UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2022
For the transition period from ___________to ___________
Commission file number 0-5703
Siebert Financial Corp.
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of incorporation or organization)
11-1796714
(I.R.S. Employer Identification No.)
535 Fifth Avenue, 4th Floor, New York, NY
(Address of principal executive offices)
10017
(Zip Code)
(212) 644-2400
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
Common Stock - $0.01 par value
Trading Symbol(s)
SIEB
Name of each exchange on which registered
The Nasdaq Capital Market
Securities registered under Section 12(g) of the Exchange Act:
NONE
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer,” smaller reporting company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act:
Large accelerated filer ☐
Non-accelerated filer ☒
Accelerated filer ☐
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒
The aggregate market value of the Common Stock held by non-affiliates of the registrant (based upon the last sale price of the Common Stock
reported on the Nasdaq Capital Market as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2022),
was approximately $18,035,000.
The number of shares of the registrant’s outstanding Common Stock, as of March 20, 2023, was 32,505,329 shares.
Documents Incorporated by Reference: None
SIEBERT FINANCIAL CORP.
INDEX
PART I
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
ITEM 7. MANAGEMENT’S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 16. FORM 10-K SUMMARY
SIGNATURES
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Forward-Looking Statements
For purposes of this Annual Report on Form 10-K (“Report”), the terms “Siebert,” “Company,” “we,” “us” and “our” refer to Siebert Financial
Corp., its wholly-owned and majority-owned subsidiaries collectively, unless the context otherwise requires.
The statements contained throughout this Report, including any documents incorporated by reference, that are not historical facts, including
statements about our beliefs and expectations, are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of
1995. Forward-looking statements include statements preceded by, followed by or that include the words “may,” “could,” “would,” “should,” “believe,”
“expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “intend” and similar words or expressions. In addition, any statements that refer to
expectations, projections, or other characterizations of future events or circumstances are forward-looking statements.
These forward-looking statements, which reflect our beliefs, objectives, and expectations as of the date hereof, are based on the best judgement of
management. All forward-looking statements speak only as of the date on which they are made. Such forward-looking statements are subject to certain
risks, uncertainties and assumptions relating to factors that could cause actual results to differ materially from those anticipated in such statements,
including, without limitation, the following: economic, social and political conditions, global economic downturns resulting from extraordinary events;
securities industry risks; interest rate risks; liquidity risks; credit risk with clients and counterparties; risk of liability for errors in clearing functions;
systemic risk; systems failures, delays and capacity constraints; network security risks; competition; reliance on external service providers; new laws and
regulations affecting our business; net capital requirements; extensive regulation, regulatory uncertainties and legal matters; failure to maintain
relationships with employees, customers, business partners or governmental entities; the inability to achieve synergies or to implement integration plans
and other consequences associated with risks and uncertainties detailed in Part I, Item 1A - Risk Factors of this Form 10-K as well as in our filings with the
SEC.
We caution that the foregoing list of factors is not exclusive, and new factors may emerge, or changes to the foregoing factors may occur, that
could impact our business. We undertake no obligation to publicly update or revise these statements, whether as a result of new information, future events
or otherwise, except to the extent required by the federal securities laws.
Siebert 2022 Form-10K 1
ITEM 1. BUSINESS
Overview of Company
PART I
Siebert Financial Corp., together with its subsidiaries, is a diversified financial services firm and provides a full range of brokerage and financial
advisory services including securities brokerage, investment advisory and insurance offerings, and corporate stock plan administration solutions. Our firm
is characterized by building solid relationships with our clients through exceptional personal service and proven performance. We have a strong legacy and
continue to evolve in our approach to take advantage of ever-evolving opportunities in the financial services industry.
We conduct the following lines of business through our wholly-owned and majority-owned subsidiaries:
• Muriel Siebert & Co., Inc. (“MSCO”) provides retail brokerage services. MSCO is a Delaware corporation and broker-dealer registered with the
Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (“Exchange Act”) and the Commodity Exchange Act of
1936, and member of the Financial Industry Regulatory Authority (“FINRA”), the New York Stock Exchange (“NYSE”), the Securities Investor
Protection Corporation (“SIPC”), Euroclear, and the National Futures Association (“NFA”).
•
Siebert AdvisorNXT, Inc. (“SNXT”) provides investment advisory services. SNXT is a New York corporation registered with the SEC as a
Registered Investment Advisor (“RIA”) under the Investment Advisers Act of 1940 (“Advisers Act”).
Park Wilshire Companies, Inc. (“PW”) provides insurance services. PW is a Texas corporation and licensed insurance agency
•
•
Siebert Technologies, LLC. (“STCH”) provides robo-advisory technology development. STCH is a Nevada limited liability company.
• RISE Financial Services, LLC, (“RISE”) is a Delaware limited liability company and a broker-dealer registered with the SEC and NFA.
•
StockCross Digital Solutions, Ltd. (“STXD”) is an inactive subsidiary headquartered in Bermuda.
For purposes of this Annual Report, the terms “Siebert,” “Company,” “we,” “us” and “our” refer to Siebert Financial Corp., MSCO, SNXT, PW,
STCH, RISE, and STXD collectively, unless the context otherwise requires.
Our headquarters are located at 535 Fifth Avenue, 4 Floor, New York, NY 10017, with primary operations in New Jersey, Florida, and California.
Our phone number is (212) 644-2400 and our Internet address is www.siebert.com. We have 12 branch offices throughout the U.S. and clients around the
world.
th
As of March 20, 2023, we had 117 full-time employees. Our common stock is registered under Section 12 of the Exchange Act, and we file
periodic reports with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and proxy and
information statements on Schedule 14. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other
information regarding companies that file documents electronically with the SEC. Our SEC filings are also available through our website at
www.siebert.com, where investors are able to obtain copies of our public filings free of charge. Our common stock, par value $.01 per share trades on the
Nasdaq Capital Market under the symbol “SIEB.”
Subsidiaries and Business Offerings
Muriel Siebert & Co., Inc.
Overview
MSCO has been providing online and traditional discount brokerage services to clients for over 50 years. MSCO was founded in 1967 by Muriel
F. (“Mickie”) Siebert, a trailblazer who was the first woman to own a seat on the NYSE and the first to head one of its member firms. On May 1, 1975,
after the federal government banned fixed commissions by brokers, Mickie broke barriers and declared MSCO a discount brokerage firm.
In May 2022, MSCO received approval to expand its clearing services in the U.S. by acting as a correspondent clearing firm for institutional and
online broker-dealers, registered investment advisors and other asset managers. Achieving this milestone strengthens our core competencies, diversifies our
business, and reinforces our commitment as a strategic partner to our clients.
Today, MSCO offers a wide range of products and services and is the primary subsidiary of Siebert.
Products and Services
Self-directed trading
•
• Market making and fixed income investments
•
•
• Wealth management / financial advice
Stock borrow / stock loan
Equity compensation plans (Siebert Corporate Services)
Siebert 2022 Form-10K 2
Additional Information
Brokerage and Related Services
MSCO offers a wide selection of quality investment services, including broker assisted trades and free online self-service features such as real
time quotes, market data, and trading tools.
MSCO is a self-clearing broker-dealer and also clears with National Financial Services Corp. (“NFS”), a wholly-owned subsidiary of FMR, LLC.
Securities Finance and Market Making
We make markets in multiple exchanges and in over 2,000 equity securities and fixed income products. The client service offerings within our
Market Making division have evolved with capital markets and different trading strategies. Our strengths include trading experience in domestic markets,
enhanced liquidity, and the search for significant price improvement. The ability of our Market Making division to execute large orders continues to be a
strategic advantage in supporting the growth of our Corporate Services division.
We operate our Securities Finance Group, a division which consists primarily of our stock borrow / stock loan and related services. Our
management team brings decades of securities finance experience and we have seen positive results in recent years and are committed to continue to
expand our securities finance operations.
Corporate Services
We are dedicated to helping publicly traded companies and their employees manage their equity compensation plans. Corporate services is a key
component of our business, and we leverage our technology partnerships to create a distinct advantage through FIX connection trading and real-time
transaction reporting. Our corporate services offering primarily supports small and mid-cap public companies.
Independent Retail Execution Services
MSCO and its clearing firms monitor order flow in efforts to ensure that customers are getting the best possible trade executions. All equity orders
are routed in a manner intended to afford MSCO’s customers the most favorable terms on all orders. MSCO also offers customers execution services
through various market centers for an additional fee, providing customers access to numerous market centers before and after regular market hours.
Customers may buy or sell fixed income securities, municipal bonds, corporate bonds, mortgage-backed securities, government sponsored enterprises, unit
investment trusts, mutual funds, certificates of deposit, and other securities. These transactions are serviced by MSCO’s registered representatives.
Retail Customer Service
MSCO believes that its superior customer service enhances its ability to compete with larger brokerage firms and provides retail customers with
personal service via access to dedicated customer service personnel for all of its products and services. Customer service personnel, located in MSCO’s
branch offices, are cross trained to assist with all clients’ needs for a reliable experience. MSCO uses a variety of customer relationship management
systems that enables representatives in any location to review and respond to customers’ requests in a timely manner.
Retirement Accounts
MSCO offers customers a variety of self-directed retirement accounts. Each IRA, SEP IRA, ROTH IRA, and KEOGH account can be invested in
a variety of qualified investments in a consolidated account. MSCO acts as its own custodian for retirement accounts and also utilizes NFS for IRA
custody. MSCO offers self-directed retirement accounts and also has registered representatives dedicated to assisting clients in meeting their retirement
goals.
Customer Financing
Customer margin accounts are carried whereby money is lent to customers for a portion of the market value of marginable securities held in the
customer’s account. Margin loans are collateralized by these securities. Customers also may sell securities short in a margin account, subject to minimum
equity and applicable margin requirements, and the availability of such securities to be borrowed. In permitting customers to engage in margin financing,
short sale or any other transaction, MSCO assumes the risk of its customers’ failure to meet their obligations in the event of adverse changes in the market
affect the value of the margined securities positions. MSCO and NFS reserve the right to set margin requirements higher than those established by the
Federal Reserve System.
MSCO has established policies with respect to maximum purchase commitments for new customers or customers with inadequate collateral to
support a requested purchase. When transactions occur outside normal guidelines, MSCO monitors accounts closely until their payment obligations are
completed. If the customer does not meet the required commitments, MSCO takes steps to close out the position and minimize any loss. In the last five
years, MSCO has not had any significant losses as a result of customers failing to meet commitments.
Siebert 2022 Form-10K 3
Information and Communications Systems
MSCO relies heavily on its data technology platform and the platform provided by its clearing agents. These platforms offer interfaces to MSCO’s
clearing service providers’ computing systems where all customer account records are kept and are accessible through MSCO’s data technology platform.
MSCO’s systems also utilize browser-based access and other types of data communications. MSCO’s representatives use NFS systems, by way of MSCO’s
data technology platform, to perform daily operational functions which include trade entry, trade reporting, clearing-related activities, risk management and
account maintenance.
MSCO’s data technology platform offers services used in direct relation to customer activities as well as support for corporate use. Some of these
services include email and messaging, market data systems and third-party trading systems, business productivity tools and customer relationship
management systems. MSCO’s data network is designed with redundancies in case a significant business disruption occurs.
To ensure reliability and to conform to regulatory requirements related to business continuity, MSCO maintains backup systems and backup data,
leverages cloud-based technology, and has a full-time offsite disaster recovery site to ensure business continuity during a potential wide-spread disruption.
However, despite the preventive and protective measures in place, in the event of a wide-spread disruption, MSCO’s ability to satisfy the obligations to
customers and other securities firms may be significantly hampered or completely disrupted. For more information regarding our business continuity plan,
refer to the Business Continuity Statement on our website.
We are consistently enhancing technology for both our customers as well as our internal operations. We are currently in the process of enhancing
our retail trading platform to provide a seamless user experience for our customers and streamline our operations.
Siebert AdvisorNXT, Inc.
Overview
SNXT offers customers our proprietary robo-advisory technology that utilizes trading algorithms initially developed by STCH to create our robo-
advisor. This technology provides clients with cost-efficient, competitively priced, and automated wealth management solutions intended to maximize
portfolio returns based on specific risk tolerance. The platform utilizes Nobel Prize-winning Modern Portfolio Theory (“MPT”) to create optimal portfolios
for each client. We provide web-based tools to enable clients to monitor and interact with the robo-advisor’s automated portfolio manager application. The
robo-advisor selects low-cost, well-managed, exchange-traded funds (“ETFs”) and exchange-traded notes (“ETNs”) that represent the asset classes that
provide clients the necessary risk-adjusted exposure given current market conditions. The robo-advisor continuously monitors and periodically rebalances
portfolios to address changes in market and economic conditions.
Products and Services
• Managed portfolios
•
Separately managed accounts
Park Wilshire Companies, Inc.
Overview
PW is a full-service insurance agency founded in 2010. Through PW our product offerings include various insurance products such as fixed
annuities and property and casualty insurance.
Products and Services
Fixed annuities
Personal insurance
Property and casualty insurance
•
•
•
• Natural disaster insurance
•
Life and disability
Siebert 2022 Form-10K 4
Siebert Technologies, LLC
Overview
STCH is a technology company initially tasked with developing a robo-advisor platform. Through STCH, we expanded our products and services
by offering a robo-advisor through SXNT, and we plan to use this subsidiary for future fintech opportunities and products and services.
RISE Financial Services, LLC
During 2021 and 2022, RISE Prime Services, LLC was a prime broker focused on providing institutional quality services to hedge funds and other
institutional investors.
Reorganization of RISE, Tigress, and Hedge Connection
In 2021 and 2022, Siebert and RISE engaged in certain transactions with Tigress Holdings, LLC (“Tigress”) and Hedge Connection, Inc. (“Hedge
Connection”) to exchange equity, cash, and respective leadership positions. Based upon the strategic direction of these ventures, management of the
respective businesses decided to unwind the original transactions with Siebert, RISE, Hedge Connection and Tigress. See Note 3 – Transactions with
Tigress and Hedge Connection for further detail on these transactions.
Siebert management is assessing the future strategic direction of RISE, taking into consideration current market conditions, demand trends, and
resources.
Competition
We encounter significant competition from full-commission, online and discount brokerage firms, including zero commission firms, as well as
from financial institutions, mutual fund sponsors, venture-backed technology and cryptocurrency firms, and other organizations. Although there has been
consolidation in the industry in both the online and traditional brokerage business during recent years, we believe that additional competitors such as banks,
insurance companies, providers of online financial and information services, and others will continue to be attracted to the brokerage industry. We compete
with a wide variety of vendors of financial services for the same customers; however, our success in the financial services industry is a result of our high-
quality customer service, responsiveness, products offered, and excellent executions.
Siebert 2022 Form-10K 5
Cybersecurity
Cybersecurity presents significant challenges to the business community in general, as well as to the financial services industry. Increasingly, bad
actors, both domestically and internationally, attempt to steal personal data and/or interrupt the normal functioning of businesses through accessing
individuals’ and companies’ files and equipment connected to the internet. Recently, intruders have become increasingly sophisticated and use deceptive
methods to steal funds and personally identifiable information which they either take for their own purposes, release to the internet, or hold for ransom.
Regulators are increasingly requiring companies to provide more advanced levels of cybersecurity measures. We continue to maintain systems and ongoing
planning measures to prevent any such attack from disrupting our services to clients as well as to prevent any loss of data concerning our clients, their
financial affairs, and company-privileged information. We contract cybersecurity consultants as well as other vendors to oversee detection and defense
from such attacks. Refer to Item 1A. – Risk Factors for more detail.
Regulations
Overview
The securities industry in the U.S. is subject to extensive regulation under both federal and state laws. The SEC is the federal agency charged with
administration of the federal securities laws. MSCO and RISE are registered as broker-dealers with the SEC. MSCO is a member of the NYSE and the
FINRA. Much of the regulation of broker-dealers has been delegated to self-regulatory organizations (“SROs”), principally FINRA, which is MSCO’s and
RISE’s primary regulator with respect to financial and operational compliance. These SROs adopt rules (subject to approval by the SEC) governing the
industry and conduct periodic examinations of broker-dealers. Securities firms are also subject to regulation by state securities authorities in the states in
which they do business. MSCO is registered as a broker-dealer in 50 states, the District of Columbia, and Puerto Rico, and RISE is registered as a broker-
dealer in 22 states and territories. These regulations affect our business operations and impose capital, client protection, and market conduct requirements.
Conduct and Training
The principal purpose of regulation and discipline of broker-dealers is the protection of customers and the securities markets. The regulations to
which broker-dealers are subject cover all aspects of the securities business, including training of personnel, sales methods, trading practices among broker-
dealers, uses and safekeeping of customers’ funds and securities, capital structure of securities firms, record keeping, fee arrangements, disclosure to
clients, and the conduct of directors, officers and employees. Additional legislation, changes in rules promulgated by the SEC and by SROs or changes in
the interpretation or enforcement of existing laws and rules may directly affect the method of operation and profitability of broker-dealers. The SEC, SROs
and state securities authorities may conduct administrative proceedings which can result in censure, fine, cease and desist orders or suspension or expulsion
of a broker-dealer, its officers or its employees.
Dodd-Frank Act of 2010
As a result of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 (“Dodd-Frank”), the adoption of
implementing regulations by the federal regulatory agencies, as well as other recent regulatory reforms, we have experienced significant changes in the
laws and regulations that apply to us, how we are regulated, and regulatory expectations in the areas of compliance, risk management, corporate
governance, operations, capital and liquidity.
Regulation Best Interest
Pursuant to the Dodd-Frank Act, the SEC was charged with considering whether broker-dealers should be subject to a standard of care similar to
the fiduciary standard applicable to RIAs. In June 2019, the SEC adopted a package of rulemakings and interpretations related to the provision of advice by
broker-dealers and investment advisers, including Regulation Best Interest and Form CRS. Among other things, Regulation Best Interest requires a broker-
dealer to act in the best interest of a retail customer when making a recommendation to that customer of any securities transaction or investment strategy
involving securities. Form CRS requires that broker-dealers and investment advisers provide retail investors with a brief summary document containing
simple, easy-to-understand information about the nature of the relationship between the parties. Regulation Best Interest and Form CRS had a compliance
date of June 30, 2020.
Regulation Best Interest Rules have impacted the conduct of our business, especially with respect to our business with our retail clients. The need
for enhanced documentation for recommendations of securities transactions to broker-dealer retail clients as well as the increased supervision of sales
practices and transactions increased the amount of record-keeping and training for our sales staff. The related new rules and procedures have and may
continue to bring increased costs associated with compliance and enhanced technology.
Siebert 2022 Form-10K 6
We operate pursuant to Regulation Best Interest Rules and as such, we conducted thorough training of all our employees with respect to the
requirements of Regulation Best Interest. Additionally, we created the Regulation Best Interest Rule’s required documents and completed each of the
required mailings (both electronic and conventional) prior to the effective date. We believe that the changes made to our business processes resulted in
compliance with these new requirements. As business continues to be conducted under the Regulation Best Interest Rules, it is likely that additional
changes may be necessary.
SIPC
As a registered broker-dealer and FINRA member organization, MSCO is required by federal law to belong to the SIPC which provides, in the
event of the liquidation of a broker-dealer, protection for securities held in customer accounts held by the firm of up to $500,000 per customer, subject to a
limitation of $250,000 on claims for cash balances. SIPC is principally funded through assessments on registered broker-dealers. MSCO purchased $50
million additional account protection above SIPC coverage. Equities, bonds, mutual funds and money market funds are included at net asset value for
purposes of SIPC protection and the additional protection. Neither SIPC protection nor the additional protection insures against fluctuations in the market
value of securities.
MSRB
MSCO is also authorized by the Municipal Securities Rulemaking Board (“MSRB”) to affect transactions in municipal securities on behalf of its
customers and has obtained certain additional registrations with the SEC and state regulatory agencies necessary to permit it to engage in certain other
activities incidental to its brokerage business.
