Enterprise LP. Consolidated portfolio fund investments of Merger Fund The Merger Fund operates under a “master-feeder” structure, whereby Ramius Merger Master Ltd.'s ("Merger Master") shareholders are Merger Fund and Ramius Merger Fund Ltd. The consolidated investments in Portfolio Funds include Merger Fund's investment of $286.9 million and $281.6 million in Merger Master as of December 31, 2017 and 2016, respectively. The Merger Master’s investment objective is to achieve consistent absolute returns while emphasizing the preservation of investor capital. The Merger Master seeks to achieve these objectives by taking a fundamental, research-driven approach to investing, primarily in the securities of issuers engaged in, or subject to, announced (or unannounced but otherwise anticipated) extraordinary corporate transactions, which may include, but are not limited to, mergers, acquisitions, leveraged buyouts, tender offers, hostile takeover bids, sale processes, exchange offers, and recapitalizations. Merger Master invests in the securities of one or more issuers engaged in or subject to such extraordinary corporate transactions. Merger Master typically seeks to derive a profit by realizing the price differential, or “spread,” between the market price of securities purchased or sold short and the market price or value of securities realized in connection with the completion or termination of the extraordinary corporate transaction, or in connection with the adjustment of market prices in anticipation thereof, while seeking to minimize the market risk associated with the aforementioned investment activities. Merger Master will, depending on market conditions, generally focus the majority of its investment program on announced transactions. If the investment manager of Merger Master considers it necessary, it may either alone or as part of a group, also initiate shareholder actions seeking to maximize value. Such shareholder actions may include, but are not limited to, re-orienting management’s focus or initiating the sale of the company (or one or more of its divisions) to a third party. There are no unfunded commitments at Merger Fund. Consolidated portfolio fund investments of Caerus LP Prior to Caerus LP being liquidated on March 1, 2017, it operated under a “master-feeder” structure, whereby Caerus Select Master Fund Ltd.'s ("Caerus Master") shareholder was Caerus LP. The consolidated investments in Portfolio Funds included Caerus LP's investment of $5.7 million in Caerus Master as of December 31, 2016. Caerus Master’s investment objective was to achieve superior risk-adjusted rates of return that bear little correlation to the overall market. Caerus Master sought to achieve this objective by utilizing a long/short investment strategy, investing primarily in equities and options on equities that trade on major global market exchanges. Caerus Master focused on investments in the global consumer sector, including, but not limited to, securities in sub-sectors such as retail, apparel and footwear, restaurants, gaming and lodging, consumer products, food and beverage, consumer technology, media, transportation and homebuilding and building materials. Indirect Concentration of the Underlying Investments Held by Consolidated Funds From time to time, either directly or indirectly through its investments in the Consolidated Funds, the Company may maintain exposure to a particular issue or issuer (both long and/or short) which may account for 5% or more of the Company's equity. Based on information that is available to the Company as of December 31, 2017 and 2016, the Company assessed whether or not its interests in an issuer for which the Company's pro-rata share exceeds 5% of the Company's equity. There was one indirect concentration that exceeded 5% of the Company's equity as of December 31, 2017 and none at December 31, 2016. Through its investments in a Consolidated Fund and combined with direct Company investments, the Company maintained exposure to a particular investment which accounted for 5% or more of the Company's equity. Investment's percentage of the Company's equity at December 31, 2017 Issuer Security Type Country Industry Percentage of Equity Market Value (dollars in thousands) Linkem Equity Italy Wireless Broadband 7.52% $ 56,271 F- 40 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Underlying Investments of Unconsolidated Funds Held by Consolidated Funds Enterprise Master and Merger Master Enterprise LP's investment in Enterprise Master represents Enterprise LP's proportionate share of Enterprise Master's net assets; as a result, the investment balances of Enterprise Master reflected below may exceed the net investment which Enterprise LP has recorded. Merger Fund's investment in Merger Master represents Merger Fund's proportionate share of Merger Master's net assets; as a result, the investment balances of Merger Master reflected below may exceed the net investment which Merger Fund has recorded. The following tables present summarized investment information for the underlying investments and derivatives held by Enterprise Master and Merger Master as of December 31, 2017 and 2016: Securities owned by Enterprise Master, at fair value Preferred stock Common stock Portfolio Funds, owned by Enterprise Master, at fair value As of December 31, 2017 2016 (dollars in thousands) $ $ — $ 608 608 $ 1,581 835 2,416 RCG Special Opportunities Fund, Ltd* RCG Longview Equity Fund, LP* RCG Longview Debt Fund IV, LP* RCG Longview II, LP* RCG Renergys, LLC* Other Private Investments Other Real Estate Investments * * Affiliates of the Company. Merger Master As of December 31, 2017 2016 Strategy (dollars in thousands) Multi-Strategy $ Real Estate Real Estate Real Estate Energy Various Real Estate 97,345 $ 1,266 99 229 — 937 — 101,832 4,744 1,637 836 1 8,682 295 $ 99,876 $ 118,027 As of December 31, 2017, Merger Master held common stock, securities owned, of $483.2 million and common stock, sold not yet purchased, of $171.2 million. As of December 31, 2016, Merger Master held common stock, securities owned, of $835.7 million and common stock, sold not yet purchased, of $395.5 million, respectively. Receivable on derivative contracts, at fair value, owned by Merger Master Description Options Equity swaps As of December 31, 2017 2016 (dollars in thousands) $ $ 108,063 14,488 122,551 $ $ 4,264 255 4,519 F- 41 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Payable for derivative contracts, at fair value, owned by Merger Master Description Options Currency forwards Equity swaps Caerus Master As of December 31, 2017 2016 (dollars in thousands) $ $ 1,256 $ 213 1,249 2,718 $ 2,285 — 123 2,408 As of December 31, 2016, Caerus Master held common stock, of $3.2 million and common stock, sold not yet purchased, of $2.6 million. 7. Fair Value Measurements for Operating Entities and Consolidated Funds The following table presents the assets and liabilities that are measured at fair value on a recurring basis on the accompanying consolidated statements of financial condition by caption and by level within the valuation hierarchy as of December 31, 2017 and 2016: F- 42 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Assets at Fair Value as of December 31, 2017 Level 1 Level 2 Level 3 Total (dollars in thousands) Operating Entities Securities owned US Government securities $ 2,807 $ — $ — $ Preferred stock Common stocks Convertible bonds Corporate bonds Trade claims Warrants and rights Receivable on derivative contracts, at fair value Futures Currency forwards Swaps Options Other investments Lehman claim Consolidated Funds Securities owned US Government securities Preferred stock Common stocks Warrants and rights Receivable on derivative contracts, at fair value Currency forwards Equity swaps Options Percentage of total assets measured at fair value on a recurring basis Portfolio funds measured at net asset value (a) Consolidated funds' portfolio funds measured at net asset value (a) Equity method investments Total investments 571 627,011 — — — 7,087 58 — — 56,717 — 30,552 — 77,652 — — — 242 918 5,484 — 4,909 — — — 5 10,942 — — 3,649 — — — 524 1,754 — 8,115 7,570 282 — 5,950 2,517 — — — 1,455 301 — 50,445 50 3,568 — — — 2,807 9,604 640,065 282 4,909 5,950 9,604 58 5 10,942 58,172 301 34,201 50,445 77,702 3,568 524 1,754 242 $ 802,697 $ 28,185 $ 80,253 $ 911,135 88.1% 3.1% 8.8% 100,148 374,111 41,099 1,426,493 $ F- 43 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Operating Entities Securities sold, not yet purchased Common stocks Corporate bonds Preferred stock Warrants and rights Payable for derivative contracts, at fair value Futures Currency forwards Swaps Options Accounts payable, accrued expenses and other liabilities Contingent consideration liability (b) Consolidated Funds Payable for derivative contracts, at fair value Currency forwards Options Equity swaps Liabilities at Fair Value as of December 31, 2017 Level 1 Level 2 Level 3 Total (dollars in thousands) $ 342,328 $ — $ — $ 342,328 — 77 — 242 — — 19,162 — — 77 — 122 — — — 874 71 — — 11 — 7,042 8,120 2.1% $ — — — — — — 122 77 — 242 874 71 22,401 41,563 3,440 3,440 — — — 25,841 $ 6.5% 11 77 7,042 395,847 Percentage of total liabilities measured at fair value 91.4% $ 361,886 $ (a) In accordance with US GAAP, certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated statement of financial condition. (b) In accordance with the terms of the purchase agreements for acquisitions that closed during the third and fourth quarter of 2015 and the second quarter of 2016, the Company is required to pay to the sellers a portion of future net income and/or revenues of the acquired businesses, if certain targets are achieved through the periods ended December 2018, December 2020, and June 2018, respectively. The Company estimated the contingent consideration liability using the income approach (discounted cash flow method) which requires the Company to make estimates and assumptions regarding the future cash flows and profits. Changes in these estimates and assumptions could have a significant impact on the amounts recognized. The undiscounted amounts as of December 31, 2017 can range from $0.1 million to $15.0 million. F- 44 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Assets at Fair Value as of December 31, 2016 Level 1 Level 2 Level 3 Total (dollars in thousands) Operating Entities Securities owned US Government securities $ 3,780 $ — $ — $ Preferred stock Common stocks Convertible bonds Corporate bonds Trade claims Warrants and rights Mutual funds Receivable on derivative contracts, at fair value Futures Currency forwards Swaps Options Other investments Lehman claim Consolidated Funds Securities owned US Government securities Preferred stock Common stocks Corporate bonds Warrants and rights Term loan Receivable on derivative contracts, at fair value Currency forwards Equity swaps Options Percentage of total assets measured at fair value on a recurring basis Portfolio funds measured at net asset value (a) Consolidated funds' portfolio funds measured at net asset value (a) Equity method investments Total investments — 658,179 — — — 4,616 6 104 — — 6,662 — 6,994 — 19,467 — — — — — 132 — 1,355 — 2,477 — — — — 592 468 322 — — 415 8,712 4,214 — 1,552 18 731 12 15,811 10,121 250 — 562 3,719 — — — — 14,753 265 — 36,928 295 — 3 657 — — — 3,780 15,811 669,655 250 2,477 562 8,335 6 104 592 468 21,737 265 6,994 37,343 28,474 4,214 3 2,209 18 731 144 $ 699,940 $ 20,868 $ 83,364 $ 804,172 87.0% 2.6% 10.4% 120,023 401,465 36,991 1,362,651 $ F- 45 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Operating Entities Securities sold, not yet purchased Common stocks Corporate bonds Warrants and rights Payable for derivative contracts, at fair value Futures Swaps Options Accounts payable, accrued expenses and other liabilities Contingent consideration liability (b) Consolidated Funds Securities sold, not yet purchased Common stocks Corporate bonds Payable for derivative contracts, at fair value Currency forwards Options Equity swaps Liabilities at Fair Value as of December 31, 2016 Level 1 Level 2 Level 3 Total (dollars in thousands) $ 263,460 $ — $ — $ — 39 642 — 5,186 — 211 — — 67 — 2,591 — — 181 — — — 672 10 — 495 — — — — 14,753 263,460 2,591 39 642 181 19,939 5,997 5,997 — — — — — 211 672 10 67 495 Percentage of total liabilities measured at fair value 91.6% 1.3% 7.1% $ 269,605 $ 3,949 $ 20,750 $ 294,304 (a) In accordance with US GAAP, certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated statement of financial condition. (b) In accordance with the terms of the purchase agreements for acquisitions that closed during 2012 and the third and fourth quarter of 2015, the Company is required to pay to the sellers a portion of future net income and/or revenues of the acquired businesses, if certain targets are achieved through the periods ended December 2018, and December 2020, respectively. The Company estimated the contingent consideration liability using the income approach (discounted cash flow method) which requires the Company to make estimates and assumptions regarding the future cash flows and profits. Changes in these estimates and assumptions could have a significant impact on the amounts recognized. The undiscounted amounts as of December 31, 2016 can range from $0.1 million to $15.1 million. The following table includes a roll forward of the amounts for the year ended December 31, 2017 and 2016 for financial instruments classified within level 3. The classification of a financial instrument within level 3 is based upon the significance of the unobservable inputs to the overall fair value measurement. F- 46 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Year Ended December 31, 2017 Balance at December 31, 2016 Transfers in Transfers out Purchases/ (covers) (Sales)/ shorts (dollars in thousands) Realized and Unrealized gains/losses Balance at December 31, 2017 Change in unrealized gains /losses relating to instruments still held (1) $ (25,098) (a) (f) $ 25,785 $ (2,956) $ (5,427) $ 8,115 $ Operating Entities Preferred stock $ 15,811 $ Common stocks Convertible bonds Options, asset Options, liability Warrants and rights Trade claims Lehman claim Contingent consideration liability Consolidated Funds 10,121 250 14,753 14,753 3,719 562 265 5,997 — — — — — 2,173 (b) (d) — — — — — — — — — — — 2,670 (2,688) 282 — — — 5,865 — — — — — (4,118) (611) — (392) Preferred stock Common stocks Warrants and rights Term Loan 36,928 22,644 (f) (13,668) (a) 8,437 (11,903) 295 3 657 — — — — — — 526 — 202 (848) — (1,021) (2,533) (250) (13,298) 7,570 282 1,455 7,648 22,401 743 134 36 (2,165) 8,007 77 3,565 162 2,517 5,950 301 3,440 50,445 50 3,568 — 486 (412) — (13,298) 7,648 510 202 36 (2,165) 3,896 — 3,565 — Year Ended December 31, 2016 Balance at December 31, 2015 Transfers in Transfers out Purchases/ (covers) (Sales)/ shorts Realized and Unrealized gains/losses Balance at December 31, 2016 (dollars in thousands) Change in unrealized gains /losses relating to instruments still held (1) $ 12,872 $ 2,278 819 18,194 18,194 2,572 — 299 6,158 32,000 — — — — — — — — — 675 (e) — — — — — — $ (1,000) (a) $ 3,717 $ (218) $ 440 $ 15,811 $ — — — — — — — — 7,099 (3,222) — — — 1,914 289 — (569) — — (817) (325) — 3,966 — (3,441) (3,441) 50 (77) (34) 10,121 250 14,753 14,753 3,719 562 265 2,397 (4,697) 2,139 5,997 34 3,972 — (3,441) (3,441) 79 (111) (35) — (11,000) (a) 13,483 — — — 314 — 590 — — — — 2,445 36,928 2,445 (19) 3 67 295 3 657 (19) 3 67 Operating Entities Preferred stock Common stocks Convertible bonds Options, asset Options, liability Warrants and rights Trade Claims Lehman claim Contingent consideration liability Consolidated Funds Preferred stock Common Stock Warrants and rights Term Loan (1) Unrealized gains/losses are reported in other income (loss) in the accompanying consolidated statements of operations. (a) The investments were converted to common stock. (b) The Company received warrants as part of a transaction. (c) The entity in which the Company is invested completed an initial public offering. (d) As part of the preferred stock sale, the sellers received contingent value rights to be paid in the event certain milestones are reached. (e) The investment undertook a reorganization and subsequently is not traded in an active market. (f) The Company transferred investments to a consolidated fund. F- 47 Cowen Inc. Notes to Consolidated Financial Statements (Continued) All realized and unrealized gains (losses) in the table above are reflected in other income (loss) in the accompanying consolidated statements of operations. Certain assets and liabilities are measured at fair value on a nonrecurring basis and therefore are not included in the tables above. The Company recognizes all transfers and the related unrealized gain (loss) at the beginning of the reporting period. Transfers between level 1 and 2 generally relate to whether the principal market for the security becomes active or inactive. Transfers between level 2 and 3 generally relate to whether significant relevant observable inputs are available for the fair value measurements or due to change in liquidity restrictions for the investments. During the years ended December 31, 2017 and 2016, there were no transfers between level 1 and level 2 assets and liabilities. The following table includes quantitative information as of December 31, 2017 and 2016 for financial instruments classified within level 3. The table below quantifies information about the significant unobservable inputs used in the fair value measurement of the Company's level 3 financial instruments. Level 3 Assets Fair Value at December 31, 2017 (dollars in thousands) Quantitative Information about Level 3 Fair Value Measurements Valuation techniques Unobservable Inputs Range Common and preferred stocks $ 5,642 Guideline companies/ transaction price Market multiples 4.8x to 8.5x Trade claims 70 Discounted cash flows Discount rate Warrants and rights Options Other level 3 assets (a) Total level 3 assets Level 3 Liabilities Model based Discounted cash flows Volatility Discount rate Option pricing models Volatility 2,516 1,455 70,570 80,253 20% 61% 22% 28% Options 22,401 Option pricing models Volatility 28% Contingent consideration liability Total level 3 liabilities $ 3,440 25,841 Discounted cash flows Projected cash flow and discount rate 8% - 23% (weighted average 22%) F- 48 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Level 3 Assets Fair Value at December 31, 2016 (dollars in thousands) Quantitative Information about Level 3 Fair Value Measurements Valuation techniques Unobservable Inputs Range Common and preferred stocks $ 10,917 Guideline companies/ transaction price Option pricing method, discounted cash flow Trade claims 520 Discounted cash flows Warrants and rights 3,719 Model based Options Other level 3 assets (a) Total level 3 assets Level 3 Liabilities Option pricing models 14,753 53,455 83,364 Volatility Market multiples Discount rate Market multiples Discount rate Volatility Volatility 37% 0.8x to 9.3x 9.5% to 10% 6x 20% 30% to 85% (weighted average 73%) 40% Options 14,753 Option pricing models Volatility 40% Contingent consideration liability Total level 3 liabilities $ 5,997 20,750 Discounted cash flows Projected cash flow and discount rate 8% - 25% (weighted average 23%) (a) The quantitative disclosures exclude financial instruments for which the determination of fair value is based on prices from recent transactions. The Company has established valuation policies and procedures and an internal control infrastructure over its fair value measurement of financial instruments which includes ongoing oversight by the valuation committee as well as periodic audits performed by the Company's internal audit group. The valuation committee is comprised of senior management, including non- investment professionals, who are responsible for overseeing and monitoring the pricing of the Company's investments, including the review of the results of the independent price verification process, approval of new trading asset classes and use of applicable pricing models and approaches. The US GAAP fair value leveling hierarchy is designated and monitored on an ongoing basis. In determining the designation, the Company takes into consideration a number of factors including the observability of inputs, liquidity of the investment and the significance of a particular input to the fair value measurement. Designations, models, pricing vendors, third party valuation providers and inputs used to derive fair market value are subject to review by the valuation committee and the internal audit group. The Company reviews its valuation policy guidelines on an ongoing basis and may adjust them in light of, improved valuation metrics and models, the availability of reliable inputs and information, and prevailing market conditions. The Company reviews a daily profit and loss report, as well as other periodic reports, and analyzes material changes from period-to-period in the valuation of its investments as part of its control procedures. The Company also performs back testing on a regular basis by comparing prices observed in executed transactions to previous valuations. The fair market value for level 3 securities may be highly sensitive to the use of industry standard models, unobservable inputs and subjective assumptions. The degree of fair market value sensitivity is also contingent upon the subjective weight given to specific inputs and valuation metrics. The Company holds various equity and debt instruments where different weight may be applied to industry standard models representing standard valuation metrics such as: discounted cash flows, market multiples, comparative transactions, capital rates, recovery rates and timing, and bid levels. Generally, changes in the weights ascribed to the various valuation metrics and the significant unobservable inputs in isolation may result in significantly lower or higher fair value measurements. Volatility levels for warrants and options are not readily observable and subject to interpretation. Changes in capital rates, discount rates and replacement costs could significantly increase or decrease the valuation of the real estate investments. The interrelationship between unobservable inputs may vary significantly amongst level 3 securities as they are generally highly idiosyncratic. Significant increases (decreases) in any of those inputs in isolation can result in a significantly lower (higher) fair value measurement. Other financial assets and liabilities The following table presents the carrying values and fair values, at December 31, 2017 and 2016, of financial assets and liabilities and information on their classification within the fair value hierarchy which are not measured at fair value on a recurring basis. For additional information regarding the financial instruments within the scope of this disclosure, and the methods and significant assumptions used to estimate their fair value see Note 3. F- 49 Cowen Inc. Notes to Consolidated Financial Statements (Continued) December 31, 2017 December 31, 2016 Carrying Amount Fair Value Carrying Amount Fair Value Fair Value Hierarchy (dollars in thousands) $ 130,052 $ 17,888 116,268 443,148 37,993 130,052 17,888 116,268 414,763 $ 110,990 $ 110,990 13,342 1,024 — 13,342 1,024 — 37,993 (d) 31,088 31,088 (d) Level 1 Level 2 Level 1 Level 2 Level 3 Financial Assets Operating companies Cash and cash equivalents Cash collateral pledged Segregated cash Securities borrowed Loans receivable Consolidated funds Cash and cash equivalents 21,988 21,988 17,761 17,761 Level 1 Financial Liabilities Securities loaned Convertible debt Notes payable and other debt 456,831 141,502 (a) 173,458 440,162 172,709 182,352 — (b) (c) 130,029 (a) 77,030 — 149,545 (b) 80,817 (c) Level 2 Level 2 Level 2 (a) The carrying amount of the convertible debt includes an unamortized discount of $25.6 million and $17.8 million as of December 31, 2017 and 2016, respectively. (b) The convertible debt includes the conversion option and is based on the last broker quote available. (c) Notes payable and other debt are based on the last broker quote available. (d) The fair market value of level 3 loans is calculated using discounted cash flows. 8. Deposits with Clearing Organizations, Brokers and Banks Under the terms of agreements between the Company and some of its clearing organizations, brokers and banks, balances owed are collateralized by certain of the Company’s cash and securities balances. As of December 31, 2017 and 2016, the Company had a total of $94.0 million and $8.9 million, respectively, in deposit accounts with clearing organizations, brokers and banks that could be used as collateral to offset losses incurred by the clearing organizations, brokers and banks, on behalf of the Company’s activities, if such losses were to occur. 9. Receivables From and Payables to Brokers, Dealers and Clearing Organizations Receivables from and payable to brokers, dealers and clearing organizations includes cash held at the clearing brokers, amounts receivable or payable for unsettled transactions, monies borrowed and proceeds from short sales equal to the fair value of securities sold, not yet purchased, which are restricted until the Company purchases the securities sold short. Pursuant to the master netting agreements the Company entered into with its brokers, dealers and clearing organizations, these balances are presented net (assets less liabilities) across balances with the same counterparty. The Company's receivables from and payables to brokers, dealers and clearing organizations balances are held at multiple financial institutions. As of December 31, 2017 and 2016, amounts receivable from brokers, dealers and clearing organizations include: Broker-dealers Securities failed to deliver Clearing organizations Stock borrow interest receivable As of December 31, 2017 2016 (dollars in thousands) 409,499 $ 78,898 87,820 6,126 4,733 — — — 508,178 $ 78,898 $ $ F- 50 Cowen Inc. Notes to Consolidated Financial Statements (Continued) As of December 31, 2017 and 2016, amounts payable to brokers, dealers and clearing organizations include: Broker-dealers Securities failed to receive Clearing organizations Stock loan interest payable As of December 31, 2017 2016 (dollars in thousands) 145,860 $ 210,309 53,540 48,257 4,496 — — — 252,153 $ 210,309 $ $ 10. Receivable From and Payable to Customers As of December 31, 2017, receivable from customers of $49.9 million consists of amounts owed by customers relating to securities transactions not completed on settlement date and receivables arising from the prepayment of a Commission Sharing Agreement (“CSA”), net of an allowance for doubtful accounts. A prepaid CSA is established for research-related disbursements in advance of anticipated customer commission volumes. Such receivables may not be evidenced by contractual obligations. As of December 31, 2017, payable to customers of $352.5 million include amounts due on cash and margin transactions to the Company's clients, some of which have their assets held by a Company omnibus account, which are included within receivables from brokers, dealers and clearing organizations in the accompanying consolidated statements of financial condition. In the omnibus structure, positions that are owned by Cowen International Ltd are fully cross collateralized by client funds, meaning that the Company, for all intents and purposes, has no market risk. Additionally, Cowen International Ltd has no obligation to settle any trade that it deems inappropriate from a risk perspective, adding an important market and counterparty risk mitigating factor. 11. Fixed Assets As of December 31, 2017 and 2016, fixed assets consisted of the following: Telephone and computer equipment $ 3,465 $ As of December 31, 2017 2016 (dollars in thousands) Computer software Furniture and fixtures Leasehold improvements Assets acquired under capital leases—equipment Aircraft and related equipment Other Less: Accumulated depreciation and amortization 2,914 1,423 36,702 6,920 17,369 58 68,851 (28,355) $ 40,496 $ 2,787 2,167 1,204 35,092 4,075 20,893 57 66,275 (23,867) 42,408 Depreciation and amortization expense related to fixed assets was $7.0 million, $7.7 million and $6.8 million for the years ended December 31, 2017, 2016, and 2015, respectively and are included in depreciation and amortization expense in the accompanying consolidated statements of operations. On April 22, 2016, the Company entered into a transaction whereby the Company acquired a portfolio of four specialized aircraft which were on lease (See Note 2). During the year ended December 31, 2016, the Company purchased two aircraft and entered into two additional lease agreements. As of December 31, 2017 and 2016, aircraft and related equipment of $17.4 million and $20.9 million, respectively, is held for leasing purposes. One of the planes were sold during the third quarter of 2017 for a gain of $2.3 million. Depreciation expense related to leased assets was $1.5 million and $1.7 million for the year ended December 31, 2017 and 2016, respectively. As of December 31, 2017 and 2016, the accumulated depreciation related to leased assets was $1.8 million and $1.7 million, respectively. F- 51 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Assets acquired under capital leases were $6.9 million and $4.1 million as of December 31, 2017 and 2016, respectively. If the assets acquired under capital leases transfer title at the end of the lease term or contain a bargain purchase option, the assets are amortized over their estimated useful lives; otherwise, the assets are amortized over the respective lease term. The depreciation of assets capitalized under capital leases is included in depreciation and amortization expenses and was $1.0 million, $1.2 million, and $1.5 million for the years ended December 31, 2017, 2016, and 2015, respectively. As of December 31, 2017 and 2016, accumulated depreciation related to assets acquired under capital leases was $3.4 million and $2.4 million respectively. 12. Goodwill and Intangible Assets Goodwill In accordance with US GAAP, the Company tests goodwill for impairment on an annual basis or at an interim period if events or changed circumstances would more likely than not reduce the fair value of a reporting unit below its carrying amount. Under US GAAP, the Company first assesses the qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amounts as a basis for determining if it is necessary to perform the two-step approach. Periodically estimating the fair value of a reporting unit requires significant judgment and often involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. The Company estimated the fair value using the income and market approach which involves estimates of future cash flows, discount rates, economic forecast and other assumption which are then used in the market approach (earning and / or transactions multiples) and / or income approach (discounted cash flow method). In connection with the CRT transaction (See Note 2), in May 2016, the Company recognized goodwill of $3.5 million. Goodwill, which primarily relates to expected synergies from combining operations, is fully deductible for tax purposes and has been assigned to the broker-dealer segment of the Company. On September 23, 2016, the Company and the portfolio managers of RASL completed the sale of their respective ownership interests in RASL, an investment advisor. In contemplation with the sale transaction, the Company allocated $1.2 million of goodwill to the RASL disposal group (See Note 2) which was included in the investment management reporting unit. Based on the results of the impairment analysis as of December 31, 2017, the Company did not recognize any impairment relating to the investment management or broker-dealer reporting units. No impairment charges for goodwill were recognized during the years ended December 31, 2016 and 2015, respectively. F- 52 Cowen Inc. Notes to Consolidated Financial Statements (Continued) The following table presents the changes in the Company's goodwill balance, by reporting unit for the years ended December 31, 2017, 2016, and 2015: Beginning balance - December 31, 2015 Goodwill Accumulated impairment charges Net Activity: 2016 Recognized goodwill Goodwill allocated to disposal group Goodwill impairment charges Ending balance: December 31, 2016 Goodwill Accumulated impairment charges Net Activity: 2017 Recognized goodwill Goodwill allocated to disposal group Goodwill impairment charges Ending balance: December 31, 2017 Goodwill Accumulated impairment charges Net Intangible assets Investment Management Broker- Dealer Total (dollars in thousands) $ 30,228 $ 47,818 $ 78,046 (10,200) 20,028 (9,485) 38,333 (19,685) 58,361 — (1,202) — 29,026 (10,200) 18,826 — — — 3,519 — — 51,337 (9,485) 41,852 — — — 3,519 (1,202) — 80,363 (19,685) 60,678 — — — 29,026 (10,200) 51,337 (9,485) 80,363 (19,685) $ 18,826 $ 41,852 $ 60,678 Information for the Company's intangible assets that are subject to amortization is presented below as of December 31, 2017 and 2016. Trade names Customer relationships Customer contracts Non compete agreements and covenants with limiting conditions acquired Intellectual property December 31, 2017 December 31, 2016 Amortization Period (in years) Gross Carrying Amount Accumulated Amortization (in thousands) Net Carrying Amount Gross Carrying Amount Accumulated Amortization (in thousands) Net Carrying Amount 0.6 - 7.5 $ 10,622 $ (10,555) $ 67 $ 9,962 $ (9,689) $ 273 3 - 14 1.2 3 - 5 3 - 10 41,134 800 2,237 8,243 (15,733) 25,401 (800) — (1,479) (4,514) 758 3,729 33,874 800 2,268 8,283 (12,948) 20,926 (800) — (818) (5,163) 1,450 3,120 $ 63,036 $ (33,081) $ 29,955 $ 55,187 $ (29,418) $ 25,769 The Company tests intangible assets for impairment if events or circumstances suggest that the asset groups carrying value may not be fully recoverable. For the years ended December 31, 2017 and 2016, no impairment charge for intangible assets was recognized. In connection with the CRT transaction (See Note 2), in May 2016, the Company recognized intangible assets (including customer relationships, trade name, intellectual property and non-compete arrangements) with an estimated fair value of $5.1 F- 53 Cowen Inc. Notes to Consolidated Financial Statements (Continued) million which are included within intangible assets, net in the consolidation statements of financial condition with the expected useful lives ranging from 1 to 9 years with a weighted average useful life of 8.1 years. In connection with Convergex acquisition (See Note 2), in June 2017, the Company recognized intangible assets (including customer relationships, trade name, and intellectual property) with an estimated fair value of $10.3 million which are included within intangible assets, net in the consolidation statements of financial condition with the expected useful lives ranging from 0.6 years to 9.0 years with a weighted average useful life of 7.7 years. Amortization expense related to intangible assets was $6.1 million, $5.0 million, and $2.7 million for the years ended December 31, 2017, 2016, and 2015, respectively, which is included in depreciation and amortization expense in the accompanying consolidated statements of operations. All of the Company's intangible assets have finite lives. The estimated future amortization expense for the Company's intangible assets as of December 31, 2017 is as follows: 2018 2019 2020 2021 2022 Thereafter 13. Other Assets Other assets in Operating Entities are as follows: Prepaid expenses Deposits Reinsurance receivables, net (d) Loan receivable (a) Tax receivables Redemption Receivable Interest and dividends receivable Deferred acquisition costs (c) Deferred rent asset Military loan (b) Other (dollars in thousands) $ $ 4,946 4,168 3,950 3,890 3,108 9,893 29,955 As of December 31, 2017 2016 (dollars in thousands) $ 13,267 $ 10,669 877 14,014 — 1,457 19,565 1,021 1,978 — 19,851 16,238 $ 88,268 $ 5,322 5,187 3,700 3,267 — 718 677 52 4,476 4,338 38,406 (a) As of December 31, 2016, the maturity was August 2017 with interest rate of 12%. (b) As of December 31, 2017, the maturity is January 2024, with interest rate of 8% for the first five years and 8.5% for the remainder of the term, related to the Company's commercial reinsurance activities. As of December 31, 2016, the maturity is January 2024, with interest rate of 8% for the first five years and 8.5% for the remainder of the term, related to the Company's commercial reinsurance activities. (c) Balances relate to the Company's reinsurance business entered into during 2016 (See Note 17). 