Margin Lending
Margin lending activities are subject to limitations imposed by regulations of the Federal Reserve System and FINRA. In general, these
regulations provide that, in the event of a significant decline in the value of securities collateralizing a margin account, we are required to obtain additional
collateral from the borrower or liquidate securities positions. Margin lending arranged by MSCO through third parties is subject to the margin rules of the
Board of Governors of the Federal Reserve System and the NYSE. Under such rules, broker-dealers are limited in the amount they may lend in connection
with certain purchases and short sales of securities and are also required to impose certain maintenance requirements on the amount of securities and cash
held in margin accounts. In addition, those rules and rules of the Chicago Board Options Exchange govern the amount of margin customers must provide
and maintain in writing uncovered options.
Investment Advisers Act of 1940
SNXT is registered with the SEC as an investment adviser pursuant to the Advisers Act. The Advisers Act, together with the SEC’s regulations
and interpretations thereunder, is a highly prescriptive regulatory statute. The SEC is authorized to institute proceedings and impose sanctions for violations
of the Advisers Act, ranging from fines and censures to termination of an adviser’s registration and, in the case of willful violations, can refer a matter to
the Unites States Department of Justice for criminal prosecution.
Under the Advisers Act, an investment adviser (whether or not registered under the Advisers Act) owes fiduciary duties to its clients. These duties
impose standards, requirements and limitations on, among other things, trading for proprietary, personal and client accounts; allocations of investment
opportunities among clients; use of “soft dollar arrangements,” a practice that involves using client brokerage commissions to purchase research or other
services that help managers make investment decisions; execution of transactions; and recommendations to clients.
As an RIA, SNXT is subject to additional requirements that cover, among other things, disclosure of information about its business to clients;
maintenance of written policies and procedures; maintenance of extensive books and records; restrictions on the types of fees SNXT may charge; custody
of client assets; client privacy; advertising; and solicitation of clients. The SEC has legal authority to inspect any investment adviser and typically inspects
a RIA periodically to determine whether the adviser is conducting its activities in compliance with (i) applicable laws and regulations, (ii) disclosures made
to clients and (iii) adequate systems, policies and procedures reasonably designed to prevent and detect violations.
Section 28(e) of the Exchange Act provides a “safe harbor” to investment managers who use commission dollars generated by their advised
accounts to obtain investment research and brokerage services that provide lawful and appropriate assistance to the manager in the performance of
investment decision-making responsibilities. SNXT, as a matter of policy, does not use “soft dollars” and as such, it has no incentive to select or
recommend a broker or dealer based on any interest in receiving research or related services. Rather, as a fiduciary, SNXT selects brokers based on its
clients’ interests in receiving best execution.
Siebert 2022 Form-10K 7
Bank Secrecy Act of 1970
We conduct financial services activities that are subject to the Bank Secrecy Act of 1970 (“BSA”), as amended by the USA PATRIOT Act of 2001
(“PATRIOT Act”), which require financial institutions to develop and implement programs reasonably designed to achieve compliance with these
regulations. The BSA and PATRIOT Act include a variety of monitoring, recordkeeping, and reporting requirements (such as currency transaction reporting
and suspicious activity reporting) as well as identity verification and client due diligence requirements, which are intended to detect, report and/or prevent
money laundering, and the financing of terrorism. In addition, we are subject to U.S. sanctions programs administered by the Office of Foreign Assets
Control.
Net Capital
As registered broker-dealers, MSCO and RISE are subject to the requirements of the Exchange Act relating to broker-dealers such as minimum
net capital requirements under the SEC Uniform Net Capital Rule (Rule 15c3-1) and segregation of fully paid client funds and securities under the SEC
Customer Protection Rule (Rule 15c3-3), administered by the SEC and FINRA.
Net capital rules are designed to protect clients, counterparties and creditors by requiring a broker-dealer to have sufficient liquid resources
available to satisfy its financial obligations. Net capital is a measure of a broker-dealer’s readily available liquid assets, reduced by its total liabilities other
than approved subordinated debt. Under the SEC Uniform Net Capital Rule, a broker-dealer may not repay any subordinated borrowings, pay cash
dividends or make any unsecured advances or loans to its parent company or employees if such payment would result in a net capital amount below
required levels. Failure to maintain the required regulatory net capital may subject a firm to suspension or expulsion by the NYSE or FINRA, as well as
certain punitive actions by the SEC and other regulatory bodies, which ultimately could require a firm’s liquidation.
Best Execution
As explained in SEC guidelines and FINRA rules, brokers are required to seek the “best execution” reasonably available for their clients’ orders.
In part, this requires brokers to use reasonable diligence so that the price to the client is as favorable as possible under prevailing market conditions. MSCO
and RISE send client orders to a number of market centers, including market makers and exchanges, which encourages competition and ensures
redundancy. For non-directed client orders, it is our policy to route orders to market centers based on a number of factors that are more fully discussed in
the Supplemental Materials of FINRA Rule 5310, including, where applicable, but not necessarily limited to, speed of execution, price improvement
opportunities, differences in price dis-improvement, likelihood of executions, the marketability of the order, size guarantees, service levels and support, the
reliability of order handling systems, client needs and expectations, transaction costs, and whether the firm will receive remuneration for routing order flow
to such market centers. Price improvement is available under certain market conditions and for certain order types and we regularly monitor executions to
ensure best execution standards are met.
Consumer Financial Information Privacy
In providing services to clients, we manage, utilize and store sensitive and confidential client data, including personal data. As a result, we are
subject to numerous laws and regulations designed to protect this information, such as U.S. federal and state laws governing the protection of personally
identifiable information. These laws and regulations are increasing in complexity and number, change frequently and sometimes conflict. To the extent they
are applicable to us, we must comply with federal and state information-related laws and regulations in the United States, including the Gramm-Leach-
Bliley Act of 1999, SEC Regulation S-P, the Fair Credit Reporting Act of 1970, as amended, and Regulation S-ID, as well as the California Consumer
Protection Act and further potential federal and state requirements.
Human Capital
Our success depends on our ability to attract, hire, retain and develop highly skilled professionals in a variety of specialties, including finance,
technology, compliance, business development, cybersecurity and management. Due to the complexity of our business, we compete for talent with other
companies, both inside and outside of our industry, and in multiple geographical areas in the U.S.
Our human capital efforts focus on establishing a culture of service that emphasizes taking care of our employees, so they can take care of our
clients. To that end, we seek employees who are approachable, proactive, collaborative, agile and innovative, and who share our commitment to excellence,
integrity, and service. As of March 20, 2023, we had 117 employees, one of whom was a corporate officer. None of our employees are represented by a
union, and we believe that relations with our employees are good.
Siebert 2022 Form-10K 8
To maintain a high-caliber, values-driven workforce that is committed to our culture, we strive to offer total rewards, including compensation and
benefits that position our company as an employer of choice. We design our compensation to be competitive in the markets in which we compete, and
closely monitor industry trends and practices to ensure we are able to attract and retain the personnel who are critical to our success. To support our
employees’ health and well-being, we offer competitive medical, dental and vision plans as well as other health benefits.
We believe in our employees’ potential and provide training and development opportunities intended to maximize their performance and
professional growth. We require all of our employees to complete courses in key regulatory areas, such as insider trading and anti-money laundering
compliance.
We aim to provide a safe, inclusive environment for our employees, where they feel engaged in our business, supported in who they are and
empowered to succeed. We are committed to providing a workplace that is free from violence, harassment and other unsafe or disruptive conditions, and
require our personnel to attend regular training sessions and workshops on those topics.
Siebert 2022 Form-10K 9
ITEM 1A. RISK FACTORS
Regulatory Risks
Legislation has and may continue to result in changes to rules and regulations applicable to our business, which may negatively impact our business
and financial results.
New laws, rules, regulations and guidance, or changes in the interpretation and enforcement of existing federal, state, foreign and SRO laws, rules,
regulations and guidance may directly affect our business and the profitability of Siebert or the operation of specific business lines. In addition, new and
changing laws, rules, regulation and guidance could result in limitations on the lines of business we conduct, modifications to our business practices, more
stringent capital and liquidity requirements or other costs and could limit our ability to return capital to stockholders.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), enacted in 2010, required many federal agencies to
adopt new rules and regulations applicable to the financial services industry and called for many studies regarding various industry practices. In particular,
the Dodd-Frank Act gave the SEC discretion to adopt rules regarding standards of conduct for broker-dealers providing investment advice to retail
customers.
The rules and interpretations adopted by the SEC in June 2019 include Regulation Best Interest and the new Form CRS Relationship Summary,
which are intended to enhance the quality and transparency of retail investors' relationships with broker-dealers and investment advisers. Regulation Best
Interest enhances the broker-dealer standard of conduct beyond existing suitability obligations, requiring compliance with disclosure, care, conflict of
interest and compliance obligations. The regulation requires that a broker-dealer or natural person who is an associated person of the broker-dealer shall act
in the best interest of the retail customer at the time it makes a recommendation of any securities transaction or investment strategy involving securities,
prioritizing the interests of the customer above any interests of the broker-dealer or its associated persons. Among other things, this requires the broker-
dealer to mitigate conflicts of interest arising from financial incentives in selling securities products.
The new rules and processes related thereto have and will most likely continue to involve increased costs, including, but not limited to,
compliance costs associated with new or enhanced technology. In addition to the foregoing laws affecting regulation of our industry, Congress is
considering various proposals to increase taxation relating to investments, which may adversely impact the volume of trading and other transactions from
which we derive our revenue.
It is not possible to determine the extent of the impact of any new laws, regulations or initiatives that may be imposed, or whether any existing
proposals will become law. Conformance with any new laws or regulations could make compliance more difficult and expensive and affect the manner in
which we conduct business.
We are subject to extensive government regulation and to third party litigation risk and regulatory risk which could result in significant liabilities and
reputational harm which, in turn, could materially adversely affect our business, results of operations and financial condition.
Our business is subject to extensive regulation in the U.S., at both the federal and state level. We are also subject to regulation by SROs and other
regulatory bodies in the U.S., such as the SEC, the NYSE, FINRA, MSRB, the Commodity Futures Trading Commission (“CFTC”) and the NFA. MSCO is
registered as a broker-dealer in 50 states, the District of Columbia, and Puerto Rico, and RISE is registered as a broker-dealer in 22 states and territories.
The regulations to which MSCO and RISE are subject as broker-dealers cover all aspects of the securities business including training of personnel, sales
methods, trading practices, uses and safe keeping of customers’ funds and securities, capital structure, record keeping, fee arrangements, disclosure and the
conduct of directors, officers and employees.
SNXT is registered as an investment adviser with the SEC under the Advisers Act, and its business is highly regulated. The Advisers Act imposes
numerous obligations on RIAs, including fiduciary, record keeping, operational and disclosure obligations. Moreover, the Advisers Act grants broad
administrative powers to regulatory agencies such as the SEC to regulate investment advisory businesses. If the SEC or other government agencies believe
that SNXT has failed to comply with applicable laws or regulations, these agencies have the power to impose fines, suspensions of a registrant and
individual employees or other sanctions, which could include revocation of SNXT’s registration under the Advisers Act. SNXT is also subject to the
provisions and regulations of ERISA, to the extent that SNXT acts as a “fiduciary” under ERISA with respect to certain of its clients. ERISA and the
applicable provisions of the federal tax laws impose a number of duties on persons who are fiduciaries under ERISA and prohibit certain transactions
involving the assets of each ERISA plan which is a client, as well as certain transactions by the fiduciaries (and certain other related parties) to such plans.
Our subsidiaries, RISE and MSCO, are also regulated by the National Futures Association (“NFA”) and function as a registered introducing broker.
Siebert 2022 Form-10K 10
The laws, rules and regulations, as well as governmental policies and accounting principles, governing our business and the financial services and
banking industries generally have changed significantly over recent years and are expected to continue to do so. We cannot predict which changes in laws,
rules, regulations, governmental policies or accounting principles will be adopted. Any changes in the laws, rules, regulations, governmental policies or
accounting principles relating to our business could materially and adversely affect our business, results of operations and financial condition.
Additionally, like other participants in the financial services industry, we and our subsidiaries face the risks of lawsuits by clients and risks of
regulatory proceeding against us. The outcome of regulatory proceedings and client lawsuits is uncertain and difficult to predict. An adverse resolution of
any regulatory proceeding or client lawsuit against us could result in substantial costs or reputational harm to us. Further, adverse proceedings could have
an adverse effect on our ability to retain key registered representatives, investment advisers and wealth managers, and to retain existing clients or attract
new clients, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects. Refer to Item 3 –
Legal Proceedings for additional detail.
We are subject to net capital requirements.
The SEC, FINRA, and various other securities and commodities exchanges and other regulatory bodies in the U.S. have rules with respect to net
capital requirements which affect us. These rules have the effect of requiring that at least a substantial portion of a broker-dealer’s assets be kept in cash or
highly liquid investments. Our compliance with the net capital requirements could limit operations that require intensive use of capital, such as
underwriting or trading activities. These rules could also restrict our ability to withdraw our capital, even in circumstances where we have more than the
minimum amount of required capital, which, in turn, could limit our ability to implement growth strategies. In addition, a change in such rules, or the
imposition of new rules, affecting the scope, coverage, calculation or amount of such net capital requirements, or a significant operating loss or any
unusually large charge against net capital, could have similar adverse effects.
Risks Related to Our Technology and Information Systems
We rely on information processing and communications systems to process and record our transactions.
Our operations rely heavily on information processing and communications systems. Our system for processing securities transactions is highly
automated. Failure of our information processing or communications systems for a significant period of time could limit our ability to process a large
volume of transactions accurately and rapidly. This could cause us to be unable to satisfy our obligations to customers and other securities firms and could
result in regulatory violations. External events, such as an earthquake, terrorist attack or power failure, loss of external information feeds, such as security
price information, as well as internal malfunctions such as those that could occur during the implementation of system modifications, could render part or
all of these systems inoperative.
We rely on third-party platforms for information and communications systems.
We rely heavily on our data technology platforms and the platforms provided by our clearing agents. These platforms offer interfaces to our
clearing service providers’ computing systems where customer account records are kept and are accessible through our data technology platforms. Our
systems also utilize browser-based access and other types of data communications.
Siebert 2022 Form-10K 11
Our data technology platforms offer services used in direct relation to customer activities as well as support for corporate use. Some of these
services include email and messaging, market data systems and third-party trading systems, business productivity tools and customer relationship
management systems. Our data network is designed with redundancies in case a significant business disruption occurs.
We also rely on third parties that provide data center facilities, infrastructure, back-office systems for clearance, settlement and accounting,
customer relationship management, compliance and risk software and systems, website functionality and access, databases, data center facilities and cloud
computing, all of which are critical to our operations. To ensure reliability and to conform to regulatory requirements related to business continuity, we
maintain backup systems and backup data, leverage cloud-based technology, and have a full-time offsite disaster recovery site to ensure business continuity
during a potential wide-spread disruption. However, despite the preventive and protective measures in place, in the event of a wide-spread disruption of our
systems or those of the third-parties upon whom we rely, our ability to satisfy the obligations to customers and other securities firms may be significantly
hampered or completely disrupted.
Failure to protect client data or prevent breaches of our information systems could expose us to liability or reputational damage.
We are dependent on information technology networks and systems to securely process, transmit and store electronic information and to
communicate among our branch offices and with our clients and vendors. As the breadth and complexity of this infrastructure continues to grow, the
potential risk of security breaches and cyber-attacks increases. As a financial services company, we are continuously subject to cyber-attacks by third
parties. Any such security breach could lead to shutdowns or disruptions of our systems and potential unauthorized disclosure of confidential information.
In addition, vulnerabilities of our external service providers and other third parties could pose security risks to client information. The secure transmission
of confidential information over public networks is also a critical element of our operations.
In providing services to clients, we manage, utilize and store sensitive and confidential client data, including personal data. As a result, we are
subject to numerous laws and regulations designed to protect this information, such as U.S. federal and state laws governing the protection of personally
identifiable information. These laws and regulations are increasing in complexity and number, change frequently and sometimes conflict. If any person,
including any of our employees, negligently disregards or intentionally breaches our established controls with respect to client data, or otherwise
mismanages or misappropriates that data, we could be subject to significant monetary damages, regulatory enforcement actions, fines and/or criminal
prosecution in one or more jurisdictions. Unauthorized disclosure of sensitive or confidential client data, whether through systems failure, employee
negligence, fraud or misappropriation, could damage our reputation and cause us to lose clients. Similarly, unauthorized access to or through our
information systems, whether by our employees or third parties, including a cyber-attack by third parties who may deploy viruses, worms or other
malicious software programs, could result in negative publicity, significant remediation costs, legal liability, and damage to our reputation and could have a
material adverse effect on our results of operations. In addition, our liability insurance might not be sufficient in type or amount to cover us against claims
related to security breaches, cyber-attacks and other related breaches.
Siebert 2022 Form-10K 12
We may be exposed to damage to our business or our reputation by cybersecurity breaches.
As the world becomes more interconnected through the use of the internet and users rely more extensively on the internet and the cloud for the
transmission and storage of data, such information becomes more susceptible to incursion by hackers and other parties intent on stealing or destroying data
on which we or our customers rely. We face an evolving landscape of cybersecurity threats in which hackers use a complex array of means to perpetrate
cyber-attacks, including the use of stolen access credentials, malware, ransomware, phishing, structured query language injection attacks, and distributed
denial-of-service attacks, among other means. These cybersecurity incidents have increased in number and severity and it is expected that these trends will
continue. Should we be affected by such an incident, we may incur substantial costs and suffer other negative consequences, which may include:
• Remediation costs, such as liability for stolen assets or information, repairs of system damage, and incentives to customers or business partners in
an effort to maintain relationships after an attack;
•
•
•
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Increased cybersecurity protection costs, which may include the costs of making organizational changes, deploying additional personnel and
protection technologies, training employees, and engaging third party experts and consultants;
Lost revenues resulting from the unauthorized use of proprietary information or the failure to retain or attract customers following an attack;
Litigation and legal risks, including regulatory actions by state and federal regulators; and
Loss of reputation.
Increasingly, intruders attempt to steal significant amounts of data, including personally identifiable data and either hold such data for ransom or
release it onto the internet, exposing our clients to financial or other harm and thereby significantly increasing our liability in such cases. Our regulators
have introduced programs to review our protections against such incidents which, if they determined that our systems do not reasonably protect our clients’
assets and their data, could result in enforcement activity and sanctions.
We have and continue to introduce systems and software to prevent any such incidents and review and increase our defenses to such issues
through the use of various services, programs and outside vendors. We contract cybersecurity consultants and also review and revise our cybersecurity
policy to ensure that it remains up to date. In the event that we experience a material cybersecurity incident or identify a material cybersecurity threat, we
will make all reasonable efforts to properly disclose it in a timely fashion. It is impossible, however, for us to know when or if such incidents may arise or
the business impact of any such incident.
As a result of such risks, we have and are likely to incur significant costs in preparing our infrastructure and maintaining it to resist any such
attacks.
An increase in volume on our systems or other events could cause them to malfunction.
Most of our trade orders are received and processed electronically. This method of trading is heavily dependent on the integrity of the electronic
systems supporting it. While we have never experienced a significant failure of our trading systems, heavy stress placed on our systems during peak trading
times could cause our systems to operate at unacceptably low speeds or fail altogether. Any significant degradation or failure of our systems or the systems
of third parties involved in the trading process (e.g., online and internet service providers, record keeping and data processing functions performed by third
parties, and third party software), even for a short time, could cause customers to suffer delays in trading. These delays could cause substantial losses for
customers and could subject us to claims from these customers for losses. There can be no assurance that our network structure will operate appropriately
in the event of a subsystem, component or software failure. In addition, we cannot assure that we will be able to prevent an extended systems failure in the
event of a power or telecommunications failure, an earthquake, terrorist attack, fire or any act of God. Any systems failure that causes interruptions in our
operations could have a material adverse effect on our business, financial condition and operating results.
Rapid market or technological changes may render our technology obsolete or decrease the attractiveness of our products and services to our clients.