14. Commission Management Payable The Company receives a gross commission from various clearing brokers, which is then used to fund commission sharing and recapture arrangements, less the portion retained as income to the Company. Accrued commission sharing and commission recapture payable of $70.5 million as of December 31, 2017 and $3.6 million as of December 31, 2016 are classified as commission management payable in the accompanying consolidated statements of financial condition. F- 54 Cowen Inc. Notes to Consolidated Financial Statements (Continued) 15. Accounts Payable, Accrued Expenses and Other Liabilities Accounts payable, accrued expenses and other liabilities in Operating Entities are as follows: Deferred rent obligations (see Note 3(k)) Contingent consideration payable (see Note 2) Equity in RCG Longview Partners II, LLC (see Note 5a(3)) Interest and dividends payable Loss reserves and claims incurred but not reported (a) Professional fees payable Unearned premiums (a) Fees payable Accrued tax liabilities Litigation reserve Accrued expenses and accounts payable (b) As of December 31, 2017 2016 (dollars in thousands) $ 12,822 $ 10,335 3,440 6,022 2,891 9,464 5,008 6,116 798 7,482 3,000 $ 39,490 96,533 $ 5,997 5,948 3,541 3,455 3,143 2,375 1,093 456 — 11,182 47,525 (a) Balances relate to the Company's reinsurance business entered into during 2016 (See Note 17). (b) As of December 31, 2017, the balance includes premiums accrued but not yet paid of $18.0 million related to the Company’s reinsurance business. 16. Redeemable Non-Controlling Interests in Consolidated Subsidiaries and Funds Redeemable non-controlling interests in consolidated subsidiaries and funds and the related net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds are comprised as follows: Redeemable non-controlling interests in consolidated subsidiaries and funds Operating companies Consolidated Funds As of December 31, 2017 As of December 31, 2016 (dollars in thousands) $ $ 6,113 434,491 440,604 $ $ 7,638 371,567 379,205 Year Ended December 31, 2017 2016 2015 (dollars in thousands) Income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds Operating companies Consolidated Funds 17. Reinsurance $ $ 2,353 21,438 23,791 $ $ 3,717 3,165 6,882 $ $ 9,503 5,743 15,246 The Company’s wholly-owned Luxembourg subsidiary, Hollenfels Re SA (“Hollenfels”) provides reinsurance to third party insurance and reinsurance companies. As Hollenfels started its operations during 2016, all claims it experienced (reported or not reported) were from the 2016 and 2017 accident years. During the year ended December 31, 2017, Hollenfels’s share of incurred and paid claims, as reported to it by the underlying insurance and reinsurance companies, amounted to $15.3 million. During the same period, Hollenfels’s share of claims incurred but not reported plus expected development on reported claims totaled $5.8 million. Hollenfels generally employs an estimation methodology whereby historical average claims ratios over a period of 5 or 10 years, based on availability of data, are utilized. In cases where an event may have occurred that could give rise to claims in excess of the amount calculated using the above-mentioned methodology, then actuarial methods are used to calculate the impact of such an event. During the year, Hollenfels did not change its methodology for determining claim liability or claim adjustment expenses and calculated them using the above-mentioned methods. F- 55 Cowen Inc. Notes to Consolidated Financial Statements (Continued) While Hollenfels typically settles its premiums and claim payments on a quarterly basis, the frequency of claims in the underlying policies is impractical for Hollenfels to obtain. This is because certain contracts Hollenfels has written are on a quota-share basis while the other policies provide aggregate loss protection, rendering the collection of information for all underlying contracts impracticable. Hollenfels did not discount any of its reserves and did not cede any portion of its exposures during the year ended December 31, 2017. 18. Other Revenues and Expenses On September 23, 2016, the Company and the portfolio managers RASL completed the sale of their respective ownership interests in RASL (See Note 2). Along with the target working capital transferred at closing, the Company also allocated a portion of goodwill associated with the investment management segment to the sale price (See Note 12) which is shown net in other revenues in the accompanying consolidated statements of operations. Other expenses, during the years ended December 31, 2017, 2016, and 2015, are primarily the general administrative expenses of the various operating company subsidiaries or the Consolidated Funds. 19. Share-Based and Deferred Compensation and Employee Ownership Plans On December 5, 2016, the Company effected a one-for-four reverse stock split of the Company's class A and class B common stock. All share and per share information has been retroactively adjusted to reflect the reverse stock split. The Company issues share based compensation under the 2006 Equity and Incentive Plan, the 2007 Equity and Incentive Plan (both established prior to the November 2009 transaction between Ramius Capital Group LLC and Cowen) and the Cowen Group, Inc. 2010 Equity and Incentive Plan (collectively, the “Equity Plans”). The Equity Plans permit the grant of options, restricted shares, restricted stock units, stock appreciation rights ("SAR's") and other equity based awards to the Company's employees and directors. Stock options granted generally vest over two-to-five-year periods and expire seven years from the date of grant. Restricted shares and restricted share units issued may be immediately vested or may generally vest over a two- to-five-year period. SAR's vest and expire after five years from grant date. Awards are subject to the risk of forfeiture. As of December 31, 2017, there were no shares available for future issuance under the Equity Plans. Under the 2010 Equity Plan, the Company awarded $24.1 million of deferred cash awards to its employees during the year ended December 31, 2017. These awards vest over a four year period and accrue interest at 0.70% per year. As of December 31, 2017, the Company had unrecognized compensation expense related to the 2010 Equity Plan deferred cash awards of $35.0 million. Subsequent to the acquisition of Convergex Group (see Note 2) the Company maintained the Convergex Nonqualified Deferred Compensation Plan, which is a deferred cash award plan that is expensed over the 27 month service period requirement. As of December 31, 2017, the Company had unrecognized compensation expense related to former Convergex Group deferred cash awards of $2.4 million. The Company measures compensation cost for share based awards according to the equity method. In accordance with the expense recognition provisions of those standards, the Company amortizes unearned compensation associated with share based awards on a straight-line basis over the vesting period of the option or award, net of estimated forfeitures. In relation to awards under the Equity Plans, the Company recognized compensation expense of $28.4 million, $26.0 million, and $21.7 million for the years ended December 31, 2017, 2016, and 2015 respectively. The income tax effect recognized for the Equity Plans was a benefit of $7.7 million, $11.4 million, and $5.0 million for the years ended December 31, 2017, 2016, and 2015 respectively. Stock Options and Stock Appreciation Rights The Company values options and SAR's on grant date using the Black-Scholes valuation model which requires the Company to make assumptions regarding the expected term, volatility, risk-free rate and dividend yield: Expected term. Expected term represents the period of time that awards granted are expected to be outstanding. The Company elected to use the "simplified" calculation method, as applicable to companies that lack extensive historical data. The mid-point between the vesting date and the contractual expiration date is used as the expected term under this method. Expected volatility. The Company bases its expected volatility on its own stock price history. Risk free rate. The risk-free rate for periods within the expected term of the award is based on the interest rate of a traded zero-coupon U.S. Treasury bond with a term equal to the awards' expected term on the date of grant. F- 56 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Dividend yield. The Company has not paid and does not expect to pay dividends in the foreseeable future. Accordingly, the assumed dividend yield is zero. The following table summarizes the Company's stock option activity for the years ended December 31, 2017 and 2016: Class A Common Shares Subject to Option Weighted Average Exercise Price/Share Weighted Average Remaining Term Aggregate Intrinsic Value(1) (in years) (dollars in thousands) Balance outstanding at December 31, 2015 4,167 $ Options granted Options exercised Options expired — — — Balance outstanding at December 31, 2016 4,167 $ Options granted Options exercised Options expired Balance outstanding at December 31, 2017 Options exercisable at December 31, 2016 Options exercisable at December 31, 2017 — — (4,167) — $ 4,167 $ — $ 19.56 — — — 19.56 — — 19.56 — 19.56 — 1.6 $ — — — 0.10 $ — — — 0 0.10 0 $ $ $ 87 — — — — — — — — — — (1) Based on the Company's closing stock price of $13.65 on December 31, 2017 and $15.50 on December 31, 2016. As of December 31, 2017, the Company's stock options were fully expensed. The following table summarizes the Company's SAR's for the years ended December 31, 2017: Class A Common Shares Subject to Option Weighted Average Exercise Price/Share Weighted Average Remaining Term Aggregate Intrinsic Value(1) (in years) (dollars in thousands) Balance outstanding at December 31, 2015 100,000 $ SAR's granted SAR's acquired SAR's expired — — — Balance outstanding at December 31, 2016 100,000 $ SAR's granted SAR's vested SAR's expired Balance outstanding at December 31, 2017 SAR's exercisable at December 31, 2016 SAR's exercisable at December 31, 2017 — (25,000) — 75,000 $ — $ — $ 11.60 — — — 11.60 — 11.60 — 11.60 — — 2.21 $ — — — 1.21 $ — — — 0.21 $ — $ 0 $ 558 — — — 435 — — — 173 — — (1) Based on the Company's closing stock price of $13.65 on December 31, 2017 and $15.50 on December 31, 2016. As of December 31, 2017 the unrecognized compensation expense related to the Company's grant of SAR's was an immaterial amount and at December 31, 2016 it was $0.1 million. Restricted Shares and Restricted Stock Units Granted to Employees Restricted shares and restricted stock units are referred to collectively as restricted stock. The following table summarizes the Company's restricted share and restricted stock unit activity for the years ended December 31, 2017 and 2016: F- 57 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Balance outstanding at December 31, 2015 Granted Vested Canceled Forfeited Balance outstanding at December 31, 2016 Granted Vested Canceled Forfeited Balance outstanding at December 31, 2017 Nonvested Restricted Class A Common Shares and Class A Common Restricted Stock Units Weighted-Average Grant Date Fair Value 5,370,091 $ 2,157,403 (1,487,092) — (322,470) 5,717,932 $ 2,255,441 (2,036,366) — (357,714) 5,579,293 $ 16.68 14.02 14.95 — 14.89 16.23 14.98 14.64 — 15.77 16.33 Included in the restricted share and restricted stock unit activity are performance linked restricted stock units of 481,438 which were awarded to employees of the Company in December 2013 and January 2014. An additional 700,000 performance linked restricted stock units were awarded in March 2016. Of the awards granted, 109,375 have been forfeited through December 31, 2017. The remaining awards, included in the outstanding balance as of December 31, 2017, will vest between March 2019 and December 2020 and will be earned only to the extent that the Company attains specified market conditions relating to its volume-weighted average share price and total shareholder return in relation to certain benchmark indices and performance goals relating to aggregate net income and average return on shareholder equity. The actual number of RSUs ultimately earned could vary from zero, if performance goals are not met, to as much as 150% of the targeted award. Each RSU is equal to the one share of the Company’s Class A common stock. Compensation expense is recognized to the extent that it is probable that the Company will attain the performance goals. The fair value of restricted stock (excluding performance linked units which are valued using the Monte Carlo valuation model) is determined based on the number of shares granted and the quoted price of the Company's common stock on the date of grant. As of December 31, 2017, there was $56.4 million of unrecognized compensation expense related to the Company's grant of nonvested restricted shares and restricted stock units to employees. Unrecognized compensation expense related to nonvested restricted shares and restricted stock units granted to employees is expected to be recognized over a weighted- average period of 2.27 years. Restricted Shares and Restricted Stock Units Granted to Non-employee Board Members There were 56,519 restricted stock units awarded during the year ended December 31, 2017. As of December 31, 2017 there were 191,962 restricted stock units outstanding. There were 56,100 restricted stock units awarded during the year ended December 31, 2016. As of December 31, 2016 there were 162,176 restricted stock units outstanding. 20. Defined Contribution Plans The Company sponsors a Retirement and Savings Plan which is a defined contribution plan pursuant to Section 401(k) of the Internal Revenue Code (the "401(k) Plans"). All full-time employees of the Company can contribute on a tax deferred basis to the 401(k) Plans up to federal contribution limits or up to 100% of their annual compensation, subject to certain limitations. The Company provides matching contributions for certain employees that are equal to a specified percentage of the eligible participant's contribution as defined by the 401(k) Plans. For the years ended December 31, 2017, 2016 and 2015, the Company's contributions to the Plans were $0.7 million, $0.5 million and $0.5 million, respectively. 21. Income Taxes The taxable results of the Company’s U.S. operations are included in the consolidated income tax returns of Cowen Inc. as well as stand alone state and local tax returns. The Company has subsidiaries that are resident in foreign countries where tax filings have to be submitted on a stand alone basis. These subsidiaries are subject to tax in their respective countries and the Company is responsible for and, thus, reports all taxes incurred by these subsidiaries. The countries where the Company owns subsidiaries with tax filing obligations are the United Kingdom, Luxembourg, and Hong Kong. F- 58 Cowen Inc. Notes to Consolidated Financial Statements (Continued) The components of the Company's income tax expense for the years ended December 31, 2017, 2016 and 2015 are as follows: Current tax expense/(benefit) Federal State and local Foreign Total Deferred tax expense/(benefit) Federal State and local Foreign Total Total Tax expense/(benefit) Year ended December 31, 2017 2016 2015 (dollars in thousands) $ $ $ $ 421 $ $ $ 2,034 428 2,883 44,071 (2,938) 37 41,170 1,268 $ 1,972 262 3,502 $ (22,834) $ (1,900) 2,140 (22,594) 44,053 $ (19,092) $ (635) 313 348 26 (37,979) (7,420) (2,123) (47,522) (47,496) Consolidated U.S. income/(loss) before income taxes was $3.9 million in 2017, $(29.5) million in 2016, and $8.0 million in 2015. The corresponding amounts for non-U.S.-based income/(loss) were $3.1 million in 2017, $(2.0) million in 2016, and $3.5 million in 2015. The reconciliations of the Company's federal statutory rate to the effective income tax rate for the years ended December 31, 2017, 2016, and 2015 are as follows: Pre-tax loss at U.S. statutory rate Dividend received deduction Bargain purchase gain Basis adjustment on investments Nondeductible expenses Deferred asset recognition Unrecognized gains on foreign subsidiaries Change in valuation allowance Impact of tax law change State and foreign tax Reversal of income attributable to redeemable non-controlling interests Other, net Total Year ended December 31, 2017 2016 2015 35.0% (25.9) (34.8) 65.2 14.2 — — — 669.8 25.3 (119.6) 3.7 632.9% 35.0% 35.0 % — — — — — 38.7 (6.7) — 1.3 1.3 (9.0) 60.6% — — — — (323.8) — — (27.9) (39.6) (46.5) (11.0) (413.8)% As of December 31, 2017, the Company has net income taxes receivable of approximately $0.1 million representing federal tax overpayments, which is included in other assets on the accompanying consolidated statements of financial condition. The Company also has state and foreign income taxes payable of approximately $6.3 million, which is included in other liabilities on the accompanying consolidated statements of financial condition. F- 59 Cowen Inc. Notes to Consolidated Financial Statements (Continued) The components of the Company's deferred tax assets and liabilities as of December 31, 2017 and 2016 are as follows: Deferred tax assets, net of valuation allowance Net operating loss Deferred compensation Goodwill Option liability Fixed assets Tax credits Acquired lease liability Other Total deferred tax assets Valuation allowance Deferred tax assets, net of valuation allowance Deferred tax liabilities Unrealized gains on investments Amortization of bond discount Other Total deferred tax liabilities Deferred tax assets/(liabilities), net As of December 31, 2017 2016 (dollars in thousands) $ 78,650 $ 39,992 1,042 5,776 — 4,419 3,473 2,696 136,048 (2,103) 133,945 (7,523) (6,402) (3,697) (17,622) $ 116,323 $ 126,037 44,966 4,758 — 3,541 2,898 4,111 2,238 188,549 (2,119) 186,430 (20,774) — — (20,774) 165,656 Deferred tax assets, net of valuation allowance, are reported in the accompanying consolidated statements of financial condition. In addition to the deferred tax balances in the table above, the Company records balances related to its operating losses in Luxembourg, which are discussed below. The Company records deferred tax assets and liabilities for the future tax benefit or expense that will result from differences between the carrying value of its assets for income tax purposes and for financial reporting purposes, as well as for operating or capital loss and tax credit carryovers. A valuation allowance is recorded to bring the net deferred tax assets to a level that, in management’s view, is more likely than not to be realized in the foreseeable future. This level will be estimated based on a number of factors, especially the amount of net deferred tax assets of the Company that are actually expected to be realized, for tax purposes, in the foreseeable future. The Company recorded approximately $2.1 million valuation allowance against its deferred tax assets of $136.0 million as of December 31, 2017 and recorded approximately $2.1 million valuation allowance against its deferred tax assets of $188.5 million as of December 31, 2016. Separately, the Company has deferred tax liabilities of $17.6 million as of December 31, 2017, and $20.8 million as of December 31, 2016. For the year 2017, the Company’s total deferred tax expense is $41.2 million predominantly related to the impact of the Tax Cuts and Jobs Act, discussed in detail below, and the reversal of timing differences in the normal course of business. The deferred tax benefit of $22.6 million in 2016 was derived by the release of deferred tax liabilities related to the previous acquisitions by a local subsidiary, and reversal of temporary items during the course of normal operations. The deferred tax benefit of $47.5 million in 2015 mainly represented the deferred tax benefits generated by an acquisition of a local subsidiary. The Company has the following net operating loss carryforwards at December 31, 2017: Jurisdiction: Net operating loss (in millions) Year of expiration Federal New York State New York City Hong Kong $248.4 2036 $93.4 2036 $130.8 2036 $12.8 Indefinite In addition to the net operating loss carryforwards in the table above, the Company also has net operating loss carryforwards in Luxembourg. These loss carryforwards are only accessible to the extent of taxable income generated by the Luxembourg reinsurance companies, including any deferred income that will be generated in the future. Consequently, the Company recorded a deferred tax asset of $146.0 million, net of deferred tax liabilities of $349.1 million in connection with future taxable income, and an offsetting valuation allowance of $146.0 million against its Luxembourg net operating loss carryforwards that are in excess of such taxable income. F- 60 Cowen Inc. Notes to Consolidated Financial Statements (Continued) The Company underwent a change of control under Section 382 of the Internal Revenue Code (“Section 382”) on November 2, 2009. Accordingly, a portion of the Company’s deferred tax assets, in particular a portion of its net operating loss, are subject to an annual limitation. The deduction limitation is approximately $2.4 million annually and applies to approximately $1.8 million of pre-transaction losses. Further, as a result of an acquisition of a subsidiary with net operating loss carryovers in June 2011, a portion of the Company’s deferred tax assets, are subject to an annual limitation under Section 382. The deduction limitation is approximately $6.7 million annually and applies to approximately $50.1 million of net operating losses. The Company is not expected to lose any deferred tax assets as a result of these limitations. The components of unrecognized tax benefits are as follows: Beginning balance at January 1 Increases due to acquisition Increases due to current year positions Ending balance at December 31 As of December 31, 2017 2016 (dollars in thousands) $ $ — $ 2,847 1,100 3,947 $ — — — — The amount of the unrecognized tax benefits of $3.9 million that would impact the effective tax rate of the Company is $1.1 million. The total amount of income tax-related interest and penalties recognized in the consolidated statement of operations for the year ended December 31, 2017 is expense of $0.3 million. The total amount of income tax-related interest and penalties recognized in the consolidated statement of financial condition at December 31, 2017 is $1.5 million. The Company is subject to examination by the United States Internal Revenue Service as well as state, local and foreign tax authorities in jurisdictions where the Company has significant business operations, such as New York, United Kingdom, and Luxembourg. Currently, the Company is under audit by the Internal Revenue Service for the 2014 tax year, and New York State for the 2010 to 2012 tax years. Management is not expecting a material tax liability from these audits. The Company continues to permanently reinvest the capital and accumulated earnings of its United Kingdom and Hong Kong subsidiaries. Effects of the Tax Cuts and Job Act New tax legislation, commonly referred to as the Tax Cuts and Jobs Act, was enacted on December 22, 2017. ASC 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment even though the effective date for most provisions is for tax years beginning after December 31, 2017, or in the case of certain other provisions, January 1, 2018. Given the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. However, the measurement period is deemed to have ended earlier when the registrant has obtained, prepared and analyzed the information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed. The SAB summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Tax Cuts and Jobs Act. The new law includes a reduction in the U.S. corporate income tax rate from 35% to 21%. This change resulted in the Company reporting a deferred income tax expense of $46.6 million in 2017 due to the re-measurement of its deferred tax assets using the new 21% rate applicable upon reversal of these items. This accounting estimate for this matter is complete. The new law includes a one-time mandatory repatriation transition tax on the net accumulated earnings and profits of a U.S. taxpayer’s foreign subsidiaries. The Company has performed an earnings and profits analysis of its foreign subsidiaries, and as a result of accumulated deficits, there is no current or deferred income tax effect in this period. Therefore, the accounting estimate for this matter is complete. F- 61 Cowen Inc. Notes to Consolidated Financial Statements (Continued) The new law includes commissions and performance based compensation in determining the excessive compensation limitation. This calculation could impact the deductibility of certain compensation related deferred tax assets. The Company analyzed the deferred tax assets related to commission and performance based compensation and concluded that no adjustments were required. Therefore, the accounting estimate for this matter is complete. The Company has evaluated other significant provisions of the law and has not identified any material impact these provisions may have on the Company's 2017 year-end financial statements. Management will continue to monitor the application of these provisions on the Company and make necessary policy elections if and when needed. 22. Commitments and Contingencies Lease Obligations The Company has entered into leases for office space and equipment. These leases contain rent escalation clauses. The Company records rent expense on a straight-line basis over the lease term, including any rent holiday periods. Rent expense was $22.6 million, $20.3 million and $18.5 million for the years ended December 31, 2017, 2016, and 2015, respectively and are included in occupancy and equipment expense in the accompanying consolidated statements of operations. As of December 31, 2017, future minimum annual lease and service payments for the Company were as follows: 2018 2019 2020 2021 2022 Thereafter Equipment Leases (a) Service Payments Facility Leases (b) (dollars in thousands) $ $ 3,511 $ 1,599 669 639 420 — 21,631 $ 10,987 1,539 337 — — 25,960 21,453 17,626 17,592 11,942 7,354 6,838 $ 34,494 $ 101,927 (a) Equipment Leases include the Company's commitments relating to operating and capital leases. See Note 23 for further information on the capital lease minimum payments which are included in the table. (b) The Company has entered into various agreements to sublease certain of its premises. The Company recorded sublease income related to these leases of $1.1 million, $2.2 million, and $2.3 million and for the years ended December 31, 2017, 2016, and 2015 respectively. Clawback Obligations For financial reporting purposes, the general partners of a real estate fund have recorded a liability for potential clawback obligations to the limited partners, due to changes in the unrealized value of the fund's remaining investments and where the fund's general partner has previously received carried interest distributions. The clawback liability, however, is not realized until the end of the fund's life. The life of the real estate funds with a potential clawback obligation is currently in a winding-up phase whereby the remaining assets of the fund are being liquidated as promptly as possible so as to maximize value, however a final date for liquidation has not been set. The fund is currently winding-down and as of both December 31, 2017 and 2016, and the clawback obligation was $6.2 million. The Company serves as the general partner/managing member and/or investment manager to various affiliated and sponsored funds. As such, the Company is contingently liable for obligations for those entities. These amounts are not included above as the Company believes that the assets in these funds are sufficient to discharge any liabilities. Unfunded Commitments The following table summarizes unfunded commitments as of December 31, 2017: F- 62 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Entity Unfunded Commitments Commitment term Real estate (a) HealthCare Royalty Partners funds (b) Eclipse Ventures Fund I, L.P. (formerly Formation8 Partners Hardware Fund I, L.P.) Lagunita Biosciences, LLC Eclipse Fund II, L.P. Eclipse Continuity Fund I, L.P. (dollars in millions) $ 19.5 6.2 0.4 2.0 0.9 0.6 (a) 2 years 7 years 3 years 8 years 9 years (a) The Company had unfunded commitments pertaining to capital commitments in six real estate investments held by the Company, all of which pertain to related party investments. Such commitments can be called at any time up to four years, subject to advance notice. (b) The Company is a limited partner of the HealthCare Royalty Partners funds (which are managed by Healthcare Royalty Management) and is a member of HealthCare Royalty Partners General Partners. The Company will make its pro-rata investment in the HealthCare Royalty Partners funds along with the other limited partners. Litigation In the ordinary course of business, the Company and its affiliates and subsidiaries and current and former officers, directors and employees (the "Company and Related Parties") are named as defendants in, or as parties to, various legal actions and proceedings. Certain of these actions and proceedings assert claims or seek relief in connection with alleged violations of securities, banking, anti-fraud, anti-money laundering, employment and other statutory and common laws. Certain of these actual or threatened legal actions and proceedings include claims for substantial or indeterminate compensatory or punitive damages, or for injunctive relief. In the ordinary course of business, the Company and Related Parties are also subject to governmental and regulatory examinations, information gathering requests (both formal and informal), certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. Certain of our affiliates and subsidiaries are investment banks, registered broker-dealers, futures commission merchants, investment advisers or other regulated entities and, in those capacities, are subject to regulation by various U.S., state and foreign securities, commodity futures and other regulators. In connection with formal and informal inquiries by these regulators, we receive requests, and orders seeking documents and other information in connection with various aspects of our regulated activities. Due to the global scope of the Company's operations, and its presence in countries around the world, the Company and Related Parties may be subject to litigation, and governmental and regulatory examinations, information gathering requests, investigations and proceedings (both formal and informal), in multiple jurisdictions with legal and regulatory regimes that may differ substantially, and present substantially different risks, from those the Company and Related Parties are subject to in the United States. The Company seeks to resolve all litigation and regulatory matters in the manner management believes is in the best interests of the Company and its shareholders, and contests liability, allegations of wrongdoing and, where applicable, the amount of damages or scope of any penalties or other relief sought as appropriate in each pending matter. In accordance with US GAAP, the Company establishes reserves for contingencies when the Company believes that it is probable that a loss has been incurred and the amount of loss can be reasonably estimated. The Company discloses a contingency if there is at least a reasonable possibility that a loss may have been incurred and there is no reserve for the loss because the conditions above are not met. The Company's disclosure includes an estimate of the reasonably possible loss or range of loss for those matters, for which an estimate can be made. Neither a reserve nor disclosure is required for losses that are deemed remote. The Company appropriately reserves for certain matters where, in the opinion of management, the likelihood of liability is probable and the extent of such liability is reasonably estimable. Such amounts are included within accounts payable, accrued expenses and other liabilities in the accompanying consolidated statements of financial condition. Estimates, by their nature, are based on judgment and currently available information and involve a variety of factors, including, but not limited to, the type and nature of the litigation, claim or proceeding, the progress of the matter, the advice of legal counsel, the Company's defenses and its experience in similar cases or proceedings as well as its assessment of matters, including settlements, involving other defendants in similar or related cases or proceedings. The Company may increase or decrease its legal reserves in the future, on a matter-by-matter basis, to account for developments in such matters. The Company accrues legal fees as incurred. F- 63 Cowen Inc. Notes to Consolidated Financial Statements (Continued) The following information reflects developments with respect to the Company’s legal proceedings that occurred during the year ended December 31, 2017. On December 27, 2013, Landol Fletcher filed a putative class action lawsuit against Convergex Holdings, LLC, Convergex Group, LLC, Cowen Execution, Convergex Global Markets Limited and G-Trade Services LLC (collectively, “Convergex”) in the United States District Court for the Southern District of New York (Landol Fletcher and all others similarly situated v. Convergex Group LLC, Cowen Execution, Convergex Global Markets Ltd., Convergex Holdings LLC, G-Trade Services LLC, & Does 1-10, No. 1:13-CV-09150-LLS). The suit alleges breaches of fiduciary duty and prohibited transactions under ERISA and seeks to maintain a class action on behalf of all ERISA plan participants, beneficiaries and named fiduciaries whose plans were impacted by net trading by Convergex Global Markets Limited from October 2006 to December 2011. On April 11, 2014, Landol Fletcher and Frederick P. Potter Jr., filed an amended complaint raising materially similar allegations. This matter was assumed by the Company as a result of the Company’s previously announced acquisition of Convergex Group, which was completed on June 1, 2017. On February 17, 2016, the District Court granted Convergex’s motion to dismiss the amended complaint. Plaintiffs filed an appeal to the Second Circuit, and the AARP and Department of Labor filed amicus briefs on plaintiffs' behalf. The appeal was argued on December 12, 2016. On February 10, 2017, the Second Circuit Court of Appeals (1) reversed the District Court, finding that plaintiff has constitutional standing in a “representative” capacity to sue for damages to the ERISA defined benefit plan in which he is a participant, and (2) remanded to the District Court to reconsider, in light of the Circuit Court’s decision, the issue whether plaintiff has standing to pursue claims on behalf of ERISA plans in which plaintiff is not a participant. Convergex filed a petition for rehearing, and the Court of Appeals denied the petition. On June 30, 2017, the Company filed a notice of motion and memorandum of law in support of a motion to stay the proceedings in the District Court pending resolution of its petition for writ of certiorari, which the Company intended to file with the U.S. Supreme Court. On August 16, 2017, the District Court granted the Company’s motion to stay the proceedings in the District Court pending resolution of the Company’s petition for writ of certiorari. On September 1, 2017, the Company filed a petition with the United States Supreme Court for a writ of certiorari requesting review of the decision of the Court of Appeals. On January 8, 2018, the U.S. Supreme Court denied the Company’s petition for a writ of certiorari. The previously granted stay of the proceedings in the District Court will now lift and the case will proceed in the District Court. We are indemnified against losses arising from this matter pursuant to, and subject to, the provisions of the purchase agreement relating to the acquisition of Convergex Group. Because the case is in its preliminary stages, the Company cannot predict the outcome at this time, but it does not currently expect this case to have a material effect on its financial position or its results of operations. 23. Convertible Debt and Notes Payable As of December 31, 2017 and 2016, the Company's outstanding debt was as follows: Convertible debt Note payable Term loan Other notes payable Capital lease obligations Convertible Debt 2022 Convertible Notes As of December 31, 2017 2016 (dollars in thousands) 141,502 $ 132,970 28,121 8,247 4,120 314,960 $ 130,029 60,953 — 14,237 1,840 207,059 $ $ The Company, on December 14, 2017, issued $135.0 million aggregate principal amount of 3.00% convertible senior notes due 2022 (the “2022 Convertible Notes”). The 2022 Convertible Notes are due on December 15, 2022 unless earlier repurchased by the Company or converted by the holder in accordance with their terms prior to such date. The interest on the 2022 Convertible Notes is payable semi-annually on December 15 and June 15 of each year. The notes are senior unsecured obligations of Cowen. The 2022 Convertible Notes may be converted into cash or shares of Class A common stock at the Company's election based on the current conversion price. The 2022 Convertible Notes were issued with an initial conversion price of $17.375 per share of Cowen’s Class A common stock. The Company used the net proceeds, together with cash on hand, from the offering for general corporate purposes, including the repurchase or repayment of $115.1 million of the Company’s outstanding 3.0% cash convertible senior notes due F- 64 Cowen Inc. Notes to Consolidated Financial Statements (Continued) 2019 (the "2019 Convertible Notes") and the repurchase of approximately $19.5 million of the Company’s shares of its Class A common stock, which were consummated substantially concurrently with the closing of the offering. The Company recorded interest expense of $0.2 million for the year ended December 31, 2017. The Company recognized the embedded cash conversion option at issuance date fair value, which also represents the initial unamortized discount on the 2022 Convertible Notes of $23.4 million and is shown net in convertible debt in the accompanying consolidated statements of financial condition. Amortization on the discount, included within interest expense in the accompanying consolidated statements of operations is $0.2 million for the year ended December 31, 2017, based on an effective interest rate of 7.13%. The Company capitalized the debt issuance costs in the amount of $2.1 million, which is a direct deduction from the carrying value of the debt and will be amortized over the life of the 2022 Convertible Notes. 