We must continue to enhance and improve our technology and electronic services. The electronic financial services industry is characterized by
significant structural changes, increasingly complex systems and infrastructures, changes in clients’ needs and preferences, and new business models. If
new industry standards and practices emerge and our competitors release new technology before us, our existing technology, systems and electronic trading
services may become obsolete or our existing business may be harmed.
Siebert 2022 Form-10K 13
Our future success will depend on our ability to:
Enhance our existing products and services;
•
• Develop and/or license new products and technologies that address the increasingly sophisticated and varied needs of our clients and prospective
clients;
• Continue to attract highly-skilled technology personnel; and
• Respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.
Developing our electronic services, our implementation and utilization of our robo-advisor and other technology entails significant technical and
business risks. We may use new technologies ineffectively or we may fail to adapt our electronic trading platform, information databases and network
infrastructure to client requirements or emerging industry standards. If we face material delays in introducing new services, products and enhancements,
our clients may forego the use of our products and use those of our competitors.
Further, the adoption of new internet, networking or telecommunications technologies may require us to devote substantial resources to modify
and adapt our services. We cannot assure that we will be able to successfully implement new technologies or adapt our proprietary technology and
transaction-processing systems to client requirements or emerging industry standards. We cannot assure that we will be able to respond in a timely manner
to changing market conditions or client requirements.
Risks Related to Our Business Operations
Potential strategic acquisitions and other business growth could increase costs and regulatory and integration risks.
Acquisitions involve risks that could adversely affect our business. We may pursue acquisitions of businesses and technologies. Acquisitions and
other transactions entail numerous risks, including:
Failure to achieve expected synergies;
• Difficulties in the integration of acquired operations, services and products;
•
• Diversion of management’s attention from other business concerns;
• Assumption of unknown material liabilities of acquired companies;
• Amortization of acquired intangible assets, which could reduce future reported earnings;
•
• Dilution to existing stockholders.
Potential loss of clients or key employees of acquired companies; and
As part of our growth strategy, we regularly consider and from time to time engage in discussions and negotiations regarding transactions such as
acquisitions, mergers, combinations and partnerships within our industry. The purchase price for possible acquisitions could be paid in cash, through the
issuance of our common stock or other securities, borrowings or a combination of these methods.
Our transactions are typically subject to closing conditions including regulatory approvals and the absence of material adverse changes in the
business, operations or financial condition of the entity or part of an entity being acquired or sold. To the extent we enter into an agreement to buy or sell an
entity or part of an entity, there can be no guarantee that the transaction will close when expected or at all. If a material transaction does not close our stock
price could decline.
We cannot be certain that we will be able to identify, consummate and successfully integrate acquisitions, and no assurance can be given with
respect to the timing, likelihood or business effect of any possible transaction. For example, we could begin negotiations that we subsequently decide to
suspend or terminate for a variety of reasons. However, opportunities may arise that we will evaluate and any transactions that we consummate would
involve risks and uncertainties to us. These risks could cause the failure of any anticipated benefits of an acquisition to be realized, which could have a
material adverse effect on our business, financial condition, results of operations and prospects.
In addition, management is assessing the future strategic direction of RISE, taking into consideration current market conditions, demand trends,
and resources. While we believe our expertise and industry relationships will enable us to execute a new strategic direction, our business plan for RISE is
untested, and it is uncertain whether our efforts will attract the customers and revenue necessary to compete in the market.
We may be unable to realize the anticipated benefits of our cost cutting efforts or it may take longer than anticipated for us to realize any benefits from
increased cost efficiencies or economies of scale, if at all.
Our realization of the benefits anticipated as a result of cost cutting efforts and other business efforts and changes will depend in part on the ability
of our management team to implement our business plan. We cannot assure shareholders that there will not be substantial costs associated with these
activities or other negative consequences as a result of these changes. These effects include, but are not limited to, incurring unexpected costs or delays in
connection with implementation of a modified business model, or the failure of our business to perform as expected, which could harm our results of
operations.
Siebert 2022 Form-10K 14
We depend on our ability to attract and retain key personnel.
We are dependent upon our key personnel for our success and the loss of the services of any of these individuals could significantly harm our
business, financial condition and operating results.
Our customers may fail to pay us.
A principal credit risk to which we are exposed on a regular basis is that our customers may fail to pay for their purchases or fail to maintain the
minimum required collateral for amounts borrowed against securities positions maintained by them. We cannot assure that our practices and/or the policies
and procedures we have established will be adequate to prevent a significant credit loss.
Our advisory services subject us to additional risks.
We provide investment advisory services to investors. Through our RIA, SNXT, we offer robo-advisory and investment services. The risks
associated with these investment advisory activities include those arising from possible conflicts of interest, unsuitable investment recommendations,
inadequate due diligence, inadequate disclosure and fraud. Realization of these risks could lead to liability for client losses, regulatory fines, civil penalties
and harm to our reputation and business.
Certain employees, directors and affiliates of RISE and Siebert own equity in RISE Financial Services, LLC
From January 31, 2022 to the date of this Report, RISE issued and Siebert sold membership interests in RISE to certain employees, directors, and
affiliates of RISE and Siebert ranging from 1% to 2% individually. This amount represented, as of the date of this Report, an aggregate of 7% of the total
issued and outstanding membership interests in RISE. As of the date of this Report, Gloria E. Gebbia owns approximately 25% of RISE. As a result, the
interests of the employees, directors, and affiliates of RISE and Siebert who own equity in RISE may differ from the interests of shareholders of Siebert.
Risks Related to Our Common Stock
There may be a limited public market for our common stock; Volatility.
13,198,585 shares of our common stock, or approximately 41% of our shares of our common stock outstanding, are currently held by non-
affiliates as of March 20, 2023. A stock with a small number of shares held by non-affiliates, known as the “float,” will generally be more volatile than a
stock with a large float. Although our common stock is traded on the Nasdaq Capital Market, there can be no assurance that an active public market will
continue.
Our principal shareholder has the ability to control key decisions submitted to a vote of our shareholders.
Gloria E. Gebbia, who is a director of Siebert and the managing member of Kennedy Cabot Acquisition, LLC (“KCA”), has, along with other
family members, the power to elect the entire Board of Directors and, except as otherwise provided by law or our Certificate of Incorporation or by-laws, to
approve any action requiring shareholder approval without a shareholders meeting.
Siebert 2022 Form-10K 15
Future sales of our common stock in the public market could cause the market price of our common stock to drop significantly, even if our business is
doing well.
Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large
number of shares intend to sell shares, could reduce the market price of our common stock and make it more difficult for investors to sell common stock at
a time and price that investors deem appropriate.
In addition, on February 18, 2022, we filed a shelf registration statement on Form S-3 that was declared effective on March 2, 2022 by the SEC for
the potential offering, issuance and sale by us of up to $100.0 million, subject to certain limitations, of our common stock, preferred stock, warrants to
purchase our common Stock and/or preferred stock, units consisting of all or some of these securities and subscription rights to purchase all or some of
these securities. If we sell our common stock, preferred stock, convertible securities and other equity securities in other transactions pursuant to our shelf
registration statement on Form S-3, existing investors may be materially diluted by such subsequent sales, new investors could gain rights superior to our
existing shareholders and the market price of our common stock may drop significantly.
The price of our common stock in the public markets has experienced, and may in the future experience, extreme volatility due to a variety of factors,
many of which are beyond our control.
Since our common stock started trading on the Nasdaq Capital Market, our common stock has been relatively thinly traded and at times been
subject to price volatility. The average daily trading volume from January 1, 2022 to December 31, 2022 was approximately 25,010 shares.
We believe that the trading price of our common stock has at times been influenced by trading factors other than industry or Company-specific
fundamentals, including, without limitation, the sentiment of retail investors (including as may be expressed on financial trading and other social media
sites), speculation in the press, in the investment community, or on the internet, including on online forums and social media, about Siebert, our industry or
our security’s access to margin debt, trading in options and other derivatives on our common stock, and the amount and status of short interest in our
securities (including a “short squeeze”). A “short squeeze” is a technical market condition that occurs when the price of a stock increases substantially,
forcing market participants who had taken a position that its price would fall (i.e., who had sold the stock “short”), to buy it, which in turn may create
significant, short-term demand for the stock not for fundamental reasons, but rather due to the need for such market participants to acquire the stock in
order to forestall the risk of even greater losses. A “short squeeze” condition in the market for a stock can lead to short-term conditions involving very high
volatility and trading that may or may not track fundamental valuation models.
As a result of the foregoing, investors in our common stock may be subject to the risk of significant, short-term price volatility of our common
stock and the trading price of our common stock could decline for reasons unrelated to our business, financial condition, or results of operations. Further, in
the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has
often been instituted against these companies. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even
if unsuccessful, could be costly to defend and a distraction to management.
Siebert 2022 Form-10K 16
Our future ability to pay dividends to holders of our common stock is subject to the discretion of our Board of Directors and will be limited by our
ability to generate sufficient earnings and cash flows.
Payment of future cash dividends on our common stock will depend on our ability to generate earnings and cash flows. However, sufficient cash
may not be available to pay such dividends. Payment of future dividends, if any, will be at the discretion of our Board of Directors and will depend upon a
number of factors that the Board of Directors deems relevant, including future earnings, the success of our business activities, capital requirements, the
general financial condition and future prospects of our business and general business conditions. If we are unable to generate sufficient earnings and cash
flows from our business, we may not be able to pay dividends on our common stock.
Our ability to pay cash dividends on our common stock is also dependent on the ability of our subsidiaries to pay dividends or capital distributions
to Siebert. MSCO and RISE are subject to various regulatory requirements relating to liquidity, capital standards and the use of client funds and securities,
which may limit funds available for payments to Siebert. The ability of our subsidiaries to pay dividends or capital distributions to Siebert may also be
subject to regulatory approval.
Risks Related to Our Industry and Market
Securities market volatility and other securities industry risk could adversely affect our business.
Most of our revenues are derived from our securities brokerage business. Like other businesses operating in the securities industry, our business is
directly affected by volatile trading markets, fluctuations in the volume of market activity, economic and political conditions, upward and downward trends
in business and finance at large, legislation and regulation affecting the national and international business and financial communities, currency values,
inflation, market conditions, the availability and cost of short-term or long-term funding and capital, the credit capacity or perceived credit-worthiness of
the securities industry in the marketplace and the level and volatility of interest rates. We also face risks relating to losses resulting from the ownership of
securities, counterparty failure to meet commitments, customer fraud, employee fraud, issuer fraud, errors and misconduct, failures in connection with the
processing of securities transactions and litigation. A reduction in our revenues or a loss resulting from our ownership of securities or sales or trading of
securities could have a material adverse effect on our business, results of operations and financial condition. In addition, as a result of these risks, our
revenues and operating results may be subject to significant fluctuations from quarter to quarter and from year to year.
Interest rate changes could affect our profitability.
The direction and level of interest rates are important factors in our earnings. Our earnings are affected by the difference between the interest rates
earned on interest-earning assets such as loans and investment securities and interest rates paid on interest-bearing liabilities such as deposits and
borrowings. Increases in interest rates positively impact our revenue from margin and other interest income, and distribution fees received from money
market securities.
As the U.S. economy recovers, aided by stimulus packages and fiscal and monetary policies, inflation has been rising at historically high rates, and
the Federal Reserve has signaled that it will continue increasing the target federal funds effective rate. Although we believe we may benefit from a rising
interest rate environment, a rise in interest rates may cause our funding costs to increase if market conditions or the competitive environment induces us to
raise our interest rates to avoid losing deposits, or replace deposits with higher cost funding sources without offsetting increases in yields on interest-
earning assets which can reduce our interest revenue.
Siebert 2022 Form-10K 17
A prolonged economic slowdown, volatility in the markets, a recession, and uncertainty in the markets could impair our business and harm our
operating results.
Our businesses are, and will continue to be, susceptible to economic slowdowns, recessions and volatility in the markets, which may lead to
financial losses for our customers, and a decrease in revenues and operating results. In addition, global macroeconomic conditions and U.S. financial
markets remain vulnerable to the potential risks posed by exogenous shocks, which could include, among other things, political and financial uncertainty in
the U.S. and the European Union, renewed concern about China’s economy, conflict with Russia and Ukraine, complications involving terrorism and armed
conflicts around the world, or other challenges to global trade or travel, such as might occur in the event of a wider pandemic involving COVID-19. More
generally, because our business is closely correlated to the macroeconomic outlook, a significant deterioration in that outlook or an exogenous shock would
likely have an immediate negative impact on our overall results of operations.
There is intense competition in the brokerage industry.
We encounter significant competition from full-commission, no commission, online and other discount brokerage firms, as well as from financial
institutions, mutual fund sponsors, venture-backed technology and cryptocurrency firms, and other organizations. Over the past several years, price wars
and lower or no commission rates in the discount brokerage business in general have strengthened our competitors. In addition, while the decline of
commissions has been ongoing for decades, some of our competitors charging zero commissions on trades could potentially have an adverse effect on our
commission revenue.
The securities brokerage industry has experienced significant consolidation, which may continue in the future, likely increasing competitive
pressures in the industry. Consolidation could enable other firms to offer a broader range of products and services than we do, or offer them on better terms,
such as higher interest rates paid on cash held in client accounts. We believe that such changes in the industry will continue to strengthen existing
competitors and attract additional competitors such as banks, insurance companies, providers of online financial and information services, and others.
Many of these competitors are larger, more diversified, have greater capital resources, and offer a wider range of services and financial products than we
do. We compete with a wide variety of vendors of financial services for the same customers. Many of these competitors conduct extensive marketing
campaigns and may have or achieve exceptional market name recognition. We may not be able to compete effectively with current or future competitors
with stronger capital position, greater name recognition or who partner or combine with other larger firms.
Siebert 2022 Form-10K 18
Some competitors in the discount brokerage business offer services which we may not offer. In addition, some competitors have continued to offer
flat rate execution fees that are lower than some of our published rates. Industry-wide changes in trading practices are expected to cause continuing
pressure on fees earned by discount brokers for the sale of order flow. Continued or increased competition from ultra-low cost, flat-fee brokers and broader
service offerings from other discount brokers could limit our growth or lead to a decline in our customer base which would adversely affect our business,
results of operations and financial condition. Further, if we are not able to update or adapt our products and services to take advantage of the latest
technologies and standards, or are otherwise unable to offer services to mobile and desktop computing platforms to a growing self-directed investor market,
it could have a material adverse effect on our ability to compete.
Lower price levels in the securities markets may reduce our profitability.
Lower price levels of securities may result in (i) reduced volumes of securities, options and futures transactions, with a consequent reduction in
our commission revenues, and (ii) losses from declines in the market value of securities we hold in investment. In periods of low volume, our levels of
profitability are further adversely affected because certain of our expenses remain relatively fixed. Sudden sharp declines in market values of securities and
the failure of issuers and counterparties to perform their obligations can result in illiquid markets which, in turn, may result in us having difficulty selling
securities. Such negative market conditions, if prolonged, may lower our revenues. A reduction in our revenues could have a material adverse effect on our
business, results of operations and financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We currently maintain 12 branch offices and customers can visit our branch offices to obtain market information, place orders, open accounts,
deliver and receive checks and securities, and obtain related customer services in person. Nevertheless, most of our activities are conducted on the internet
or by telephone and mail. We operate our business out of the following branch offices:
Corporate Headquarters
New York, NY - 535 Fifth Avenue
Branch Offices
Beverly Hills, CA – 190 N Canon
Beverly Hills, CA – 9378 Wilshire
Boca Raton, FL
Boston, MA
Calabasas, CA
Horsham, PA
Jersey City, NJ
Miami, FL
Omaha, NE
Seal Beach, CA
Tampa, FL
Troy, MI
ITEM 3. LEGAL PROCEEDINGS
Approximate
Square Feet
300
900
3,500
1,600
1,700
3,200
2,000
11,000
11,600
2,900
800
1,000
300
We are party to certain claims, suits and complaints arising in the ordinary course of business.
For activity related to operations of StockCross Financial Services, Inc. (“StockCross”) prior to our acquisition of StockCross, FINRA’s Division
of Enforcement is currently investigating UIT transactions that were executed by StockCross that the enforcement staff believes were terminated early. We
believe that many of these transactions were UIT transactions that were the subject of our prior settlements with the Commonwealth of Massachusetts (Dkt.
No. E-2017-0104) and the State of California (CRD No.s: 6670 and 2400211). All of these transactions occurred prior to our acquisition of StockCross on
January 1, 2020.
Siebert 2022 Form-10K 19
Management cannot at this time assess either the duration or the likely outcome or consequences of the FINRA investigation. Nevertheless,
FINRA has the authority to impose sanctions on Siebert or require that it make offers of restitution to other customers who FINRA believes incurred sales
charges in early liquidations of UITs. No assurances can be given that a mutual settlement with FINRA regarding the investigation can be reached or that
any amount paid in settlement will not be material.
In the opinion of management, all other legal matters are without merit, or involve amounts which would not have a material impact on our results
of operations or financial position.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Siebert 2022 Form-10K 20
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Our common stock traded on the Nasdaq Global Market until June 29, 2011 when our common stock started trading on the Nasdaq Capital
Market, under the symbol “SIEB.”
The closing sale price of our common stock as reported on the Nasdaq Capital Market on March 20, 2023 was $1.54 per share. As of March 20,
2023, there were 75 holders of record of our common stock based on information provided by our transfer agent. The number of stockholders of record
does not reflect the number of individual or institutional stockholders that beneficially own our stock because most stock is held in the name of nominees.
Based on information available to us, we believe there are approximately 4,304 beneficial holders of our common stock as of March 20, 2023.
Dividend Policy
Our Board of Directors periodically considers whether to declare dividends. In considering whether to pay such dividends, our Board of Directors
will review our earnings, capital requirements, economic forecasts and such other factors as are deemed relevant. Some portion of our earnings will be
retained to provide capital for the operation and expansion of our business.
Share Price Volatility
Since our common stock started trading on the Nasdaq Capital Market, our common stock has been relatively thinly traded and at times been
subject to price volatility. From January 1, 2022 to December 31, 2022, the average close price of our common stock was $1.79 per share. The average
daily trading volume from January 1, 2022 to December 31, 2022 was approximately 25,010 shares.
Equity Compensation Plan Information
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights
(a)
—
—
—
Weighted-
average
exercise price
of outstanding
options,
warrants and
rights
(b)
NA
NA
NA
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))
(c)
2,704,000
NA
2,704,000
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Unregistered Sales of Equity Securities and Use of Proceeds
For the year ended December 31, 2022, we granted 186,000 unregistered restricted stock units as compensation to certain employees and
consultants under Siebert’s 2021 Equity Incentive Plan. The units were fully vested upon grant date and were issued pursuant to Rule 701 and/or Section
4(a)(2) of the Securities Act of 1933, as amended.
On November 16, 2021, we issued 1,449,525 shares of our common stock to Tigress in consideration of an equity interest in Tigress pursuant to a
certain contribution agreement, by and among Siebert, RISE, and Tigress. The common stock was issued pursuant to Section 4(a)(2) of the Securities Act
of 1933, as amended. Refer to Note 11 – Equity Method Investment in Related Parties for more detail.
On August 18, 2021, we amended our common stock purchase agreement with OpenHand Holdings, Inc. (“OpenHand”), dated January 31, 2021,
and, pursuant to the amendment, cancelled 329,654 shares of our common stock that we issued to OpenHand pursuant to the original stock purchase
agreement. Refer to Note 12 – Investments, Cost for more detail.
Siebert 2022 Form-10K 21
On January 31, 2021, Siebert and OpenHand entered into a stock purchase agreement whereby Siebert acquired an interest of 5% of OpenHand
common stock for consideration of a total of $2,231,000 consisting of $850,000 in cash and 329,654 restricted shares of Siebert’s common stock valued at
$1,381,000 or $4.19 per share. The common stock was issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. Refer to Note 12 –
Investments, Cost for more detail.
On November 10, 2020, Siebert issued 150,000 shares of its restricted common stock to each of Anthony Palmeri and Gerard Losurdo, each an
employee of MSCO, as part of their employment agreements. Mr. Palmeri and Mr. Losurdo each paid Siebert approximately $400,000 for their shares,
which was equal to 70% of the closing price of Siebert’s common stock as reported on Nasdaq on November 9, 2020. The common stock issued to Mr.