2019 Convertible Notes On March 10, 2014, the Company issued $149.5 million of 3.0% cash convertible senior notes (the "2019 Convertible Notes"). The 2019 Convertible Notes are due on March 15, 2019 unless earlier repurchased by the Company or converted by the holder into cash in accordance with their terms prior to such date. The interest on the 2019 Convertible Notes is payable semi-annually on March 15 and September 15 of each year. The 2019 Convertible Notes are senior unsecured obligations of the Company. The 2019 Convertible Notes may be converted into cash, upon the occurrence of certain events, whereby a holder will receive, per $1,000 principal amount of notes being converted, an amount equal to the sum of principal amount outstanding and the conversion amount based on the current conversion price (the "Conversion Option"). The 2019 Convertible Notes were issued with an initial conversion price of $21.32 per share (per share amounts have been retroactively updated to reflect the one-for-four reverse stock split effective as of December 5, 2016). During December 2017, the Company repurchased and extinguished $115.1 million of the outstanding balance of the 2019 Convertible Notes. The Company recorded interest expense of $4.3 million, $4.5 million and $4.5 million for the years ended December 31, 2017, 2016 and 2015, respectively. The initial unamortized discount on the 2019 Convertible Notes was $35.7 million and is shown net in convertible debt in the accompanying consolidated statements of financial condition. Amortization on the discount, included within interest expense in the accompanying consolidated statements of operations is $7.3 million, $6.9 million and $6.3 million for the years ended December 31, 2017, 2016, and 2015, respectively, based on an effective interest rate of 8.89%. The Company capitalized the debt issuance costs in the amount of $0.9 million, which is a direct deduction from the carrying value of the debt and will be amortized over the life of the 2019 Convertible Notes. In conjunction with the partial extinguishment of the 2019 Convertible Notes, the Company accelerated the pro-rata unamortized discount and capitalized debt issuance costs. The Company recognized $11.6 million of loss on debt extinguishment. Of the net proceeds from the sale of the 2019 Convertible Notes, approximately $20.5 million was applied to pay the net cost of a cash convertible note economic hedge and warrant transaction, which increased the effective conversion price to $28.72 (see Note 6) (per share amounts have been retroactively updated to reflect the one-for-four reverse stock split effective as of December 5, 2016), and approximately $0.3 million was applied to repurchase shares of Cowen Class A common stock. The remainder of the net proceeds is being used for general corporate purposes. Note Payable 2027 Notes On December 8, 2017, the Company completed its public offering of $120 million of 7.35% senior notes due 2027 (the “2027 Notes”) and subsequently the underwriters exercised in full their option to purchase an additional $18.0 million principal amount of the 2027 Notes. Interest on the 2027 Notes is payable quarterly in arrears on March 15, June 15, September 15 and December 15. The Company recorded interest expense of $0.6 million for the year ended December 31, 2017. The Company capitalized debt issuance costs of approximately $5.1 million which is a direct deduction from the carrying value of the debt and will be amortized over the life of the 2027 Notes. The net proceeds of the offering, after deducting the underwriting discount and estimated offering expenses payable by the Company were used to redeem all of its 8.25% senior notes due 2021 (the "2021 Notes") and for general corporate purposes. 2021 Notes The Company redeemed the Company's outstanding $63.25 million principal amount of the 2021 Notes, following which the 2021 Notes were delisted from NASDAQ. The redemption was made pursuant to the terms of the 2021 Notes and the indenture governing the 2021 Notes. The redemption price for the 2021 Notes was equal to 106.188% of the principal amount of the 2021 Notes plus accrued and unpaid interest. The Company recorded interest expense of $5.3 million, $5.2 million and $5.2 million for the years ended December 31, 2017, 2016, and 2015 respectively. In conjunction with the extinguishment of the 2021 Notes, the Company expensed the unamortized capitalized debt issuance costs. The Company recognized $5.6 million of loss on debt extinguishment. F- 65 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Term Loan On June 30, 2017, the Company borrowed $28.2 million to fund general corporate purposes. This term loan has an effective interest rate of LIBOR plus 3.75% with a lump sum payment of the entire principal amount due on June 29, 2018. The loan is secured by the value of the Company's limited partnership interests in two affiliated funds. The Company has provided a guarantee for this loan. The Company recorded interest expense of $0.7 million for the year ended December 31, 2017. Other Notes Payable During January 2017, the Company borrowed $2.1 million to fund insurance premium payments. This note has an effective interest rate of 1.50% and is due on December 31, 2017, with monthly payment requirements of $0.2 million. As of December 31, 2017, the note was fully repaid. Interest expense for the year ended December 31, 2017 was insignificant. The Company has entered into various financing for its aircraft. The aircraft financing, net of debt costs, is recorded in notes payable and short-term borrowings in the accompanying consolidated statements of financial condition. The debt maturities ranged from January 2019 to April 2021 and interest rates ranged from 4.21% to 7.25%. As of December 31, 2017 and 2016, the remaining balance on the aircraft financing agreements was $8.2 million and $14.4 million, respectively. Interest expense was $0.7 million and $0.8 million for the years ended December 31, 2017 and 2016, respectively. Capital Lease Obligations The Company has entered into a capital lease for computer equipment, which amounted to $6.9 million and is recorded in fixed assets as capital lease obligations. In addition, as part of the Convergex Group acquisition, the Company holds two capital leases for computer equipment which amounted to $0.8 million and are recorded as capital lease obligations. These capital lease obligations are included in short-term borrowings and other debt in the accompanying consolidated statements of financial condition, and have lease terms that range from 48 to 60 months and interest rates that range from 3.70% to 5.69%. As of December 31, 2017, the remaining balance on these capital leases was $4.1 million. Interest expense was $0.1 million, $0.1 million, $0.2 million for the years ended December 31, 2017, 2016, and 2015, respectively. Annual scheduled maturities of debt and minimum payments (of principle and interest) for all debt outstanding as of December 31, 2017, are as follows: 2018 2019 2020 2021 2022 Thereafter Subtotal Less (a) Total Convertible Debt Note Payable Term loan Other Note Payable Capital Lease Obligation (dollars in thousands) $ 4,840 $ 10,340 $ — $ 2,032 $ 2,059 38,925 4,050 4,050 139,050 — 190,915 10,143 10,143 10,143 10,143 188,715 239,627 (49,413) (106,657) 28,901 — — — — 28,901 (780) 3,410 1,363 2,512 — — 9,317 (1,070) 717 639 639 420 — 4,474 (354) $ 141,502 $ 132,970 $ 28,121 $ 8,247 $ 4,120 (a) Amount necessary to reduce net minimum payments to present value calculated at the Company's implicit rate at inception. This amount also includes capitalized debt costs and the unamortized discount on the convertible debt. Letters of Credit As of December 31, 2017, the Company has eight irrevocable letters of credit, related to leased office space, for which there is cash collateral pledged and the Company pays a fee on the stated amount of the letter of credit. The Company also has pledged as collateral, $11.8 million, as of December 31, 2017, and $5.5 million, as of December 31, 2016, due between March 2018 and March 2021, for reinsurance agreements. F- 66 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Location Amount Maturity (dollars in thousands) Connecticut Boston New York New York New York New York New York San Francisco $ $ $ $ $ $ $ $ 65 382 355 70 596 2,250 1,600 710 January 2018 March 2018 April 2018 May 2018 October 2018 October 2018 November 2018 January 2019 To the extent any letter of credit is drawn upon, interest will be assessed at the prime commercial lending rate. As of December 31, 2017 and 2016, there were no amounts due related to these letters of credit. 24. Stockholder's Equity On December 5, 2016, the Company effected a one-for-four reverse stock split of the Company's class A and class B common stock. All share and per share information has been retroactively adjusted to reflect the reverse stock split. In addition, there was a reclassification of $0.9 million from the par value of our class A common stock to additional paid-in capital to reflect the impact of the reverse stock split. The Company is authorized to issue 125,000,000 shares of common stock, which shall consist of 62,500,000 shares of Class A common stock, par value $0.01 per share, and 62,500,000 shares of Class B common stock, par value $0.01 per share. The Company is also authorized to issue 10,000,000 shares of preferred stock, par value $0.01 per share. Subject to the rights of holders of any outstanding preferred stock, the number of authorized shares of common stock or preferred stock may be increased or decreased by the affirmative vote of the holders of a majority of the shares entitled to vote on such matters, but in no instance can the number of authorized shares be reduced below the number of shares then outstanding. Common stock The certificate of incorporation of the Company provides for two classes of common stock, and for the conversion of each class into the other, to provide a mechanism by which holders of Class A common stock of the Company who may be limited in the amount of voting common stock of the Company they can hold pursuant to federal, state or foreign bank laws, to convert their shares into non-voting Class B common stock to prevent being in violation of such laws. Each holder of Class A common stock is entitled to one vote per share in connection with the election of directors and on all other matters submitted to a stockholder vote, provided, however, that, except as otherwise required by law, holders of Class A common stock are not entitled to vote on any amendment to the Company's amended and restated certificate of incorporation that relates solely to the terms of one or more outstanding series of the Company's preferred stock, if holders of the preferred stock series are entitled to vote on the amendment under the Company's certificate of incorporation or Delaware law. No holder of Class A common stock may accumulate votes in voting for directors of the Company. Each holder of Class B common stock is not entitled to vote except as otherwise provided by law, provided however that the Company must obtain the consent of a majority of the holders of Class B common stock to effect any amendment, alteration or repeal of any provision of the Company's amended and restated certificate of incorporation or amended and restated by-laws that would adversely affect the voting powers, preferences or rights of holders of Class B common stock. Except as otherwise provided by law, Class B common stock shares will not be counted as shares held by stockholders for purposes of determining whether a vote or consent has been approved or given by the requisite percentage of shares. Each share of Class A common stock is convertible at the option of the holder and at no cost into one share of Class B common stock, and each share of Class B common stock is convertible at the option of the holder and at no cost into one share of Class A common stock. The conversion ratios will be adjusted proportionally to reflect any stock split, stock dividend, merger, reorganization, recapitalization or other change in the Class A common stock and Class B common stock. Upon conversion, converted shares resume the status of authorized and unissued shares. Subject to the preferences of the holders of any of the Company's preferred stock that may be outstanding from time to time, each share of Class A common stock and Class B common stock will have an equal and ratable right to receive dividends and other distributions in cash, property or shares of stock as may be declared by the Company's board of directors out of assets or funds legally available for the payment of dividends and other distributions. F- 67 Cowen Inc. Notes to Consolidated Financial Statements (Continued) In the event of the liquidation, dissolution or winding up of the Company, subject to the preferences of the holders of any preferred stock of the Company that may be outstanding from time to time, holders of Class A common stock and Class B common stock will be entitled to share equally and ratably in the assets available for distribution to the Company's stockholders. There are no redemption or sinking fund provisions applicable to the Class A or the Class B common stock. Preferred stock The Company's amended and restated certificate of incorporation permits the Company to issue up to 10,000,000 shares of preferred stock in one or more series with such designations, titles, voting powers, preferences and rights and such qualifications, limitations and restrictions as may be fixed by the board of directors of the Company without any further action by the Company's stockholders. The Company's board of directors may increase or decrease the number of shares of any series of preferred stock following the issuance of that series of preferred stock, but in no instance can the number of shares of a series of preferred stock be reduced below the number of shares of the series then outstanding. Preferred Stock and Purchase of Capped Call Option On May 19, 2015, the Company completed its offering of 120,750 shares of the Company's 5.625% Series A cumulative perpetual convertible preferred stock ("Series A Convertible Preferred Stock") that provided $117.2 million of proceeds, net of underwriting fees and issuance costs of $3.6 million. Each share of the Series A Convertible Preferred Stock is entitled to dividends at a rate of 5.625% per annum which will be payable, when and if declared by the board of directors of the Company, quarterly, in arrears, on February 15, May 15, August 15 and November 15 of each year. The Company may, at its option, pay dividends in cash, common stock or a combination thereof. The Company declared and accrued a cash dividend of $6.8 million, $6.8 million and $4.1 million for the years ended December 31, 2017, 2016, and 2015 respectively. Each share of Series A Convertible Preferred Stock is non-voting and has a liquidity preference over the Company's Class A common stock and ranks senior to all classes or series of the Company's Class A common stock, but junior to all of the Company's existing and future indebtedness with respect to divided rights and rights upon the Company's involuntary liquidation, dissolution or winding down. Each share of Series A Convertible Preferred Stock is convertible, at the option of the holder, into a number of shares of our Class A common stock equal to the liquidation preference of $1,000 divided by the conversion rate. The initial conversion rate (subsequent to the December 5, 2016 reverse stock split) is 38.0619 shares (which equates to $26.27 per share) of the Company's Class A common stock for each share of the Series A Convertible Preferred Stock. At any time on or after May 20, 2020, the Company may elect to convert all outstanding shares of the Series A Convertible Preferred Stock into shares of the Company’s Class A common stock, cash or a combination thereof, at the Company’s election, in each case, based on the then- applicable conversion rate, if the last reported sale price of the Company’s Class A common stock equals or exceeds 150% of the then-current conversion price on at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days (including on the last trading day of such period) immediately prior to such election. At the time of conversion, the conversion rate may be adjusted based on certain events including but not limited to the issuance of cash dividends or Class A common stock as a dividends to the Company's Class A common shareholders or a share split or combination. In connection with the issuance and sale of the Series A Convertible Preferred Stock, the Company entered into a capped call option transaction (the “Capped Call Option Transaction”) with Nomura Global Financial Products Inc. (the “option counterparty”) for $15.9 million. The Capped Call Option Transaction is expected generally to reduce the potential dilution to the Company’s Class A common stock (if the Company elects to convert to common shares) and/or offset any cash payments that the Company is required to make upon conversion of any Series A Convertible Preferred Stock. The Capped Call Option Transaction has an initial effective strike price of $26.27 per share, which matches the initial conversion price of the Series A Convertible Preferred Stock, and a cap price of $33.54 per share. However, to the extent that the market price of Class A common stock, as measured under the terms of the Capped Call Option Transaction, exceeds the cap price thereof, there would nevertheless be dilution and/or such cash payments would not be offset. As the Capped Call Option Transaction is a free standing derivative that is indexed to the Company's own stock price and the Company controls if it is settled in cash or stock it qualifies for equity classification as a reduction to additional paid in capital. Treasury Stock Treasury stock of $186.8 million as of December 31, 2017, compared to $153.8 million as of December 31, 2016, resulted from $11.9 million acquired through repurchases of shares to cover employee minimum tax withholding obligations related to stock compensation vesting events under the Company's Equity Plan or other similar transactions, $1.6 million received from an escrow account established to satisfy the Company’s indemnification claims arising under the terms of the purchase agreement entered into in connection with the Company’s acquisition of Convergex Group, LLC and $19.5 million purchased in connection with a share repurchase program. F- 68 Cowen Inc. Notes to Consolidated Financial Statements (Continued) The following represents the activity relating to the treasury stock held by the Company during the year ended December 31, 2017: Treasury stock shares Cost (dollars in thousands) Average cost per share Balance outstanding at December 31, 2016 9,810,802 $ 153,845 $ Shares purchased for minimum tax withholding under the Equity Plan or other similar transactions Shares of stock received in respect of indemnification claims Purchase of treasury stock 822,996 97,612 1,401,866 11,889 1,626 19,486 Balance outstanding at December 31, 2017 12,133,276 $ 186,846 $ 15.68 14.45 16.66 13.90 15.40 25. Accumulated Other Comprehensive Income (Loss) Accumulated other comprehensive income includes the after tax change in unrealized gains and losses on foreign currency translation adjustments. During the periods presented, the Company did not have material reclassifications out of other comprehensive income. Beginning Balance Foreign currency translation Ending Balance 26. Earnings Per Share Year Ended December 31, 2017 2016 2015 (dollars in thousands) $ $ (2) $ (6) (8) $ — $ (2) (2) $ 17 (17) — The Company calculates its basic and diluted earnings per share in accordance with US GAAP. Basic earnings per share is calculated by dividing net income attributable to the Company's common stockholders by the weighted average number of common shares outstanding for the period. As of December 31, 2017, there were 29,632,020 of Class A common shares outstanding. The Company has included 191,962 fully vested, unissued restricted stock units in its calculation of basic earnings per share. As of December 5, 2016, share and per share amounts have been retroactively updated to reflect the one-for-four reverse stock split. Diluted earnings per common share are calculated by adjusting the weighted average outstanding shares to assume conversion of all potentially dilutive items. The Company uses the treasury stock method to reflect the potential dilutive effect of the warrants (see Note 6(a)), unexercised stock options, unvested restricted shares, restricted stock units, and SAR's. In calculating the number of dilutive shares outstanding, the shares of common stock underlying unvested restricted shares and restricted stock units are assumed to have been delivered, and options and warrants are assumed to have been exercised, for the entire period being presented. The assumed proceeds from the assumed vesting, delivery and exercising were calculated as the amount of compensation cost attributed to future services and not yet recognized. The Company can elect to settle the Series A Convertible Preferred Stock in shares, cash, or a combination of both. The Company's intent is to settle in cash and, based on current and projected liquidity needs, the Company has the ability to do so. F- 69 Cowen Inc. Notes to Consolidated Financial Statements (Continued) The computation of earnings per share is as follows: Net income (loss) Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds Net income (loss) attributable to Cowen Inc. Preferred stock dividends Net income (loss) attributable to Cowen Inc. common stockholders Shares for basic and diluted calculations: Weighted average shares used in basic computation Stock options Performance based restricted stock Stock appreciation rights Restricted stock Weighted average shares used in diluted computation Earnings (loss) per share: Basic Diluted 27. Segment Reporting Year Ended December 31, 2017 2016 2015 (dollars in thousands, except share and per share data) $ $ $ $ (37,091) $ (12,395) $ 58,975 23,791 (60,882) 6,792 6,882 (19,277) 6,792 (67,674) $ (26,069) $ 15,246 43,729 4,075 39,654 29,492 26,857 27,522 — — — — — — — — 29,492 26,857 (2.29) $ (2.29) $ (0.97) $ (0.97) $ 3 65 35 1,418 29,043 1.44 1.37 The Company conducts its operations through two segments: the investment management segment and the broker dealer segment. These activities are conducted primarily in the United States and substantially all of its revenues are generated domestically. The performance measure for these segments is Economic Income (Loss), which management uses to evaluate the financial performance of and make operating decisions for the segments including determining appropriate compensation levels. Expenses not directly associated with specific segments are allocated based on the most relevant measures applicable, including headcount, square footage and other factors. In general, Economic Income (Loss) is a pre-tax measure that (i) eliminates the impact of consolidation for consolidated funds and excludes (ii) goodwill and intangible impairment (iii) certain other transaction-related adjustments and/or reorganization expenses (iv) the bargain purchase gain which resulted from the Convergex Group acquisition (v) certain costs associated with debt and (vi) preferred stock dividends. In addition, Economic Income (Loss) revenues include investment income that represents the income the Company has earned in investing its own capital, including realized and unrealized gains and losses, interest and dividends, net of associated investment related expenses. For US GAAP purposes, these items are included in each of their respective line items. Economic Income (Loss) revenues also include management fees, incentive income and investment income earned through the Company's investment as a general partner in certain real estate entities and the Company's investment in the activist business. For US GAAP purposes, all of these items are recorded in other income (loss). In addition, Economic Income (Loss) expenses are reduced by reimbursement from affiliates, which for US GAAP purposes is presented gross as part of revenue. As further stated below, one major difference between Economic Income (Loss) and US GAAP net income (loss) is that Economic Income (Loss) presents the segments' results of operations without the impact resulting from the full consolidation of any of the Consolidated Funds. The consolidation of these funds results include the pro rata share of the income or loss attributable to other owners of such entities which is reflected in net income (loss) attributable to redeemable non-controlling interest in consolidated subsidiaries in the accompanying consolidated statements of operations. This pro rata share has no effect on the overall financial performance for the investment management segment, as ultimately, this income or loss is not income or loss for the investment management segment itself. Included in Economic Income (Loss) is the actual pro rata share of the income or loss attributable to the Company as an investor in such entities, which is relevant in management making operating decisions and evaluating financial performance. The following tables set forth operating results for the Company's investment management and broker-dealer segments and related adjustments necessary to reconcile the Company's Economic Income (Loss) measure to arrive at the Company's consolidated US GAAP net income (loss): F- 70 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Year Ended December 31, 2017 Adjustments Investment Management Broker- Dealer Total Economic Income/(Loss) Funds Consolidation Other Adjustments US GAAP (dollars in thousands) $ — $ 223,614 $ 223,614 $ Revenues Investment banking Brokerage Management fees Incentive income (loss) Investment income (loss) Interest and dividends Reimbursement from affiliates Aircraft lease revenue Reinsurance premiums Other revenue Consolidated Funds revenues Expenses Non interest expense Interest and dividends Consolidated Funds expenses Total expenses Total other income (loss) Income taxes expense / (benefit) (Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries and funds Economic Income (Loss) / Net Income (loss) attributable to Cowen Inc. 38 312,742 52,239 26,028 31,447 — — — — 1,575 — 3,148 — 13,695 — — — — 1,656 — 92,567 14,268 — 532,820 4,620 — 106,835 537,440 — — (6,072) — — — Total revenues 111,327 554,855 312,780 55,387 26,028 45,142 — — — — 3,231 — 666,182 625,387 18,888 — 644,275 — — — $ — (2,593) (1,739) — — (297) — — — 7,321 2,692 (199) — 12,526 12,327 31,073 — — $ 223,614 (19,170) (19,549) (18,906) (i) (a) (a) (45,142) (c)(f) 49,440 3,157 3,751 30,996 5,330 (c) (e) (f) (g) (g) — (10,093) 58,935 (b)(d) 42,061 (c) — 100,996 74,706 (c) (h) (j) 44,053 (b) 293,610 33,245 5,383 — 49,440 2,860 3,751 30,996 8,561 7,321 658,781 684,123 60,949 12,526 757,598 105,779 44,053 (6,072) (21,438) 3,719 (23,791) $ (1,580) $ 17,415 $ 15,835 $ — $ (76,717) $ (60,882) F- 71 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Year Ended December 31, 2016 Adjustments Investment Management Broker- Dealer Total Economic Income/(Loss) Funds Consolidation Other Adjustments US GAAP (dollars in thousands) $ — $ 133,279 $ 133,279 $ Revenues Investment banking Brokerage Management fees Incentive income (loss) Investment income (loss) Interest and dividends Reimbursement from affiliates Aircraft lease revenue Reinsurance premiums Other revenue Consolidated Funds revenues Expenses Non interest expense Interest and dividends Consolidated Funds expenses Total expenses Total other income (loss) Income taxes expense / (benefit) (Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries and funds Economic Income (Loss) / Net Income (loss) attributable to Cowen Inc. — 207,040 64,086 26,274 3,015 — — — — 29,202 — 3,162 — 1,008 — — — — 565 — 102,163 12,827 — 369,188 4,363 — 114,990 373,551 — — (7,821) — — — Total revenues 122,577 345,054 207,040 67,248 26,274 4,023 — — — — 29,767 — 467,631 471,351 17,190 — 488,541 — — — $ — (1,665) (714) — — (303) — — — 5,949 3,267 (429) — 9,064 8,635 8,532 — — $ 133,279 (7,860) (24,971) (17,226) (i) (a) (a) (4,023) (c)(f) 14,732 10,807 4,161 32,459 (7,412) (c) (e) (f) (g) (g) — 667 37,824 (b)(d) 12,118 (c) — 49,942 35,534 (19,092) (c) (b) 199,180 40,612 8,334 — 14,732 10,504 4,161 32,459 22,355 5,949 471,565 508,746 29,308 9,064 547,118 44,066 (19,092) (7,821) (3,164) 4,103 (6,882) $ (234) $ (28,497) $ (28,731) $ — $ 9,454 $ (19,277) F- 72 Total revenues 131,181 398,485 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Year Ended December 31, 2015 Adjustments Alternative Investment Broker- Dealer Total Economic Income/(Loss) Funds Consolidation Other Adjustments US GAAP (dollars in thousands) $ — $ 222,781 $ 222,781 $ — 160,436 68,989 (1,544) 49,244 — — 14,492 — 1,026 — 13,352 — — 890 — 107,291 11,839 — 362,463 4,745 — 119,130 367,208 — — (8,796) — — — 160,436 70,015 (1,544) 62,596 — — 15,382 — 529,666 469,754 16,584 — 486,338 — — — $ — (1,307) (736) — — (190) — 1,613 (620) — — 2,310 2,310 8,781 — — $ 222,781 (2,714) (26,802) 3,746 (62,596) 13,796 21,747 (11,656) (a) (a) (c) (c) (e) (c) — (64,479) 157,722 41,906 1,466 — 13,796 21,557 3,726 1,613 464,567 6,090 (b)(c)(d) 475,844 9,636 (c) — 15,726 42,505 (47,496) (c) (b) 26,220 2,310 504,374 51,286 (47,496) (8,796) (5,851) (599) (15,246) Revenues Investment banking Brokerage Management fees Incentive income (loss) Investment income (loss) Interest and dividends Reimbursement from affiliates Other revenue Consolidated Funds revenues Expenses Non interest expense Interest and dividends Consolidated Funds expenses Total expenses Total other income (loss) Income taxes expense / (benefit) (Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries and funds Economic Income (Loss) / Net Income (loss) attributable to Cowen Inc. $ 3,255 $ 31,277 $ 34,532 $ — $ 9,197 $ 43,729 The following is a summary of the adjustments made to US GAAP net income (loss) for the segment to arrive at Economic Income (Loss): Funds Consolidation: The impacts of consolidation and the related elimination entries of the Consolidated Funds are not included in Economic Income (Loss). Adjustments to reconcile to US GAAP net income (loss) included elimination of incentive income and management fees earned from the Consolidated Funds and addition of fund expenses excluding management fees paid, fund revenues and investment income (loss). Other Adjustments: (a) Economic Income (Loss) recognizes revenues (i) net of distribution fees paid to agents and (ii) our proportionate share of management and incentive fees of certain real estate operating entities, the healthcare royalty business and the activist business. Economic Income (Loss) excludes income taxes and acquisition related adjustments as management does not consider (b) these items when evaluating the performance of the segment. (c) (d) Economic Income (Loss) recognizes Company income from proprietary trading (including interest and dividends). Economic Income (Loss) recognizes the Company's proportionate share of expenses, for certain real estate operating entities and the activist business, for which the investments are recorded under the equity method of accounting for investments. Reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP. Aircraft lease revenue is shown net of expenses in investment income for Economic Income (Loss). Economic Income (Loss) recognizes underwriting income from the Company's insurance related activities, net of expenses, within other revenue. Economic Income (Loss) excludes the bargain purchase gain which resulted from the Convergex Group acquisition. Economic Income (Loss) brokerage revenues included net securities borrowed and securities loaned activities. Economic Income (Loss) excludes gain / (loss) on debt extinguishment. (e) (f) (g) (h) (i) (j) F- 73 Cowen Inc. Notes to Consolidated Financial Statements (Continued) For the year ended December 31, 2017 and 2016, there was no one fund or other customer which represented more than 10% of the Company's total revenues. 28. Regulatory Requirements As registered broker-dealers, Cowen and Company, Cowen Execution, ATM Execution, Cowen Prime and Westminster are subject to the SEC's Uniform Net Capital Rule 15c3-1 (the “Rule”), which requires the maintenance of minimum net capital. Each registered broker-dealer has elected to compute net capital under the alternative method permitted by the Rule. Under the alternative method Cowen and Company's minimum net capital requirement, as defined in (a)(4) of the Rule, is $1.0 million. Cowen Execution, ATM Execution, Cowen Prime and Westminster are required to maintain minimum net capital, as defined in (a)(1)(ii) of the Rule, equal to the greater of $250,000 or 2% of aggregate debits arising from customer transactions. Advances to affiliates, repayment of borrowings, distributions, dividend payments and other equity withdrawals are subject to certain notification and other requirements of the Rule and other regulatory bodies. Cowen Execution is also subject to Commodity Futures Trading Commission Regulation 1.17 (“Regulation 1.17”) and Options Clearing Corporation (“OCC”) Rule 302. Regulation 1.17 requires Cowen Execution to maintain net capital equal to or in excess of $45,000 or the amount of net capital required by Rule 15c3-1, whichever is greater. OCC Rule 302 requires maintenance of net capital equal to the greater of $2,000,000 or 2% of aggregate debit items. At December 31, 2017, the Company had $108.7 million of net capital in excess of this minimum requirement. Ramius UK, Cowen International Ltd and Cowen Execution Ltd are subject to the capital requirements of the FCA of the U.K. Financial Resources, as defined, must exceed the requirement of the FCA. As of December 31, 2017, these regulated broker-dealers had regulatory net capital or financial resources, regulatory net capital requirements or minimum FCA requirement and excess as follows: Subsidiary Net Capital Minimum Net Capital Requirement (dollars in millions) Excess Net Capital Cowen and Company Cowen Execution ATM Execution Cowen Prime Westminster Ramius UK Cowen International Ltd Cowen Execution Ltd $ $ $ $ $ $ $ $ 40.2 111.4 1.0 12.3 7.6 0.2 11.5 3.8 $ $ $ $ $ $ $ $ 1.0 2.7 0.3 0.3 0.3 0.1 7.1 2.6 $ $ $ $ $ $ $ $ 39.2 108.7 0.7 12.0 7.3 0.1 4.4 1.2 Cowen and Company, Cowen Prime and ATM Execution claim exemption from SEC Rule 15c3-3 subparagraph (k)(2)(ii) of the Securities Exchange Act of 1934 since they clear their securities transactions on a fully disclosed basis and promptly transmits all customer funds and securities to the clearing broker-dealer that carries the accounts. Cowen and Company, Cowen Prime and Westminster claim exemption from SEC Rule 15c3-3 subparagraph (k)(2)(i) of the Securities Exchange Act of 1934 since they conduct primarily all financial transactions with their customers through a bank account designated as Special Account for the Exclusive Benefit of Customers. In accordance with the requirements of SEC Rule 15c3-3, Cowen Execution may be required to deposit in a Special Reserve Account, cash or acceptable qualified securities for the exclusive benefit of customers. As of December 31, 2017, Cowen Execution had segregated approximately $20.3 million of cash, while its required deposit was $10.5 million. As a clearing broker-dealer, Cowen Execution is required to compute a reserve requirement for proprietary accounts of broker-dealers (“PAB”), as defined in SEC Rule 15c3-3. PAB calculation is completed to allow each correspondent firm that uses Cowen Execution as its clearing broker-dealer to classify its assets held by Cowen Execution as allowable assets in the correspondent's net capital calculation. At December 31, 2017, Cowen Execution had $29.7 million of cash on deposit in special reserve bank accounts for PAB, which was in excess of its required deposit of $17.1 million. PAB held at external clearing brokers are considered allowable assets for net capital purposes, pursuant to agreements between Cowen and Company, ATM Execution, Cowen Prime, and their clearing brokers, which require, among other things, that those clearing brokers perform computations for PAB and segregate certain balances on behalf of Cowen and Company, ATM Execution and Cowen Prime, if applicable. F- 74 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Cowen’s Luxembourg reinsurance companies, Vianden RCG Re SCA (“Vianden”) and Hollenfels, are required to maintain a solvency capital ratio as calculated by relevant European Commission directives and local regulatory rules in Luxembourg. Each company’s solvency capital ratio as of December 31, 2017 was in excess of this minimum requirement. Based on minimum capital and surplus requirements pursuant to the laws of the state of New York that apply to captive insurance companies, RCG Insurance Company, Cowen’s captive insurance company incorporated and licensed in the state of New York, was required to maintain capital and surplus of approximately $0.3 million as of December 31, 2017. RCG Insurance Company’s capital and surplus as of December 31, 2017 totaled approximately $28.7 million. 29. Related Party Transactions The Company and its affiliated entities are the managing member, general partner and/or investment manager to the Company's investment management products and certain managed accounts. Management fees and incentive income are primarily earned from affiliated entities. As of December 31, 2017 and 2016, $13.5 million and $12.6 million, respectively, included in fees receivable are earned from related parties. The Company may, at its discretion, reimburse certain fees charged to the funds that it manages to avoid duplication of fees when such funds have an underlying investment in another affiliated investment fund. For the years ended December 31, 2017 and 2016, the Company reimbursed the funds it manages $0.1 million and $0.2 million, respectively, which were recorded net in management fees and incentive income in the accompanying consolidated statements of operation. For the year ended December 31, 2015, these amounts were immaterial. As of December 31, 2017, related amounts still payable were immaterial. As of December 31, 2016, related amounts still payable were $0.3 million and were reflected in fees payable in the accompanying consolidated statements of financial condition. Fees receivable and fees payable are recorded at carrying value, which approximates fair value. The Company may also make loans to employees or other affiliates, excluding executive officers of the Company. These loans are interest bearing and settle pursuant to the agreed-upon terms with such employees or affiliates and are included in due from related parties in the accompanying consolidated statements of financial condition. As of December 31, 2017 and 2016, loans to employees of $11.1 million and $9.2 million, respectively, were included in due from related parties on the accompanying consolidated statements of financial condition. Of these amounts $4.8 million and $3.3 million, respectively, are related to forgivable loans. These forgivable loans provide for a cash payment up-front to employees, with the amount due back to the Company forgiven over a vesting period. An employee that voluntarily ceases employment, or is terminated with cause, is generally required to pay back to the Company any unvested forgivable loans granted to them. The forgivable loans are recorded as an asset to the Company on the date of grant and payment, and then amortized to compensation expense on a straight-line basis over the vesting period. The vesting period on forgivable loans is generally one to three years. The Company recorded compensation expense of $2.1 million, $1.2 million, and $3.2 million for the years ended December 31, 2017, 2016, and 2015 respectively. This expense is included in employee compensation and benefits in the accompanying consolidated statement of operations. For the year ended December 31, 2017, the interest income was $0.1 million and for the years ended December 2016 and 2015, the interest income was insignificant for these related party loans and advances. This income is included in interest and dividends in the accompanying consolidated statement of operations. Included in due to related parties is approximately $0.6 million and $0.7 million as of December 31, 2017 and 2016, respectively, related to a subordination agreement with an investor in certain real estate funds. This total is based on a hypothetical liquidation of the real estate funds as of the balance sheet date. As of December 31, 2017 and 2016, included in due from related parties is $14.0 million and $18.7 million, respectively, related to the sales of portions of the Company's ownership interest in the activist business of Starboard Value to the Starboard principals. It is being financed through the profits of the relevant Starboard entities over a 5 year period and earns interest at 5% per annum. The interest income for the years ended December 31, 2017 and 2016, was $0.8 million and $0.6 million, respectively. The interest income for the year ended December 31, 2015 was immaterial. The remaining balance included in due from related parties of $9.7 million and $11.8 million as of December 31, 2017 and 2016, respectively, relates to amounts due to the Company from affiliated funds and real estate entities due to expenses paid on their behalf. Employees and certain other related parties invest on a discretionary basis within consolidated entities. These investments generally are subject to preferential management fee and performance fee arrangements. As of December 31, 2017 and 2016, such investments aggregated $28.2 million and $32.9 million, respectively, were included in redeemable non-controlling interests on the accompanying consolidated statements of financial condition. Their share of the net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds aggregated $7.2 million, $5.7 million, and $10.4 million for the years ended December 31, 2017, 2016, and 2015, respectively. F- 75 Cowen Inc. Notes to Consolidated Financial Statements (Continued) 30. Guarantees and Off-Balance Sheet Arrangements Guarantees US GAAP requires the Company to disclose information about its obligations under certain guarantee arrangements. Those standards define guarantees as contracts and indemnification agreements that contingently require a guarantor to make payments to the guaranteed party based on changes in an underlying security (such as an interest or foreign exchange rate, security or commodity price, an index or the occurrence or nonoccurrence of a specified event) related to an asset, liability or equity security of a guaranteed party. Those standards also define guarantees as contracts that contingently require the guarantor to make payments to the guaranteed party based on another entity's failure to perform under an agreement as well as indirect guarantees of the indebtedness of others. In the normal course of its operations, the Company enters into contracts that contain a variety of representations and warranties which provide general indemnifications. The Company's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Company that have not yet occurred. However, based on experience, the Company expects the risk of loss to be remote. The Company indemnifies and guarantees certain service providers, such as clearing and custody agents, trustees and administrators, against specified potential losses in connection with their acting as an agent of, or providing services to, the Company or its affiliates. The Company also indemnifies some clients against potential losses incurred in the event specified third-party service providers, including sub-custodians and third-party brokers, improperly execute transactions. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. However, the Company believes that it is unlikely it will have to make significant payments under these arrangements and has not recorded any contingent liability in the consolidated financial statements for these indemnifications. The Company also provides representations and warranties to counterparties in connection with a variety of commercial transactions and occasionally indemnifies them against potential losses caused by the breach of those representations and warranties. The Company may also provide standard indemnifications to some counterparties to protect them in the event additional taxes are owed or payments are withheld, due either to a change in or adverse application of certain tax laws. These indemnifications generally are standard contractual terms and are entered into in the normal course of business. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. However, the Company believes it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the accompanying consolidated financial statements for these indemnifications. The Company may maintain cash and cash equivalents at financial institutions in excess of federally insured limits. The Company has not experienced any material losses in such accounts and does not believe it is exposed to significant credit risks in relation to such accounts. Off-Balance Sheet Arrangements The Company has no material off-balance sheet arrangements, which have not been disclosed, as of December 31, 2017 and 2016. Through indemnification provisions in the clearing agreement, customer activities may expose the Company to off- balance-sheet credit risk. Pursuant to the clearing agreement, the Company is required to reimburse the Company's clearing broker, without limit, for any losses incurred due to a counterparty's failure to satisfy its contractual obligations. However, these transactions are collateralized by the underlying security, thereby reducing the associated risk to changes in the market value of the security through the settlement date. The Company’s customer securities activities are transacted on a delivery versus payment, cash or margin basis. In delivery versus payment transactions, the Company is exposed to risk of loss in the event of the customers’ or brokers’ inability to meet the terms of their contracts. In margin transactions, the Company extends credit to clients collateralized by cash and securities in their account. In the event the customers or brokers fail to satisfy their obligations, the Company may be required to purchase or sell securities at prevailing market prices in order to fulfill the obligations. The Company’s exposure to credit risk can be directly impacted by volatile securities markets, which may impair the ability of counterparties to satisfy their contractual obligations. The Company seeks to control its credit risk through a variety of reporting and control procedures, including establishing credit limits based upon a review of the customers’ financial condition and credit ratings. The Company seeks to control the risk associated with its customer margin transactions by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company F- 76 Cowen Inc. Notes to Consolidated Financial Statements (Continued) also monitors required margin levels daily and, pursuant to its guidelines, requires customers to deposit additional collateral, or reduce positions, when necessary. In addition, during the normal course of business, the Company has exposure to a number of risks including market risk, currency risk, credit risk, operational risk, liquidity risk and legal risk. As part of the Company's risk management process, these risks are monitored on a regular basis throughout the course of the year. The Company enters into secured and unsecured borrowing agreements to obtain funding necessary to cover daily securities settlements with clearing corporations. Funding is required for unsettled customer delivery versus payment and riskless principal transaction, as well as to meet deposit requirements with clearing organizations. Secured arrangements are collateralized by the unsettled customer securities. The Company maintains uncommitted financing arrangements with large financial institutions, the details of which are summarized below as of December 31, 2017. Lender Contractual Amount Available Amount Maturity Date Description Pledge Lines (dollars in thousands) BMO Harris Bank $ 150,000 $ 150,000 None Secured DTC Pledge Line Total 150,000 150,000 Revolving Credit Facility BMO Harris Bank 30,000 30,000 August 2, 2018 Total Credit Lines $ 180,000 $ 180,000 Unsecured liquidity facility to cover increases in NSCC margin deposit requirements 31. Subsequent Events On February 13, 2018, the Company's Board of Directors approved a $23.6 million increase in the Company's share repurchase program (see Note 24) bringing the total remaining shares available for repurchase to $25.0 million. The Company has evaluated events that have occurred after the balance sheet date but before the financial statements are issued and has determined that there were no other subsequent events requiring adjustment or disclosure in the consolidated financial statements. F- 77 Cowen Inc. Notes to Consolidated Financial Statements (Continued) Supplemental Financial Information The following table presents unaudited quarterly results of operations for 2017 and 2016. These quarterly results reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results. Revenues and net income (loss) can vary significantly from quarter to quarter due to the nature of the Company's business activities. Cowen Inc. Quarterly Financial Information (Unaudited) Total revenues Income (loss) before income taxes Income tax expense (benefit) Net income (loss) from continuing operations Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds Net income (loss) attributable to Cowen Inc. Preferred stock dividends Net income (loss) attributable to Cowen Inc. common stockholders Earnings (loss) per share: Basic Diluted Weighted average number of common shares: Basic Diluted March 31, 2017 June 30, 2017 September 30, 2017 December 31, 2017 Quarter Ended (dollars in thousands, except per share data) $ 114,971 $ 160,530 $ 178,830 $ 14,000 1,911 12,089 9,105 2,984 1,698 1,286 0.05 0.05 27,061 28,401 $ $ $ 27,800 (785) 28,585 21,145 7,440 1,698 5,742 0.20 0.19 28,634 29,474 $ $ $ 12,109 2,281 9,828 5,162 4,666 1,698 2,968 0.09 0.09 31,271 32,246 $ $ $ $ $ $ 204,450 (46,947) 40,646 (87,593) (11,621) (75,972) 1,698 (77,670) (2.51) (2.51) 30,934 30,934 March 31, 2016 June 30, 2016 September 30, 2016 December 31, 2016 Quarter Ended Total revenues Income (loss) before income taxes Income tax expense (benefit) Net income (loss) from continuing operations Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries and funds Net income (loss) attributable to Cowen Inc. Preferred stock dividends Net income (loss) attributable to Cowen Inc. common stockholders Earnings (loss) per share: Basic (a) Diluted (a) Weighted average number of common shares: (dollars in thousands, except per share data) $ 101,039 $ 117,231 $ 131,027 $ (11,315) (3,320) (7,995) (4,297) (3,698) 1,698 (39,153) (11,992) (27,161) (16,705) (10,456) 1,698 24,018 8,759 15,259 18,478 (3,219) 1,698 $ $ $ (5,396) $ (12,154) $ (4,917) $ (0.20) $ (0.20) $ (0.45) $ (0.45) $ (0.18) $ (0.18) $ Basic (a) Diluted (a) 26,591 26,591 26,867 26,867 26,993 26,993 122,268 (5,037) (12,539) 7,502 9,406 (1,904) 1,698 (3,602) (0.13) (0.13) 26,973 26,973 (a) Share and per share amounts have been retroactively updated to reflect the one-for-four reverse stock split effective as of December 5, 2016. F- 78 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. SIGNATURES Date: March 6, 2018 COWEN INC. By: Name: Title: /s/ JEFFREY M. SOLOMON Jeffrey M. Solomon Chief Executive Officer 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. Signature Title Date /s/ PETER A. COHEN Peter A. Cohen /s/ JEFFREY M. SOLOMON Jeffrey M. Solomon /s/ STEPHEN A. LASOTA Stephen A. Lasota /s/ KATHERINE E. DIETZE Katherine E. Dietze /s/ STEVEN KOTLER Steven Kotler /s/ JEROME S. MARKOWITZ Chairman of the Board of Directors Chief Executive Officer (Principal Executive Officer) Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Director Director March 6, 2018 March 6, 2018 March 6, 2018 March 6, 2018 March 6, 2018 Jerome S. Markowitz Director March 6, 2018 /s/ JACK H. NUSBAUM Jack H. Nusbaum /s/ DOUGLAS A. REDIKER Director March 6, 2018 Douglas A. Rediker Director March 6, 2018 /s/ JOSEPH R. WRIGHT Joseph R. Wright Director March 6, 2018 [This Page Intentionally Left Blank] Exhibit No. Description 2.1 Transaction Agreement and Agreement and Plan of Merger, dated as of June 3, 2009, by and among Cowen Inc., Lexington Park Parent Corp., Lexington Merger Corp., Park Exchange LLC and Cowen Investment Management LLC (included as Appendix A to the proxy statement/prospectus forming a part of the Registration Statement on Form S-4 filed on July 10, 2009). 2.2 Agreement and Plan of Merger, dated as of February 16, 2011, by and among the Company, Louisiana Merger Sub, Inc. and LaBranche (previously filed as Exhibit 2.1 to Form 8-K filed on February 17, 2011). 2.3 Securities Purchase Agreement, dated as of April 2, 2017, by and among Convergex Holdings LLC, Convergex Group, LLC, GTCR Convergex Holdings LLC, Cowen CV Acquisition LLC and Cowen Group, Inc. (previously filed as Exhibit 2.1 to the Form 8-K filed on April 6, 2017). 3.1 Amended and Restated Certificate of Incorporation of Cowen Inc. (previously filed as Exhibit 3.1 to the Form 10- Q filed November 25, 2009). 3.2 Amended and Restated By-Laws of Cowen Inc. (f/k/a Cowen Group, Inc.) (previously filed as Exhibit 3.1 to the Form 8-K filed on August 3, 2017). 3.3 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Cowen Inc. (previously filed as Exhibit 3.3 to the Form 10-Q filed November 25, 2009). 3.4 Certificate of Designations of the Company for its Series A Cumulative Perpetual Preferred Stock (previously filed as Exhibit 3.1 to Form 8-K filed May 20, 2015). 3.5 Amendment to the Amended and Restated Certificate of Incorporation of Cowen Inc. (previously filed as Exhibit 3.1 to the Form 8-K filed December 5, 2016). 3.6 Certificate of Amendment of Amended and Restated Certificate of Incorporation of Cowen Group, Inc. (previously filed as Exhibit 3.1 to the Form 8-K filed on May 16, 2017) 4.1 Form of Class A Common Stock Certificate (previously filed as Exhibit 4.1 to Amendment No. 2 to Form S-1 filed on December 14, 2009). 4.2 Indenture, dated March 10, 2014 by and between Cowen Inc., as Issuer and The Bank of New York Mellon, as Trustee (previously filed as Exhibit 4.1 to Form 8-K filed on March 11, 2014). 4.3 First Supplemental Indenture by and between Cowen Inc., as Issuer and The Bank of New York Mellon, as Trustee (previously filed as Exhibit 4.1 to the Form 10-Q filed May 8, 2014). 4.4 Senior Notes Indenture dated October 10, 2014, by and between Cowen Inc. and The Bank of New York Mellon (previously filed as Exhibit 4.1 to Form 8-K filed on October 10, 2014). 4.5 First Supplemental Indenture dated October 10, 2014, by and between Cowen Inc. and The Bank of New York Mellon (previously filed as Exhibit 4.2 to Form 8-K filed on October 10, 2014). 4.6 Certificate of Designations of the Company for its Series A Cumulative Perpetual Preferred Stock (previously filed as Exhibit 3.1 to Form 8-K filed May 20, 2015). 4.7 Indenture, dated as of December 14, 2017 between Cowen Inc. and The Bank of New York Mellon (previously filed as Exhibit 4.1 to Form 8-K filed on December 14, 2017). 4.8 Second Supplemental Indenture, dated as of December 8, 2017, by and between Cowen Inc. and The Bank of New York Mellon, as Trustee. (previously filed as Exhibit 4.2 to Form 8-K filed on December 8, 2017). 10.1 Lease, dated as of June 22, 2007 by and between 599 Lexington Avenue LLC and Cowen Investment Management LLC (as successor in interest to RCG Holdings LLC (f/k/a Ramius Capital Group, LLC)), as amended by the First Amendment to Lease, dated as of June 9, 2008, by and between BP 599 Lexington Avenue LLC and Cowen Investment Management LLC (as successor in interest to RCG Holdings LLC (f/k/a Ramius LLC)) (previously filed as Exhibit 10.14 to Amendment No. 2 to Form S-1 filed on December 14, 2009). 10.2 Cowen Inc. 2006 Equity and Incentive Plan (previously filed as Exhibit 10.20 to Amendment No. 2 to Form S-1 filed on December 14, 2009).* 10.3 Cowen Inc. 2007 Equity and Incentive plan (previously filed as Exhibit 10.21 to Amendment No. 2 to Form S-1 filed on December 14, 2009).* 10.4 Form of RSU Award Agreement. (previously filed as Exhibit 10.24 to the Form 10-K filed on March 25, 2010).* 10.5 Cowen Inc. 2010 Equity and Incentive Plan (incorporated by reference to Appendix A to the Definitive Proxy Statement of Cowen Inc., on Schedule 14A for the year ended December 31, 2009, as filed on April 30, 2010).* 10.6 Form of Equity Award Agreement (previously filed as Exhibit 10.2 to the Form 8-K filed on June 10, 2010).* 10.7 Second Amendment to Lease dated August 20, 2010 between BP 599 Lexington Avenue and the Company, amending that certain Lease dated as of June 22, 2007 by and between 599 Lexington Avenue LLC and Cowen Investment Management LLC (as successor in interest to RCG Holdings LLC (f/k/a Ramius Capital Group, LLC)), as amended by the First Amendment to Lease, dated as of June 9, 2008, by and between BP 599 Lexington Avenue LLC and Ramius LLC (previously filed as Exhibit 10.2 to Form 8-K filed August 24, 2010). E- 1 Exhibit No. Description 10.8 Form of Restricted Stock Unit and Deferred Cash Award Agreement (previously filed as Exhibit 10.18 to the Form 10-K filed on March 9, 2012).* 10.9 Employment Agreement, dated as of May 31, 2012, by and between Cowen Inc. and Jeffrey Solomon (previously filed as Exhibit 10.1 to the Form 8-K filed June 1, 2012).* 10.10 Employment Agreement, dated as of August 2, 2012, by and between Cowen Inc. and Stephen Lasota (previously filed as Exhibit 10.1 to the Form 8-K filed August 3, 2012).* 10.11 Employment Agreement, dated as of August 2, 2012, by and between Cowen Inc. and Owen Littman (previously filed as Exhibit 10.2 to the Form 8-K filed August 3, 2012).* 10.12 Form of Stock Appreciation Right Award Agreement (previously filed as Exhibit 10.16 to the Form 10-K filed March 7, 2013).* 10.13 Convertible note hedge transaction confirmation, dated as of March 4, 2014, by and between Cowen Inc. and Nomura Global Financial Products Inc. (previously filed as Exhibit 10.1 to Form 8-K filed on March 10, 2014). 10.14 Amendment to convertible note hedge transaction, dated as of March 5, 2014, by and between Cowen Inc. and Nomura Global Financial Products Inc. (previously filed as Exhibit 10.2 to Form 8-K filed on March 10, 2014). 10.15 Warrant transaction confirmation, dated as of March 4, 2014, by and between Cowen Inc. and Nomura Global Financial Products Inc. (previously filed as Exhibit 10.3 to Form 8-K filed on March 10, 2014). 10.16 Additional Warrant transaction confirmation, dated as of March 5, 2014, by and between Cowen Inc. and Nomura Global Financial Products Inc. (previously filed as Exhibit 10.4 to Form 8-K filed on March 11, 2014). 10.17 Amendment to the Employment Agreement between the Company and Stephen Lasota dated April 24, 2015 (previously filed as Exhibit 10.1 to Form 8-K filed April 27, 2015).* 10.18 Amendment to the Employment Agreement between the Company and John Holmes dated April 24, 2015 (previously filed as Exhibit 10.2 to Form 8-K filed April 27, 2015).* 10.19 Amendment to the Employment Agreement between the Company and Owen Littman dated April 24, 2015 (previously filed as Exhibit 10.3 to Form 8-K filed April 27, 2015).* 10.20 Initial capped call confirmation, dated as of May 13, 2015, by and between Nomura Global Financial Products Inc. and the Company (previously filed as Exhibit 10.1 to Form 8-K filed May 20, 2015). 10.21 Additional capped call confirmation, dated as of May 19, 2015, by and between Nomura Global Financial Products Inc. and the Company (previously filed as Exhibit 10.2 to Form 8-K filed May 20, 2015). 10.22 Form of Performance Shares Award Agreement (previously filed as Exhibit 10.1 to the Form 10-Q filed May 2, 2016).* 10.23 Underwriting Agreement, dated as of December 5, 2017, by and between Cowen Inc. and with Morgan Stanley & Co. LLC and UBS Securities LLC, as representatives of the several Underwriters named therein. (previously filed as Exhibit 1.1 to the Form 8-K filed December 8, 2017). 10.24 Letter Amendment between the Company and Mr. Solomon dated November 30, 2017 (previously filed as Exhibit 10.1 to the Form 8-K filed December 1, 2017).* 10.25 Transition Agreement between the Company and Mr. Cohen dated November 30, 2017 (previously filed as Exhibit 10.2 to the Form 8-K filed December 1, 2017).* 12.1 Calculation of Ratio of Earnings to Total Fixed Charges (filed herewith). 21.1 Subsidiaries of Cowen Inc. (filed herewith). 23.1 Consent of Independent Registered Public Accounting Firm (filed herewith). 23.2 Consent of Independent Registered Public Accounting Firm (filed herewith). 31.1 Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith). 31.2 Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith). 32 Certification of CEO and CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (furnished herewith). 101.INS XBRL INSTANCE DOCUMENT 101.SCH XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT 101.CAL XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT 101.DEF XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT 101.LAB XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT 101.PRE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT * Signifies management contract or compensatory plan or arrangement. E- 2 Exhibit 31.1 I, Jeffrey M. Solomon, certify that: 1. I have reviewed this Annual Report on Form 10-K of Cowen Inc: Certification 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 6, 2018 /s/ JEFFREY M. SOLOMON Name: Jeffrey M. Solomon Title: Chief Executive Officer (principal executive officer) Exhibit 31.2 I, Stephen A. Lasota, certify that: 1. I have reviewed this Annual Report on Form 10-K of Cowen Inc: Certification 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 6, 2018 /s/ STEPHEN A. LASOTA Name: Stephen A. Lasota Title: Chief Financial Officer (principal financial officer and principal accounting officer) Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Cowen Inc. (the "Company") on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 6, 2018 /s/ JEFFREY M. SOLOMON Name: Jeffrey M. Solomon Title: Chief Executive Officer (principal executive officer) /s/ STEPHEN A. LASOTA Name: Stephen A. Lasota Title: Chief Financial Officer (principal financial officer and principal accounting officer) * The foregoing certification is being furnished solely pursuant to 18 U.S.C Section 1350 and is not being filed as part of the Report or as a separate disclosure document [This Page Intentionally Left Blank] UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A Amendment No. 1 Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended: December 31, 2017 Commission file number: 001-34516 Cowen Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 27-0423711 (I.R.S. Employer Identification No.) 599 Lexington Avenue New York, New York 10022 (212) 845-7900 (Address, including zip code, and telephone number, including area code, of registrant's principal executive office) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Exchange on Which Registered Class A Common Stock, par value $0.01 per share 7.35% Senior Notes due 2027 The Nasdaq Global Market The Nasdaq Global Market 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 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Annual Report on Form 10-K or any amendment to the Annual Report on Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated Accelerated filer Non-accelerated filer Smaller reporting Emerging growth filer (Do not check if a smaller reporting company) company 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 is a shell company (as defined in Rule 12b-2 of the Act). Yes No The aggregate market value of Class A common stock held by non-affiliates of the registrant on June 30, 2017, the last business day of the registrant's most recently completed second fiscal quarter, based upon the closing sale price of the Class A common stock on the NASDAQ Global Market on that date was $476,392,881. As of March 21, 2018 there were 29,457,380 shares of the registrant's common stock outstanding. Documents incorporated by reference: Part III of this Annual Report on Form 10-K/A incorporates by reference information (to the extent specific sections are referred to herein) from the Registrant's Proxy Statement for its 2018 Annual Meeting of Stockholders. Explanatory Note This Amendment No. 1 to Annual Report on Form 10-K/A amends the Annual Report on Form 10-K for the year ended December 31, 2017 of Cowen Inc. (the "Company" or "Cowen"), which was filed with the Securities and Exchange Commission on March 6, 2018. This Form 10-K/A is being filed solely for the purpose of providing separate audited financial statements of Starboard Value A LP ("Starboard") which comprise the statements of assets, liabilities and partners’ capital as of December 31, 2017 and December 31, 2016, and the related statements of income, statements of changes in partners’ capital and statements of cash flows for each of the three years in the period ended December 31, 2017 in accordance with Rule 3-09 of Regulation S-X. The audited financial statements and the Reports of Independent Auditors of Starboard Value A LP, are filed as Exhibit 99.1 and are included as financial statement schedules in Item 15(c), "Exhibits and Financial Statement Schedules" of this Form 10-K/A. The Company accounts for its interest in Starboard under the equity method of accounting. The financial statements of Starboard as of December 31, 2017 and 2016 and for the three years in the period ended December 31, 2017 were not available at the time that the Company filed its Annual Report on Form 10-K on March 6, 2018. The consent of PricewaterhouseCoopers LLP and the consent of Ernst & Young LLP, both independent auditors, are also filed as exhibits to this Amendment No. 1 to Annual Report on Form 10-K/A. In addition, this Form 10-K/A includes an updated exhibit index in respect thereof and certifications under Section 302 and 906 of the Sarbanes-Oxley Act of 2002. Except as described above, this Amendment No. 1 on Form 10-K/A does not update or modify any other information presented in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as originally filed. This Amendment No. 1 does not update or modify in any way the financial position, results of operations, cash flows, equity or related disclosures in the Company's Annual Report on Form 10-K, and does not reflect events occurring after the Form 10-K’s original filing date of March 6, 2018. Accordingly, this Form 10-K/A should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2017 and the other Company filings made with the SEC subsequent to the filing of the Annual Report on Form 10-K for the year ended December 31, 2017. ii Item 15. Exhibits and Financial Statement Schedules (a) Refer to Exhibit 99.1 to this Amendment No 1. to the Annual Report on Form 10-K/A for the separate audited financial statements and related disclosures of Starboard Value A LP pursuant to Rule 3-09 of Regulation S-X. iii 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. SIGNATURES Date: March 22, 2018 COWEN INC. By: Name: Title: /s/ JEFFREY M. SOLOMON Jeffrey M. Solomon Chief Executive Officer 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. Signature Title Date /s/ PETER A. COHEN Peter A. Cohen /s/ JEFFREY M. SOLOMON Jeffrey M. Solomon /s/ STEPHEN A. LASOTA Stephen A. Lasota /s/ KATHERINE E. DIETZE Katherine E. Dietze /s/ STEVEN KOTLER Steven Kotler /s/ JEROME S. MARKOWITZ Chairman of the Board of Directors Chief Executive Officer (Principal Executive Officer) Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Director Director March 22, 2018 March 22, 2018 March 22, 2018 March 22, 2018 March 22, 2018 Jerome S. Markowitz Director March 22, 2018 /s/ JACK H. NUSBAUM Jack H. Nusbaum /s/ DOUGLAS A. REDIKER Director March 22, 2018 Douglas A. Rediker Director March 22, 2018 /s/ JOSEPH R. WRIGHT Joseph R. Wright Director March 22, 2018 Exhibit No. Exhibit Index Description 23.1 Consent of Independent Registered Public Accounting Firm (filed herewith). 23.2 Consent of Independent Registered Public Accounting Firm (filed herewith). 31.1 Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith). 31.2 Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith). 32 Certification of CEO and CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (furnished herewith). 99.1 Starboard Value A LP Audited Financial Statements (filed herewith). E- 1 Exhibit 31.1 I, Jeffrey M. Solomon, certify that: 1. I have reviewed this Annual Report on Form 10-K/A of Cowen Inc: Certification 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 22, 2018 /s/ JEFFREY M. SOLOMON Name: Jeffrey M. Solomon Title: Chief Executive Officer (principal executive officer) Exhibit 31.2 I, Stephen A. Lasota, certify that: 1. I have reviewed this Annual Report on Form 10-K/A of Cowen Inc: Certification 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 22, 2018 /s/ STEPHEN A. LASOTA Name: Stephen A. Lasota Title: Chief Financial Officer (principal financial officer and principal accounting officer) Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Cowen Inc. (the "Company") on Form 10-K/A for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 22, 2018 /s/ JEFFREY M. SOLOMON Name: Jeffrey M. Solomon Title: Chief Executive Officer (principal executive officer) /s/ STEPHEN A. LASOTA Name: Stephen A. Lasota Title: Chief Financial Officer (principal financial officer and principal accounting officer) * The foregoing certification is being furnished solely pursuant to 18 U.S.C Section 1350 and is not being filed as part of the Report or as a separate disclosure document Starboard Value A LP (a Delaware limited partnership) Financial Statements December 31, 2017 Starboard Value A LP (a Delaware limited partnership) Table of Contents Reports of Independent Auditors Financial Statements Statement of Assets, Liabilities and Partners’ Capital Statement of Income Statement of Changes in Partners’ Capital Statement of Cash Flows Notes to Financial Statements Page(s) 3-4 5 6 7 8 9-13 Report of Independent Auditors To the General Partner of Starboard Value A LP: We have audited the accompanying financial statements of Starboard Value A LP, which comprise the statement of assets, liabilities and partners’ capital as of December 31, 2017 and December 31, 2016, and the related statements of income, changes in partners’ capital and cash flows for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Starboard Value A LP at December 31, 2017 and December 31, 2016, and the results of its operations, the changes in partners’ capital and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP New York, New York March 22, 2018 Report of Independent Auditors To the Management of Starboard Value A LP: We have audited the accompanying financial statements of Starboard Value A LP, which comprise the statements of income, changes in partners’ capital and cash flows for the year ended December 31, 2015. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements of Starboard Value A LP referred to above present fairly, in all material respects, the results of its operations, changes in its partners' capital and its cash flows for the year ended December 31, 2015 in accordance with accounting principles generally accepted in the United States of America. /S/ PRICEWATERHOUSE COOPERS LLP New York, New York March 23, 2016 Starboard Value A LP (a Delaware limited partnership) Statement of Assets, Liabilities and Partners’ Capital (dollars in thousands) December 31, 2017 and 2016 Assets Cash and cash equivalents Investments in Portfolio Funds, at fair value (cost 2017 - $1,708; 2016 - $1,441) Receivable of Realized Incentive Allocation from Portfolio Funds Receivable of Unrealized Incentive Allocation from Portfolio Funds Total assets Liabilities and Partners' Capital Liabilities Capital distributions payable Total liabilities Commitments and contingencies (Note 6) Partners’ capital Total liabilities and Partners’ capital December 31, 2017 2016 $ 77 $ 3,123 58,045 10,245 1,176 2,490 5,899 4,275 $ 71,490 $ 13,840 $ $ 54,549 54,549 $ $ 5,604 5,604 16,941 8,236 $ 71,490 $ 13,840 The accompanying notes are an integral part of these financial statements. 