Palmeri and Mr. Losurdo was subject to a three-year restriction on transfer commencing on the day of issuance. The issuance of common stock was
approved by unanimous written consent of Siebert’s board of directors. The common stock was issued to Mr. Palmeri and Mr. Losurdo as part of their
employment agreements in accordance with Nasdaq Listing Rule 5635(c)(4) and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
On April 21, 2020, we entered into an agreement with a technology partner pursuant to which the technology partner acquired 193,906 shares of
our restricted common stock. The common stock was issued on May 12, 2020 at a per share price of $5.81 (Siebert’s share price as of the close of May 12,
2020) for a total of $1.1 million for professional services to integrate the technology partner’s software into Siebert’s existing platforms as well as its robo-
advisor. The common stock was issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
Effective January 1, 2020, we acquired the remaining 85% of StockCross’ outstanding shares in exchange for 3,298,774 shares of our common
stock, and StockCross was merged with and into MSCO. The common stock was issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as
amended.
Siebert 2022 Form-10K 22
ITEM 7. MANAGEMENT’S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the
related notes included in Part II, Item 8 - Financial Statements and Supplementary Data of this Annual Report on Form 10-K. In addition to our historical
consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual
results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include
those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Part I, Item 1A - Risk Factors.
Overview
We are a financial services company and provide a wide variety of financial services to our clients. We operate in business lines such as retail
brokerage, investment advisory, insurance, and technology development through our wholly-owned and majority-owned subsidiaries.
Results in the businesses in which we operate are highly correlated to general economic conditions and, more specifically, to the direction of the
U.S. equity and fixed-income markets. Market volatility, overall market conditions, interest rates, economic, political, and regulatory trends, and industry
competition are among the factors which could affect us and which are unpredictable and beyond our control. These factors affect the financial decisions
made by market participants who include investors and competitors, impacting their level of participation in the financial markets. In addition, in periods of
reduced financial market activity, profitability is likely to be adversely affected because certain expenses remain relatively fixed, including salaries and
related costs, as well as portions of communications costs and occupancy expenses. Accordingly, earnings for any period should not be considered
representative of earnings to be expected for any other period.
Transactions with Tigress and Hedge Connection
On November 16, 2021, we purchased 24% of the outstanding membership interests in Tigress, a disabled and woman-owned financial services
firm, in exchange for 24% of RISE and shares of Siebert common stock. On January 21, 2022, we purchased 20% of Hedge Connection, a woman-owned
fintech company, and an option to acquire the remaining interest in Hedge Connection in exchange for consideration of $600,000 and 3.33% of RISE.As of
the date of this Report, Siebert is currently evaluating the terms upon which it will transfer its remaining ownership of Tigress to Gloria E. Gebbia pursuant
to the Reorganization Agreement. Refer to Note 3 – Transactions with Tigress and Hedge Connection for further detail on the terms and accounting
treatment of these transactions.
Siebert 2022 Form-10K 23
As part of these transactions, Tigress’ founder, Cynthia DiBartolo, continued as CEO of Tigress, and assumed the position as CEO of RISE. Gloria
E. Gebbia, one of Siebert’s and RISE’s directors, assumed the position of Chief Impact Officer at RISE. Ms. DiBartolo was appointed to Siebert’s and
RISE’s Board of Directors and Ms. Gebbia was appointed to Tigress’ Board of Directors. In addition, Lisa Vioni, founder of Hedge Connection, provided
RISE with the right to appoint one director to the Board of Directors of Hedge Connection, and Ms. Vioni was appointed to the Board of Directors of RISE
as well as to the position of President of RISE Prime – Capital Introduction, a division of RISE.
Based upon the strategic direction of these ventures, management of the respective businesses decided to unwind the original transactions with
Siebert, RISE, Hedge Connection and Tigress. As a result, we exchanged our 7% ownership of Tigress for all of Tigress’ ownership of RISE. We also
entered into an agreement with Hedge Connection whereby we re-conveyed 20% of the common stock of Hedge Connection and the related option to
acquire 100% of Hedge Connection in exchange for 3.17% of RISE and the cancellation of Siebert’s note payable to Hedge Connection.
As part of these agreements, Ms. DiBartolo and Ms. Vioni resigned from their respective positions within Siebert and RISE.
The financial impact of these transactions with Tigress and Hedge Connection was a one-time loss of approximately $4.7M for the year ended
December 31, 2022, of which $4.0M was due to an impairment of our investment in Tigress. These expenses are recorded in the line items “Impairment of
equity method investment in related party” and “Loss on sale of equity method investment in related parties” in the statements of operations.
Management is assessing the future strategic direction of RISE, taking into consideration current market conditions, demand trends, and resources.
Termination of Clearing Arrangements with GSCO and Pershing
On August 30, 2021, Goldman Sachs & Co. LLC (“GSCO”) notified RISE that its clearing arrangement with RISE will be terminated. Due to the
termination of RISE’s clearing arrangement with GSCO, substantially all the revenue producing customers of RISE have transitioned to other prime service
providers. Revenue and pre-tax income from customers that have transitioned to other prime service providers was approximately $12.6 million and $1.8
million, respectively, for the year ended December 31, 2021.
As of December 31, 2022, we were in the process of terminating our clearing relationships with GSCO and Pershing LLC (“Pershing”). As of the
date of this Report, we are no longer doing active business with these clearing vendors, and anticipate the full termination of these relationships by the end
of the first quarter of 2023.
Interest Rates
We are exposed to market risk from changes in interest rates. Such changes in interest rates primarily impact revenue from interest, marketing, and
distribution fees. We primarily earn interest, marketing and distribution fees from margin interest charged on clients’ margin balances, interest on cash and
securities segregated for regulatory purposes, and distribution fees from money market mutual funds in clients’ accounts. Securities segregated for
regulatory purposes consist solely of U.S. government securities. If prices of U.S. government securities within our portfolio decline, we anticipate the
impact to be temporary as we intend to hold these securities to maturity. We seek to mitigate this risk by managing the average maturities of our U.S.
government securities portfolio and setting risk parameters for securities owned, at fair value.
Technology Partner
In third quarter of 2022, we reassessed our technology needs and entered into a software license agreement with a different technology provider
for the development of a new retail trading platform which will replace our current platforms and resulted in the termination of our original technology
relationship. We believe this new technology provider will be key to creating a platform for the next generation of retail customers and the termination of
our original technology relationship had minimal impact on our current operations. Refer to Note 6 – Prepaid Service Contract for further detail on the
accounting and financial impact of the termination of our original technology relationship.
Siebert 2022 Form-10K 24
Client Account and Activity Metrics
The following tables set forth metrics we use in analyzing our client account and activity trends for the periods indicated.
Client Account Metrics – Retail and Institutional Customer Net Worth
Retail and institutional customer net worth (in billions)
Client Account Metrics – Retail Customers
Retail customer net worth (in billions)
Retail customer margin debit balances (in billions)
Retail customer credit balances (in billions)
Retail customer money market fund value (in billions)
Retail customer accounts
As of December 31,
2022
2021
13.5
$
17.3
As of December 31,
2022
2021
13.5
0.4
0.6
0.6
122,394
$
$
$
$
16.8
0.5
0.8
0.8
115,380
$
$
$
$
$
• Retail customer net worth represents the total value of securities and cash in the retail customer accounts after deducting margin debits
• Retail customer margin debit balances represents credit extended to our customers to finance their purchases against current positions
• Retail customer credit balances represents client cash held in brokerage accounts
• Retail customer money market fund value represents all retail customers accounts invested in money market funds
• Retail customer accounts represents the number of retail customers
Client Account Metrics – Institutional Customers
Institutional customer net worth (in billions)
As of December 31,
2022
2021
$
—
$
0.5
•
Institutional customer net worth represents the total value of securities and cash in the institutional customer accounts after deducting margin
debits and short positions.
Siebert 2022 Form-10K 25
Client Activity Metrics – Retail Customers
Total retail trades
•
Total retail trades represents retail trades that generate commissions
Statements of Operations and Financial Condition
Statements of Operations for the Year Ended December 31, 2022 and 2021
Revenue
Year Ended December 31,
2021
2022
374,996
472,540
Commissions and fees for the year ended December 31, 2022 were $7,477,000 and decreased by $10,775,000 from the corresponding period in
the prior year primarily due to the loss of institutional customers of RISE as well as market conditions during 2022.
Interest, marketing and distribution fees for the year ended December 31, 2022 were $17,234,000 and increased by $4,337,000 from the
corresponding period in the prior year, primarily due to a rising interest rate environment which increased margin interest, 12b-1 money market fees, as
well as interest on U.S. treasuries and cash deposits within MSCO of an aggregate of $7.5 million, partially offset by the loss of interest income from
institutional customers in RISE of $3.2 million.
Principal transactions and proprietary trading for the year ended December 31, 2022 were $3,743,000 and decreased by $11,904,000 from the
corresponding period in the prior year primarily due to the factors discussed below.
The decrease in realized and unrealized gain on primarily riskless principal transactions was primarily due to weaker market conditions in 2022
within this business line. The increase in unrealized loss on our portfolio of U.S. government securities was due to the following.
Siebert 2022 Form-10K 26
In 2022 Siebert invested in treasury bill and treasury notes which are primarily in the line item “Cash and securities segregated for regulatory
purposes” on the statements of financial condition, in order to enhance its yield on its excess 15c3-3 deposits. During 2022, there was an increase in U.S.
government securities yields, which created an unrealized loss of approximately $3.9 million on our government securities portfolio for the year ended
December 31, 2022. The aggregate unrealized loss of on the portfolio will be returned over the duration of the government securities, at a point no later
than the maturity of the securities, the latest maturity being August 2024.
We intend to hold these securities to maturity and as such, the aggregate unrealized loss of approximately $3.9 million on the portfolio as of
December 31, 2022 will be returned over the duration of the government securities, at a point no later than the maturity of the securities. The maturities of
the government securities are primarily in 2023 and the latest maturity is August 2024. If the value of our portfolio of government securities declines
further, we will incur further unrealized losses; however, we anticipate this loss to be temporary as we intend to hold these securities to maturity. The
portfolio of U.S. government securities represents less than half of the total value of our cash and securities segregated for regulatory purposes, and we
believe that the level invested reduces the risk of having to liquidate the securities prior to maturity.
Below is a summary of the change in the principal transactions and proprietary trading line item for the periods presented.
Principal transactions and proprietary trading
Realized and unrealized gain on primarily riskless principal transactions
Unrealized loss on portfolio of U.S. government securities
Total Principal transactions and proprietary trading
Year Ended December 31,
2022
2021
(Year
over
Year
Decrease)
$
$
7,643,000
(3,900,000 )
3,743,000
$
$
15,675,000 $ (8,032,000)
(3,872,000)
15,647,000 $ (11,904,000)
(28,000 )
Market making for the year ended December 31, 2022 was $2,443,000 and decreased by $3,454,000 from the corresponding period in the prior
year primarily due to market conditions.
Stock borrow / stock loan for the year ended December 31, 2022 was $14,518,000 and increased by $2,654,000 from the corresponding period in
the prior year primarily due to the growth of the business, expansion of our stock locate revenues, and additional securities lending and locate counterparty
relationships.
Advisory fees for the year ended December 31, 2022 were $1,862,000 and increased by $194,000 from the corresponding period in the prior year
primarily due to the expansion of the advisory business.
Other income for the year ended December 31, 2022 was $2,825,000 and increased by $1,543,000 from the corresponding period in the prior year
primarily due to an increase in income from consulting services and termination payment from a technology partner.
Operating Expenses
Employee compensation and benefits for the year ended December 31, 2022 were $28,734,000 and decreased by $7,690,000 from the
corresponding period in the prior year primarily due to a decrease in commissions payouts from RISE related to the loss of our institutional customers and a
decrease in payouts related to fixed income, market making, and commission revenue, partially offset by an increase in payouts related to stock borrow /
stock loan as well as an increase in executive compensation.
Clearing fees, including execution costs for the year ended December 31, 2022 were $2,143,000 and decreased by $2,674,000 from the
corresponding period in the prior year primarily due to a decrease in our institutional clearing costs related to RISE as well as the recognition of our
business development credit from our agreement with NFS.
Technology and communications expenses for the year ended December 31, 2022 were $4,471,000 and decreased by $291,000 from the
corresponding period in the prior year primarily due to a decrease in technology costs related to RISE, partially offset by an increase in software licenses
and other technology expenses.
Other general and administrative expenses for the year ended December 31, 2022 were $4,010,000 and increased by $324,000 from the
corresponding period in the prior year primarily due to an increase in travel and entertainment related to marketing initiatives for our corporate services and
securities finance business lines, an increase in insurance costs, partially offset by a legal settlement occurring in 2021.
Siebert 2022 Form-10K 27
Data processing expenses for the year ended December 31, 2022 were $3,169,000 and increased by $320,000 from the corresponding period in the
prior year primarily due to an increase in service bureau charges.
Rent and occupancy expenses for the year ended December 31, 2022 were $1,955,000 and increased by $25,000 from the corresponding period in
the prior year.
Professional fees for the year ended December 31, 2022 were $3,202,000 and increased by $507,000 from the corresponding period in the prior
year primarily due to an increase in legal and consulting fees related to certain transactions such as the unwinding of Tigress and Hedge Connection.
Depreciation and amortization expenses for the year ended December 31, 2022 were $995,000 and decreased by $450,000 from the corresponding
period in the prior year primarily due to the completion of useful lives of assets within STCH and write-offs of intangible assets related to RISE occurring
in 2021.
Referral fees for the year ended December 31, 2022 were $0 and decreased by $1,213,000 from the corresponding period in the prior year
primarily due to the loss of our institutional customers of RISE.
Interest expense for the year ended December 31, 2022 was $440,000 and increased by $79,000 from the corresponding period in the prior year
primarily due to additional interest incurred from the mortgage with East West Bank established in 2022.
Loss on impairment for the year ended December 31, 2022 was $0 and decreased by $699,000 from the corresponding period in the prior year
primarily due to the impairment of our RISE customer relationships intangible asset due to the termination of our clearing arrangement with GSCO
occurring in the third quarter of 2021.
Advertising and promotion expense for the year ended December 31, 2022 was $543,000 and increased by $499,000 from the corresponding
period in the prior year primarily due to an increase in promotional costs for various marketing initiatives.
Earnings of Equity Method Investment in Related Parties
The earnings of equity method investment in related parties for the year ended December 31, 2022 was $4,000 and decreased by $168,000 from
the corresponding period in the prior year primarily due to a decrease in the earnings of Tigress and our proportional income.
Impairment of Equity Method Investment in Related Party
Impairment of equity method investment in related party for the year ended December 31, 2022 was $4,015,000 and increased by $4,015,000 from
the corresponding period in the prior year due to the impairment of our investment in Tigress.
Loss on Sale of Equity Method Investment in Related Parties
Loss on sale of equity method investment in related parties for the year ended December 31, 2022 was $719,000 and increased by $719,000 from
the corresponding period in the prior year due to our loss on the transactions between Siebert, RISE, Hedge Connection and Tigress.
Siebert 2022 Form-10K 28
Provision For (Benefit From) Income Taxes
The benefit from income taxes for the year ended December 31, 2022 was $1,300,000 and decreased from the provision for income taxes by
$3,021,000 from the corresponding period in the prior year. Refer to Note 19 – Income Taxes for further detail.
Net Loss Attributable to Noncontrolling Interests
As further discussed in Note 1 – Organization and Basis of Presentation, we consolidate RISE’s financial results into our financial statements and
reflect the portion of RISE not held by Siebert as a noncontrolling interests in our financial statements. The net loss attributable to noncontrolling interests
for the year ended December 31, 2022 was $1,000,000, and increased by $970,000 from the corresponding period in the prior year due to an increase in
RISE’s net loss for 2022 and Siebert’s ownership of RISE.
Statements of Financial Condition as of December 31, 2022 and 2021
Assets
Assets as of December 31, 2022 were $728,048,000 and decreased by $676,187,000 from December 31, 2021, primarily due to a decrease in
securities borrowed, receivables from customers, and cash and securities segregated for regulatory purposes, partially offset by an increase in cash and cash
equivalents.
Liabilities
Liabilities as of December 31, 2022 were $678,128,000 and decreased by $675,601,000 from December 31, 2021, primarily due to a decrease in
securities loaned, payables to customers, and notes payable – related party.
Liquidity and Capital Resources
Overview
We expect to use our available cash, cash equivalents, and potential future borrowings under our debt agreements and potential issuance of new
debt or equity, to support and invest in our core business, including investing in new ways to serve our customers, potentially seeking strategic acquisitions
to leverage existing capabilities, and for general capital needs (including capital, deposit, and collateral requirements imposed by regulators and SROs).
Based on our current level of operations, we believe our available cash, available lines of credit, overall access to capital markets, and cash provided by
operations will be adequate to meet our current liquidity needs for the foreseeable future. As of the date of this Report, there are no known or material
events that would require us to use large amounts of our liquid assets to cover expenses.
Siebert 2022 Form-10K 29
Cash and Cash Equivalents
Our cash and cash equivalents were $23.7 million and $3.8 million as of December 31, 2022 and 2021, respectively.
Debt Agreements
We have a $4.4 million mortgage and a $2.7 million loan outstanding with East West Bank, and an unutilized line of credit for short term
overnight demand borrowing of up to $25 million with BMO Harris as of December 31, 2022. The ability to borrow an additional $5.0 million on our loan
with East West Bank expired on July 22, 2022; however, we do not believe this will impact our ability to fund our operations. As of December 31, 2022,
we were in compliance with all covenants related to our debt agreements.
Cash Requirements
The following table summarizes our short- and long-term material cash requirements as of December 31, 2022:
Operating lease commitments
Mortgage with East West Bank
Loan with East West Bank
Total
2023
2024
1,246,000 $
75,000
998,000
2,319,000 $
588,000 $
84,000
1,661,000
2,333,000 $
$
$
Payments Due By Period
2026
2025
Thereafter
Total
450,000 $
88,000
—
538,000 $
234,000 $
91,000
—
325,000 $
48,000 $
4,048,000
—
4,096,000 $
2,566,000
4,386,000
2,659,000
9,611,000
On December 30, 2021, we purchased the Miami office building and are building out this space to be one of our primary operating centers. The
total estimated cost for the build out is $1.5 million, with $338,000 financed through a commitment with East West Bank and the remainder being cash. As
of December 31, 2022, we have incurred approximately $1.0 million out of the $1.5 million of the build out costs.
Siebert 2022 Form-10K 30
Shelf Registration Statement
On February 18, 2022, we filed a shelf registration statement on Form S-3 that was declared effective on March 2, 2022 by the SEC for the
potential offering, issuance and sale by us of up to $100.0 million of our common stock, preferred stock, warrants to purchase our common stock and/or
preferred stock, units consisting of all or some of these securities and subscription rights to purchase all or some of these securities. The registration
statement was filed in reliance on General Instruction I.B.6 of Form S-3, which imposes a limitation on the maximum amount of securities that we may sell
pursuant to the registration statement during any twelve-month period. Assuming we remain subject to General Instruction I.B.6, at the time we sell
securities pursuant to the registration statement, the amount of securities to be sold plus the amount of any securities we have sold during the prior twelve
months in reliance on Instruction I.B.6 may not exceed one-third of the aggregate market value of our outstanding common stock held by non-affiliates as
of a day during the 60 days immediately preceding such sale as computed in accordance with Instruction I.B.6. Whether we sell securities under the
registration statement will depend on a number of factors, including the market conditions at that time, our cash position at that time and the availability
and terms of alternative sources of capital.
At the Market Offering
On May 27, 2022, we entered into a Capital on Demand Sales Agreement with JonesTrading as agent, pursuant to which we may offer and sell,
from time to time through JonesTrading, shares of our common stock having an aggregate offering amount of up to $9.6 million under our shelf registration
statement on Form S-3. For the year ended December 31, 2022, we did not sell any shares pursuant to this Sales Agreement. Refer to Note 22 –
Commitments, Contingencies, and Other for additional detail.