5 Starboard Value A LP (a Delaware limited partnership) Statement of Income (dollars in thousands) For the Years Ended December 31, 2017, 2016 and 2015 Year ended December 31, 2017 2016 2015 Profit (loss) Incentive Allocation Income (losses) $ 66,653 $ 24,036 $ (19,246) Total revenues 66,653 24,036 (19,246) Other income (loss) Net gains (losses) from Investments in Portfolio Funds 366 302 (221) Net income (loss) $ 67,019 $ 24,338 $ (19,467) The accompanying notes are an integral part of these financial statements. 6 Starboard Value A LP (a Delaware limited partnership) Statement of Changes in Partners’ Capital (dollars in thousands) For The Years Ended December 31, 2017, 2016 and 2015 General Partner Limited Partners Total Balance at January 1, 2015 $ 908 $ 96,436 $ Capital Contributions Capital Distributions Net Income (loss) Balance at December 31, 2015 Capital Contributions Capital Distributions Net Income (loss) Balance at December 31, 2016 Capital Contributions Capital Distributions Net Income (loss) 1 (535) (181) 193 1 (341) 227 80 3 (513) 609 108 (56,974) (19,286) 20,284 62 (36,301) 24,111 8,156 249 (58,053) 66,410 Balance at December 31, 2017 $ 179 $ 16,762 $ 97,344 109 (57,509) (19,467) 20,477 63 (36,642) 24,338 8,236 252 (58,566) 67,019 16,941 The accompanying notes are an integral part of these financial statements. 7 Starboard Value A LP (a Delaware limited partnership) Statement of Cash Flows (dollars in thousands) For The Years Ended December 31, 2017, 2016 and 2015 Cash flows from operating activities Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities For the year ended December 31, 2017 2016 2015 $ 67,019 $ 24,338 $ (19,467) Net (gains) losses from Investments in Portfolio Funds (366) (302) 221 (Increase)/decrease in operating assets and liabilities: Receivable of Realized Incentive Allocation from Portfolio Funds (52,146) (4,547) 51,674 Receivable of Unrealized Incentive Allocation from Portfolio Funds (5,970) 11,212 Net cash provided by operating activities 8,537 30,701 25,098 57,526 Cash flows from investing activities Purchase of Portfolio Fund Investments Proceeds from Sale of Portfolio Fund Investments Net cash provided by (used in) investing activities Cash flows from financing activities Capital contributions (402) 135 (267) (63) 1,300 1,237 (109) — (109) 252 63 109 Capital distributions, net of change in capital distributions payable (9,621) (31,038) (57,509) Net cash used in financing activities (9,369) (30,975) (57,400) Net change in cash and cash equivalents (1,099) 963 17 Cash Beginning of year End of year 1,176 213 $ 77 $ 1,176 $ 196 213 Supplemental schedule non-cash information Redemption receivable for sale of Portfolio Fund Investments $ — $ — $ 430 The accompanying notes are an integral part of these financial statements. 8 Starboard Value A LP (a Delaware limited partnership) Notes to Financial Statements (dollars in thousands) 1. Organization and Nature of Business Starboard Value A LP (the “Partnership”), a Delaware limited partnership, was formed on February 9, 2011 for the purpose of providing a full range of investment advisory and management services and acting as a general partner, investment advisor, or in similar capacity to clients. As of December 31, 2017 and 2016, funds which the Partnership acted as general partner and investment advisor, or in a similar capacity to clients consisted of Starboard Value and Opportunity Fund LP, Starboard Intermediate Fund, L.P., Starboard Leaders Fund LP, Starboard Leaders Select Fund LP, and other managed accounts (collectively the “Funds” or “Portfolio Funds”). The general partner of the Partnership is Starboard Value A GP LLC, a Delaware limited liability company (the “General Partner”). The limited partners of the Partnership (the “Limited Partners”) are Starboard Principal Co A LP, a Delaware limited partnership (the “Principal Co”), and Ramius V&O Holdings LLC, a Delaware limited liability company (“Ramius”), which is a wholly-owned subsidiary of Cowen Inc. (“CGI”) (NASDAQ: COWN). Principal Co and Ramius are also the members of the General Partner. Pursuant to the organization documents, the Partnership is entitled to receive an incentive allocation earned from the Funds (as described in Note 2). 2. Summary of Significant Accounting Policies These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and are stated in U.S dollars. The following is a summary of the significant accounting policies followed by the Partnership: Cash Cash includes cash balances held at HSBC Bank USA, N.A. Cash may exceed the amount of Federal insurance provided for such amounts. The Partnership has not experienced any losses on its cash and the General Partner believes the risk of such loss to be remote. Consolidation In the ordinary course of business, the Partnership sponsors various entities that it has determined to be variable interest entities (“VIEs”). These VIEs are primarily funds for which the Partnership serves as the general partner and/or investment manager with decision-making rights. The Partnership would consolidate all entities that it controls through a majority voting interest or otherwise, including those funds that are limited partnerships in which the general partner has a controlling financial interest in accordance with guidance of Accounting Standard Codification (“ASC”) Subtopic 810-20, Entities and Accounting Standard Update (“ASU”) 2015-02, Analysis, which the Partnership elected to early adopt for the year ended December 31, 2016. An entity is determined to be the primary beneficiary if it holds a controlling financial interest. A controlling financial interest is defined as (a) the power to direct the activities of a VIE that most significantly impact the entity's business, and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The consolidation guidance requires an analysis to (a) determine whether an entity in which the Partnership holds a variable interest is a VIE and (b) whether the Partnership’s involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (e.g., certain management and performance related fees), would give it a controlling financial interest. The Partnership does not consolidate any of these funds that are VIEs as it has concluded that it is not the primary beneficiary in each instance. Fund investors are entitled to all of the economics of these VIEs with the exception of the management fee and incentive allocation income, if any, earned by the Partnership or its affiliates. The Partnership’s involvement with the Funds is limited to providing investment management services in exchange for incentive allocation income. 9 Starboard Value A LP (a Delaware limited partnership) Notes to Financial Statements (dollars in thousands) Investments in Portfolio Funds Portfolio funds include interests in funds and investment companies managed by the Partnership. The Partnership elected the fair value option and follows US GAAP regarding fair value measurements and disclosures relating to investments in certain entities that calculate net asset value (“NAV”) per share (or its equivalent). The guidance permits, as a practical expedient, an entity holding investments in certain entities that either are investment companies as defined by the ASC 946, Services Companies, or have attributes similar to an investment company, and calculate NAV per share or its equivalent for which the fair value is not readily determinable, to measure the fair value of such investments on the basis of that NAV per share, or its equivalent, without adjustment. Generally, Starboard Value A LP generally holds investments in Portfolio Funds until the earlier of (a) realization of the investment, or (b) the dissolution/termination of the respective fund. Revenue Recognition The Partnership’s principal source of revenue is derived from alternative investments, which generates revenue through two principal sources: incentive allocation income and investment income from the Partnership’s own capital investments in the Funds. Allocation According to the offering documents of the respective Funds, the Funds shall pay the Partnership an incentive allocation as compensation for services performed by the Partnership. Incentive allocations earned are recognized on an accrual basis based on Fund performance during the period, subject to the achievement of minimum return levels, or high water marks, as set out in the respective Funds’ confidential offering memorandums or other governing documents. Realized incentive allocations are recognized when the incentive allocations are deemed distributable to the Partnership. Unrealized incentive allocations are calculated based on an assumed liquidation of the Funds’ ending capital on the reporting date. Distribution of the net proceeds are made in accordance with the Funds’ income allocation provisions. Accrued and unpaid incentive allocation that is charged directly to investors in the Funds is recorded within realized incentive allocation receivable and unrealized incentive allocation receivable respectively, in the Statements of Assets, Liabilities and Partners’ Capital. Note that accrued but unrealized incentive allocations are not deemed distributable because they are not yet realized, as of the reporting date, and as such may be subject to reversal to the extent that the accrued amount exceeds future performance of the respective Funds. The Partnership may, at its discretion, waive or reduce the incentive allocation with respect to certain limited partners of the Funds. Funds Net gains (losses) on investments in Portfolio Funds represents the unrealized and realized gains and losses on the Partnership’s investments. Gains (losses) on investments in Portfolio Funds are realized when the Partnership redeems all or a portion of its investment or when the Partnership receives cash income, such as dividends or distributions, from its investments. Unrealized gains (losses) on investments in Portfolio Funds results from changes in the fair value of the investment. Income Taxes The Partnership is not subject to U.S. Federal income tax and is generally not subject to state or local income taxes. Such taxes are the responsibility of the partners and accordingly no provision for income tax expense or benefit is reflected in the accompanying financial statements. The Partnership’s activities do not subject it to tax from other jurisdictions outside the United States and, accordingly, no provision for foreign taxes has been recorded in the accompanying financial statements. The Partnership follows the authoritative guidance on accounting for and disclosure of uncertainty in tax positions which requires the General Partner to determine whether a tax position of the Partnership is 10 Starboard Value A LP (a Delaware limited partnership) Notes to Financial Statements (dollars in thousands) more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant taxing authority. At December 31, 2017, there were no uncertain tax positions, interest, or related penalties assessed. Use of Estimates The preparation of these financial statements in conformity with US GAAP requires the Partnership to make estimates and assumptions that affect the fair value of investments and the reported amounts of 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, and the differences could be material. 3. Investments and Fair Value Measurement As of December 31, 2017 and 2016, investments in Portfolio Funds, at fair value, include the following: Investments Strategy 2017 2016 (dollars in thousands) Redemption Frequency and Commitments Fair Value as of December 31, Starboard Value and Opportunity Fund LP Activist $ 557 $ 485 (a) (b) Starboard Intermediate Fund, L.P. Starboard Leaders Fund LP Starboard Partners Fund LP Other Managed Accounts Activist Activist Non-Activist Activist 1,656 424 — 486 1,447 (a) (b) 344 (c) (d) 35 (a) (d) 179 (c) (d) $ 3,123 $ 2,490 (a) The Partnership has no unfunded commitments related to these Portfolio Funds. (b) Investments may only be redeemed on a quarterly basis with 90 days prior written notice. (c) As of December 31, 2017 and 2016, the Partnership had total commitments to Starboard Leaders Fund and Other Managed Accounts of $255 and $600, respectively, of which the Partnership has $0 and $400, respectively. These commitments can be called at any time, subject to advance notice. (d) Investments are generally distributed upon realization of all investments or the specific investment opportunity, as applicable, in the Portfolio Fund. In accordance with US GAAP, the Partnership's investments in Portfolio Funds are measured at fair value using the NAV per share (or its equivalent) as a practical expedient and therefore have not been classified in the fair value hierarchy as described in Note 2. Because of the inherent uncertainty of the valuation for the Partnership’s investments, the fair value assigned may differ from the values that would have been used had a ready market existed for these investments, and the differences may be material. 4. Related Party The investment manager of the Portfolio Funds, Starboard Value LP, a related entity with the same limited partners as the Partnership, assumes all administrative expenses and costs of operations for the Partnership, as such the Partnership does not bear any direct expenses. 11 Starboard Value A LP (a Delaware limited partnership) Notes to Financial Statements (dollars in thousands) 5. Partners’ Capital Pursuant to the terms of the Limited Partnership Agreement (the “Agreement”), the Partnership initially issued a total number of 1,000 profit units. One percent of these profit units were issued to the General Partner and ninety-nine percent of the profit units were issued to the Class A limited partners, Principal Co and Ramius. Class B and Class D partners are also entitled to distributions based on the Agreement, however they do not hold profit units. According to the Agreement, the ownership interest of the Partnership may be adjusted from time to time based on the contractual terms and the respective fair values. Net income (losses) are allocated in proportion to the Class A limited partners ownership interests in the Partnership. However, incentive allocations are available for distribution first to Class B limited partners based on the terms as defined in the Agreement, then to Class D limited partners based on the allocation as defined in the Agreement, and thereafter, all remaining amounts are available for distribution to the Class A limited partners in proportion to their respective ownership interest in the Partnership, subject to certain priority distributions to Ramius as set forth in the Agreement. In the event that the Partnership is liquidated or if all or substantially all its assets are sold, distributions shall be made pro-rata based on ownership interests. The General Partner and Limited Partners make periodic contributions for the purpose of funding the Partnership’s investments in Portfolio Funds. 6. Commitments and Contingencies In the normal course of business the Partnership enters into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Partnership’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Partnership that have not yet occurred. However, the Partnership expects the risk of loss to be remote. 7. Risks The Partnership is subject to a variety of risks in the conduct of its operations. The Partnership is economically dependent on the performance of the Funds and its related parties as the source of its incentive allocation revenues and, accordingly, may be materially affected by the actions of and the various risks associated with such Funds and related parties. For instance, market risk, currency risk, credit risk, operational risk and liquidity risk. Legal, tax and regulatory changes could occur during the term of the Partnership that may adversely affect the Partnership. The regulatory environment for investment funds is evolving, and changes in the regulation of investment funds may adversely affect the Partnership’s operations. 8. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Customers. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance requires revenue recognition of an amount the entity expects to receive in exchange for the transfer of promised goods or services to 12 Starboard Value A LP (a Delaware limited partnership) Notes to Financial Statements (dollars in thousands) customers. An entity is required to (a) identify the contract(s) with a customer, (b) identify the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations in the contract, and (e) recognize revenue when (or as) the entity satisfies a performance obligation. In determining the transaction price, an entity may include variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is resolved. In August 2015, the FASB issued ASU 2015-14, , which deferred the effective date of the guidance of ASU 2014-09 by one year. In July 2017, the Securities Exchange Commission (“SEC”) staff announced that it would not object to a public business entity that otherwise would not meet the definition of a public business entity, except for the requirement to include its financial statements in another entity’s filings with the SEC, adopting ASC Topic 606, (“ASC Topic 606”), for annual periods beginning after December 15, 2018. As the Partnership would qualify as this type of public business entity, the General Partner elected to adopt ASC Topic 606 for annual periods beginning after December 15, 2018. The guidance may have a material impact on the Partnership’s financial statements, including significantly delaying the recognition of revenue associated with the incentive income that Partnership’s contracts provide for. The Partnership is currently evaluating the accounting, transition and disclosure requirements of the ASC Topic 606 and cannot currently estimate the financial statement impact of adoption. 9. Subsequent Events For the period January 1, 2018 through March 22, 2018, the Partnership made distributions of approximately $54.6 million to its partners, all of which were reflected as distributions payable at December 31, 2017. The Partnership has determined that no other material events or transactions occurred subsequent to December 31, 2017 and through March 22, 2018, the date the accompanying financial statements were available to be issued, which require additional adjustments or disclosures in the accompanying financial statements. 13 [This Page Intentionally Left Blank] UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A Amendment No. 2 Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended: December 31, 2017 Commission file number: 001-34516 Cowen Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 27-0423711 (I.R.S. Employer Identification No.) 599 Lexington Avenue New York, New York 10022 (212) 845-7900 (Address, including zip code, and telephone number, including area code, of registrant's principal executive office) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Class A Common Stock, par value $0.01 per share 7.35% Senior Notes due 2027 Name of Exchange on Which Registered The Nasdaq Global Market The Nasdaq Global Market 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 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Annual Report on Form 10-K or any amendment to the Annual Report on Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company (Do not check if a smaller reporting 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 is a shell company (as defined in Rule 12b-2 of the Act). Yes No The aggregate market value of Class A common stock held by non-affiliates of the registrant on June 30, 2017, the last business day of the registrant's most recently completed second fiscal quarter, based upon the closing sale price of the Class A common stock on the NASDAQ Global Market on that date was $476,392,881. As of April 27, 2018 there were 29,517,261 shares of the registrant's common stock outstanding. Explanatory Note Cowen Inc. (the “Company”) is filing this Amendment No. 2 on Form 10-K/A to its Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “Form 10-K”) to provide additional information required by Part III, because the definitive proxy statement for our 2018 Annual Meeting of Stockholders will not be filed within 120 days after the end of our 2017 fiscal year. This Amendment No. 2 on Form 10-K/A does not change the previously reported financial statements or any of the other disclosure contained in Part I or Part II. Part IV is being amended solely to add new certifications in accordance with Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Item 10. Directors, Executive Officers and Corporate Governance PART III DIRECTORS OF THE COMPANY The number of directors currently serving on our Board of Directors is eight. The members of our Board of Directors are elected to serve a one-year term. Set forth below is biographical information for each of the members of our Board of Directors. All ages are as of April 27, 2018. Peter A. Cohen. Age 71. Mr. Cohen serves as Chairman of the Board. From November 2009 to December 2017, Mr. Cohen was Chief Executive Officer of Cowen and served as a member of the Management and Operating Committees of Cowen. Mr. Cohen is a founding principal of the entity that owned Cowen Investment Management (formerly known as Ramius LLC) prior to the combination of Ramius and Cowen Holdings, Inc., or Cowen Holdings, in November 2009. From November 1992 to May 1994, Mr. Cohen was Vice Chairman and a director of Republic New York Corporation, as well as a member of its Executive Management Committee. Mr. Cohen was also Chairman of Republic’s subsidiary, Republic New York Securities Corporation. Mr. Cohen was Chairman of the Board and Chief Executive Officer of Shearson Lehman Brothers from 1983 to 1990. Over his career, Mr. Cohen has served on a number of corporate, industry and philanthropic boards, including the New York Stock Exchange, The Federal Reserve International Capital Markets Advisory Committee, The Depository Trust Company, The American Express Company, Olivetti SpA, Telecom Italia SpA, Kroll Inc. He also served as a Director for U.S. defense contractors, Titan International, GRC Inc. and L-3 Communications. He is presently a Trustee of Mount Sinai Medical Center, Vice Chairman and Lead Director of the board of directors of Scientific Games Corporation and a director of Safe Auto Insurance. Mr. Cohen provides the Board with extensive experience as a senior leader of large and diverse financial institutions together with his in-depth knowledge of the Company based on his experience as the prior Chief Executive Officer of the Company. Katherine E. Dietze. Age 60. Ms. Dietze was appointed to our Board in June 2011 upon the completion of Cowen’s acquisition of LaBranche & Co., Inc., or LaBranche. Ms. Dietze was a member of LaBranche’s board of directors since January 2007. Ms. Dietze spent over 20 years in the financial services industry prior to her retirement in 2005. From 2003 to 2005, Ms. Dietze was Global Chief Operating Officer for the Investment Banking Division of Credit Suisse First Boston. From 1996 to 2003, she was a Managing Director in Credit Suisse First Boston’s Telecommunications Group. Prior to that, Ms. Dietze was a Managing Director and Co-Head of the Telecommunications Group in Salomon Brothers Inc’s Investment Banking Division. Ms. Dietze began her career at Merrill Lynch Money Markets after which she moved to Salomon Brothers Inc. to work on money market products and later became a member of the Investment Banking Division. Ms. Dietze is a director, a member of the Governance Committee and Chair of the Finance Committee of Matthews International Corporation (MATW), a designer, manufacturer and marketer of memorialization products and brand solutions. Ms. Dietze is also a member of the Board of Trustees of Liberty Property Trust (LPT), a self-administered and self-managed Maryland real estate investment trust, which provides leasing, property management, development, acquisition, and other tenant-related services for a portfolio of industrial & office properties. At LPT, she serves on the Audit Committee and is Head of the Governance Committee. Ms. Dietze holds a B.A. from Brown University and an M.B.A. from Columbia Graduate School of Business. Ms. Dietze provides the Board with extensive experience in Investment Banking management and corporate governance expertise as a public company director. Steven Kotler. Age 71. Mr. Kotler was elected to our Board on June 7, 2010. Mr. Kotler currently serves as Vice Chairman of the private equity firm Gilbert Global Equity Partners, which he joined in 2000. Prior to joining Gilbert Global, Mr. Kotler, for 25 years, was with the investment banking firm of Schroder & Co. and its predecessor firm, Wertheim & Co., where he served in various executive capacities including President & Chief Executive Officer, and Group Managing Director and Global Head of Investment and Merchant Banking. Mr. Kotler is a director of CPM Holdings, an international agricultural process equipment company; Co-Chairman of Birch Grove Capital, an asset management firm; and a Capital Partner of The 1 Archstone Partnerships. Mr. Kotler is a member of the Council on Foreign Relations; and, from 1999 to 2002, was Council President of The Woodrow Wilson International Center for Scholars. Mr. Kotler has previously served as a Governor of the American Stock Exchange, The New York City Partnership and Chamber of Commerce’s Infrastructure and Housing Task Force, The Board of Trustees of Columbia Preparatory School; and, the Board of Overseers of the California Institute of the Arts. Mr. Kotler also previously served as a director of Cowen Holdings from September 2006 until June 2007. Mr. Kotler provides the Board with extensive experience in leading an international financial institution and expertise in private equity. Jerome S. Markowitz. Age 78. Mr. Markowitz is our Lead Independent Director and has served as a member of our Board since November 2009. Mr. Markowitz was a Senior Partner at Conifer Securities LLC, a boutique servicing the operational needs of investment managers, from 2006 through May 2011. From 1998 to 2006, Mr. Markowitz was actively involved in managing a private investment portfolio. Prior to 1998, Mr. Markowitz was Managing Director and a member of the executive committee at Montgomery Securities and was responsible for starting their private client, high yield, equity derivatives and prime brokerage divisions. Prior to joining Montgomery, Mr. Markowitz was a Managing Director of L.F. Rothschild’s Institutional Equity Department. Mr. Markowitz is a director and serves on the investment committee of Market Axess Inc., and also formerly served on the advisory board of Thomas Weisel Partners Group, Inc. Mr. Markowitz provides the Board with extensive experience in asset management and investment banking, as well as experience as a public company director. Jack H. Nusbaum. Age 77. Mr. Nusbaum has served as a member of our Board since November 2009. Mr. Nusbaum is a Senior Partner of the New York law firm of Willkie Farr & Gallagher LLP. Mr. Nusbaum served as the firm’s Chairman from 1987 through 2009 and has been a partner in that firm for more than forty-five years. Willkie Farr & Gallagher LLP is outside counsel to Cowen. Mr. Nusbaum is also a director of W. R. Berkley Corporation. Mr. Nusbaum provides the Board with experience as senior management of an international law firm and provides extensive legal and corporate governance expertise. Douglas A. Rediker. Age 58. Mr. Rediker was appointed to our Board in April 2015. Mr. Rediker is the Executive Chairman of International Capital Strategies, LLC, a policy and markets advisory boutique based in Washington, D.C. Until 2012, he was a member of the Executive Board of the International Monetary Fund representing the United States. He has held senior and visiting fellowships at Brookings, the Peterson Institute for International Economics and at the New America Foundation. He has written extensively and testified before Congress on the subject of state capitalism, global finance, Sovereign Wealth Funds and other issues surrounding the relationship between international economic policy, financial markets, global capital flows and foreign policy. Mr. Rediker previously served as a senior investment banker and private equity investor for a number of investment banks, including Salomon Brothers, Merrill Lynch and Lehman Brothers. Mr. Rediker began his career as an attorney with Skadden Arps in New York and Washington, D.C. Mr. Rediker’s experience on global macro issues provides the Board with expertise relating to capital markets, the economy and global governance. Jeffrey M. Solomon. Age 52. Jeffrey Solomon is Chief Executive Officer of the Company and Chief Executive Officer of Cowen and Company, LLC (“Cowen and Company”), and was appointed a director of Cowen in December 2011. Mr. Solomon served as President of the Company prior to his appointment as Chief Executive Officer on December 27, 2017. Mr. Solomon serves as a member of the Management Committee of Cowen. Previously, Mr. Solomon served as Cowen’s Chief Operating Officer and Head of Investment Banking at Cowen and Company. Mr. Solomon joined Ramius, Cowen’s investment management division, when it was founded in 1994 and was responsible for the development, management and oversight of a number of the investment strategies employed by Ramius. From 1991 to 1994, Mr. Solomon was at Republic New York Securities Corporation, or Republic, the brokerage affiliate of Republic National Bank, now part of the HSBC Group, where he was the firm’s Chief Administrative Officer. Prior to Republic, Mr. Solomon was in the Mergers and Acquisitions Group at Shearson Lehman Brothers. Currently, Mr. Solomon is a Director of NuGo Nutrition, the manufacturer of NuGo Nutrition Bars. Mr. Solomon is also co-chair of the Equity Capital Formation Task Force, a group composed of individuals from across the country’s startup and small-capitalization company ecosystems advocating for market structure reform to encourage job creation and growth. Mr. Solomon graduated from the University of Pennsylvania in 1988 with a B.A. in Economics. Mr. Solomon provides the board with institutional knowledge of all aspects of the Company’s businesses and, as Chief Executive Officer, he is able to provide in-depth knowledge of the Company’s business and affairs, management’s perspective on those matters and an avenue of communication between the Board and senior management. Joseph R. Wright. Age 79. Mr. Wright has served as a member of our Board since November 2009. He also serves as Executive Partner to Comvest Partners, Chairman of the Investment Committees of the ClearSky Fund, Executive Chairman of Federal Data Holdings, LLC and a Senior Advisor to Chart Group. Mr. Wright is also on the Board of EBIX, and is a member of the Council of Chief Executives, Council on Foreign Relations, Economic Club of New York and Committee for a Responsible Federal Budget. He previously served as a Director of Travelers, Terremark Worldwide, Harcourt Brace Janovich, Kroll, Titan, Federal Signal, Education Management Corporation (EDMC) and Hampton University. Mr. Wright was Chairman of Intelsat, Chief Executive Officer of PanAmSat, Chairman of GRC International, Executive Chairman of MTN Satellite Communications, Chief Executive Officer of Scientific Games Corporation, Co-Chairman of Baker & Taylor, Vice Chairman 2 of W.R. Grace, Senior Advisor to Providence Equity, Vice Chairman of Terremark Worldwide, President of credit card subsidiaries of Citibank and VP and Partner of Booz Allen Hamilton and others. Mr. Wright served in the U.S. Government under President Reagan as Deputy Secretary of Commerce and Deputy Director/Director of the Federal Office of Management and Budget, and was a member of President Reagan’s Cabinet. In addition he held executive positions in the administrations of Presidents Nixon, Ford and Kennedy. He received the Distinguished Citizens Award from President Reagan and was appointed to the President’s Export Council by President George H.W. Bush as Chairman of the Export Control Sub- Committee. He was also appointed to the President’s Commission on U.S. Postal Service Reform and the National Security Telecommunications Advisory Committee, and several other advisory boards by President George W. Bush. He has served on the Defense Business Board under three Presidents, including the current administration. Mr. Wright has active “Top Secret” and “SCI” clearances with the U.S. Government. Mr. Wright received his undergraduate degree from the Colorado School of Mines and his graduate degree from Yale University. Mr. Wright provides the Board with significant senior management expertise as well as experience as a director of a public company. He also provides the Board with significant experience in public affairs. EXECUTIVE OFFICERS OF THE COMPANY Biographies of the current executive officers of the Company are set forth below, excluding Mr. Solomon’s biography, which is included under “Directors of the Company” above. Each executive officer serves at the discretion of the Board. John Holmes. Age 54. Mr. Holmes serves as Chief Operating Officer and serves as a member of the Management Committee of Cowen. Mr. Holmes previously served as the Company’s Chief Administrative Officer and was appointed an executive officer in May 2013. Mr. Holmes was the Head of Technology and Operations at Cowen following the merger between Cowen and Company and Ramius. Mr. Holmes joined Ramius in June 2006 as Global Head of Operations. Prior to joining Ramius, Mr. Holmes was Global Head of the Equity Product Team at Bank of America Securities. Mr. Holmes has also held senior operations management positions at Deutsche Bank, Credit Lyonnais and Kidder Peabody. His experience includes treasury, foreign exchange, equity, fixed income & derivative operations. Mr. Holmes is NASD licensed as a General Securities Representative, General Securities Principal and a Financial & Operations Principal. Stephen A. Lasota. Age 55. Mr. Lasota serves as Chief Financial Officer of Cowen and serves as a member of the Management Committee of Cowen. Mr. Lasota was appointed Chief Financial Officer in November 2009. Prior to the consummation of the business combination of Cowen Holdings and Ramius in November 2009, Mr. Lasota was the Chief Financial Officer of Ramius LLC and a Managing Director of the Company. Mr. Lasota began working at Ramius in November 2004 as the Director of Tax and was appointed Chief Financial Officer in May 2007. Prior to joining Ramius, Mr. Lasota was a Senior Manager at PricewaterhouseCoopers LLP. Owen S. Littman. Age 45. Mr. Littman serves as General Counsel and Secretary of Cowen and serves as a member of the Management Committee of Cowen. Mr. Littman was appointed General Counsel and Secretary in July 2010. Following the consummation of the business combination of Cowen Holdings and Ramius in November 2009, Mr. Littman was appointed Deputy General Counsel, Assistant Secretary and Managing Director of Cowen and General Counsel and Secretary of Ramius LLC. Mr. Littman began working at Ramius in October 2005 as its senior transactional attorney and was appointed General Counsel in February 2009. Prior to joining Ramius, Mr. Littman was an associate in the Business and Finance Department of Morgan, Lewis & Bockius LLP. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors and persons holding 10% or more of our Class A common stock to file initial reports of ownership of our securities and reports of changes in ownership of our securities with the SEC. Based on a review of copies of such reports provided to us and on written representations from our executive officers and directors, we believe that all Section 16(a) filing and disclosure requirements applicable to our executive officers and directors for 2017 have been satisfied. CODE OF BUSINESS CONDUCT AND ETHICS We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We have posted a current copy of the code on our website, www.cowen.com. In addition, we intend to post on our website all disclosures that are required by law or NASDAQ Stock Market listing standards concerning 3 any amendments to, or waivers from, any provision of the code. You may also request a copy of the code by writing to Cowen Inc., Attn: Secretary, 599 Lexington Avenue, New York, NY 10022. AUDIT COMMITTEE Our Board has established a separately-designated standing Audit Committee which operates under a charter that has been approved by our Board. Our Board has determined that all of the members of the Audit Committee are independent as defined under the rules of the Nasdaq Stock Market, and the independence requirements contemplated by Rule 10A-3 under the Exchange Act. The current members of our Audit Committee are Ms. Dietze (Chairperson) and Messrs. Kotler and Wright. The Board has determined that Mr. Wright is an “audit committee financial expert” as defined by applicable SEC rules. Item 11: Executive Compensation COMPENSATION DISCUSSION AND ANALYSIS In addition to performing the roles and responsibilities described under “Committees of the Board — Compensation Committee” above, our Compensation Committee, which is composed entirely of independent directors, determined the 2017 compensation of our named executive officers: • • • • Peter A. Cohen, Chairman of the Board and former Chief Executive Officer; Jeffrey M. Solomon, Chief Executive Officer, formerly President; Stephen A. Lasota, Chief Financial Officer; John Holmes, Chief Operating Officer; and • Owen S. Littman, General Counsel and Secretary. Executive Summary The following is an executive summary of our executive officer compensation program. Business Overview Formed in 2009, the Company is a diversified financial services firm and, together with its consolidated subsidiaries (collectively, “Cowen” or the “Company”), provides investment management, investment banking, research, sales and trading, prime brokerage, global clearing and commission management services through its two business segments: investment management and broker-dealer. The investment management segment includes private funds, managed accounts, commodity pools, real estate funds, private equity structures, registered investment companies and listed vehicles and also manages a significant portion of the Company’s proprietary capital. The broker-dealer segment offers industry focused investment banking for growth-oriented companies including advisory and global capital markets origination and domain knowledge- driven research, a sales and trading platform for institutional investors, global clearing and commission management services and also a comprehensive suite of prime brokerage services. The Company’s investment management platform, which operates primarily under the Cowen Investment Management name (formerly “Ramius”), offers innovative investment products and solutions across the liquidity spectrum to institutional and private clients. The predecessor to this business was founded in 1994 and, through one of its subsidiaries, has been registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”) since 1997. The Company’s investment management business offers investors access to a number of strategies to meet their specific needs including long/short equity, merger arbitrage, activism, health care royalties, private healthcare and private real estate. The Company’s investment management business focuses on attracting and retaining talented in-house and affiliated investment teams and providing seed capital and working capital, an institutional infrastructure, robust sales and marketing and industry knowledge. A significant portion of the Company’s capital is invested alongside the Company’s investment management clients. The Company has also invested some of its capital in its aviation and reinsurance businesses. Our investment management business had approximately $11.0 billion of assets under management as of January 1, 2018. 4 Our broker-dealer businesses include investment banking, research, sales and trading, prime brokerage, global clearing and commission management services to companies and primarily institutional investor clients. Our primary target sectors (“Target Sectors”) are healthcare, technology, media and telecommunications, information and technology services, consumer, aerospace and defense, industrials, energy and transportation. We provide research and brokerage services to over 4,000 domestic and international clients seeking to trade securities and other financial instruments, principally in our target sectors. The broker-dealer segment also offers a full-service suite of introduced prime brokerage services targeting emerging private fund managers. Historically, we have focused our investment banking efforts on small to mid-capitalization public companies as well as private companies. From time to time, the Company invests in private capital raising transactions of its investment banking clients. 2017 Performance Overview • The Company reported economic income of $15.8 million in 2017, an increase of $44.6 million from the economic loss of $28.7 million reported in 2016. 2017 economic income revenue was $666 million, a 42% increase year over year. The Company completed a transformational acquisition in its brokerage business in 2017 through the acquisition of Convergex Group, LLC (“Convergex”), a leading, agency-focused, global brokerage and trading related services provider with a deep client base of 2,500 hedge funds, asset managers, broker-dealers, trusts and exchanges. Business units include equity sales and electronic trading, commission management, prime services and global clearing. • In 2017, investment banking revenue of $223.6 million on a GAAP and economic income basis increased 68% year over year and was led by strong performance in equity financings. In addition, we made important strides towards improving revenue diversification in both our product and sector segments. Advisory revenue of $41.8 million represented a 56% year over year increase. • Annual brokerage revenue of $293.6 million and $312.8 million, on a GAAP and economic income basis, respectively, represented a threefold increase since 2012. This increase was driven, in part, by the acquisition of Convergex. • In November 2017 the investment management division successfully launched a private healthcare strategy, an internally developed capability that leverages Cowen’s longstanding strength in healthcare. • As of January 1, 2018, assets under management were $11.0 billion. The $0.5 billion increase from January 1, 2017, was primarily due to subscriptions in private funds and real estate. • On an economic income basis, the compensation to revenue ratio declined from 64% to 58% due, in part, to a shift in business mix as a result of the Convergex acquisition. • Book value per share was $21.82 as of December 31, 2017, compared to $25.11 as of December 31, 2016. Tangible book value per share was $18.77 as of December 31, 2017, compared to $21.88 as of December 31, 2016. The per share decline is primarily due to a reduction in the value of our net deferred tax assets and shares issued in conjunction with the Convergex acquisition. • In December 2017, the Company completed a full repurchase of its 8.25% senior notes due 2021 and replaced them with 7.35% senior notes due 2027. In addition, the Company repurchased a significant portion of its 3% convertible senior notes due 2019 and replaced them with 3% cash convertible senior notes due 2022. Please refer to the Company’s Segment Reporting Note in its financial statements included on pages F-70 to F-74 of its Form 10-K for the year ended December 31, 2017, as filed with the SEC, and the reconciliation, attached at the end of Item 11, for reconciliations of the non-GAAP financial measures above to their most directly comparable GAAP measures. Senior Executive Succession On December 27, 2017, Mr. Solomon became Chief Executive Officer of the Company pursuant to the Company’s succession plan. In order to effect an orderly transition, on November 30, 2017, Mr. Cohen and the Company entered into a Transition Agreement containing the terms and conditions of his transition from Chairman and Chief Executive Officer of the Company to non-executive Chairman of the Board (the “Transition Agreement”). The Transition Agreement is described on page 20 of this Form 10-K. The Company made certain payments to Mr. Cohen under the Transition Agreement, which were based on the separation payments and benefits provided for under his employment agreement, dated as of August 26, 2016 (the “Cohen Employment 5 Agreement”), including a prorated cash bonus payment of $2,625,000, a lump sum payment of $5,000,000, $ 3,575,622, representing the cash value of Mr. Cohen’s outstanding unvested equity awards and $1,679,000 representing the value of Mr. Cohen’s unvested deferred cash awards. The Transition Agreement is described on page 20 of this Form 10-K. Because Mr. Cohen served as Chief Executive Officer during 2017, the SEC’s disclosure rules require that we disclose Mr. Cohen’s compensation under “Compensation Discussion and Analysis.” Because Mr. Cohen is no longer an employee of the Company, we have only included disclosure regarding Mr. Cohen in the Company’s “Compensation Discussion and Analysis” when required to do so under the SEC’s disclosure rules. Advisory Vote on Executive Compensation and Stockholder Engagement The Compensation Committee believes that our executive compensation programs are effective in driving our pay-for- performance philosophy. At our 2017 annual meeting of stockholders, over 90% of shares voted (excluding broker non-votes) were in favor of the compensation of our named executive officers as disclosed in the proxy statement for the 2017 annual meeting of stockholders. The Compensation Committee considered the results of the vote to be an endorsement of the Company’s response to its continued stockholder outreach and evolving compensation practices, as described in more detail below. Stockholder Outreach Since 2014, we have engaged in stockholder outreach efforts regarding our compensation program. In an effort to continue to better understand our investors’ perspective and thoughts regarding our executive compensation program, a team of our senior management, including our Chief Financial Officer and General Counsel, engaged in a stockholder outreach initiative in early 2018. As part of our 2018 outreach, we contacted ten stockholders, including some of our largest stockholders, who we believe collectively hold in excess of 56% of our outstanding Class A common stock, which represents approximately 76% of our outside stockholder base. In early 2015, some of our stockholders raised concerns over the evergreen nature of our 2010 Equity and Incentive Plan (the “2010 Plan”). We have continued to hear that concern from stockholders during our subsequent stockholder outreach efforts. In addition, in 2016, some of our stockholders expressed the view that a portion of executive compensation should be performance based. Except as described above, our stockholders have expressed support for our compensation philosophy and the components of our compensation, in particular, including the fact that a significant portion of named executive officer compensation is stock-based and that our stock-based awards have significant vesting periods. None of our stockholders have voiced to us any concern about the absolute amounts of compensation awarded to any of our named executive officers or the manner in which compensation is allocated. Compensation Practice Changes in Response to Stockholder Feedback Following our stockholder outreach initiatives, senior management discussed the feedback received from our stockholders with the Compensation Committee. Additionally, the Compensation Committee obtained feedback, advice and recommendations on improvements to our compensation program from its independent compensation consultant, Pay Governance LLC. The Compensation Committee also reviewed the Company’s performance, the compensation practices of its peers and other materials regarding executive compensation. Since our 2014 annual meeting, the Compensation Committee has introduced the following changes to our executive compensation program, partially in response to feedback received from our stockholders: 6 What We Heard from Stockholders • Concerns over the evergreen nature of the 2010 Plan. Action Taken by the Compensation Committee • After careful review, decided to retain the evergreen provision of the 2010 Plan to support incentive and retention needs for the business. • Continued to carefully monitor the impact of the 2010 Plan to ensure judicious use of equity consistent with our compensation philosophy. • A portion of executive compensation should be • As of April 2015, eliminated minimum bonus guarantees performance-based. for all named executive officers. • No concern over the absolute amounts of compensation awarded to any of our named executive officers or the manner in which compensation is allocated. • Approved the issuance of performance share awards, or PSAs, to our named executive officers in 2016 as a component of 2015 year-end compensation with prospective three-year AROE and relative TSR performance requirements. The PSAs awarded to our named executive officers cover periods through December 31, 2020. • Continued to deliver compensation consistent with our compensation philosophy, the Compensation Committee’s evaluation of Company and individual performance and industry norms. • Continued to deliver a significant portion of stock-based compensation subject to long-term vesting conditions. • Support for our compensation governance practices. • In March 2015, adopted stock ownership and retention guidelines for executive officers. • In March 2015, implemented a clawback policy for executive officers with respect to deferred bonus awards. • Adopted an annual (rather than triennial) say-on-pay vote. 7 What We Don’t Do • We do not pay dividend equivalents on unvested restricted stock units • We do not pay tax gross-ups on our limited perquisites • We do not provide “single-trigger” equity vesting in the event of a change in control • We do not provide golden parachute excise tax gross-ups • We do not provide minimum guaranteed bonuses to our executive officers Key Features of Our Executive Compensation Program What We Do • We pay for performance through a careful year-end review of financial results and individual performance • We consider peer groups in establishing compensation • Meaningful annual equity awards are granted in lieu of? — not in addition to — annual cash incentives • We introduced PSAs as a component of executive officer compensation in 2016. The PSAs are earned based on forward-looking performance metrics that consider long-term performance from 2016 through 2020 • We have implemented stock ownership guidelines for our directors and executive officers • We have double-trigger equity vesting in the event of a change in control • We require our executive officers to comply with reasonable restrictive covenants • We subject our deferred bonus awards to executive officers to a clawback policy • We seek to maintain a conservative compensation risk profile. • The Compensation Committee retains an independent compensation consultant • We have an anti-hedging policy, and, during 2017, all executive officers were in compliance with this policy Compensation Philosophy and Objectives Our compensation programs, including compensation of our named executive officers, are designed to achieve three objectives: • Pay for Performance. A significant portion of the total compensation paid to each named executive officer is variable. Approximately 60.5% of our current Chief Executive Officer’s compensation in respect of 2017 and approximately 35.5% of our Chief Financial Officer’s, Chief Operating Officer’s and General Counsel’s compensation in respect of 2017 was paid in deferred cash and equity, excluding long-term incentive compensation awards. The amount of compensation paid is determined based on: (i) the performance of the Company on an absolute basis through a comparison of our results to competitor firms; (ii) an evaluation of each named executive officer’s contribution to the Company; and (iii) his performance against individualized qualitative goals. • We do not use a formula to evaluate year-end results. Given the volatility and constantly changing dynamics of the markets, we believe that it makes more sense for our business to primarily determine compensation after year-end by making a careful evaluation of the business rather than establishing formulaic pre-set goals at the start of the year. An after-the-fact review of performance allows the Company and Compensation Committee to consider the quality of earnings, the combination of absolute and relative performance, organic versus non- organic sources of revenues and profits, and collaboration between our various lines of business. A pre-set formula would not allow us to fully evaluate performance and might result in negative unintended consequences for the business and the stockholders. We believe this discretionary approach to compensation is consistent with common market practice in the financial services sector for these same reasons. Further, although the size of the 8 incentive compensation award is based on current fiscal year results, a portion of it is delivered in the form of restricted stock units, or RSUs, linked to longer-term stock performance. • Align Executive Officers’ Interests with Stockholders’ Interests. Our Compensation Committee reviews each executive officer’s performance as well as the Company’s financial results in the context of the market environment when determining year-end, performance-related compensation. Our Compensation Committee believes year-end, performance-related compensation should be delivered in a combination of short-term and long-term instruments. We believe that deferred cash, equity and equity-related instruments align the interests of our executive officers with those of our stockholders and ensure that our executive officers are focused on the long-term performance of the Company. In connection with fiscal 2017 bonus payments, Messrs. Solomon, Lasota, Holmes and Littman received a portion of their bonus in cash, a portion in deferred equity and a portion in deferred cash, in each case subject to service-based vesting requirements. The Compensation Committee believes that the payment of a significant portion of an employee’s compensation in the form of equity and deferred cash properly aligns the employee’s interests with those of the Company’s stockholders and effectively mitigates any risks associated with the Company’s compensation practices. Excluding long-term incentive compensation awards, approximately 60.5% of our current Chief Executive Officer’s compensation in respect of 2017 and approximately 35.5% of our Chief Financial Officer’s, Chief Operating Officer’s and General Counsel’s compensation in respect of 2017 was paid in deferred cash and equity. • Recruiting and Retention. We operate in an intensely competitive industry, and we believe that our success is closely related to our recruiting and retention of highly talented employees and a strong management team. We try to keep our compensation program comparable to industry practices so that we can continue to recruit and retain talented executive officers and employees. Determination of Named Executive Officer Compensation for 2017 At meetings held on November 29, 2017 and January 12, 2018 and numerous executive sessions following these meetings, the Compensation Committee considered and discussed management’s compensation recommendations for our named executive officers, and the Compensation Committee approved management’s recommendations. In determining the annual bonus compensation and long-term incentive compensation payable to each of our named executive officers for 2017, the Compensation Committee reviewed and considered the financial performance of the Company as a whole and each individual business unit compared to 2016 and the Company’s compensation to revenue ratio which, for the year ended December 31, 2017, was 58%, which the Compensation Committee viewed as reasonable given the performance of the Company during 2017. The Compensation Committee also considered each named executive officer’s contributions to the Company’s growth initiatives in 2017; historical compensation information for each named executive officer; the Company’s desire to retain and incentivize its named executive officers; the recommendations of Mr. Solomon, our Chief Executive Officer regarding total compensation of our named executive officers (other than the Chief Executive Officer); the financial performance of the Company during 2017 compared to comparable public companies and other companies in the securities industry; a review of public filings regarding total compensation paid by certain peer investment banks and asset management companies; and base salary, cash bonus, equity awards and all other compensation paid by the compensation peer group. The Compensation Committee considered the following achievements in 2017 when making its determination of named executive officer compensation: 9 • Expansion of the Company’s broker-dealer platform in 2017 through the acquisition of Convergex and the integration of Convergex’s business onto the Cowen platform. • • Identifying and realizing significant cost synergies from the acquisition of Convergex. 2017 economic income of $15.8 million compared to an economic income loss of $28.7 million in 2016. • Effecting changes to the Company’s leadership team by (i) appointing Jeffrey M. Solomon as the Company’s Chief Executive Officer pursuant to the Company’s succession plan and (ii) appointing Larry Wieseneck and Dan Charney as Co-Presidents of Cowen and Company. • The successful launch of the Private Healthcare fund to be managed by the former head of investment banking, which will enhance the investment management platform. • • Issuing $138 million of the Company’s 7.35% senior notes due 2027 and using $68.4 million of the proceeds therefrom to redeem all of the Company’s outstanding senior notes due 2021. Issuing $135 million of convertible notes due 2022 and using $115.4 million of the proceeds of that financing to repurchase a portion of the Company’s outstanding 3% cash convertible senior notes due 2019. • Entering into an agreement to sell shares representing 19.9% of the Company’s outstanding shares to CEFC China, which transaction the Company and CEFC China ultimately decided not to pursue. The Compensation Committee also considered the following factors in its named executive officer compensation determinations: • 2017 GAAP net loss of approximately $81 million. • A decrease in the Company’s tangible book value from $21.88 per share to $18.77 per share, primarily due to the deferred tax asset and issuance of equity in conjunction with the Convergex transaction. Please refer to the Company’s Segment Reporting Note in its financial statements included on pages F-70 to F-74 of its Form 10-K for the year ended December 31, 2017, as filed with the SEC, and the reconciliation attached as Annex A, for reconciliations of the non-GAAP financial measures above to their most directly comparable GAAP measures. The Compensation Committee also considered the following individual factors in the determinations made for each named executive officer in 2017: • Peter Cohen. Mr. Cohen’s 2017 compensation was included in the Transition Agreement that was recommended by the Compensation Committee and approved by the Board. See “Mr. Cohen’s Transition Agreement” on page 20 of this Form 10-K for a description of the payments received by Mr. Cohen. • • Jeffrey Solomon. Mr. Solomon’s compensation reflected the Company’s improvement in economic income compared to the prior year. His compensation was also influenced by his significant contributions regarding the continued enhancement and growth of the Company’s broker-dealer business, including the substantial growth of the business through the acquisition of Convergex, his efforts in recruiting and hiring Larry Wieseneck as Co-President of Cowen and Company, naming Dan Charney as Co-President of Cowen and Company, his help in launching the Private Healthcare fund with the former Head of Investment Banking and his transition to Chief Executive Officer of the Company. John Holmes. Mr. Holmes’s compensation reflected the Company’s improvement in economic income compared to the prior year. His compensation also reflected significant contributions related to the continued enhancement of the Company’s procedures relating to operational risk oversight and management of fixed and variable expenses across the Company. Mr. Holmes played a leading role in negotiating and implementing the acquisition of Convergex as well as the integration of Convergex onto the Cowen platform. Mr. Holmes also played a significant role in managing the Company’s business operations. 10 • Stephen Lasota. Mr. Lasota’s compensation reflected the Company’s improvement in economic income compared to the prior year. His compensation also reflected significant contributions related to the continued enhancement of the Company’s financial reporting and his taking a leading role in the senior note and convertible note transactions described above. Mr. Lasota played a significant role in negotiating and implementing the acquisition of Convergex as well as the integration of Convergex onto the Cowen platform. Mr. Lasota also played a significant role in managing the Company’s business operations. • Owen Littman. Mr. Littman’s compensation reflected the Company’s improvement in economic income compared to the prior year. His compensation also reflected significant contributions related to the continued enhancement of the Company’s compliance structure, management of the Company’s outstanding litigation and regulatory matters as well as his focus on the Company’s legal disclosure and corporate governance procedures. Mr. Littman played a leading role in negotiating the terms of the transactions completed by the Company in 2017, including the acquisition of Convergex and the senior note and convertible note transactions described above. In addition Mr. Littman played a leading role in negotiating the Company’s proposed transaction with CEFC China, which transaction the Company and CEFC China ultimately decided not to pursue. Mr. Littman also played a significant role in managing the Company’s business operations. The Compensation Committee approved discretionary annual bonuses for each of our named executive officers after review and consideration of the above factors. After determining the aggregate cash values of annual bonuses payable to each of our named executive officers in respect of fiscal 2017, the Compensation Committee considered the percentage of the annual bonus compensation that each of our named executive officers would receive in the form of deferred awards. Jeffrey Solomon, our Chief Executive Officer, developed a proposal for the allocation of annual bonus compensation among the cash, deferred cash and equity components for Messrs. Holmes, Lasota and Littman. The Compensation Committee discussed and ultimately approved the proposal and established an allocation for Mr. Solomon. Excluding long-term incentive compensation awards, approximately 60.5% of our current Chief Executive Officer’s compensation in respect of 2017 and approximately 35.5% of our Chief Financial Officer’s, Chief Operating Officer’s and General Counsel’s compensation in respect of 2017 was paid in deferred cash and equity. To eliminate the impact that a short-term significant price change in the market value of our Class A common stock may have on the number of RSUs that are intended to be delivered to an employee, the Compensation Committee approved valuing the RSUs using the volume-weighted average price for the 30 trading days ended February 2, 2018, which equaled $13.90 per share. Deferred cash and RSUs relating to fiscal 2017 annual bonuses were awarded to our named executive officers in February 2018. RSUs and deferred cash awards will vest with respect to 25% on December 1, 2018, 25% on December 1, 2019, 25% on December 1, 2020 and 25% on December 1, 2021. The Company issued performance shares to its named executive officers in 2016 in connection with 2015 year-end compensation. The performance shares that were awarded cover a five-year period through 2020 with each grant composed of three identical tranches tied to a three-year performance period as follows: Tranche 1 – 2016 through 2018, Tranche 2 – 2017 through 2019 and Tranche 3 – 2018 through 2020. The performance goals for the performance shares are described below on page 14. Frequency of Say-on-Pay Vote Consistent with the preference expressed by our stockholders at our 2017 Annual Meeting of Stockholders, the Board decided that the Company will include an advisory vote to approve the compensation of our named executive officers in our proxy materials every year until the next required advisory vote to approve the frequency of an advisory vote on executive compensation, which will occur no later than our 2023 annual meeting. Compensation Program and Payments The deferred cash, RSUs and Long-Term Incentive Compensation RSU Rights, or RSU Rights, our named executive officers received as bonuses and long-term incentive compensation for their fiscal 2017 performance are not included in the Summary Compensation Table because the awards were made in 2018. The table below sets forth the total compensation awarded to the named executive officers for their fiscal 2017 performance, including base salary, cash bonus, the dollar value of the RSUs awarded to the named executive officers in February 2018, the deferred cash awards granted to the named executive officers in February 2018 and the RSU Rights awarded to named executive officers as long-term incentive compensation. We believe this information is helpful to understanding how our compensation program rewarded our named 11 executive officers for their performance, and it reflects the way in which our Compensation Committee views aggregate compensation for our named executive officers on a fiscal-year basis. The following table shows the base salary and incentive compensation awarded to our named executive officers for their performance in 2017 in the manner it was considered by the Compensation Committee. As noted above, this presentation differs from that in the Summary Compensation Table for 2017. Mr. Cohen is not included in the table because he ceased to be an executive officer on December 27, 2017 and did not receive new awards of deferred equity or deferred cash while previously granted performance shares will be settled consistent with the terms of the applicable grant agreement. This table is not a substitute for the information required by SEC rules, specifically the Summary Compensation Table and the related tables appearing later in this Form 10-K. Base Salary Cash Bonus Deferred Equity Award Deferred Cash-Based Award 2017 Annual Compensation Total Annual Compensation Change vs. 2016 Long-Term Incentive Compensation – RSU Rights(1) 2017 Total Compensation with Long- Term Incentive Compensation Total Compensation Change vs. 2016 Mr. Solomon Mr. Holmes Mr. Lasota Mr. Littman 950,000 725,000 1,024,000 1,536,000 4,235,000 39% - 500,000 725,000 270,000 405,000 1,900,000 500,000 725,000 270,000 405,000 1,900,000 500,000 725,000 270,000 405,000 1,900,000 21% 21% 21% 250,000 125,000 125,000 4,235,000 2,150,000 2,025,000 2,025,000 30% 21% 16% 16% (1) Grant of right to receive RSUs prior to January 15, 2018. The RSUs will vest on March 10, 2022. Base Salary The purpose of base salary is to provide a set amount of cash compensation for each named executive officer that is not variable in nature and is generally competitive with market practices. We seek to limit the base salaries of our named executive officers such that a significant amount of their total compensation is contingent upon the performance of the Company and the named executive officer during the fiscal year. This was consistent with standard practice within the securities and asset management industries and we believe this allowed us to reward performance. In 2017, and consistent with 2016, Mr. Solomon received a base salary of $950,000, Mr. Lasota received a base salary of? $500,000, Mr. Holmes received a base salary of?$500,000 and Mr. Littman received a base salary of?$500,000. Annual Bonus Compensation A significant portion of total compensation our named executive officers are eligible to receive is in the form of a discretionary annual bonus. This is consistent with our view that a significant portion of compensation paid is to be based on the performance of the Company and of each named executive officer. Given the volatility and constantly changing dynamics of the markets, we believe that it makes more sense for our business to determine compensation after year-end by making a careful evaluation of the business rather than establishing formulaic pre-set goals at the start of the year. We also believe this discretionary approach to compensation is consistent with common market practice in the financial services sector. The annual bonus is paid partially in cash and partially in deferred cash and equity. The deferred components of the annual bonus are paid in lieu of, not in addition to, a cash payment and are subject to service-based vesting conditions. The Compensation Committee believes that the practice of paying a portion of each named executive officer’s annual bonus in the form of deferred awards is consistent with compensation practices at our peer companies and is a useful tool to continue aligning the long-term interests of our named executive officers with the interests of our stockholders. 12 Long-Term Incentive Compensation Long-term incentive compensation includes both RSU rights granted in 2017 and PSAs granted in 2016. The PSAs granted in 2016 cover performance periods extending from 2016 through 2020 as described below. In 2017, the Compensation Committee awarded Messrs. Holmes, Lasota and Littman RSU Rights as a component of 2017 long-term incentive compensation. The RSUs issued pursuant to the RSU Rights will vest on March 10, 2022. In 2016, the Compensation Committee introduced the issuance of PSAs to our named executive officers in connection with 2015 year-end compensation. These PSAs are intended to directly align the interests of our named executive officers with those of our stockholders by directly tying the value of the award to the Company’s average return on equity during a three- year performance period. The three-year performance periods are designed to provide management an incentive to focus on our strategic direction and long-term value creation. • The PSAs are designed to provide two performance elements. The award value will be based on both performance against operating goals based on return on equity and the ending value of the stock at the time of vesting. No PSAs will be earned if performance is not at least at a threshold level. • In considering the performance goals, the Committee selected three-year average return on equity, or AROE, which is a key operational metric of performance that the Company and its investors track on a regular basis. • The initial PSAs awarded in early 2016 cover a five-year period through 2020. Each PSA grant is composed of three identical tranches tied to a three-year AROE performance period as follows: Tranche 1 — 2016 through 2018, Tranche 2 — 2017 through 2019, and Tranche 3 — 2018 through 2020. In March 2016, the Company entered into a performance shares award agreement, or PSA Agreement, with each of our named executive officers. Under the terms of the PSA Agreement, each named executive officer was awarded three tranches of performance share awards, or PSAs, based on the attainment of certain performance metrics. Each tranche awarded was subject to a three-year performance period. At the end of each performance period, the PSAs will be multiplied by an applicable percentage (set forth below) based on the Company’s AROE, and, as described below, the resulting number of attained RSUs will then be subject to a multiplier based on the Company’s total shareholder return, or TSR, relative to other companies in the S&P SmallCap 600 Financial Sector Index, or the Index. AROE will be calculated by taking the sum of the Company’s Adjusted Economic Income during each of the fiscal years during the performance period and dividing by the average Equity of the Company during each such fiscal year (with Equity meaning common equity of the Company (excluding the value of the Company’s deferred tax assets) and the average Equity for each fiscal year being calculated by adding the Equity at the beginning of such fiscal year and the Equity at the end of such fiscal year and dividing by two), and dividing such amount by three. For the purposes of calculating AROE, Adjusted Economic Income means, with respect to each fiscal year during a performance period, the Company’s Economic Income (as reported in the Company’s Annual Report on Form 10-K), as adjusted for the following: (i) expenses associated with the outstanding copyright infringement litigation matter pending as of the grant date shall be excluded, (ii) expenses greater than one million dollars associated with strategic initiatives undertaken by the Company shall be amortized over a five year period as opposed to being expensed in the period in which they are incurred and (iii) adjustments resulting from changes in an existing, or application of a new, accounting principle that is not applied on a fully retrospective basis shall be excluded. 