TM
Net Capital, Reserve Accounts, Segregation of Funds, and Other Regulatory Requirements
MSCO is subject to the Uniform Net Capital Rules of the SEC (Rule 15c3-1) and the Customer Protection Rule (15c3-3) of the Exchange Act and
maintains capital and segregated cash reserves in excess of regulatory requirements. Requirements under these regulations may vary; however, MSCO has
adequate reserves and contingency funding plans in place to sufficiently meet any regulatory requirements. In addition to net capital requirements, as a self-
clearing broker-dealer, MSCO is subject to cash deposit and collateral requirements with clearing houses, such as the DTCC and OCC, which may fluctuate
significantly from time to time based upon the nature and size of clients’ trading activity and market volatility. RISE, as a member of FINRA, is subject to
the SEC Uniform Net Capital Rule 15c3-1 and the corresponding regulatory capital requirements.
MSCO can transfer funds to Siebert as long as it maintains its liquidity and regulatory capital requirements. RISE can transfer funds to its
shareholders, of which Siebert is entitled to its proportional ownership interest, as long as RISE maintains its liquidity and regulatory capital requirements.
For the years ended December 31, 2022 and 2021, MSCO and RISE had sufficient net capital to meet their respective liquidity and regulatory capital
requirements. Refer to Note 20 – Capital Requirements for more detail on our capital requirements.
Siebert 2022 Form-10K 31
Cash Flows
Cash provided by and used in operating activities consisted of net income (loss) adjusted for certain non-cash items. Net operating assets and
liabilities at any specific point in time are subject to many variables, including variability in customer activity, the timing of cash receipts and payments,
and vendor payment terms. The total changes in our statements of cash flows, especially our operating cash flow, are not necessarily indicative of the
ongoing results of our business as we have customer assets and liabilities on our statements of financial condition.
For the year ended December 31, 2022, we had negative operating cash flow due to the net effect of the change in payables to customers and
receivables from customers. Other items within operating cash flow mostly offset each other, most notably our net loss and the adjustment from the
impairment of equity method investment in related party. We had investing cash outflows primarily from the build out of the Miami office building and
development work related to our new retail trading platform and other technology initiatives. We had financing cash outflows due to the repayment of the
notes payable - related party to Gloria E. Gebbia and Hedge Connection, as well as the repayment of our loan with East West Bank.
For the year ended December 31, 2021, we had positive operating cash flow. We had investing cash outflows related to the purchase of the Miami
office building, equity of OpenHand, software assets and miscellaneous office facilities. We had financing cash inflow related to the mortgage from East
West Bank to finance part of the purchase of the Miami office building as well as an incremental note payable from Gloria E. Gebbia.
Long Term Contracts
Contract with NFS
Effective August 1, 2021, MSCO entered into an amendment to its clearing agreement with NFS that, among other things, extends the term of
their arrangement for an additional four-year period commencing on August 1, 2021 and ending July 31, 2025. As part of this agreement, we received a
one-time business development credit of $3 million, and NFS will pay us four annual credits of $100,000 over the term of the agreement. The amendment
also provides for an early termination fee; however, as of December 31, 2022, we do not expect to terminate the contract with NFS before the end of the
contract term. Refer to Note 15 – Deferred Contract Incentive and Note 22 – Commitments, Contingencies and Other for additional detail.
Off-Balance Sheet Arrangements
We enter into various transactions to meet the needs of customers, conduct trading activities, and manage market risks and are, therefore, subject
to varying degrees of market and credit risk. In the normal course of business, our customer activities involve the execution, settlement, and financing of
various customer securities transactions. These activities may expose us to off-balance sheet risk in the event the customer or other broker is unable to
fulfill their contracted obligations and we are forced to purchase or sell the financial instrument underlying the contract at a loss. There were no material
losses for unsettled customer transactions for the years ended December 31, 2022 and 2021. Refer to Note 21 – Financial Instruments with Off-Balance
Sheet Risk for additional detail.
Siebert 2022 Form-10K 32
Critical Accounting Policies and Estimates
We generally follow accounting policies standard in the brokerage industry and believe that our policies appropriately reflect our financial position
and results of operations. Our management team makes significant estimates that affect the reported amounts of assets, liabilities, revenues and expenses,
and the related disclosure of contingent assets and liabilities included in the consolidated financial statements. The estimates relate primarily to revenue and
expense items in the normal course of business as to which we receive no confirmations, invoices, or other documentation, at the time the books are closed
for a period. We use our best judgment, based on our knowledge of revenue transactions and expenses incurred, to estimate the amount of such revenue and
expenses. We are not aware of any material differences between the estimates used in closing our books for the last five years and the actual amounts of
revenue and expenses incurred when we subsequently receive the actual confirmations, invoices or other documentation.
Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”). The preparation of our consolidated financial statements requires us to make judgments and estimates that may have a significant impact on our
financial results. We believe that the critical accounting policies listed below are particularly subject to management's judgments and estimates and could
materially affect our results of operations and financial position. Refer to Note 2 – Summary of Significant Accounting Policies for additional detail on our
significant accounting policies.
Estimates of effective income tax rates, uncertain tax positions, deferred income taxes and related valuation allowances
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and
liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the
year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the
period that includes the enactment date.
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a
determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected
future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize deferred taxes in the future
in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for
income taxes.
We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more
likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-
likely-than-not recognition threshold we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate
settlement with the related tax authority.
We recognize interest and penalties related to unrecognized tax benefits on the provision for income taxes line in the statements of operations.
Accrued interest and penalties would be included on the related tax liability line in the statements of financial condition.
Siebert 2022 Form-10K 33
Goodwill and other intangible assets
Goodwill is recognized as a result of business combinations and represents the excess of the purchase price over the fair value of net tangible
assets and identifiable intangible assets acquired.
The valuation of goodwill and acquired intangible assets requires significant judgment and estimates by management. For example, the valuation
of certain intangible assets required management’s estimates of future earnings and cash flows as well as judgment in determining market approaches. The
useful life of the finite lived intangible assets was determined based on management's estimate of the period over which those intangible assets were
expected to provide economic benefit. Management applies judgment in conducting impairment testing for goodwill and intangible assets, including
estimates of fair value based on the income or market approach and estimates required to determine the useful lives of finite lived intangible assets.
We test goodwill and all intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not
be recoverable, or at least annually. If our estimates of fair value change due to future events differing significantly from the forecasts used to determine fair
value or there are changes in our business or other factors, we will assess the amount of impairment and recognize it in our financial statements during that
reporting period.
We also evaluate the useful life of finite lived intangible assets on an annual basis to determine if events or trends warrant a change in estimate of
the useful life. Changes in the estimated useful lives of finite lived intangible assets could result in the recognition of an impairment or a change in the
remaining life of these assets.
We have concluded that as of December 31, 2022 and 2021, there has been no impairment to the carrying value of Siebert’s goodwill; however,
there has been an impairment of $4,015,000 to the carrying value of our equity method investment in Tigress for the year ended December 31, 2022, and an
impairment of $699,000 to the RISE customer relationships intangible asset for the year ended December 31, 2021 due to the termination of GSCO’s
clearing arrangement with RISE.
Refer to Note 2 – Summary of Significant Accounting Policies and Note 3 – Transactions with Tigress and Hedge Connection for additional
detail.
Accruals for contingent liabilities
Accruals for contingent liabilities related to legal and regulatory claims as well as employee healthcare expenses under our self-insured plan
reflect an estimate of probable losses. In making such estimates for legal and regulatory claims, we consider many factors, including the progress of the
matter, prior experience and the experience of others in similar matters, available defenses, insurance coverage, indemnification provisions and the advice
of legal counsel and other experts. In making such estimates for employee healthcare expenses, we consider many factors, including trends of our health
insurance expenses and our insurance reserve limits. We believe that our present insurance coverage and reserves are sufficient to cover currently estimated
exposures, but there can be no assurance that we will not incur liabilities in excess of recorded reserves or in excess of our insurance limits. Significant
judgment is required in making these estimates, and the actual cost may be materially different than the estimated costs. Refer to Note 22 – Commitments,
Contingencies and Other for additional detail.
Variable Interest Entities
We evaluate whether an entity is a VIE and determine if the primary beneficiary status is appropriate on a quarterly basis. We consolidate a VIE
for which we are the primary beneficiary. When assessing the determination of the primary beneficiary, we consider all relevant facts and circumstances,
including factors such as the power to direct the activities of the VIE that most significantly impact its economic performance, the obligation to absorb the
losses and/or the right to receive the expected returns of the VIE. Through this evaluation, as of December 31, 2022, we determined that RISE is a VIE and
we are the primary beneficiary, primarily due to Siebert’s power to direct the activities of RISE that most significantly impact its economic performance.
Additionally, Siebert may be obligated to fund RISE’s operations at an amount that is disproportional to its ownership percentage.
New Accounting Standards
Refer to Note 2 - Summary of Significant Accounting Policies for additional information regarding new Accounting Standards Updates (“ASU”s)
issued by the Financial Accounting Standards Board (“FASB”).
Siebert 2022 Form-10K 34
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial Instruments Held For Trading Purposes
We do not directly engage in derivative transactions, have no interest in any special purpose entity and have no liabilities, contingent or otherwise,
for the debt of another entity.
Financial Instruments Held For Purposes Other Than Trading
We generally invest our cash and cash equivalents temporarily in dollar denominated bank account(s). These investments are not subject to
material changes in value due to interest rate movements.
We invest cash and securities segregated for regulatory purposes in dollar denominated bank accounts which are not subject to material changes in
value due to interest rate movements. We also invest cash and securities segregated for regulatory purposes and securities owned, at fair value in U.S.
government securities which may be subject to material changes in value due to interest rate movements. Securities owned, at fair value invested in U.S.
government securities are generally purchased to enhance yields on required regulatory deposits. While the value of the government securities may be
subject to material changes in value, we believe any reduction in value would be temporary since the securities would mature at par value.
Customer transactions are cleared through clearing brokers on a fully disclosed basis and are also self-cleared by MSCO. If customers do not
fulfill their contractual obligations, any loss incurred in connection with the purchase or sale of securities at prevailing market prices to satisfy customer
obligations may be incurred by Siebert. We regularly monitor the activity in customer accounts for compliance with margin requirements. We are exposed
to the risk of loss on unsettled customer transactions if customers and other counterparties are unable to fulfill their contractual obligations. There were no
material losses for unsettled customer transactions in the last five years.
Siebert 2022 Form-10K 35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SIEBERT FINANCIAL CORP.
Report of Independent Registered Public Accounting Firm
(PCAOB ID 23)
Consolidated Statements of Financial Condition as of December 31, 2022 and 2021
Consolidated Statements of Operations for each of the years in the two-year period ended December 31, 2022
Consolidated Statement of Changes in Stockholders’ Equity for each of the years in the two-year period ended December 31, 2022
Consolidated Statements of Cash Flows for each of the years in the two-year period ended December 31, 2022
Notes to Consolidated Financial Statements
Page
37
39
40
41
42
44
Siebert 2022 Form-10K 36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Siebert Financial Corp.:
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of Siebert Financial Corp. & Subsidiaries (the Company) as of
December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended,
and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the 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. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Impairment of equity method investment in related party
As described in Note 3 to the consolidated financial statements, the Company entered into a Reorganization Agreement on October 18, 2022 with Tigress
Holdings, LLC (“Tigress”), an equity-method investee of the Company. Prior to this agreement, the Company owned 24% of the outstanding membership
interests in Tigress, while Tigress owned a combination of stock in the Company as well as membership interests in one of the Company’s majority-owned
subsidiaries, RISE Financial Services, LLC (“RISE”). Under the terms of the Reorganization Agreement, the Company exchanged a portion of its
outstanding membership interests in Tigress for all of Tigress’s membership interests in RISE.
As a result of the transaction described above, as well as the fact that Tigress had been impacted by adverse market conditions resulting in a decline in their
performance and future projections, management concluded that a triggering event had occurred and evaluated if the investment in Tigress was other than
temporarily impaired. Thus, the Company performed an impairment test as of October 18, 2022, and estimated the fair value of Tigress using the income
approach and the market approach and recognized an impairment charge.
The principal considerations for our determination that performing procedures relating to the impairment is a critical audit matter are (i) the significant
judgment by management to evaluate the significant assumptions used in the determination of the fair value of the investment, which was used to
determine the amount that fair value had declined below its related carrying value for a period considered to be other-than-temporary, (ii) a high degree of
auditor judgment, subjectivity and effort in performing procedures and evaluating management’s assumptions related used in the impairment measurement,
and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Siebert 2022 Form-10K 37
How We Addressed the Matter in Our Audit
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included:
• Tested the effectiveness of controls relating to management’s impairment measurement for the equity method investment in related party, including
controls over the income and the market approach analyses and significant assumptions used to determine the fair value of the equity method
investment in related party.
• Tested management’s process for determining the fair value of its equity method investment in related party, including evaluating the
appropriateness of the income approach and the market approach analyses.
• Tested the completeness and accuracy of the underlying data used in the income approach and the market approach analyses and evaluated the
reasonableness of the significant assumptions used by management in developing the fair value measurement related to the growth rates of assets
under management and discount rates. The reasonableness of the growth rates of assets under management was evaluated by considering (i) the
consistency with external market and industry data, (ii) the consistency with past performance of the affiliate, and (iii) whether the growth rates
were consistent with evidence obtained in other areas of the audit. The reasonableness of the discount rate assumption was evaluated by
considering the cost of capital of comparable businesses and other industry factors.
• Engaged internal valuation professionals with specialized skill and knowledge to assist in the evaluation of the discount rates used to determine
whether the fair value of the equity method investment in related party had declined below its carrying value for a period considered to be other-
than-temporary.
/s/ Baker Tilly US, LLP
We have served as the Company's auditor since 2017.
New York, New York
March 29, 2023
Siebert 2022 Form-10K 38
SIEBERT FINANCIAL CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
Current assets
Cash and cash equivalents
Cash and securities segregated for regulatory purposes
Receivables from customers
Receivables from broker-dealers and clearing organizations
Receivables from non-customers
Other receivables
Prepaid service contract - current
Prepaid expenses and other assets
Securities borrowed
Securities owned, at fair value
Total Current assets
Deposits with broker-dealers and clearing organizations
Prepaid service contract – non-current
Property, office facilities, and equipment, net
Software, net
Lease right-of-use assets
Equity method investments in related parties
Investments, cost
Deferred tax assets
Goodwill
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Current liabilities
Payables to customers
Payables to non-customers
Drafts payable
Payables to broker-dealers and clearing organizations
Accounts payable and accrued liabilities
Taxes payable
Securities loaned
Securities sold, not yet purchased, at fair value
Notes payable - related party
Current portion of lease liabilities
Current portion of long-term debt
Current portion of deferred contract incentive
Total Current liabilities
Lease liabilities, less current portion
Long-term debt, less current portion
Deferred contract incentive, less current portion
Total Liabilities
Commitments and Contingencies
Stockholders’ equity
Common stock, $.01 par value; 100 million shares authorized; 32,505,329 and 32,403,235 shares issued
and outstanding as of December 31, 2022 and 2021, respectively
Additional paid-in capital
Retained earnings
Total Stockholders’ equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity
December 31, 2022
December 31,
2021
$
$
$
$
$
$
23,672,000
276,166,000
52,057,000
9,094,000
100,000
2,119,000
—
2,055,000
336,909,000
3,204,000
705,376,000
1,311,000
—
8,328,000
991,000
2,222,000
2,584,000
850,000
4,397,000
1,989,000
728,048,000
321,391,000
11,506,000
2,384,000
660,000
2,507,000
1,052,000
327,180,000
2,000
—
1,158,000
1,073,000
808,000
669,721,000
1,245,000
5,974,000
1,188,000
678,128,000
325,000
29,642,000
18,982,000
48,949,000
971,000
49,920,000
3,758,000
326,826,000
85,327,000
8,185,000
81,000
2,242,000
709,000
1,596,000
939,518,000
3,991,000
1,372,233,000
5,541,000
295,000
7,463,000
752,000
2,662,000
8,156,000
850,000
4,294,000
1,989,000
1,404,235,000
376,670,000
17,430,000
1,804,000
254,000
3,677,000
1,748,000
931,735,000
24,000
7,000,000
1,234,000
998,000
808,000
1,343,382,000
1,699,000
6,710,000
1,938,000
1,353,729,000
324,000
27,967,000
20,972,000
49,263,000
1,243,000
50,506,000
Numbers are rounded for presentation purposes. See notes to consolidated financial statements.
$
728,048,000
$
1,404,235,000
Siebert 2022 Form-10K 39
SIEBERT FINANCIAL CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue
Commissions and fees
Interest, marketing and distribution fees
Principal transactions
Market making
Stock borrow / stock loan
Advisory fees
Other income
Total Revenue
Expenses
Employee compensation and benefits
Clearing fees, including execution costs
Technology and communications
Other general and administrative
Data processing
Rent and occupancy
Professional fees
Depreciation and amortization
Referral fees
Impairment loss
Interest expense
Advertising and promotion
Total Expenses
Operating income
Earnings of equity method investment in related parties
Impairment of equity method investment in related party
Loss on sale of equity method investment in related parties
Non-operating income (loss)
Income (loss) before provision for (benefit from) income taxes
Provision for (benefit from) income taxes
Net income (loss)
Less net loss attributable to noncontrolling interests
Net income (loss) available to common stockholders
Net income (loss) available to common stockholders per share of common stock
Basic and diluted
Weighted average shares outstanding
Basic and diluted
$
$
$
Year Ended
December 31,
2022
2021
$
7,477,000
17,234,000
3,743,000
2,443,000
14,518,000
1,862,000
2,825,000
50,102,000
28,734,000
2,143,000
4,471,000
4,010,000
3,169,000
1,955,000
3,202,000
995,000
—
—
440,000
543,000
49,662,000
18,252,000
12,897,000
15,647,000
5,897,000
11,864,000
1,668,000
1,282,000
67,507,000
36,424,000
4,817,000
4,762,000
3,686,000
2,849,000
1,930,000
2,695,000
1,445,000
1,213,000
699,000
361,000
44,000
60,925,000
440,000
6,582,000
4,000
(4,015,000 )
(719,000 )
(4,730,000 )
(4,290,000)
(1,300,000)
(2,990,000)
(1,000,000)
(1,990,000) $
172,000
—
—
172,000
6,754,000
1,721,000
5,033,000
(30,000 )
5,063,000
(0.06 ) $
0.16
32,408,449
31,316,119
Numbers are rounded for presentation purposes. See notes to consolidated financial statements.
Siebert 2022 Form-10K 40
SIEBERT FINANCIAL CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Balance – January 1, 2021
Shares issued for OpenHand
transaction
Shares retired from
OpenHand transaction
Shares issued for Tigress
transaction
Net income (loss)
Balance – December 31, 2021
Issuance and transfers of
RISE membership
interests
Termination of agreement
with technology partner
Cancellation of treasury
stock
Sales of equity method
investments in related
parties
Share-based compensation
Net income (loss)
Balance – December 31, 2022
Number of
Shares
Issued
30,953,710
$.01 Par
Value
$ 309,000
Additional
Paid-In
Capital
$21,768,000
Treasury
Stock
Retained
Earnings
$
— $15,909,000
Total
Stockholders’
Equity
$ 37,986,000
329,654
3,000
1,378,000
(329,654)
(3,000)
(1,315,000)
—
—
—
—
1,381,000
(1,318,000)
1,449,525
—
32,403,235
15,000
—
$ 324,000
6,136,000
—
$ 27,967,000
$
—
—
—
5,063,000
— $ 20,972,000
6,151,000
5,063,000
$ 49,263,000
Noncontrolling
Interests
Total
Equity
$
$
— $ 37,986,000
—
1,381,000
— (1,318,000)
1,273,000
(30,000)
7,424,000
5,033,000
1,243,000 $ 50,506,000
—
—
—
—
1,573,000
—
— (293,000 )
(193,906 )
(2,000 )
(291,000)
293,000
—
—
—
1,573,000
1,841,000
3,414,000
(293,000)
—
—
—
(293,000)
—
—
296,000
—
32,505,329
—
3,000
—
$ 325,000
(65,000)
458,000
—
$ 29,642,000
$
—
—
—
—
— (1,990,000 )
— $ 18,982,000
(65,000)
461,000
(1,990,000)
$ 48,949,000
$
(1,113,000 )
—
(1,000,000)
(1,178,000)
461,000
(2,990,000)
971,000 $ 49,920,000
Numbers are rounded for presentation purposes. See notes to consolidated financial statements.