13 At the end of each performance period, the PSAs will be multiplied by the percentages set forth below based on the Company’s AROE with respect to such performance period with the resulting number of PSAs referred to as the preliminary PSAs: AROE Performance Scale Performance Level* Below Threshold Threshold Above Threshold Target Maximum (capped) AROE Below 5% 5% 7.5% 10% 12% Payout Rate 0% Payout 50% Payout 75% Payout 100% Payout 150% Payout * Payout for performance within each performance level shown above will be interpolated. The number of PSAs that become vested and settled at the end of each performance period will equal the product of the preliminary PSAs and the applicable total shareholder return (TSR) modifier, as set forth below, determined based on the Company’s TSR during the performance period versus the TSR of the companies comprising the Index (adjusted as set forth in the award agreement), as of the first day of each performance period for the same period. TSR Modifier Relative TSR Position 25th percentile and below 50th percentile 75th percentile and above Modifier* 0.8 1.0 1.2 * The relative TSR and resulting modifier will be interpolated between the 25th percentile and below and the 75th percentile. The relative TSR position will be calculated using the following formula where N is the total number of companies in the Index including the Company and R is the Company’s ranking compared to the Index: N-R/N-1. The Compensation Committee decided to measure performance both on a relative basis compared to the Index, as well as on an absolute basis to balance the desire to reward relatively superior performance, while recognizing the difficulty of constructing a peer group of comparable middle-market investment banks with material asset management operations and seeking to reward the named executive officers for creating overall stockholder value. The Compensation Committee established the AROE and TSR measurements for earning the PSAs with the intent that the PSAs would only reward recipients for strong long-term performance, with the full number of PSAs being earned only if we significantly outperform the companies comprising the Index and historical TSR. AROE was selected because increasing profitability and making efficient use of capital are key priorities for the Company. Relative TSR was selected because it shows the returns the Company is providing to its stockholders in relation to a broad index of financial services companies. 14 The number of performance share awards granted to each of our named executive officers is shown in the table below: Jeffrey M. Solomon Stephen A. Lasota John Holmes Owen S. Littman Peter A. Cohen Tranche 1(1) 29,167 25,000 25,000 25,000 29,167 PSA Awards Tranche 2(2) 29,167 25,000 25,000 25,000 29,167 Tranche 3(3) 29,166 25,000 25,000 25,000 29,166 (1) Valued at $14.12 per share. Tranche 1 PSAs will vest on March 8, 2019. Tranche 1 PSAs are unlikely to vest, given the Company’s 2016 and 2017 financial performance. (2) Valued at $14.80 per share. Tranche 2 PSAs will vest on March 10, 2020. (3) Valued at $14.96 per share. Tranche 3 PSAs will vest on December 31, 2020. Setting Compensation The Compensation Committee is responsible for approving the compensation paid to our named executive officers as well as certain other highly compensated employees. In making compensation determinations, the Compensation Committee reviews information presented to them by the Company’s management, compensation peer group information and the recommendations of an independent compensation consultant engaged by the Compensation Committee. The Compensation Committee also reviews our compensation-to-revenue ratio on a quarterly basis and may adjust the targeted compensation-to- revenue ratio in order to maintain the Company’s compensation philosophy of aligning the interests of our named executive officers and our stockholders. Involvement of Executive Officers Mr. Solomon, our Chief Executive Officer, in consultation with our Chief Financial Officer, our General Counsel, our Chief Operating Officer and employees in our Human Resources department, assists the Compensation Committee in making compensation determinations. These individuals prepare information that is provided to, and reviewed by, the Compensation Committee and the Chief Executive Officer makes recommendations to the Compensation Committee for their consideration. Such information and recommendations include, among other things, the compensation that should be received by the named executive officers (other than himself) and certain other highly compensated employees; financial information regarding the Company that should be reviewed in connection with compensation decisions; the firms to be included in a compensation peer group; and the evaluation and compensation process to be followed by the Compensation Committee. Our Chief Executive Officer is often invited to participate in Compensation Committee meetings; however, he recuses himself from all discussions regarding his own compensation. Compensation Consultant The Compensation Committee exercised its sole authority pursuant to its charter to directly engage Pay Governance LLC. Pay Governance LLC was retained by the Compensation Committee to provide advice, analysis, and assessment of alternatives related to the amount and form of executive compensation. Pay Governance LLC reviewed certain Compensation Committee presentation materials (including the peer group data described below) during November and December 2017 and early 2018 at the request of the Compensation Committee. The Compensation Committee meets telephonically with Pay Governance LLC from time to time without management present. The Compensation Committee has assessed the independence of Pay Governance LLC pursuant to SEC and NASDAQ rules and concluded that no conflict of interest exists that would prevent Pay Governance LLC from independently representing the Compensation Committee. The Compensation Committee reviewed and was satisfied with Pay Governance LLC’s policies and procedures to prevent or mitigate conflicts of interest and that there were no business or personal relationships between members of the Compensation Committee and the individuals at Pay Governance LLC supporting the Compensation Committee. 15 Compensation Peer Group The Compensation Committee, with the assistance of its independent compensation consultant, annually identifies a compensation peer group of firms with which we compete for executive talent. As a middle-market investment bank with material asset management operations, we believe there are few other companies that are directly comparable to Cowen. Our peer group includes investment banks with revenues and market capitalizations similar to ours as well as companies with significant asset management operations. In making compensation decisions for 2017, our Compensation Committee reviewed compensation information for similarly titled individuals at comparable companies gathered from public filings made in 2017 related to 2016 annual compensation. In instances where an employee has responsibilities for both the broker-dealer and the asset management businesses, both broker-dealers and asset management companies were utilized. For 2017, our compensation peer group consisted of Evercore Partners Inc., Greenhill & Co., Inc., Lazard Ltd., JMP Group, Moelis & Company, Piper Jaffray Companies, Stifel Financial Corp., Fortress Investment Group LLC and Och-Ziff Capital Management LLC. At the request of the Compensation Committee, Pay Governance LLC provides the Compensation Committee with information from peer firms identified in the most recent ISS Research Report as well as compensation data from other firms of similar size. The Compensation Committee believes that information regarding pay practices at comparable companies is useful in two respects. First, as discussed above, we recognize that our pay practices must be competitive in our marketplace. By understanding the compensation practices and levels of the Company’s peer group, we enhance our ability to attract and retain highly skilled and motivated executives, which is fundamental to the Company’s success. Second, this data is one of the many factors the Compensation Committee considers in assessing the reasonableness of compensation. Accordingly, the Compensation Committee reviewed trends among these peer firms and considered this data when determining named executive officers’ 2017 annual bonuses and other compensation, but did not utilize the peer firm compensation as a benchmark for determining executive compensation. Relationship of Compensation Policies and Practices to Risk Management The Board has discussed whether our compensation policies are reasonably likely to have a material adverse effect on our results. The Board noted that, consistent with our performance-based model, many of our employees receive a significant portion of their compensation through discretionary compensation tied to their individual or business unit performance, or a combination thereof. The Board noted that a lower portion of the Company’s revenues are derived from proprietary trading businesses and that a significant portion of many employees’ compensation is provided in the form of deferred compensation that vests over time, which has the effect of tying the individual employee’s long-term financial interest to the firm’s overall success. The Board believes that this helps mitigate the risks inherent in our business. The Board noted that our risk management team continuously monitors our various business groups, the level of risk they are taking and the efficacy of potential risk mitigation strategies. Senior management also monitors risk and the Board is provided with data relating to risk at each of its regularly scheduled meetings. The Chief Risk Officer meets regularly with the Board to present his views and to respond to questions. For these reasons, the Board believes that our overall compensation policies and practices are not likely to have a material adverse effect on us. Clawback Policy In March 2015, the Company adopted a clawback policy that allows the Company to recover incentive compensation from any executive officer if that executive officer engages in intentional misconduct that caused or contributed to a restatement of the Company’s financial results. In the event of a restatement, a committee consisting of the non-management members of the Board (the “Independent Director Committee”) will review the performance-based compensation and annual bonus compensation paid under the Company’s equity and incentive plans to any such executive (the “Awarded Compensation”). If the Independent Director Committee determines, in good faith, that the amount of such performance-based compensation or annual bonus actually paid or awarded to any such executive officer would have been a lower amount had it been calculated based on such restated financial statements (the “Actual Compensation”) then the Independent Director Committee shall, subject to certain exceptions, seek to recover for the benefit of the Company the after-tax portion of the difference between the Awarded Compensation and the Actual Compensation. The clawback policy does not apply to equity-based compensation granted before March 16, 2015. 16 Executive Officer Stock Ownership Guidelines The Company adopted stock ownership guidelines on March 18, 2015 that require the Company’s executive officers to hold Company stock or restricted stock units within the later of the adoption of the policy or five years of being designated as an executive officer. All named executive officers are in compliance with the stock ownership guidelines, which are set forth below. Chief Executive Officer Other Executive Officers 8x Base Salary 3x Base Salary $ 7,600,000 $ 1,500,000 Anti-Hedging Policy In order to support alignment between the interests of stockholders and employees, the Company maintains an anti- hedging policy that prohibits the “short sale” of Company securities. The policy prohibits employees from trading in options, warrants, puts and calls or similar instruments on Company securities. We allow directors and executive officers to hold up to 50% of their Company stock in a margin account. During 2017, all named executive officers were in compliance with this policy. Perquisites The Company provides certain perquisites, including reimbursement of group term life and long-term disability insurance and tax and financial planning expenses to certain members of senior management, including Mr. Solomon. Employment Agreements Each of our named executive officers is party to an employment agreement with the Company. The Compensation Committee views the employment agreements as an important tool in achieving our compensation objective of recruiting and retaining talented employees and a strong management team. The severance and change-in-control arrangements provided by the employment agreements are intended to retain our named executive officers and to provide consideration for certain restrictive covenants that apply following a termination of employment. In November 2017, the Company entered into a Transition Agreement with Mr. Cohen (which superseded his prior employment agreement which was terminated pursuant to the Transition Agreement) as described on page 20 of this Form 10- K. In May 2012, Mr. Solomon entered into a new employment agreement with the Company, which replaced his prior agreement and which was amended on November 30, 2017, and Messrs. Holmes, Lasota and Littman entered into their employment agreements with the Company in August 2012 and entered into amendments to their employment agreements in April 2015. The employment agreements were approved by the Compensation Committee. None of the Company’s executive officers have minimum guaranteed bonuses in their employment agreements. Tax and Accounting Impact and Policy The financial and income tax consequences to the Company of individual executive compensation elements are important considerations for the Compensation Committee when analyzing the overall design and mix of compensation. The Compensation Committee seeks to balance an effective compensation package for the executive officers with an appropriate impact on reported earnings and other financial measures. In designing our compensation and benefit programs, we review and consider the accounting implications of our decisions, including the accounting treatment of amounts awarded or paid to our executives. The rules of Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”), generally place a $1 million limit on the amount of compensation we can deduct in any one year for compensation paid to certain “covered employees.” Before the enactment of changes to the tax law described below, there was an exception to this $1 million limit for compensation that qualifies as “performance-based” and provided under a stockholder-approved plan. While the Compensation Committee considers the deductibility of compensation as one factor in determining executive compensation, the Compensation Committee also considers other factors in making its decisions and retains the flexibility to grant awards that are not deductible for tax purposes. From time to time, in order to ensure competitive levels of compensation for our senior executives, the Compensation Committee approves compensation (including base salary and benefits) that is not deductible under Section 162(m). With respect to 2017 annual bonuses, during the first quarter of 2017, the Compensation Committee set the Company’s achievement of at least $13 million in economic income (determined in a manner consistent with prior periods) 17 during the 2017 calendar year, which is consistent with the target set by the Company in 2016, as the performance criteria for purposes of Section 162(m), for performance-based awards granted in 2017 to each of our named executive officers. The Company satisfied the Section 162(m) performance metric in 2017. Our 2010 Equity and Incentive Plan is designed to qualify certain compensation that may be awarded under our annual incentive program as “performance-based” to ensure that the tax deduction is available to the Company for amounts payable under the plan. Under the tax reform legislation passed in December 2017, effective for taxable years beginning after December 31, 2017, the qualified “performance-based compensation” exemption was eliminated, with the effect that compensation in excess of $1 million paid to our named executive officers (including our Chief Financial Officer) will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. As in prior years, the Compensation Committee will continue to take into account the tax and accounting implications (including with respect to the expected lack of deductibility under the revised Section 162(m)) when making compensation decisions, but reserves its right to make compensation decisions based on other factors as well if the Compensation Committee determines it is in its best interests to do so. 18 COMPENSATION COMMITTEE REPORT The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and has recommended to the Board the inclusion of the Compensation Discussion and Analysis in the Form 10-K and in the definitive proxy statement for our 2018 Annual Meeting of Stockholders. Compensation Committee of the Board of Directors of Cowen Inc. Jerome S. Markowitz, Chair Katherine E. Dietze Steven Kotler Summary Compensation Table The following table sets forth compensation information for our named executive officers in 2017. Name & Principal Position Jeffrey M. Solomon Chief Executive Officer Stephen A. Lasota Chief Financial Officer John Holmes Chief Operating Officer Owen S. Littman General Counsel and Secretary Peter A. Cohen Chairman of the Board and Former Chief Executive Officer Year 2017 2016 2015 2017 2016 2015 2017 2016 2015 2017 2016 2015 2017 2016 2015 Salary ($) 950,000 Bonus ($)(1) 725,000 Stock Awards ($)(2) 839,377 All Other Compensation ($) 874,205 487,508 166,331 257,472 181,170 88,926 257,472 181,170 88,926 257,472 181,170 88,926 Total ($) 3,388,582 5,094,740 5,171,255 1,894,272 2,571,532 1,869,511 1,894,272 2,571,532 1,869,511 1,894,272 2,571,532 1,869,511 515,000 3,142,232 2,027,500 2,027,424 725,000 515,000 925,000 725,000 515,000 925,000 725,000 515,000 925,000 411,800 1,375,362 405,585 411,800 1,375,362 405,585 411,800 1,375,362 405,585 2,625,000 1,068,070 11,131,410 15,774,480 515,000 2,912,717 1,465,000 2,505,075 751,608 152,782 5,129,323 5,072,857 950,000 950,000 500,000 500,000 450,000 500,000 500,000 450,000 500,000 500,000 450,000 950,000 950,000 950,000 (1) The amounts in this column reflect cash bonuses paid to the named executive officers in 2018 in respect of performance during the 2017 year. (2) The entries in the stock awards column reflect the aggregate grant date fair value of the RSU and PSA awards granted to the named executive officers in 2017 in connection with 2016 performance, calculated in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 (Compensation – Stock Compensation) (“FASB ASC 718”), disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions. For information on the valuation assumptions with respect to awards made, refer to the Company’s Share-Based Compensation and Employee Ownership Plans Note in its financial statements included in its Form 10-K for the year ended December 31, 2017, as filed with the SEC. 19 (3) Other compensation includes: Other Compensation ($) Jeffrey M. Solomon Stephen A. Lasota John Holmes Owen S. Littman Peter A. Cohen Transition Agreement Payments Cash Payment Cash Value of Unvested Equity Awards Unvested Deferred Cash COBRA Premiums Attorney’s fees Deferred Cash Awards Group Term Life and Long-Term Disability Insurance Tax and Financial Planning 60% of the Total Cost of Car and Driver Grants of Plan Based Awards 838,885 257,472 257,472 257,472 35,320 5,000,000 3,575,622 1,679,000 52,851 95,000 592,313 23,949 37,696 74,979 The following table provides information regarding grants of compensation-related, plan based awards made to the named executive officers during fiscal year 2017. These awards are also included in the Summary Compensation Table above. Jeffrey M. Solomon Stephen A. Lasota John Holmes Owen S. Littman Peter A. Cohen Grant Date 2/27/2017 2/27/2017 2/27/2017 2/27/2017 2/27/2017 2/27/2017 2/27/2017 2/27/2017 2/27/2017 2/27/2017 Corporate Action Date 2/27/2017 2/27/2017 2/27/2017 2/27/2017 2/27/2017 2/27/2017 2/27/2017 2/27/2017 2/27/2017 2/27/2017 All Other Stock Awards: Number of Shares of Stock or Units (#) Grant Date Fair Value of Stock Awards ($)(1) 35,805(2) 22,083(3 15,300(2) 13,100(3 15,300(2) 13,100(3 15,300(2) 13,100(3 35,805(2) 37,855(3) 519,173 320,204 221,850 189,950 221,850 189,950 221,850 189,950 519,173 548,898 (1) The entries in the “All Other Stock Awards” column reflect the aggregate grant date fair value of the awards granted in 2017 computed in accordance with FASB ASC 718, disregarding for this purpose the estimate of forfeitures related to service based vesting conditions. For information on the valuation assumptions with respect to awards made, refer to the Company’s Share-Based Compensation and Employee Ownership Plans Note in its financial statements included in its Form 10-K for the year ended December 31, 2017, as filed with the SEC. (2) RSUs vest with respect to 15% on June 1, 2017, 10% on June 1, 2018, 25% on June 1, 2019, 25% on June 1, 2020 and 25% on June 1, 2021. (3) RSUs will vest on March 10, 2021. Narrative Disclosure Relating to Summary Compensation Table and Grants of Plan-Based Awards Table Mr. Cohen’s Transition Agreement On November 30, 2017, Mr. Cohen and the Company entered into the Transition Agreement containing the terms and conditions of Mr. Cohen’s transition from Chairman and Chief Executive Officer of the Company to Chairman of the Board in a non-executive capacity. Under the terms of the Transition Agreement, Mr. Cohen’s resignation as Chief Executive Officer was treated as a resignation for “good reason,” which resulted in the payment to him of the separation payments and benefits 20 provided for under the Cohen Employment Agreement (except that pursuant to the terms of the Transition Agreement Mr. Cohen received cash payments upon settlement of his unvested time-vested RSUs). Mr. Cohen received the following payments under the Transition Agreement in December 2017: • • • • • • $2,625,000, representing a prorated annual bonus, as provided for in Section 8(d)(iii) of the Cohen Employment Agreement; $5,000,000, representing the lump sum cash separation payment equal to two and one-half times the sum of his base salary and the average annual bonus paid for the two years immediately preceding his termination, subject to a cap of $5,000,000, as provided for in Section 8(d)(iv) of the Cohen Employment Agreement; $ 3,575,622, representing the cash value of Mr. Cohen’s outstanding unvested equity awards; $1,679,000, representing the value of Mr. Cohen’s unvested deferred cash awards; $52,851, representing 24 months of COBRA premiums, as provided for in Section 8(d)(vi) of the Cohen Employment Agreement; $95,000, representing reimbursement of attorneys’ fees incurred by Mr. Cohen in the negotiation and execution of the Transition Agreement; and • Mr. Cohen’s PSA awards vested and will be settled subject to the attainment of the performance goals set forth in the governing grant agreement. In addition to his duties as non-executive Chairman of the Board, under the Transition Agreement, Mr. Cohen has agreed to provide assistance with respect to matters relating to business and investment opportunities, client relationships and other general matters related to the Company’s business operations. The Transition Agreement also provides that, commencing January 1, 2018, Mr. Cohen is entitled to receive an annual retainer in his capacity as Chairman in an amount equal to the sum of $325,000 plus the standard annual retainer paid to all non-employee directors. During Mr. Cohen’s service as Chairman, the Company will provide him with certain benefits, including (i) continued provision of a personal driver for business purposes, subject to a cost-sharing arrangement consistent with the arrangement in place prior to his transition; (ii) secretarial and administrative support; (iii) use of the Company’s (or an affiliate’s) aircraft for business purposes, subject to Chief Executive Officer approval; and (iv) continued participation in the Company’s long-term care insurance program at the Company’s cost. Until the later of (x) the two-year anniversary of his resignation date as Chief Executive Officer and (y) the date he ceases to serve as Chairman, Mr. Cohen will be entitled to annual financial counseling services at the Company’s expense (subject to an annual maximum cost of $62,500) and continued participation in the Company’s group health plan, subject to his timely election under COBRA and timely payment by Mr. Cohen of the applicable premiums. In addition, until December 31, 2020, the Company will continue to pay a portion of the annual premium (up to $87,000 per year) for a split-dollar life insurance policy with Mr. Cohen as the named insured, with the beneficiaries chosen by him. Employment Agreements The Company is party to an employment agreement with Mr. Solomon, dated as of May 31, 2012, as amended on November 30, 2017, and employment agreements with Messrs. Holmes, Lasota and Littman, dated as of August 2, 2012, each as amended on April 24, 2015. The foregoing employment agreements provide for the following material terms: • An initial term that expired April 30, 2016. Following the expiration of the initial term, the terms of the agreements automatically extend for successive one-year terms, unless either party elects not to extend the term. • A minimum annual base salary of?$950,000 for Mr. Solomon and $450,000 for Messrs. Holmes, Lasota, and Littman. Each named executive officer is also eligible to receive an annual performance-based bonus as determined by the Compensation Committee. The agreements provide that the Company may pay all or a portion of any annual bonus in the form of restricted securities, other stock or security-based awards, deferred cash, or other deferred compensation. The agreements do not provide for a minimum annual bonus. • With respect to Mr. Solomon, his agreement provides that, if Mr. Solomon’s employment is terminated by us without cause (including a decision by us not to renew the employment agreement upon the expiration of the then-current term), by Mr. Solomon for good reason, or as a result of Mr. Solomon’s death or disability (as such terms are defined 21 in the agreement), Mr. Solomon will, subject to his execution of a general release in our favor, be entitled to the following: (i) any unpaid annual bonus with respect to the previous completed fiscal year, (ii) a prorated annual bonus for the fiscal year of termination, calculated based on the average bonus paid for the two years immediately preceding the year of termination and the timing of such termination, (iii) in the case of a termination by us without cause or by Mr. Solomon for good reason only, a lump sum cash payment in an amount equal to two and one-half times the sum of his base salary and the average annual bonus paid for the two years immediately preceding his termination, provided that the payment under clause (iii) will not be less than $3,250,000 and not more than $5,000,000, (iv) immediate vesting of all equity awards and unvested deferred compensation, and (v) a cash payment equal to 24 months’ COBRA premiums. In the event that Mr. Solomon breaches the restrictive covenants described below following a termination of his employment, he will be required to repay any payments or benefits received in connection with such termination. • With respect to each of Messrs. Holmes, Lasota and Littman, each of their respective agreement provides that, if the applicable executive’s employment is terminated by us without cause (including a decision by us not to renew the employment agreement upon the expiration of the then-current term), by the executive for good reason, or as a result of the executive’s death or “disability” (as such terms are defined in the agreements), each executive will, subject to his execution of a general release in our favor, be entitled to the following: (i) any unpaid annual bonus with respect to the previous completed fiscal year, (ii) a prorated annual bonus for the fiscal year of termination, calculated based on the average bonus paid for the two years immediately preceding the year of termination and the timing of such termination, (iii) in the case of a termination by us without cause or by the executive for good reason only, a lump sum cash payment in an amount equal to one and one-half times the average amount of compensation reflected on the executive’s Form W-2 from the Company for the two years immediately preceding his termination, provided that the payment under clause (iii) will not be more than $1,500,000, and provided further, that if such termination occurs in connection with or following a change in control (as defined in the agreement), instead of the lump sum cash payment described above, the executive shall be entitled to a lump sum cash payment in an amount equal to two and one-half times the average amount of compensation reflected on the executive’s Form W-2 from the Company for the two years immediately preceding such termination, provided that such lump sum cash payment will not be more than $2,500,000, (iv) immediate vesting of all equity awards and unvested deferred compensation, and (v) a cash payment equal to 24 months’ COBRA premiums. In the event that the executive breaches the restrictive covenants described below following a termination of his employment, he will be required to repay any payments or benefits received in connection with such termination. • In the event that the executive retires after attaining age 57.5 (or age 55, in the case of Mr. Solomon) and provides the Company with at least 90 days’ advance notice, all outstanding equity awards and unvested deferred compensation then held by the executive will continue to vest in accordance with their terms as if the executive had continued to be an active employee of the Company, provided he does not engage in competitive activity at any time prior to the applicable vesting date and refrains from interfering with the Company’s employees and customers for 12 months following his retirement. • Customary confidentiality and invention assignment covenants, as well as an indefinite mutual non-disparagement covenant. In addition, these executives have agreed not to compete with, or solicit customers or employees of, the Company during the term of the employment agreement and for a period of 180 days for Mr. Solomon and 120 days for Messrs. Holmes, Lasota and Littman. 2010 Equity and Incentive Plan Effective as of June 7, 2010, the Company adopted the 2010 Equity and Incentive Plan (the “2010 Plan”). The 2010 Plan initially reserved 1,875,000 shares of Class A common stock for delivery to participants and their beneficiaries under the 2010 Plan, subject to adjustment in the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off, or other similar change in capitalization or event. Additionally, commencing on January 1, 2011 and on the first day of each fiscal year of the Company thereafter during the term of the 2010 Plan, additional shares of Class A common stock representing seven and one-half percent (7.5%) of our shares of Class A common stock outstanding on such date, less shares then available for issuance under the 2010 Plan, will automatically become available for grant or settlement of awards. Shares delivered under the 2010 Plan may be either treasury shares or newly issued shares. For purposes of determining the remaining ordinary shares available for grant under the 2010 Plan, if any shares subject to an award are forfeited, cancelled, exchanged, or surrendered, or if an award terminates or expires without a distribution of shares, those shares will again be available for issuance under the 2010 Plan. However, shares of stock that are exchanged by a grantee or withheld by us as full or partial payment in connection with any award under the 2010 Plan, as well 22 as any shares of stock exchanged by a grantee or withheld by us to satisfy the tax withholding obligations related to any award under the 2010 Plan, will not be available for subsequent awards under the 2010 Plan. The 2010 Plan provides that generally, unless otherwise determined by the Compensation Committee or as set forth in an award or employment agreement, in the event of a change in control (as defined in the 2010 Plan), all outstanding awards shall become fully vested and exercisable and all restrictions, forfeiture conditions or deferral periods on any outstanding awards shall immediately lapse, and payment under any awards shall become due. The Compensation Committee has determined that all awards to our named executive officers under the 2010 Plan will vest on a double-trigger basis in the event of a change in control. 23 Outstanding Equity Awards at 2017 Fiscal Year End The following table contains certain information regarding equity awards held by the named executive officers as of December 31, 2017. Option Awards Stock Awards Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Option Expiration Date Number of Shares that Have Not Vested (#) Market Value of Shares that Have Not Vested ($)(1) Equity Incentive Plan Awards: Market Value of Unearned Units That Have Not Vested ($)(1) Equity Incentive Plan Awards: Number of Unearned Units That Have Not Vested (#) Jeffrey M. Solomon 2013 RSU Award(2) 2014 RSU Award(3) 2015 RSU Award(4) 2015 PSA Award(5) 2016 RSU Award6) 2016 Incentive Award(7) Stephen A. Lasota 2012 SAR Award(8) 2013 RSU Award((2) 2014 RSU July Award(9) 2014 RSU Award(3) 2015 RSU Award(4) 2015 PSA Award(5) 2016 RSU Award(6) 2016 Incentive Award(7) John Holmes 2012 SAR Award(8) 2013 RSU Award((2) 2014 RSU July Award(9) 2014 RSU Award(3) 2015 RSU Award(4) 2015 PSA Award(5) 2016 RSU Award(6) 2016 Incentive Award(7) Owen S. Littman 2012 SAR Award(8) 2013 RSU Award((2) 2014 RSU July Award(9) 2014 RSU Award(3) 2015 RSU Award(4) 2015 PSA Award(5) 2016 RSU Award(6) 2016 Incentive Award(7) Peter A. Cohen 2015 PSA Award(5) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 25,885 — 46,416 — 104,240 — — 22,083 30,435 353,330 633,578 1,422,876 — — — — 35,000 — — — 477,500 301,433 415,438 25,000 — — — — — 25,000 — — — — — 25,000 — — — — — $11.60 — — — — — $11.60 — — — — — $11.60 — — — — — — 3/15/2018 — 4,168 — 10,000 — 9,286 — 15,581 — — 13,005 13,100 3/15/2018 — 4,168 — — 10,000 — 9,286 — 15,581 — — 13,005 13,100 — 3/15/2018 — 4,168 — 10,000 9,286 — — 15,581 — — 13,005 13,100 — 56,893 136,500 126,754 212,681 — — — — — — 30,000 — — — — — 409,500 177,518 178,815 — 56,893 136,500 126,754 212,681 — — — — — — 30,000 — — — — — 409,500 177,518 178,815 — 56,893 136,500 126,754 212,681 — — — — — — 30,000 — — — — — 409,500 177,518 178,815 — — — — — 35,000 477,500 (1) The values in the column are based on the $13.65 closing price of our Class A common stock on the NASDAQ Global Select Market on December 29, 2017. 24 (2) (3) (4) (5) RSUs awarded on February 28, 2014 vest with respect to 10% on May 15, 2015, 30% on May 15, 2016, 30% on May 15, 2017 and 30% on May 15, 2018. RSUs awarded on March 19, 2015 vest with respect to 25% on March 10, 2016, 25% on March 10, 2017, 25% on March 10, 2018 and 25% on March 10, 2019. RSUs awarded on February 24, 2016 vest with respect to 25% on March 10, 2017, 25% on March 10, 2018, 25% on March 10, 2019 and 25% on March 10, 2020. PSAs awarded on March 15, 2016 will, to the extent earned, vest with respect to 33 % on March 8, 2019, 33 % on March 10, 2020 and 33 % on December 31, 2020. These PSAs are scheduled to vest in three tranches based on the attainment of AROE and relative TSR targets for the applicable performance period, subject to the named executive officer’s continued employment through the applicable vesting date. In accordance with SEC rules, the number of unearned PSAs is reported in the “Equity Incentive Plan Awards: Market Value of Unearned Units That Have Not Vested” column based on achieving threshold performance goals (i.e., 40% of target). (6) RSUs awarded on February 27, 2017 vest with respect to 15% on June 1, 2017, 10% on June 1, 2018, 25% on June 1, 2019, 25% on June 1, 2020 and 25% on June 1, 2021. (7) RSUs awarded on February 27, 2017 will vest on March 10, 2021. (8) (9) Stock appreciation rights (“SARs”) awarded on March 15, 2013 will vest on March 15, 2018. RSUs awarded on July 28, 2014 will vest on June 10, 2019. Option Exercises and Stock Vested The following table sets forth certain information concerning stock vested during the year ended December 31, 2017. No stock options were exercised by any of the named executive officers in 2017. Name Jeffrey M. Solomon Stephen A. Lasota John Holmes Owen S. Littman Peter A. Cohen(2) Number of Shares Acquired on Vesting Value Realized on Vesting ($)(1) 130,715 25,877 25,877 25,877 349,727 1,868,806 372,762 372,762 372,762 4,913,517 (1) (2) The value realized upon vesting of the stock awards is based on the $13.40 closing sale price of our Class A common stock on March 10, 2017, the $15.00 closing sale price of our Class A common stock on May 15, 2017, the $15.15 closing sale price of our Class A common stock on June 1, 2017 and the closing sale price of our Class A common stock on December 27, 2017, the applicable vesting dates of the awards. Under the terms of the Transition Agreement, 251,127 stock awards vested on December 27, 2017 in connection with Mr. Cohen’s resignation as Chief Executive Officer. 25 Potential Payments Upon Termination or Change in Control Pursuant to the employment agreements with our named executive officers, upon certain terminations of employment or a change in control of the Company, our named executive officers are entitled to certain payments of compensation and benefits as described above under “Narrative Disclosure Relating to Summary Compensation Table and Grants of Plan-Based Awards Table — Employment Agreements.” The table below reflects the amount of compensation and benefits that would have been payable to each named executive officer in the event that the named executive officer had experienced the following events as of December 31, 2017: (i) a termination for cause or resignation, or voluntary termination, (ii) involuntary termination, (iii) an involuntary termination that occurs in connection with a change in control, (iv) termination by reason of an executive’s death, or (v) termination by reason of an executive’s disability. Triggering Events Type of Payment Name Jeffrey M. Solomon Cash Severance(1) Stephen A. Lasota John Holmes Owen S. Littman Equity Acceleraton(2) Total Cash Severance(3) Equity Acceleration(2) Total Cash Severance(3) Equity Acceleration(2) Total Cash Severance(3) Equity Acceleration(2) Total Peter A. Cohen Equity Acceleration(6) Total — — — — — — — — — — — — — — Voluntary Termination ($) Involuntary Termination ($) Involuntary Termination in Connection with a Change in Control(4)(5) ($) 10,828,060 4,321,030 10,828,060 4,321,030 Death ($) 5,828,060 4,321,030 15,149,090 15,149,090 10,149,090 3,371,883 1,964,161 5,336,044 3,379,872 1,964,161 5,344,033 3,371,883 1,964,161 5,336,044 1,194,375 1,194,375 4,371,883 1,964,161 6,336,044 4,371,883 1,964,161 6,336,044 4,371,883 1,964,161 6,336,044 1,194,375 1,194,375 1,871,883 1,964,161 3,836,044 1,898,751 1,964,131 3,862,882 1,871,883 1,964,161 3,836,044 1,194,375 1,194,375 Disability ($) 5,828,060 4,321,030 10,149,090 1,871,833 1,964,161 3,836,044 1,898,751 1,964,131 3,862,882 1,871,883 1,964,161 3,836,044 1,194,375 1,194,375 (1) Includes the value of a cash payment equal to the sum of? (i) the average of Mr. Solomon’s 2015 and 2016 annual bonus, comprised of cash bonus, deferred cash and deferred equity ($3,676,250), (ii) two and one-half times the sum of Mr. Solomon’s 2016 base salary ($950,000) and the average of Mr. Solomon’s 2015 and 2016 annual bonus (subject to a $3.25 million minimum and a $5 million limit), (iii) a cash payment equal to 24 months of COBRA premiums, and (iv) the value of acceleration of unvested deferred cash compensation ($2,103,154, including interest accrued through December 31, 2017), which is payable to Mr. Solomon pursuant to the terms of his employment agreement. Mr. Solomon is not entitled to enhanced cash severance payments if his employment is involuntarily terminated in connection with or following a change in control. Had Mr. Solomon experienced a termination by reason of death or disability, he would have been entitled to a cash payment equal to the sum of the amounts described under clauses (i), (iii), and (iv) above. (2) Includes the value of acceleration of all unvested shares of restricted stock and all performance share, PSA and SARs awards, based on a per share price of? $13.65 per share, which was the closing price of our Class A common stock on the NASDAQ Global Select Market on December 29, 2017. Pursuant to their employment agreements and the applicable award agreements, the executives are entitled to immediate vesting of outstanding equity awards upon an involuntary 26 termination or a termination by reason of death or disability, except for the PSAs granted in March 2016, which will, upon an involuntary termination, remain outstanding until the completion of the applicable performance period without regard to the continued service requirement and will vest based on the actual level of the attainment of the applicable performance goals. For reporting purposes, target level performance was assumed. In addition, pursuant to the terms of the applicable award agreements, unvested equity awards will vest in the event that a change in control occurs and, following such change in control, the executive’s compensation or job responsibilities are reduced materially or the equity securities of the Company cease to trade on a national securities exchange, except for the PSAs granted in March 2016, which will vest based on the target level of the applicable performance goals, subject to the named executive officer’s continued employment through the applicable vesting date. (3) Includes the value of a cash payment equal to the sum of? (i) the average of the 2015 and 2016 annual bonus comprised of cash bonus, deferred cash and deferred equity ($1,250,000) for Messrs. Lasota, Holmes and Littman), (ii) one and one-half times the average of 2015 and 2016 compensation for each of Mr. Lasota, Mr. Holmes and Mr. Littman as reported on Form W-2 (subject to a $1.5 million limit), (iii) a cash payment equal to 24 months of COBRA premiums ($49,983 for Mr. Lasota, $49,983 for Mr. Littman and $57,972 for Mr. Holmes), and (iv) the value of acceleration of unvested deferred cash compensation ($571,900) for each of Mr. Lasota, Mr. Holmes and Mr. Littman, including interest accrued through December 31, 2017), which is payable to Messrs. Holmes, Lasota and Littman pursuant to the terms of their employment agreements. Had Mr. Holmes, Lasota or Mr. Littman experienced a termination by reason of death or disability, each executive would have been entitled to a cash payment equal to the sum of the amounts described under clauses (i), (iii), and (iv) above. (4) Includes the value of the same cash severance payments that would have been payable to Messrs. Holmes, Lasota and Littman in connection with an involuntary termination of employment (as described above), except that the applicable multiplier for average W-2 compensation will be two and one-half times instead of one and one-half times, and the applicable limit will be $2.5 million instead of? $1.5 million. Pursuant to their employment agreements, Messrs. Holmes, Lasota and Littman will be entitled to receive this enhanced cash severance payment in the event of an involuntary termination of employment in connection with or following a change in control. In addition, pursuant to the terms of the applicable award agreements, each executive’s unvested deferred cash compensation will vest in the event that a change in control occurs and, following such change in control, the executive’s compensation or job responsibilities are reduced materially or the equity securities of the Company cease to trade on a national securities exchange. (5) Under the employment agreements with Messrs. Solomon, Lasota, Holmes and Littman, severance payable following a change in control would have been subject to a so-called “modified golden parachute cutback” provision pursuant to which “excess parachute payments” would be reduced to the extent such reduction would result in greater after-tax benefits. (6) Includes the value of acceleration of unvested PSA awards, based on a price of? $13.65 per share, which was the closing price of our Class A common stock on the NASDAQ Global Select Market on December 29, 2017. The PSAs were granted in March 2016 will, upon an involuntary termination, remain outstanding until the completion of the applicable performance period without regard to the continued service requirement and will vest based on the actual level of the attainment of the applicable performance goals. For reporting purposes, target level performance was assumed. 27 PAY RATIO Pursuant to Item 402(u) of Regulation S-K, presented below is the ratio of annual total compensation of Mr. Solomon, our Chief Executive Officer as of December 31, 2017, to the median annual total compensation of all our employees (excluding our Chief Executive Officer). To determine the median annual total compensation of all our employees (excluding our Chief Executive Officer), a median employee was identified from the population of our 1,130 employees as of December 31, 2017. We did not include independent contractors in our determination. In order to identify our median employee, we ranked each of our employees (other than our Chief Executive Officer) based on 2017 awarded compensation. For this purpose, 2017 awarded compensation was composed of each employee’s (i) salary earned during 2017, (ii) annual cash bonus paid in respect of 2017 performance, (iii) deferred cash awards granted in respect of 2017 performance and (iv) and RSUs granted in respect of 2017 performance. This same methodology was used to reflect compensation in respect of 2017 for each of our named executive officers in the table under “Compensation Program and Payments “ above and, as noted in the text preceding the table, reflects compensation for 2017 performance in the manner it was considered by our Compensation Committee. In determining 2017 awarded compensation, we did not apply any cost-of- living adjustments or annualize any partial-year compensation. Once we identified the median employee, we determined that individual’s annual total compensation in accordance with the requirements for determining total compensation in the Summary Compensation Table. The 2017 annual total compensation for Mr. Solomon, our Chief Executive Officer, as reported in the Summary Compensation Table in this Form 10-K, was $3,388,582. The 2017 annual total compensation for our median employee, determined in accordance with the requirements for determining total compensation in the Summary Compensation Table, was $200,000. The ratio of our Chief Executive Officer’s annual total compensation to the annual total compensation of our median employee for 2017 is 17 to 1. We believe that this ratio represents a reasonable estimate calculated in a manner consistent with Item 402(u). The information disclosed in this section was developed and is provided solely to comply with specific, new legal requirements. We do not use this information in managing our Company. We do not believe this information provides stockholders with a useful mechanism for evaluating our management’s effectiveness, operating results, or business prospects, nor for comparing our company with any other company in any meaningful respect. 28 COMPENSATION PROGRAM FOR NON-EMPLOYEE DIRECTORS FOR 2017 The following table sets forth compensation information for our non-employee directors for the year ended December 31, 2017. Director Compensation Table Director Katherine E. Dietze Steven Kotler Jerome S. Markowitz(2) Jack H. Nusbaum(2) Douglas A. Rediker Joseph R. Wright(2) Fees Earned Paid in Cash ($) 100,000 90,000 — — 87,500 — Stock Awards ($)(1) Total 100,000 90,000 230,000 175,000 87,500 175,000 200,000 180,000 230,000 175,000 175,000 175,000 (1) Represents the aggregate grant date fair value calculated in accordance with generally accepted accounting principles, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions. For information on the valuation assumptions with respect to awards made, refer to the Company’s Share-Based Compensation and Employee Ownership Plans Note in its financial statements included in its Form 10-K for the year ended December 31, 2017, as filed with the SEC on March 6, 2018. As of December 31, 2017, all outstanding stock awards held by our directors are fully vested. (2) In 2017, Messrs. Markowitz, Nusbaum and Wright elected to receive 100% of their director compensation in RSUs. Please see “Narrative Disclosure Relating to Director Compensation Table” below for additional information regarding non- employee director compensation in 2017. Narrative Disclosure Relating to Director Compensation Table In 2017, each of our non-employee directors received annual compensation of $175,000. Our lead director, Mr. Markowitz, received additional compensation of $50,000. The Chair of each of the Compensation Committee, Mr. Markowitz, and the Nominating and Corporate Governance Committee, Mr. Kotler, received additional compensation of?$5,000 per annum and the Chair of the Audit Committee, Ms. Dietze, received additional compensation of $25,000 per annum. For 2017, a minimum of 50% of a director’s compensation was paid in the form of RSUs. In addition, each director was entitled to elect to receive any amount in excess of 50% of 2017 compensation in the form of RSUs. The RSUs were valued using the volume- weighted average price for the 30-day period prior to our 2017 annual meeting of stockholders. RSUs are vested and not subject to forfeiture; however, except in the event of death, the underlying shares of Class A common stock will not be delivered to the holder for at least one year from the date of grant. These equity awards are intended to further align the interests of our directors with those of our stockholders. Directors who also are employed as executive officers of the Company receive no additional compensation for their service as a director. Compensation Committee Interlocks and Insider Participation The Compensation Committee is comprised entirely of non-employee directors, none of whom has ever been an officer or employee of the Company and none of whom had any related person transaction involving the Company. None of our executive officers (1) served as a member of the board of directors or compensation committee of any other entity that had one or more of its executive officers serving as a member of our Compensation Committee or (2) served as a member of the compensation committee of any other entity that had one or more of its executive officers serving as a member of our Board during 2017. 29 Tangible Book Value US GAAP Reconciliation Select Balance Sheet Data Dec. 31, 2017 Dec. 31, 2016 Cowen Inc. stockholders’ equity Common equity (CE) Tangible common equity (TCE) Book value per share (CE/CSO) Tangible book value per share (TCE/CSO) Common shares outstanding (CSO) $748.0 $646.7 $556.1 $21.82 $18.77 29.6 $772.7 $671.3 $584.9 $25.11 $21.88 26.7 Reconciliation of GAAP Cowen Inc. stockholders’ equity to tangible common equity: Cowen Inc. stockholders’ equity Preferred stock Common equity (CE) Goodwill & intangibles Tangible common equity (TCE) $748.0 101.3 $646.7 90.6 $556.1 $772.7 101.3 $671.3 86.4 $584.9 30 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Beneficial Ownership of Directors, Nominees and Executive Officers The following table shows how many shares of our Class A common stock were beneficially owned as of April 27, 2018, by each of our directors and named executive officers and by all of our directors and named executive officers as a group. Unless otherwise noted, the stockholders listed in the table have sole voting and investment power with respect to the shares owned by them. Name of Beneficial Owner Peter A. Cohen Katherine E. Dietze Steven Kotler Jerome S. Markowitz Jack H. Nusbaum Douglas A. Rediker Jeffrey M. Solomon Joseph R. Wright John Holmes Stephen A. Lasota Owen S. Littman All directors and executive officers as a group (11 persons) Amount and Nature of Beneficial Ownership Percent of Class 803,875 12,007(1) 2,500(2) 129,301(3) 77,396(4) —(5) 405,186 25,804(6) 58,939 123,821 84,610 1,723,439 2.7% * * * * * 1.4% * * * * 5.8% * corresponds to less than 1% of Cowen Inc. Class A common stock. (1) The amount presented does not include 41,257 fully-vested RSUs that will be delivered to Ms. Dietze upon her retirement from the Board. (2) The amount presented does not include 40,606 fully-vested RSUs that will be delivered to Mr. Kotler upon his retirement from the Board. (3) The amount presented does not include 15,160 fully-vested RSUs that will be delivered to Mr. Markowitz upon the one-year anniversary of the grant date. (4) The amount presented does not include 11,534 fully-vested RSUs that will be delivered to Mr. Nusbaum upon the one-year anniversary of the grant date. (5) The amount presented does not include 16,252 fully-vested RSUs that will be delivered to Mr. Rediker upon his retirement from the Board. (6) The amount presented does not include 67,155 fully-vested RSUs that will be delivered to Mr. Wright upon his retirement from the Board. 31 Beneficial Owners of More than Five Percent of Our Class A Common Stock Based on filings made under Section 13(d) and Section 13(g) of the Securities Exchange Act of 1934, as of April 27, 2018, the persons known by us to be beneficial owners of more than 5% of our Class A common stock were as follows: Name and Address of Beneficial Owner FMR LLC(1) 245 Summer Street Boston, MA 02210 Ariel Investments, LLC(2) 200 E. Randolph Street Suite 2900 Chicago, IL 60601 BlackRock, Inc.(3) 55 East 52nd Street New York, NY 10055 Zazove Associates, LLC(4) 1001 Tahoe Boulevard Incline Village, NV 89451 Arbiter Partners QP, LP(5) 530 Fifth Avenue, 20th Floor New York, NY 10036 Amount and Nature of Beneficial Ownership 2,324,081 Percent of Class 7.87% 2,129,096 7.21% 2,002,520 6.78% 1,840,785 6.24% 1,579,608 5.35% (1) This information is based on a Schedule 13G filed with the SEC on February 13, 2018 by FMR LLC. FMR reported that it has sole voting power as to 1,265,007 shares and sole dispositive power as to 2,324,081 shares. 32 (2) This information is based on a Schedule 13G filed with the SEC on February 13, 2018 by Ariel Investments, LLC. Ariel reported that it has sole voting power as to 1,809,351 shares and sole dispositive power as to 2,129,096 shares. (3) This information is based on a Schedule 13G filed with SEC on January 29, 2018 by BlackRock, Inc. The beneficial ownership indicated above represents the aggregate beneficial ownership of BlackRock, Inc., and its subsidiaries, BlackRock (Netherlands) B.V., BlackRock Advisors, LLC, BlackRock Asset Management Canada Limited, BlackRock Asset Management Ireland Limited, BlackRock Asset Management Schweiz AG, BlackRock Financial Management, Inc., BlackRock Fund Advisors, BlackRock Institutional Trust Company, N.A. and BlackRock Investment Management, LLC. (4) This information is based on a Schedule 13G filed with the SEC on February 8, 2018 by Zazove Associates, LLC. (5) This information is based on a Schedule 13G filed with the SEC on February 12, 2018 by Arbiter Partners QP, LP (“Arbiter”). Arbiter reported that it has sole voting and dispositive power as to 1,549,608 shares and shared voting and dispositive power as to 1,579,608 shares. Securities Authorized for Issuance Under Equity Compensation Plans The following table summarizes, as of December 31, 2017, the number of shares of our common stock to be issued upon exercise of outstanding options granted under our 2010, 2007 and 2006 Equity and Incentive Plans, the weighted-average exercise price of such options, and the number of shares remaining available for future issuance under the plans for all awards as of December 31, 2017. Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights --- None Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under the Equity Compensation Plan (Excluding Shares in First Column) ---- N/A None None Plan Category Equity compensation plans approved by security holders Equity compensation plans not approved by security holders (1) This number is based on the 15,900,549 shares authorized for issuance under the Company’s Equity and Incentive Plans as of December 31, 2017. Commencing on January 1, 2011 and on the first day of each fiscal year of the Company thereafter during the term of the 2010 Plan, additional shares of Class A common stock representing 7.5% of our shares of Class A common stock outstanding on such date, less shares then available for issuance under the 2010 Plan, will automatically become available for grant or settlement of awards. As a result, on January 1, 2018, 2,222,402 were added to the shares available under the 2010 Plan to bring the total 33 equal to 7.5% of the Company’s outstanding shares of stock. As of March 31, 2018, we had 346,836 shares remaining under the equity plans, which exclude shares reserved for issuance based on certain performance criteria in existing agreements. Item 13. Certain Relationships and Related Transactions and Director Independence Director Independence Under applicable Nasdaq Stock Market Rules, a director will only qualify as an “independent director” if, in the opinion of our Board, that person does not have a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our Corporate Governance Guidelines require that a majority of the Board be composed of directors who meet the independence criteria establish by NASDAQ Stock Market, Inc. Marketplace Rules. Under applicable NASDAQ Stock Market rules, a director will only qualify as an “independent director” if, in the opinion of our Board, that person does not have a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making its determination, the Board considers all relevant facts and circumstances, both with respect to the director and with respect to any persons or organizations with which the director has an affiliation, including immediate family members. Our Board has determined that none of Ms. Dietze, nor Messrs. Kotler, Markowitz, Nusbaum, Rediker or Wright currently has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is an “independent director” as defined under Rule 4200(a)(15) of the NASDAQ Stock Market, Inc. Marketplace Rules. Messrs. Cohen and Solomon cannot be considered independent directors under NASDAQ Stock Market rules because Mr. Cohen was employed as our Chief Executive Officer until December 2017 and Mr. Solomon currently serves as our Chief Executive Officer. Therefore, the Board has determined that six of our eight director nominees are independent. Related Transactions Involving Our Executive Officers Side-by-Side Investments To the extent permissible by applicable law, our executive officers, directors and certain eligible employees, as well as such individuals’ immediate family members and other investors they refer to us, have historically been permitted to invest their own capital either directly in, or in side-by-side investments or managed accounts with, our alternative investment management funds and certain proprietary investment vehicles established by our broker- dealer segment. Side-by-side investments are investments in assets substantially similar to the investments of the applicable fund and the managed accounts are accounts that invest in the asset classes covered by our alternative investment business. Direct investment in managed accounts or side-by-side investments with, our funds by such individuals are generally made on the same terms and conditions as the investments made by other third party investors in the funds, except that such investments are subject to discounted management and performance fees. Employment Arrangements Andrew Cohen, the son of Peter A. Cohen, is a Managing Director of Ramius, and earned approximately $1,724,559 in 2017, which amount includes Andrew Cohen’s base salary, cash bonus paid in 2017 relating to 2016 performance and approximately $864,559 of deferred cash awards and RSUs granted in prior years that vested during 2017. Kyle Solomon, the brother of Jeffrey M. Solomon, is a Managing Director of Cowen and Company and earned approximately $871,587 in 2017, which amount includes Kyle Solomon’s base salary, cash bonus paid in 2017 relating to 2016 performance and approximately $261,587 of deferred cash awards and RSUs granted in prior years that vested during 2017. 34 Review and Approval of Transactions with Related Persons To minimize actual and perceived conflicts of interests, the Board has adopted a written policy governing transactions in which the Company is a participant, the aggregate amount involved is reasonably expected to exceed $120,000, and any of the following persons has or may have a direct or indirect material interest in the transaction: (a) our executive officers, directors (including nominees) and certain other highly compensated employees, (b) stockholders who own more than 5% of our Class A common stock, and (c) any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law or person (other than a tenant or employee) sharing the same household of any person described in (a) or (b) above. These transactions will be considered “related person transactions.” Unless exempted from such policy as described below, the policy requires that related person transactions must be reported to our General Counsel or Chief Compliance Officer who will then submit the related person transaction for review by our Audit Committee. The Audit Committee will review all relevant information available to it and will approve or ratify only those related person transactions that it determines are not inconsistent with the best interests of the Company. If our General Counsel or Chief Compliance Officer determines that advance approval of a related person transaction is not practicable under the circumstances, the Audit Committee will review, and, in its discretion, may ratify the related person transaction at its next meeting, or at the next meeting following the date that the related person transaction comes to the attention of our General Counsel or Chief Compliance Officer. However, the General Counsel or Chief Compliance Officer may present a related person transaction that arises between Audit Committee meetings to the Chair of the Audit Committee, who will review and may approve the related person transaction, subject to the Audit Committee’s ratification at its next meeting. It is anticipated that any related person transaction previously approved by the Audit Committee or otherwise already existing that is ongoing will be reviewed annually by the Audit Committee to ensure that such transaction has been conducted in accordance with the previous approval granted by the Audit Committee, if any, and that all required disclosures regarding the related person transaction are made. In addition to the transactions that are excluded by the instructions to the SEC’s related person transaction disclosure rule, the board anticipates it will determine that the following transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, are not related person transactions for purposes of the policy: • • interests arising solely from the related person’s position as an executive officer of another entity (whether or not the person is also a director of such entity), that is a participant in the transaction, where (a) the related person and all other related persons own in the aggregate less than a 10% equity interest in such entity, (b) the related person and his or her immediate family members are not involved in the negotiation of the terms of the transaction and do not receive any special benefits as a result of the transaction, (c) the amount involved in the transaction equals less than the greater of? $200,000 or 5% of the annual gross revenues of the company receiving payment under the transaction; a transaction with a significant stockholder, or such stockholder’s immediate family members, who has a current Schedule 13G filed with the SEC with respect to such stockholder’s ownership of our securities; and • a transaction that is specifically contemplated by provisions of our charter or bylaws. The policy provides that transactions involving compensation of executive officers shall be reviewed and approved by the Compensation Committee in the manner specified in its charter. 35 Item 14. Principal Accounting Fees and Services Independent Registered Public Accounting Firm Fees and Other Matters The following table presents the aggregate fees billed for services rendered by KPMG LLP, our independent registered public accounting firm for the fiscal year ended December 31, 2017 and PricewaterhouseCoopers LLP, our independent registered public accounting firm, for the fiscal year ended December 31, 2016. Audit Fees(1) Audit-Related Fees(2) Tax Fees(3) Total 2017 2016 $3,513,580 143,750 244,785 $4,007,540 256,988 710,935 $3,902,115 $4,975,463 (1) Audit fees for the year ended December 31, 2017 reflect audit fees incurred for the Cowen Inc. integrated audit and quarterly reviews as well as the financial statement audits of its consolidated subsidiaries. (2) Audit-Related Fees reflect fees for procedures performed in connection with the fourth quarter 2017 comfort letters prepared in connection with the debt issuance completed by the Company during the fourth quarter of 2017. (3) Tax fees reflect tax compliance and tax advisory services. KPMG LLP also provided services to entities affiliated with Cowen Inc. that were billed directly to those entities and, accordingly, were not included in the amounts disclosed above. These amounts included $945,000 for the audits of private equity funds, hedge funds and other fund structures within the Cowen Investment Management segment for the year ended December 31, 2017. The comparative amount paid to PwC for the year ended December 31, 2016 was $1,394,434. Auditor Services Pre-Approval Policy The Audit Committee has adopted an Audit Committee Policy Regarding Outside Auditor Services which includes a pre-approval policy that applies to services performed for the Company by our independent registered public accounting firm. In accordance with this policy, we may not engage our independent registered public accounting firm to render any audit or non-audit service unless the service was approved in advance by the Audit Committee or the engagement is entered into pursuant to the pre-approval policies and procedures described below. However, no pre-approval is required with respect to services (other than audit, review or attest services) if? (i) the aggregate amount of all such services is no more than 5% of the total amount paid by us to the independent registered public accounting firm during the fiscal year in which the services are provided, (ii) such services were not recognized at the time of engagement to be non-audit services and (iii) such services are promptly brought to the attention of the Audit Committee and approved by either the Audit Committee or the Chair of the Audit Committee prior to completion of the audit. During the 2017 fiscal year, no fees were approved by the Audit Committee pursuant to this exemption. The pre-approval policy delegates to the Chair of the Audit Committee the authority to pre-approve any audit or non-audit services, provided that any approval by the Chair is reported to the Audit Committee at the Audit Committee’s next regularly scheduled meeting. The Audit Committee may also pre-approve services that are expected to be provided to the Company by the independent registered public accounting firm during the next 12 36 months and at each regularly scheduled meeting of the Audit Committee, management or the independent registered public accounting firm must report to the Audit Committee each service actually provided to the Company pursuant to the pre-approval. Our Audit Committee has determined that the provision of the non-audit services described in the table above was compatible with maintaining the independence of our independent registered public accounting firm. The Audit Committee reviews each non-audit service to be provided and assesses the impact of the service on the registered public accounting firm’s independence. 37 Item 15. Exhibits and Financial Statement Schedules PART IV (a) Documents filed as part of this Annual Report on Form 10-K/A: 3. Exhibits Exhibits are incorporated herein by reference or are filed with this report as indicated below: Exhibit No. Description 31.5 31.6 Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002. 38 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. SIGNATURE COWEN INC. By: _/s/ Jeffrey M. Solomon________________________ Name: Jeffrey M. Solomon Title: Chief Executive Officer Dated: April 30, 2018 39 Exhibit 31.5 I, Jeffrey M. Solomon, certify that: Certification 1. I have reviewed this Amendment No. 2 on Form 10-K/A of Cowen Inc.; and 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. Date: April 30, 2018 /s/ Jeffrey M. Solomon Jeffrey M. Solomon Chief Executive Officer (principal executive officer) Exhibit 31.6 Certification I, Stephen A. Lasota, certify that: 1. I have reviewed this Amendment No. 2 on Form 10-K/A of Cowen Inc.; and 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. Date: April 30, 2018 /s/ Stephen A. Lasota Stephen A. Lasota Chief Financial Officer (principal financial officer and principal accounting officer) www.cowen.com LOCATIONS UNITED STATES New York Cowen Inc./Cowen Execution Series LLC/ Cowen and Company, LLC/ Algorithmic Trading Management, LLC/ ATM Execution LLC/Cowen Prime Services LLC 599 Lexington Avenue New York, NY 10022 TEL: 212 845 7990 New York New York New York New York New Jersey Greenwich Atlanta Atlanta Boston Chicago Cleveland Houston Cowen Inc. 1345 Avenue of the Americas 3rd Floor New York, NY 10105 TEL: 646 562 1660 TriArtisan Capital Advisors LLC 830 Third Avenue 4th Floor New York, New York 10022 TEL: 212 609 0620 Cowen Prime Services LLC 1010 Franklin Ave Suite 303 Garden City, NY 11530 TEL: 516 746 5757 Cowen Inc./Cowen Execution Services LLC/Westminster Research Associates LLC 1633 Broadway, 48th Floor New York, NY 10019 TEL: 646 690 3292 Cowen Execution Services LLC 75 Lincoln Highway 3rd Floor Iselin, NJ 08830 TEL: 732 855 4000 Cowen Prime Services LLC 10 Glenville Street 3rd Floor Greenwich, CT 06831 TEL: 203 588 3300 Cowen and Company LLC (Branch) Corporate Office Centers 3399 Peachtree Road NE Suite 417 Atlanta, GA 30326 TEL (Toll Free): 866 544 7009 Cowen Prime Services LLC 13010 Morris Road 6th Floor, Building 1 Alpharetta, GA 30004 TEL: 770 576 1759 Cowen and Company, LLC (Branch) Two International Place Boston, MA 02110 TEL: 617 946 3700 TEL (Toll Free): 800 343 7068 Cowen and Company, LLC (Branch) 181 West Madison Street, Suite 3135 Chicago, IL 60602 TEL: 312 577 2240 Cowen and Company, LLC (Branch) 20006 Detroit Road, Suite 100 Rocky River, OH 44116 TEL: 440 331 3531 Cowen and Company, LLC (Branch) 600 Travis, Suite 1970 Houston, TX 77002 TEL: 440 331 3531 Los Angeles Los Angeles Los Angeles Orlando San Francisco Stamford Washington D.C. Cowen and Company, LLC 10250 Constellation Blvd. Suite 2300 Los Angeles, CA 90067 TEL: 310 356 4620 Cowen and Company, LLC 2301 Rosecrans Ave Suite 4195-B El Segundo, CA 90245 TEL: 310 773 9070 Cowen Prime Services LLC 2041 Rosecrans Ave Suite 350-B El Segundo, CA 90245 TEL: 310 773 9070 Cowen Execution Services LLC 3501 Quadrangle Boulevard Suite 200 Orlando, FL 32817 TEL: 407 608 1900 Cowen and Company, LLC (Branch) 1 Maritime Plaza 9th Floor San Francisco, CA 94111 TEL (Toll Free): 800 858 9316 Cowen and Company, LLC 262 Harbor Drive Stamford, CT 06902 TEL: 646 616 3000 Cowen and Company, LLC 2900 K Street, NW Suite 520 Washington D.C. 20007 TEL: 202 868 5300 INTERNATIONAL Northern Ireland London Luxembourg Cowen International Limited (Branch) Centrepoint, 1st Floor 24 Ormeau Avenue Belfast, BT2 8HS Northern Ireland Cowen International Limited/ Cowen Execution Services Limited/ Ramius UK Ltd 1 Snowden Street - 11th Floor London EC2A 2DQ England TEL: (+44) 20 7071 7500 RCG International Opportunities S.á.r.l./ Hollenfels Re SA 97, rue Jean-Pierre Michels L-4243 Esch-Sur-Alzette Luxembourg TEL: +352 26 17 35 Cowen Inc. is a diversiﬁ ed ﬁ nancial services ﬁ rm and, together with its consolidated subsidiaries, provides investment management, investment banking, research, sales and trading, prime brokerage, global clearing and commission management through its two business segments: Cowen Investment Management and its afﬁ liates make up the Company’s investment management segment, while Cowen and Company, a member of FINRA and SIPC, and its afﬁ liates make up the Company’s investment bank segment. Cowen Investment Management provides investment management solutions to a global client base and manages a signiﬁ cant portion of Cowen’s proprietary capital. Cowen and its afﬁ liates offer industry focused investment banking for growth-oriented companies, domain knowledge-driven research, a sales and trading platform for institutional investors, global clearing and commission management services and also a comprehensive suite of prime brokerage services. Founded in 1918, the ﬁ rm is headquartered in New York and has ofﬁ ces worldwide. To download Cowen’s investor relations app, which offers access to SEC ﬁ lings, news releases, webcasts and presentations, please visit the App Store for iPhone and iPad or Google Play for Android mobile devices. ©2018 COWEN INC. ALL RIGHTS RESERVED. COWEN.COM COWEN INC. COWEN COWENRESEARCH ANNUAL REPORT 2017 COWEN.COM COWEN INC. COWEN COWENRESEARCH

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