Siebert 2022 Form-10K 41
SIEBERT FINANCIAL CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows From Operating Activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Deferred income tax expense (benefit)
Depreciation and amortization
Net lease liabilities
Downward adjustment due to changes in observable prices
Loss on impairment
Earnings of equity method investment in related parties
Impairment of equity method investment in related party
Loss on sale of equity method investment in related parties
Share-based compensation
Changes in
Receivables from customers
Receivables from non-customers
Receivables from and deposits with broker-dealers and clearing organizations
Securities borrowed
Securities owned, at fair value
Prepaid expenses and other assets
Prepaid service contract
Payables to customers
Payables to non-customers
Drafts payable
Payables to broker-dealers and clearing organizations
Accounts payable and accrued liabilities
Securities loaned
Securities sold, not yet purchased, at fair value
Taxes payable
Deferred contract incentive
Net cash provided by (used in) operating activities
Cash Flows From Investing Activities
Equity method investment in related party
Purchase of Openhand common stock
Distribution from equity method investment in related party
Purchase of office facilities and equipment
Purchase of property
Build out of property
Purchase of software
Net cash (used in) investing activities
Cash Flows From Financing Activities
Issuance of RISE membership interests
Transfers of RISE membership interests
Net change in notes payable – related party
Net change in long-term debt
Net cash provided by (used in) financing activities
Year Ended December 31,
2022
2021
$
(2,990,000) $
5,033,000
(655,000)
995,000
(90,000)
—
—
(4,000)
4,015,000
719,000
461,000
33,270,000
(19,000)
3,321,000
602,609,000
787,000
(335,000)
711,000
(55,279,000)
(5,924,000)
580,000
406,000
(1,170,000)
(604,555,000)
(22,000)
(696,000)
(750,000)
(24,615,000)
—
—
259,000
(284,000)
—
(985,000)
(830,000)
(1,840,000)
600,000
240,000
(4,470,000)
(661,000)
(4,291,000)
523,000
1,445,000
(51,000)
63,000
699,000
(172,000)
—
—
—
10,031,000
(81,000)
9,298,000
(33,733,000)
(1,368,000)
(51,000)
809,000
(3,854,000)
5,860,000
(2,217,000)
(1,556,000)
(100,000)
10,924,000
3,000
1,292,000
2,746,000
5,543,000
(64,000)
(850,000)
—
(296,000)
(6,815,000)
—
(343,000)
(8,368,000)
—
—
1,800,000
3,053,000
4,853,000
Net change in cash and cash equivalents, and cash and securities segregated for regulatory purposes
Cash and cash equivalents, and cash and securities segregated for regulatory purposes - beginning of year
Cash and cash equivalents, and cash and securities segregated for regulatory purposes - end of year
(30,746,000)
330,584,000
299,838,000
$
2,028,000
328,556,000
330,584,000
$
Siebert 2022 Form-10K 42
Reconciliation of cash, cash equivalents, and cash and securities segregated for regulatory purposes
Cash and cash equivalents - end of year
Cash and securities segregated for regulatory purposes - end of year
Cash and cash equivalents, and cash and securities segregated for regulatory purposes - end of year
Supplemental cash flow information
Cash paid / (refunds received) during the year for income taxes
Cash paid during the year for interest
Non-cash investing and financing activities
Equity method investment in related party (1)
Termination of agreement with technology partner (2)
Transfers of RISE membership interests (3)
Net membership interests of RISE from transactions with Hedge Connection (1)
Net membership interests exchange between Tigress and RISE (1)
Forgiveness of notes payable from Hedge Connection (1)
$
$
$
$
$
$
$
$
$
$
23,672,000
276,166,000
299,838,000
59,000
440,000
$
$
$
$
— $
(293,000) $
$
2,880,000
256,000
$
(93,000) $
$
250,000
3,758,000
326,826,000
330,584,000
(642,000)
361,000
7,920,000
—
—
—
—
—
Numbers are rounded for presentation purposes. See notes to consolidated financial statements.
(1) Refer to Note 3 – Transactions with Tigress and Hedge Connection and Note 11 – Equity Method Investments in Related Parties for further detail.
(2) Refer to Note 6 – Prepaid Service Contract for further detail.
(3) Refer to Note 4 – RISE for further detail.
Siebert 2022 Form-10K 43
SIEBERT FINANCIAL CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Overview
Siebert Financial Corp., a New York corporation, incorporated in 1934, is a holding company that conducts the following lines of business through
its wholly-owned and majority-owned subsidiaries:
• Muriel Siebert & Co., Inc. (“MSCO”) provides retail brokerage services. MSCO is a Delaware corporation and broker-dealer registered with the
SEC under the Exchange Act and the Commodity Exchange Act of 1936, and member of FINRA, NYSE, SIPC, Euroclear, and NFA.
•
Siebert AdvisorNXT, Inc. (“SNXT”) provides investment advisory services. SNXT is a New York corporation registered with the SEC as an RIA
under the Investment Advisers Act of 1940.
Park Wilshire Companies, Inc. (“PW”) provides insurance services. PW is a Texas corporation and licensed insurance agency.
Siebert Technologies, LLC (“STCH”) provides technology development. STCH is a Nevada limited liability company.
•
•
• RISE Financial Services, LLC (“RISE”) is a Delaware limited liability company and a broker-dealer registered with the SEC and NFA.
•
StockCross Digital Solutions, Ltd. (“STXD”) is an inactive subsidiary headquartered in Bermuda.
For purposes of this Annual Report on Form 10-K, the terms “Siebert,” “Company,” “we,” “us,” and “our” refer to Siebert Financial Corp.,
MSCO, SNXT, PW, STCH, RISE, and STXD collectively, unless the context otherwise requires.
The Company is headquartered in New York, NY, with primary operations in New Jersey, Florida, and California. The Company has 12 branch
offices throughout the U.S. and clients around the world. The Company’s SEC filings are available through the Company’s website at www.siebert.com,
where investors can obtain copies of the Company’s public filings free of charge. The Company’s common stock, par value $.01 per share, trades on the
Nasdaq Capital Market under the symbol “SIEB.”
The Company primarily operates in the securities brokerage and asset management industry and has no other reportable segments. All of the
Company's revenues for the years ended December 31, 2022 and 2021 were derived from its operations in the U.S.
As of December 31, 2022, the Company is comprised of a single operating segment based on the factors related to management’s decision-making
framework as well as management evaluating performance and allocating resources based on assessments of the Company from a consolidated perspective.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements are prepared on the accrual basis of accounting in conformity with U.S. GAAP as established
by the FASB to ensure consistent reporting of financial condition. The consolidated financial statements include the accounts of Siebert and its wholly-
owned and majority-owned subsidiaries. Upon consolidation, all intercompany balances and transactions are eliminated. The U.S. dollar is the functional
currency of the Company and numbers are rounded for presentation purposes.
The Company’s investments in non-majority-owned partnerships and affiliates are accounted for using the equity method until such time that they
become wholly or majority-owned. Earnings attributable to noncontrolling interests are recorded on the statements of operations relating to wholly or
majority-owned subsidiaries with the appropriate noncontrolling interest that represents the portion of equity not related to the Company’s ownership
interest recorded on the statements of financial condition in each period.
Principles of Consolidation
The consolidated financial statements include the accounts of Siebert and its wholly-owned and majority-owned consolidated subsidiaries. Upon
consolidation, all intercompany balances and transactions are eliminated. For the period of March 31, 2022 to October 18, 2022, the Company determined
that RISE was a VIE for which the Company was the primary beneficiary. As discussed in more detail in Note 4 – RISE, as of October 18, 2022, the
Company’s ownership in RISE increased to 68% and therefore the Company continues to consolidate RISE under the voting interest model (“VOE
model”).
For consolidated subsidiaries that are not wholly-owned, the third-party holdings of equity interests are referred to as noncontrolling interests. The
net income or loss attributable to noncontrolling interests for such subsidiaries is presented as net income or loss attributable to noncontrolling interests in
the statements of operations. The portion of total equity that is attributable to noncontrolling interests for such subsidiaries is presented as noncontrolling
interests in the statements of financial condition.
For investments in entities in which the Company does not have a controlling financial interest but has significant influence over its operating and
financial decisions, the Company applies the equity method of accounting with net income and losses recorded in earnings of equity method investment in
related parties.
Siebert 2022 Form-10K 44
Variable Interest Entities
The Company evaluates whether an entity is a VIE and determines if the primary beneficiary status is appropriate on a quarterly basis. The
Company consolidates a VIE for which it is the primary beneficiary. When assessing the determination of the primary beneficiary, the Company considers
all relevant facts and circumstances, including factors such as the power to direct the activities of the VIE that most significantly impact its economic
performance, the obligation to absorb the losses and/or the right to receive the expected returns of the VIE. If the Company determines that it is the primary
beneficiary, the Company will consolidate the entity under the VIE model.
Segment Information
The Company operates and reports financial information in one operating segment. Operating segments are defined as components of an
enterprise for which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and
assess performance. All the Company’s revenues and substantially all of the Company’s assets are attributed to or located in the United States.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
These estimates relate primarily to revenue and expenses in the normal course of business as to which the Company receives no confirmations,
invoices, or other documentation at the time the books are closed. The Company uses its best judgment, based on knowledge of these revenue transactions
and expenses incurred, to estimate the amount of such revenue and expenses. Actual results could differ from those estimates. The Company is not aware
of any material differences between the estimates used in closing the Company’s books for the last five years and the actual amounts of revenue and
expenses incurred when the Company subsequently receives the actual confirmations, invoices, or other documentation.
Estimates are used in the allowance for credit losses, valuation of certain investments, depreciation, income taxes, and the contingent liabilities
related to legal and healthcare expenses. The Company also estimates the valuation allowance for its deferred tax assets based on the more likely than not
criteria. The Company believes that its estimates are reasonable.
Fair Value
ASC 820 defines fair value, establishes a framework for measuring fair value, and establishes a hierarchy of fair value inputs. Fair value is 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. A
fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income, or cost approach, as
specified by ASC 820, are used to measure fair value.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:
Level 1 - Quoted prices (unadjusted) in active markets for an identical asset or liability that the Company can assess at the measurement date.
Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs for the asset or liability.
The availability of observable inputs can vary from security to security and is affected by a variety of factors, such as the type of security, the
liquidity of markets, and other characteristics particular to the security. To the extent that the valuation is based on models or inputs that are less observable
or unobservable in the market, the determination of fair value requires more judgment. As such, the degree of judgment exercised in determining fair value
is greatest for instruments categorized in level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in
the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the
fair value measurement.
Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore,
even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that the Company believes market
participants would use in pricing the asset or liability at the measurement date.
A description of the valuation techniques applied to the Company’s major categories of assets and liabilities measured at fair value on a recurring
basis is as follows:
U.S. government securities: U.S. government securities are valued using quoted market prices and as such, valuation adjustments are not applied.
Accordingly, U.S. government securities are generally categorized in level 1 of the fair value hierarchy.
Certificates of deposit: Certificates of deposit are included in investments valued at cost, which approximates fair value. When certificates of
deposits are held directly with banking institutions and issued directly to the Company, these are categorized within cash equivalents in level 2 of the fair
value hierarchy. When certificates of deposits are available for trading, they are categorized within securities owned, at fair value in level 2 of the fair value
hierarchy.
Siebert 2022 Form-10K 45
Corporate bonds: The fair value of corporate bonds is determined using recently executed transactions, market price quotations (when observable),
bond spreads, or credit default swap spreads obtained from independent external parties such as vendors and brokers, adjusted for any basis difference
between cash and derivative instruments. The spread data used is for the same maturity as the bond. If the spread data does not reference the issuer, then
data that references a comparable issuer is used. When position-specific external price data is not observable, fair value is determined based on either
benchmarking to similar instruments or cash flow models with yield curves, bond, or single-name credit default swap spreads and recovery rates as
significant inputs. Corporate bonds are generally categorized in level 2 of the fair value hierarchy.
Equity securities: Equity securities are valued based on quoted prices from the exchange. To the extent these securities are actively traded,
valuation adjustments are not applied, and they are categorized in level 1 of the fair value hierarchy. Securities quoted in inactive markets or with
observable inputs are categorized into level 2. If there are no observable inputs or quoted prices, securities are categorized as level 3 assets in the fair value
hierarchy. Level 3 assets are not actively traded and subjective estimates based on managements’ assumptions are utilized for valuation.
Municipal securities: Municipal securities are valued using recently executed transactions, market price quotations (when observable), bond
spreads from independent external parties such as vendors and brokers, adjusted for any basis difference between cash and derivative instruments. The
spread data used is for the same maturity as the bond. Municipal securities are generally categorized in level 2 of the fair value hierarchy.
Unit investment trusts (“UITs”): Units of UITs are carried at redemption value, which represents fair value. Units of UITs are categorized as level
2.
Options: Options are valued based on quoted prices from the exchange. To the extent these securities are actively traded, valuation adjustments are
not applied, and they are categorized in level 1 of the fair value hierarchy. Securities quoted in inactive markets or with observable inputs are categorized
into level 2. If there are no observable inputs or quoted prices, securities are categorized as level 3 assets in the fair value hierarchy. Level 3 assets are not
actively traded and subjective estimates based on managements’ assumptions are utilized for valuation.
Cash and Cash Equivalents
Cash and cash equivalents are all cash balances that are unrestricted. The Company has defined cash equivalents as highly liquid investments with
original maturities of less than 90 days that are not held for sale in the ordinary course of business. As of December 31, 2022 and 2021, the Company did
not hold any cash equivalents.
As of December 31, 2022 and 2021, the Company maintained its cash balances at various financial institutions. These balances are insured by the
Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per institution. The Company is subject to credit risk to the extent that the financial
institution with which it conducts business is unable to fulfill its contractual obligations and deposits exceed FDIC limits. At certain times, cash balances
may exceed FDIC insured limits.
Cash and Securities Segregated For Regulatory Purposes
MSCO is subject to Exchange Act Rule 15c3-3, referred to as the “Customer Protection Rule,” which requires segregation of funds in a special
reserve account for the exclusive benefit of customers.
As of December 31, 2022, the Company had approximately $135.2 million in cash deposits in special reserve accounts and $141.0 million in
securities segregated for regulatory purposes. As of December 31, 2021, the Company did not have any securities segregated for regulatory purposes.
Receivables From and Payables To Customers
Receivables from and payables to customers include amounts due and owed on cash and margin transactions. Receivables from customers include
margin loans to securities brokerage clients and other trading receivables. Margin loans are collateralized by customer securities and are carried at the
amount receivable, net of an allowance for credit losses. Collateral is required to be maintained at specified minimum levels at all times. The Company
monitors margin levels and requires customers to provide additional collateral, or reduce margin positions, to meet minimum collateral requirements if the
fair value of the collateral changes. The Company expects the borrowers will continually replenish the collateral as necessary because the Company
subjects the borrowers to an internal qualification process to align investing objectives and risk tolerance in addition to monitoring customer activity.
The Company elected the practical expedient for FASB ASC Topic 326 – “Financial Instruments – Credit Losses” (“Topic 326”) which permits it
to compare the amortized cost basis of the loaned amount with the fair value of collateral received at the reporting date to measure the estimate of expected
credit losses. The Company had no expectation of credit losses for its receivables from customers as of December 31, 2022 and 2021. Securities
beneficially owned by customers, including those that collateralize margin or other similar transactions, are not reflected in the statements of financial
condition.
Siebert 2022 Form-10K 46
Receivables From, Payables To, and Deposits With Broker-Dealers and Clearing Organizations
Receivables from and payables to broker-dealers and clearing organizations includes amounts receivables from or payables to MSCO and RISE
clearing broker-dealers, fail-to-deliver and fail-to-receive items, and amounts receivable for unsettled regular-way transactions. Deposits with broker-
dealers and clearing organizations include amounts held on deposit with broker-dealers and clearing organizations.
Amounts payables to broker-dealers and clearing organizations are offset against corresponding amounts receivables from broker-dealers and
clearing organizations. Receivables from these broker-dealers and clearing organizations are subject to clearing agreements and include the net receivable
from net monthly revenues as well as cash on deposit.
MSCO customer transactions for the years ended December 31, 2022 and 2021 were both self-cleared and cleared on a fully disclosed basis
through NFS. RISE customer transactions for the years ended December 31, 2022 and 2021 were cleared on fully disclosed basis through GSCO and
Pershing.
The Company signed a four-year renewal with NFS commencing August 1, 2021 and ending on July 31, 2025, and NFS’s fees are offset against
the Company’s revenues on a monthly basis. All other broker-dealer and clearing organization relationships operate on a month-to-month basis.
Receivables from and deposits with broker-dealers and clearing organizations are in scope of the amended guidance for Topic 326. The Company
continually reviews the credit quality of its counterparties and historically has not experienced a default. Further, management reassessed the risk
characteristics of its receivables and applied the collateral maintenance practical expedient for the secured receivables in line with the CECL guidance. As a
result, the Company had no expectation of credit losses for these arrangements as of December 31, 2022 and 2021.
Current Expected Credit Losses
The Company follows Topic 326 which applies to financial assets measured at amortized cost, held-to-maturity debt securities and off-balance
sheet credit exposures. For on-balance sheet assets, an allowance must be recognized at the origination or purchase of in-scope assets and represents the
expected credit losses over the contractual life of those assets. Expected credit losses on off-balance sheet credit exposures must be estimated over the
contractual period the Company is exposed to credit risk as a result of a present obligation to extend credit. The impact to the periods presented is not
material since the Company’s in-scope assets are primarily subject to collateral maintenance provisions for which the Company elected to apply the
practical expedient of reporting the difference between the fair value of the collateral and the amortized cost for the in-scope assets as the allowance for
current expected credit losses.
Securities Borrowed and Securities Loaned
Securities borrowed transactions are recorded at the amount of cash collateral delivered to the counterparty. Securities loaned are recorded at the
amount of cash collateral received. For securities borrowed and loaned, the Company monitors the market value of the securities and obtains or refunds
collateral as necessary.
The Company can elect to use an approach to measure the allowance for credit losses using the fair value of collateral where the borrower is
required to, and reasonably expected to, continually adjust and replenish the amount of collateral securing the instrument to reflect changes in the fair value
of such collateral. The Company has elected to use this approach for its allowance for credit losses on securities borrowed. As a result of this election, and
the fully collateralized nature of these arrangements, the Company had no expectation of credit losses on its securities borrowed balances as of December
31, 2022 and 2021.
Securities Owned and Securities Sold, Not Yet Purchased at Fair Value
Securities owned, at fair value represent marketable securities owned by the Company at trade-date valuation. Securities sold, not yet purchased,
at fair value represent marketable securities sold by the Company prior to purchase at trade-date valuation.
Property, Office Facilities, and Equipment, Net
Property, office facilities, and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation for equipment is
calculated using the straight-line method over the estimated useful lives of the assets, generally not exceeding four years. Office facilities are amortized
over the shorter of their estimated useful life or the remaining lease term unless the lease transfers ownership of the underlying asset to the lessee, or the
lessee is reasonably certain to exercise an option to purchase the underlying asset, in which case the lessee will amortize over the estimated useful life of
the office facilities. Depreciation for property is calculated using the straight-line-method over the estimated useful life of the property, not exceeding forty
years.
Software, Net
The Company capitalizes certain costs for software such as website and other internal technology development and amortizes them over their
useful life, generally not exceeding three years. Depending on the terms of the contract, the Company either records costs from software hosting
arrangements as prepaid assets and amortizes them over the contract term, or the costs are expensed as incurred.
Siebert 2022 Form-10K 47
The Company enters into certain software hosting arrangements where the associated professional development services work is capitalized and
then amortized over the term of the contract.
Other software costs such as routine maintenance and various data services are expensed as incurred.
Leases
The Company reviews all relevant contracts to determine if the contract contains a lease at its inception date. A contract contains a lease if the
contract conveys the right to control the use of an underlying asset for a period of time in exchange for consideration. If the Company determines that a
contract contains a lease, it recognizes, in the statements of financial condition, a lease liability and a corresponding right-of-use asset on the
commencement date of the lease. The lease liability is initially measured at the present value of the future lease payments over the lease term using the rate
implicit in the lease or, if not readily determinable, the Company’s secured incremental borrowing rate. An operating lease right-of-use asset is initially
measured at the value of the lease liability minus any lease incentives and initial direct costs incurred plus any prepaid rent.
The Company’s leases are classified as operating leases and consist of real estate leases for office space, data centers and other facilities. Each
lease liability is measured using the Company’s secured incremental borrowing rate, which is based on an internally developed rate based on the
Company’s size, growth, risk profile and a duration similar to the lease term. The Company’s leases have remaining terms of approximately 1 to 4.5 years
as of December 31, 2022. The Company does not include renewal options as the renewal options are not reasonably certain to be exercised; however, the
Company continues to monitor the lease renewal options. The Company’s operating leases contain both lease components and non-lease components. Non-
lease components are distinct elements of a contract that are not related to securing the use of the underlying assets, such as common area maintenance and
other management costs. The Company has elected the practical expedient to not separate lease and non-lease components, and as such, the variable lease
cost primarily represents variable payments such as common area maintenance and utilities which are usually determined by the leased square footage in
proportion to the overall office building.
Operating lease expense is recognized on a straight-line basis over the lease term and is included in line item “Rent and occupancy” in the
statements of operations.
Equity Method Investments
Investments in which the Company has the ability to exercise significant influence, but does not control, are accounted for under the equity
method of accounting and are included in the line item “Equity method investment in related party” in the statements of financial condition. Under this
method of accounting, the Company’s share of the net income or loss of the investee is presented before the income before provision for income taxes on
the statements of operations.
The Company evaluates its equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such
investments may be impaired. If the impairment is determined to be other-than-temporary, the Company will recognize an impairment loss equal to the
difference between the expected realizable value and the carrying value of the investment.
Investments, Cost
The Company measures equity investments (other than equity method investments, controlling financial interests that result in consolidation of the
investee and certain other investments) at fair value and recognizes any changes in fair value in net income.
Pursuant to ASU 2020-01, the Company has made an accounting policy election to measure equity securities without readily determinable fair
value at cost, less any impairment, adjusted for any changes resulting from observable price changes in orderly transactions for the identical or a similar
investment of the same issuer.
Intangible Assets, Net
Certain identifiable intangible assets the Company acquires such as customer relationships and trade names are amortized over their estimated
useful lives on a straight-line basis. Amortization expense associated with such intangible assets is included in the line item “Depreciation and
amortization” on the statements of operations.
The Company evaluates intangible assets for impairment on an annual basis or when events or changes indicate the carrying value may not be
recoverable. The Company also evaluates the remaining useful lives of intangible assets on an annual basis or when events or changes warrants the
remaining period of amortization to be revised.
During the year ended December 31, 2021, the Company concluded that the intangible assets acquired from the acquisition of RISE were fully
impaired. For the years ended December 31, 2022 and 2021, impairment loss related to intangible assets of $0 and $699,000 was recorded in the statements
of operations, respectively.
Siebert 2022 Form-10K 48
Goodwill
Goodwill represents the excess purchase price of businesses acquired over the fair value of the identifiable net assets acquired. Goodwill is not
subject to amortization but rather is evaluated for impairment annually, or more frequently if events occur or circumstances change indicating it would
more likely than not result in a reduction of the fair value of the reporting unit below its carrying value, including goodwill. Goodwill may be evaluated for
impairment by performing a qualitative assessment. This qualitative assessment considers various financial, macroeconomic, industry, and reporting unit
specific qualitative factors. If the qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit is less than its
carrying amount, including goodwill, or, if for any other reason the Company determines to it be appropriate, then a quantitative assessment will be
performed. The quantitative assessment process utilizes an income and market approach to arrive at an indicated fair value range for the reporting unit. The
fair value calculated for the reporting unit is compared to its carrying amount, including goodwill, to ascertain if goodwill impairment exists. If the fair
value exceeds the carrying amount, including goodwill for the reporting unit, it is not considered impaired. If the fair value is below the carrying amount,
including goodwill for the reporting unit, then an impairment charge is recognized for the amount by which the carrying amount exceeds the calculated fair
value, up to but not exceeding the amount of goodwill allocated to the reporting unit.
The Company’s annual impairment test date is December 31. The Company completed a qualitative assessment for its reporting unit during its
most recent annual impairment review. The Company concluded that it has one reportable segment and tests goodwill on a consolidated basis. Based on
this qualitative assessment, the Company determined that there was no evidence of impairment to the balance of its goodwill as of December 31, 2022 and
2021.
Payables to Non-Customers
Payables to non-customers include amounts due on cash and margin transactions on accounts owned and controlled by principal officers and
directors of MSCO. Payables to non-customers amounts include any amounts received from interest on credit balances.
Drafts Payable
Drafts payable represent checks drawn by the Company against customer accounts which remained outstanding and had not cleared the bank as of
the end of the period.
Deferred Contract Incentive
The Company entered into an amendment with its agreement with NFS whereby the Company received a one-time business development credit of
$3 million, and NFS will pay the Company four annual credits of $100,000, which are both recorded in the line item “Deferred contract incentive” on the
statements of financial condition. Annual credits shall be paid on the anniversary of the date on which the first credit was paid. The business development
credit and annual credits will be recognized as contra expense over four years and one year, respectively, in the line item “Clearing fees, including
execution costs” on the statements of operations.
Revenue Recognition
The primary sources of revenue for the Company are as follows:
Commissions and Fees
The Company earns commission revenue for executing trades for clients in individual equities, options, insurance products, futures, fixed income
securities, as well as certain third-party mutual funds and ETFs. The Company also earns commission revenue from an agreement with JonesTrading
Institutional Service, LLC (“JonesTrading”) whereby JonesTrading pays the Company a percentage of the net revenue produced by certain institutional
customers less any related expenses. The Company earned $137,000 in net revenue and $22,000 in net expense for the years ended December 31, 2022 and
2021, respectively.
Commission revenue associated with combined trade execution and clearing services, as well as trade execution services on a standalone basis, is
recognized at a point in time on the trade date when the performance obligation is satisfied. The performance obligation is satisfied on the trade date
because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and rewards of ownership have
been transferred to / from the customer.
The Company enters into arrangements with managed accounts of other pooled investment vehicles (funds) to distribute shares to investors
(“distribution fees”). The Company may receive distribution fees paid by the fund up front, over time, upon the investor’s exit from the fund (that is, a
contingent deferred sales charge), or as a combination thereof. The Company believes that its performance obligation is the sale of securities to investors
and as such this is fulfilled on the trade date. Any fixed amounts are recognized on the trade date and variable amounts are recognized to the extent it is
probable that a significant revenue reversal will not occur until the uncertainty is resolved. For variable amounts, as the uncertainty is dependent on the
value of the shares at future points in time as well as the length of time the investor remains in the fund, both of which are highly susceptible to factors
outside the Company’s influence, the Company does not believe that it can overcome this constraint until the market value of the fund and the investor
activities are known, which are usually monthly or quarterly. Distribution fees recognized in the current period are primarily related to performance
obligations that have been satisfied in prior periods.
Siebert 2022 Form-10K 49
Principal Transactions and Proprietary Trading
Principal transactions and proprietary trading primarily represent two business lines. The first business line is riskless transactions in which the
Company, after executing a solicited order, buys or sells securities as principal and at the same time buys or sells the securities with a markup or markdown
to satisfy the order. The second business line is entering into transactions where U.S. government securities and other securities are traded by the Company.
Principal transactions and proprietary trading are recognized at a point in time on the trade date when the performance obligation is satisfied. The
performance obligation is satisfied on the trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed
upon, and the risks and rewards of ownership have been transferred to / from the customer or trading counterparty.
Market Making
Market making revenue is generated from the buying and selling of securities. Market making transactions are recorded on a trade-date basis as
the securities transactions occur. The performance obligation is satisfied on the trade date because that is when the underlying financial instrument or
purchaser is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to / from the counterparty. Securities
owned and securities sold, not yet purchased are recorded at fair market value at the end of the reporting period.
Stock Borrow / Stock Loan
The Company borrows securities on behalf of retail clients to facilitate short trading, loans excess margin and fully-paid securities from client
accounts, facilitates borrow and loan contracts for broker-dealer counterparties, and provides stock locate services to broker-dealer counterparties. The
Company recognizes self-clearing revenues net of operating expenses related to stock borrow / stock loan. Stock borrow / stock loan also includes any
revenues generated from the Company’s fully paid lending programs on a self-clearing or introducing basis. The Company does not utilize stock borrow /
stock loan activities for the purpose of financing transactions.
The performance obligation is satisfied on the contract date because that is when the underlying financial instrument or purchaser is identified, the
pricing is agreed upon, and the risks and rewards of ownership have been transferred to / from the counterparty.
For the year ended December 31, 2022, stock borrow / stock loan revenue was $14,518,000 ($33,883,000 gross revenue less $19,365,000
expenses). For the year ended December 31, 2021, stock borrow / stock loan revenue was $11,864,000 ($29,441,000 gross revenue minus $17,577,000
expenses).
Advisory Fees
The Company earns advisory fees associated with managing client assets. The performance obligation related to this revenue stream is satisfied
over time; however, the advisory fees are variable as they are charged as a percentage of the client’s total asset value, which is determined at the end of the
quarter.
Interest, Marketing and Distribution Fees
The Company earns interest from clients’ accounts, net of payments to clients’ accounts, and on the Company’s bank balances and securities.
Interest income also includes interest payouts from introducing relationships related to short interest, net of charges.
The Company also earns margin interest which is the net interest charged to customers for holding financed margin positions. Marketing and
distribution fees consist of 12b-1 fees which are trailing payments from money market funds. Interest, marketing and distribution fees are recorded as
earned.
The Company enters into arrangements with managed accounts of other pooled investment vehicles (funds) to distribute shares to investors. The
Company may receive distribution fees paid by the fund up front, over time, upon the investor’s exit from the fund (that is, a contingent deferred sales
charge), or as a combination thereof. The Company believes that its performance obligation is the sale of securities to investors and as such this is fulfilled
on the trade date. Any fixed amounts are recognized on the trade date and variable amounts are recognized to the extent it is probable that a significant
revenue reversal will not occur until the uncertainty is resolved. For variable amounts, as the uncertainty is dependent on the value of the shares at future
points in time as well as the length of time the investor remains in the fund, both of which are highly susceptible to factors outside the Company’s
influence, the Company does not believe that it can overcome this constraint until the market value of the fund and the investor activities are known, which
are usually monthly or quarterly. Distribution fees recognized in the current period are primarily related to performance obligations that have been satisfied
in prior periods.
Siebert 2022 Form-10K 50
Other Income
Other income represents fees generated from consulting services to technology providers, corporate services client fees, payment for order flow,
and transactional fees generated from client accounts. Transactional fees are recorded concurrently with the related activity. Other income is recorded as
earned.
Costs to Obtain or Fulfill a Contract; Other
For the periods presented, there were no costs capitalized related to obtaining or fulfilling a contract with a customer, and thus the Company has
no balances for contract assets or contract liabilities. The Company concludes that its revenue streams have the same underlying economic factors, and as
such, no disaggregation of revenue is required.
Performance Obligation
The following table presents each revenue category and its related performance obligation:
Revenue Stream
Commissions and fees, Principal transactions and proprietary trading,
Performance Obligation
Provide financial services to customers and counterparties
Market making, Stock borrow / stock loan, Advisory fees
Stock borrow / stock loan
Marketing and distribution fees
Interest, Other income
Share-Based Compensation
Provide financial services to customers and Counterparties, net of expenses
Fixed: Provide financial services to customers and Counterparties, Variable:
n/a, recorded as earned
N/A, recorded as earned
The Company grants share-based compensation, which is described in the Employee Benefit Plan section of Note 18 – Commitments,
Contingencies, and Other. The Company accounts for share-based compensation in accordance with ASC Topic 718, “Compensation-Stock
Compensation,” which establishes accounting for share-based compensation to employees for services. Under the provisions of ASC 718-10-35, share-
based compensation cost is measured at the grant date, based on the fair value of the award on that date and is expensed at the grant date (for the portion
that vests immediately) or ratably over the related vesting periods.
Advertising and Promotion
Advertising and promotion costs are expensed as incurred and were $543,000 and $44,000 for the years ended December 31, 2022, and 2021,
respectively.
Siebert 2022 Form-10K 51
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines
deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax
rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is
recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that the Company believes that these assets are more likely than not to be realized. In
making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary
differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to
realize deferred taxes in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation
allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company
determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax
positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent
likely to be realized upon ultimate settlement with the related tax authority.
The Company recognizes interest and penalties related to unrecognized tax benefits on the provision for income taxes line in the statements of
operations. Accrued interest and penalties would be included on the related tax liability line in the statements of financial condition.
Capital Stock
The authorized capital stock of the Company consists of a single class of common stock. Shares authorized were 100 million as of both December
31, 2022 and 2021.
Per Share Data
Basic earnings per share is calculated by dividing net income available to the Company’s common stockholders by the weighted average number
of outstanding common shares during the year. Diluted earnings per share is calculated by dividing net income available to the Company’s common
stockholders by the number of shares outstanding under the basic calculation and adding, all dilutive securities, which consist of options. The Company has
no dilutive securities as of both December 31, 2022 and 2021.
Accounting Standards Adopted in Fiscal 2022
The Company did not adopt any new accounting standards during the year ended December 31, 2022. In addition, the Company has evaluated
other recently issued accounting standards and does not believe that any of these standards will have a material impact on the Company’s financial
statements and related disclosures as of December 31, 2022.
Siebert 2022 Form-10K 52
3. Transactions with Tigress and Hedge Connection
Tigress
Initial Transaction
On November 16, 2021, the Company entered into an agreement with Tigress, a Delaware limited liability company, and a disabled and woman-
owned financial services firm. As part of the agreement, (i) Tigress transferred to the Company limited liability company membership interests representing
24% of the outstanding membership interests in Tigress; and (ii) the Company transferred to Tigress limited liability company membership interests
representing 24% of the outstanding membership interests of RISE and 1,449,525 shares of the Company’s common stock. The Company’s common stock
was issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
Reorganization Agreement
On October 18, 2022, the Company entered into a Reorganization Agreement (“Reorganization Agreement”) with Tigress whereby the Company
exchanged 7% of the outstanding membership interests in Tigress for all of Tigress’ ownership interest in RISE. As of the date of this Report, the Company
is currently evaluating the terms upon which it will transfer its remaining ownership of Tigress to Gloria E. Gebbia pursuant to the Reorganization
Agreement.
The net loss as a result of this transaction was $92,000, which is in the line item “Loss on sale of equity method investment in related parties” in
the statements of operations.
Impairment
As a result of the transaction described above as well as the fact that Tigress and the financial services industry had been impacted by adverse
market conditions resulting in a decline in Tigress’ performance and future projections, management concluded that a triggering event had occurred and
evaluated if the investment in Tigress was other than temporarily impaired. Thus, the Company performed an impairment test as of October 18, 2022, and
estimated the fair value of Tigress using the income and market approach. For the income approach, the Company utilized estimated discounted future cash
flow expected to be generated by Tigress. For the market approach the Company utilized market multiples of revenue and earnings derived from
comparable publicly-traded companies. Based upon the updated valuation, the Company recognized an impairment of $4,015,000 which is included in line
item “Impairment of equity method investment in related party” in the statements of operations.
Hedge Connection
Initial Transaction
On January 21, 2022, RISE entered into an agreement with Hedge Connection, a Florida corporation and a woman-owned fintech company
founded by Ms. Vioni that provides capital introduction software solutions for the prime brokerage industry.
Pursuant to the agreement, (i) Hedge Connection transferred to the Company common stock representing 20% of the outstanding post-closing
issued and outstanding capitalization in Hedge Connection for a consideration of $600,000, to be paid in three installments over 180 days, as well as
approximately 3.33% of the issued and outstanding membership interests of RISE; (ii) the Company acquired an option from Ms. Vioni to acquire 100% of
the remaining interest in Hedge Connection at fair value market at the time of the option exercise, provided such valuation of Hedge Connection is not less
than $5 million; (iii) the Company acquired a technology license agreement from Hedge Connection to use its capital introduction software, Fintroz, for an
annual license fee of $250,000; (iv) Ms. Vioni provided the Company with the right to appoint one director to the Board of Directors of Hedge Connection;
and (v) Ms. Vioni was appointed to the Board of Directors of RISE as well as to the position of President of RISE Prime – Capital Introduction, a division
of RISE.
Siebert 2022 Form-10K 53
Termination Agreement
On October 18, 2022, the Company entered into a Termination Agreement (“Termination Agreement”) with Hedge Connection and Ms. Vioni.
Pursuant to the Termination Agreement, the parties terminated the Purchase Agreement, dated January 21, 2022. Under the terms of the Termination
Agreement, the Company re-conveyed to Hedge Connection, Hedge Connection common stock representing 20% of Hedge Connection and the related
option from Ms. Vioni to acquire 100% of Ms. Vioni’s remaining interest in Hedge Connection in exchange for 3.17% of RISE and the cancellation of the
Company’s obligation to repay the remaining $250,000 of its note payable to Hedge Connection.
The Termination Agreement also terminates the Hedge Connection technology license agreement. Pursuant to the Termination Agreement, the
Company shall assign to Tigress prospective prime brokerage customers of the Company who were solicited by the Company from January 1, 2022
through the closing date of the Reorganization Agreement. In exchange, Tigress will split revenue with the Company on certain customers pursuant to the
Reorganization Agreement. The revenue recorded from this agreement was immaterial for the year ended December 31, 2022.
The net loss as a result of this transaction was $627,000, which is in the line item “Loss on sale of equity method investment in related parties” in
the statements of operations. The components that resulted in the net loss of $627,000 were the writing off of the carrying value of the Company’s
investment in Hedge Connection of $1,020,000, offset by the forgiveness of the notes payable to Hedge Connection of $250,000 as well as the net return of
RISE treasury stock of $143,000.
4. RISE
During the first quarter of 2022, RISE issued and Siebert sold membership interests in RISE to certain employees, directors, and affiliates of RISE
and Siebert.
From January 1, 2022 through March 30, 2022, RISE issued 8.3% of RISE’s total issued and outstanding membership interests in exchange for a
net increase in assets of $1,000,000. Siebert sold membership interests representing 2% of RISE’s total issued and outstanding membership interests to
Siebert employees and affiliates. Through March 30, 2022, Siebert continued to hold a majority ownership interest in RISE.
On March 31, 2022, Siebert exchanged $2,880,000 in aggregate of notes payable to Gloria E. Gebbia for 24% ownership interest in RISE. As a
result of the aforementioned transactions, Siebert’s direct ownership percentage in RISE declined from 76% as of December 31, 2021 to approximately
44% as of March 31, 2022.
The change in membership interest on March 31, 2022 required Siebert to reassess its interest in RISE in accordance with Accounting Standards
Codification (“ASC”) Topic 810 – Consolidation. As of March 31, 2022, Siebert determined that RISE was a VIE as the equity holders lack the
characteristics of a controlling financial interest. Siebert holds a variable interest in RISE and is the primary beneficiary of RISE since it holds both the
power to direct the activities of RISE that most significantly impact RISE’s economic performance, as well as the obligation to absorb losses and right to
receive the returns from RISE that would be significant to RISE.
Accordingly, Siebert consolidated RISE as a VIE for the period from March 31, 2022 through October 18, 2022. As a result of the transactions
described in Note 3 – Transactions with Tigress and Hedge Connection, Siebert’s ownership in RISE increased to 68%, and therefore Siebert continued to
consolidate RISE from October 18, 2022 through December 31, 2022 under the VOE model.
As of December 31, 2022, RISE reported assets of $1.3 million and liabilities of $0.1 million. As of December 31, 2021, RISE reported assets of
$3.3 million and liabilities of $0.7 million. There are no restrictions on the consolidated VIE’s assets.
5. Receivables From, Payables To, and Deposits With Broker-Dealers and Clearing Organizations
Amounts receivable from, payables to, and deposits with broker-dealers and clearing organizations consisted of the following as of the periods
indicated:
Receivables from and deposits with broker-dealers and clearing organizations
(1)
DTCC / OCC / NSCC
GSCO
Pershing
NFS
Securities fail-to-deliver
Globalshares
Other receivables
Total Receivables from and deposits with broker-dealers and clearing organizations
Payables to broker-dealers and clearing organizations
Securities fail-to-receive
Payables to broker-dealers
Total Payables to broker-dealers and clearing organizations
As of December
31, 2022
As of December
31, 2021
$
$
$
$
8,187,000
31,000
96,000
2,006,000
3,000
82,000
—
10,405,000
396,000
264,000
660,000
$
$
$
$
10,968,000
335,000
1,193,000
974,000
174,000
55,000
27,000
13,726,000
254,000
—
254,000
(1)
Depository Trust and Clearing Corporation is referred to as (“DTCC”), Options Clearing Corporation is referred to as (“OCC”), and National Securities
Clearing Corporation is referred to as (“NSCC”).
Siebert 2022 Form-10K 54
Under the DTCC shareholders’ agreement, MSCO is required to participate in the DTCC common stock mandatory purchase. As of December 31,
2022 and 2021, MSCO had shares of DTCC common stock valued at approximately $1,054,000 and $905,000, respectively, which are included in the line
item “Deposits with broker-dealers and clearing organizations” on the statements of financial condition.
In September 2022, MSCO and RISE entered into a clearing agreement whereby RISE would introduce clients to MSCO. As part of the
agreement, RISE deposited a clearing fund escrow deposit of $50,000 to MSCO. The resulting asset of RISE and liability of MSCO are eliminated in
consolidation. There was no income or expense related to this clearing relationship for the year ended December 31, 2022.
The Company is in the process of terminating its clearing relationships with GSCO and Pershing as of December 31, 2022. As of the date of this
report, the Company is no longer doing active business with these clearing vendors, and anticipates the full termination of these relationships by the end of
the first quarter of 2023.
6. Prepaid Service Contract
In April 2020, the Company entered into an agreement with a technology partner in which the Company paid the technology partner $1.0 million
and 193,906 shares of the Company’s restricted common stock for a total of $2.1 million in exchange for services to develop a new client and back end
interface as well as related functionalities for the Company’s key operations. In addition, the Company agreed to pay an annual license fee of $600,000 for
this software.
In February 2022, the Company entered into a Consulting Services Agreement (“CSA”) with the technology partner, whereby the Company would
provide certain consulting services over an 18-month period. The consulting fee income was recognized on a straight-line basis over the service period. The
Company recorded a total of $1.7 million for the year ended December 31, 2022 from the technology partner which is included in the line item “Other
income” on the statements of operations.
In September 2022, the Company and the technology partner mutually agreed to terminate the services being provided under both the original
agreement as well as the CSA. Per the terms of the respective termination agreements, neither the Company nor the technology partner will have any
further obligations to provide future services. As part of the termination, the technology partner returned 193,906 shares of the Company’s common stock
previously issued. The Company wrote off the remaining balance of the prepaid service contract of $532,000 and the Company received $950,000 which is
included in the line item “Other income” on the statements of operations.
The expense related to share-based payments to the technology partner for professional services was $239,000 and $376,000 for the years ended
December 31, 2022 and 2021, respectively. The total expense related to the technology partner was $711,000 and $959,000 for the years ended December
31, 2022 and 2021, respectively, which is included in “Technology and communications” on the statements of operations.
7. Fair Value Measurements
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The tables below present, by level within the fair value hierarchy, financial assets and liabilities, measured at fair value on a recurring basis for the
periods indicated. As required by ASC Topic 820, financial assets and financial liabilities are classified in their entirety based on the lowest level of input
that is significant to the respective fair value measurement.
Siebert 2022 Form-10K 55
Assets
Cash and securities segregated for regulatory purposes
U.S. government securities
Securities owned, at fair value
U.S. government securities
Certificates of deposit
Municipal securities
Corporate bonds
Equity securities
Total Securities owned, at fair value
Liabilities
Securities sold, not yet purchased, at fair value
Equity securities
Total Securities sold, not yet purchased, at fair value
Assets
Securities owned, at fair value
U.S. government securities*
Certificates of deposit
Corporate bonds
Equity securities
Total Securities owned, at fair value
Liabilities
Securities sold, not yet purchased, at fair value
Equity securities
Total Securities sold, not yet purchased, at fair value
Level 1
140,978,000
2,808,000
—
—
—
63,000
2,871,000
2,000
2,000
Level 1
2,966,000
—
—
489,000
3,455,000
—
—
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
As of December 31, 2022
Level 2
Level 3
—
—
92,000
52,000
7,000
182,000
333,000
—
—
$
$
$
$
$
—
—
—
—
—
—
—
—
—
As of December 31, 2021
Level 2
Level 3
—
91,000
12,000
433,000
536,000
24,000
24,000
$
$
$
$
—
—
—
—
—
—
—
Total
140,978,000
2,808,000
92,000
52,000
7,000
245,000
3,204,000
2,000
2,000
Total
2,966,000
91,000
12,000
922,000
3,991,000
24,000
24,000
$
$
$
$
$
$
$
$
$
*As of December 31, 2021, the U.S. government securities had a maturity date of August 15, 2024.
As of December 31, 2022, the Company had U.S. government securities with the below market values and maturity dates:
Market value of U.S. government securities
Maturing 03/23/2023, 3.750% Discount Rate
Maturing 05/18/2023, 2.700% Discount Rate
Maturing 08/31/2023, 1.375% Coupon Rate
Maturing 12/31/2023, 0.750% Coupon Rate
Maturing 01/31/2024, 0.875% Coupon Rate
Maturing 05/31/2024, 2.500% Coupon Rate
Maturing 08/15/2024, 0.375% Coupon Rate
Accrued interest
Total Market value of investment in U.S. government securities
As of
December 31,
2022
$
24,768,000
9,831,000
9,777,000
62,497,000
23,995,000
9,707,000
2,808,000
404,000
$ 143,787,000
Siebert 2022 Form-10K 56
Financial Assets Measured at Fair Value on a Non-Recurring Basis
The following table represents information for assets measured at fair value on a nonrecurring basis and display the carrying value after
measurement as of the periods indicated. The fair value measurement is nonrecurring as these assets are measured at fair value only when there is a
triggering event (e.g., an evidence of impairment). Assets included in the table are those that were impaired during the respective reporting periods and that
are still held as of the reporting date. The estimated fair values for these amounts were determined using significant unobservable inputs (Level 3).
Equity method investment in related party
As of December 31,
2022
2021
$
2,584,000 $
—
As a result of the transaction discussed Note 3 – Transactions with Tigress and Hedge Connection, the Company recognized an impairment charge
for its investment in Tigress of approximately $4,015,000 for the year ended December 31, 2022. The fair value of the Company’s investment in Tigress
was determined using the income and market approach. For the income approach, the Company utilized estimated discounted future cash flow expected to
be generated by Tigress. For the market approach, the Company utilized market multiples of revenue and earnings derived from comparable publicly-
traded companies.
Financial Assets and Liabilities Not Carried at Fair Value
The following represents financial instruments in which the ending balances as of December 31, 2022 and 2021 are not carried at fair value in the
statements of financial condition:
Short-term financial instruments: The carrying value of short-term financial instruments, including cash and cash equivalents as well as cash and
securities segregated for regulatory purposes, are recorded at amounts that approximate the fair value of these instruments. These financial instruments
generally expose the Company to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate
market rates. Securities segregated for regulatory purposes consist solely of U.S. government securities and are included in the fair value hierarchy table
above. Cash and cash equivalents and cash and securities segregated for regulatory purposes are classified as level 1.
Receivables and other assets: Receivables from customers, receivables from non-customers, receivables from and deposits with broker-dealers and
clearing organizations, other receivables, prepaid service contract, and prepaid expenses and other assets are recorded at amounts that approximate fair
value and are classified as level 2 under the fair value hierarchy. The Company may hold cash equivalents related to rent deposits in prepaid expenses and
other assets that are categorized as level 2 under the fair value hierarchy.
Securities borrowed and securities loaned: Securities borrowed and securities loaned are recorded at amounts which approximate fair value and
are primarily classified as level 2 under the fair value hierarchy. The Company’s securities borrowed and securities loaned balances represent amounts of
equity securities borrow and loan contracts and are marked-to-market daily in accordance with standard industry practices which approximate fair value.
Payables: Payables to customers, payables to non-customers, drafts payable, payables to broker-dealers and clearing organizations, accounts
payable and accrued liabilities, and taxes payable are recorded at amounts that approximate fair value due to their short-term nature and are classified as
level 2 under the fair value hierarchy.
Siebert 2022 Form-10K 57
Notes payable – related party: The carrying amount of the notes payable – related party approximates fair value due to the relative short-term
nature of the borrowing. Under the fair value hierarchy, the notes payable – related party is classified as level 2.
Deferred contract incentive: The carrying amount of the deferred contract incentive approximates fair value due to the relative short-term nature of
the liability. Under the fair value hierarchy, the deferred contract incentive is classified as level 2.
Long-term debt: The carrying amount of the loan and mortgage with East West Bank approximates fair value as they reflect terms that
approximate current market terms for similar arrangements. Under the fair value hierarchy, the loan and mortgage are classified as level 2.
Investments, cost: The Company’s non-marketable equity securities are investments in privately held companies without readily determinable
market values. Due to the absence of quoted market prices, the inherent lack of liquidity and the fact that inputs used to measure fair value are unobservable
and require management’s judgment. As there is no readily determinable fair value, the carrying amount of these investments minus impairment
approximates the fair value. The cost will be adjusted upwards or downwards in accordance with observable market transactions and is recorded in the line
item “Other general and administrative” in the statements of operations. Under the fair value hierarchy, the investments, cost is classified as level 3.
8. Property, Office Facilities, and Equipment, Net
Property, office facilities, and equipment consisted of the following as of the periods indicated:
Property
Office facilities
Equipment
Total Property, office facilities, and equipment
Less accumulated depreciation
Total Property, office facilities, and equipment, net
As of December 31,
2022
6,815,000
2,616,000
674,000
10,105,000
(1,777,000)
8,328,000
$
$
$
$
2021
6,815,000
1,608,000
413,000
8,836,000
(1,373,000)
7,463,000
Total depreciation expense for property, office facilities, and equipment was $404,000 and $410,000 for the years ended December 31, 2022 and
2021, respectively.
Miami Office Building
On December 30, 2021, the Company purchased the Miami office building located at 653 Collins Ave, Miami Beach, FL (“Miami office
building”). The Miami office building contains approximately 12,000 square feet of office space and will serve as a primary operating center of the
Company.
For the year ended December 31, 2022, no depreciation expense was recorded for the Miami office building. Depreciation expense will commence
when the build out of the Miami office building is completed and placed in service, which is expected to occur in the first quarter of 2023. The Company
invested $985,000 and $0 in the years ended December 31, 2022 and 2021, respectively, to build out the Miami office building.
Siebert 2022 Form-10K 58
9. Software, Net
Software consisted of the following as of the periods indicated:
Robo-advisor
Other software
Total Software
Less accumulated amortization – robo-advisor
Less accumulated amortization – other software
Total Software, net
As of December 31,
2022
763,000
3,342,000
4,105,000
(763,000)
(2,351,000)
991,000
$
$
2021
763,000
2,512,000
3,275,000
(763,000)
(1,760,000)
752,000
$
$
In the fourth quarter of 2022, the Company partnered with a technology partner to develop a new retail trading platform for the Company’s
customers and integrate the trading platform into the Company’s operations. The total software development work related to this project was $241,000 for
the year ended December 31, 2022. Amortization expense will commence when the retail trading platform is launched and placed into service, which is
expected to occur in the second quarter of 2023.
Total amortization of software was $590,000 and $925,000 for the years ended December 31, 2022 and 2021, respectively. As of December 31,
2022, the Company estimates future amortization of software assets of $429,000, $336,000, $197,000, and $29,000, in the years ended December 31, 2023,
2024, 2025, and 2026, respectively.
10. Leases
As of December 31, 2022, all of the Company’s leases are classified as operating and primarily consist of office space leases expiring in 2023
through 2027. The Company elected not to include short-term leases (i.e., leases with initial terms of less than twelve months), or equipment leases
(deemed immaterial) on the statements of financial condition. The Company leases some miscellaneous office equipment, but they are immaterial and
therefore the Company records the costs associated with this office equipment on the statements of operations rather than capitalizing them as lease right-
of-use assets. The balance of the lease right-of-use assets and lease liabilities are displayed on the statements of financial condition and the below tables
display further detail on the Company’s leases.
Lease Term and Discount Rate
Weighted average remaining lease term – operating leases
(in years)
Weighted average discount rate – operating leases
Operating lease cost
Short-term lease cost
Variable lease cost
Total Rent and occupancy
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
Lease right-of-use assets obtained in exchange for new lease liabilities
Operating leases
As of
December 31,
2022
As of
December 31,
2021
2.7
5.0%
2.9
5.0%
Year Ended
December 31,
2022
1,299,000
366,000
290,000
1,955,000
$
$
2021
1,653,000
97,000
180,000
1,930,000
1,380,000
$
1,665,000
888,000
$
1,966,000
$
$
$
$
Siebert 2022 Form-10K 59
Lease Commitments
Future annual minimum payments for operating leases with initial terms of greater than one year as of December 31, 2022 were as follows:
Year
2023
2024
2025
2026
2027
Remaining balance of lease payments
Less: Difference between undiscounted cash flows and discounted cash flows
Lease liabilities
11. Equity Method Investments in Related Parties
Tigress
Amount
1,246,000
588,000
450,000
234,000
48,000
2,566,000
163,000
2,403,000
$
$
The Company’s investment in Tigress is accounted for under the equity method of accounting. In determining whether the investment in Tigress
should be accounted for under the equity method of accounting, the Company considered the guidance under ASC 323, Investments – Equity Method and
Joint Ventures. Prior to the Reorganization Agreement, the Company maintained 24% ownership interest in Tigress, which represented a significant
ownership level, the Company and Tigress had common representation on their respective Board of Directors, and certain employees of Tigress were also
employees of RISE. Based on these criteria, the Company determined that it was able to exercise significant influence over Tigress, and therefore the
equity method of accounting applied for this investment.
After the Reorganization Agreement, the Company owned 17% of Tigress. The Company concluded that it still had significant influence over
Tigress due to the representation of Gloria E. Gebbia on the Board of Directors of Tigress. Therefore, the Company continues to account for this investment
under the equity method of accounting as of December 31, 2022.
Under the equity method, the Company recognizes its share of Tigress’ income or loss in the line item “Earnings of equity method investment in
related parties” in the statements of operations. The Company has elected to classify distributions received from equity method investees using the
cumulative earnings approach. The loss recognized from the Company’s investment in Tigress was $16,000 for the year ended December 31, 2022. The
earnings recognized from the Company’s investment in Tigress was $172,000 for the year ended December 31, 2021.
The Company received cash distributions from Tigress of $259,000 for the year ended December 31, 2022. The Company did not receive any cash
distributions from Tigress in 2021; however, RISE made a distribution of $156,000 to Siebert in 2021 in lieu of a corresponding distribution from Tigress.
As of December 31, 2022 and 2021, the carrying amount of the investment in Tigress was $2,584,000 and $8,156,000, respectively. There were no events
or circumstances suggesting the carrying amount of the investment was impaired as of December 31, 2022 and 2021.
Siebert 2022 Form-10K 60
Below is a table showing the summary from the consolidated statements of operations and financial condition for Tigress for the periods indicated
(unaudited):
Revenue
Operating income (loss)
Net income (loss)
Assets
Liabilities
Stockholders’ Equity
Hedge Connection
$
$
$
$
$
$
Year Ended December 31,
2022
$
8,432,000
(132,000) $
(132,000) $
2021
15,000,000
4,800,000
4,800,000
As of December 31,
2022
8,169,000
5,301,000
2,868,000
$
$
$
2021
10,793,000
6,096,000
4,697,000
Prior to the Termination Agreement, the Company determined that it was able to exercise significant influence over Hedge Connection as the
Company had a significant level of ownership and had the right to appoint a director to Hedge Connection’s Board of Directors. As such, the equity method
of accounting applied for this investment, and the Company recognized $20,000 from its investment in Hedge Connection during the year ended December
31, 2022, which is in the line item “Earnings of equity method investment in related parties” in the statements of operations.
The Company did not receive any cash distributions from Hedge Connection for the year ended December 31, 2022. As of December 31, 2022
and 2021, the carrying amount of the investment in Hedge Connection was both $0.
12. Investments, Cost
OpenHand
Initial Transaction
On January 31, 2021, the Company and OpenHand entered into a stock purchase agreement whereby the Company acquired an interest of 5% of
OpenHand common stock for consideration of a total of $2,231,000 consisting of $850,000 in cash and 329,654 restricted shares of the Company’s
common stock valued at $1,381,000 or $4.19 per share. The Company’s common stock was issued pursuant to Section 4(a)(2) of the Securities Act of
1933, as amended.
The value of the Company’s restricted stock was determined using the thirty-day trading average. The Company agreed to register the shares
issued to OpenHand by filing a selling shareholder registration statement. The Company also received an option to purchase an additional 7.5% of
OpenHand for approximately $4.5 million, based upon a $60 million valuation of OpenHand. This option expires 18 months after the launch of the
OpenHand platform.
Termination Agreement
On August 18, 2021, the Company and OpenHand agreed to terminate their working relationship. In connection therewith, the Company and
OpenHand amended and restated their January 31, 2021 stock purchase agreement to provide that the Company would pay $850,000 in cash in exchange
for 2% of the outstanding common stock of OpenHand as of January 31, 2021, and receive a 15-month option to purchase an additional 2% of the
outstanding common stock of OpenHand at an exercise price equal to a company valuation of $42.5 million. The parties agreed to rescind OpenHand’s
purchase of the 329,654 restricted shares of the Company’s common stock.
No value was attributed to the option because it was not a derivative and there were no transaction costs associated with this option, and the option
expired in November 2022.
The investment does not have a readily determinable fair value since OpenHand is a private company and its shares are not publicly traded. The
Company made an accounting policy election to measure this investment at cost less any impairment adjusted for any changes resulting from observable
price changes in orderly transactions for the identical or a similar investment of the same issuer.
For the year ended December 31, 2021, there was a loss on sale of $63,000 as a result of the August 18, 2021 amendment which is included in the
line item “Other general and administrative” on the statements of operations. As of both December 31, 2022 and 2021, the carrying value of the Company’s
investment in OpenHand was $850,000, and management concluded that the Company’s investment in OpenHand is not impaired and that no additional
events or changes in circumstances were identified that could have a significant effect on the original valuation of the investment.
Siebert 2022 Form-10K 61
13. Long-Term Debt
Mortgage with East West Bank
Overview
On December 30, 2021, the Company purchased the Miami office building for approximately $6.8 million, which was partially financed through a
ten year mortgage with East West Bancorp, Inc. (“East West Bank”). The mortgage was for approximately $4 million with a commitment for another
$338,000 to finance part of the build out of the Miami office building. The Company has utilized its commitment of $338,000 as of December 31, 2022.
The Company’s obligations under the mortgage are secured by a lien on the Miami office building and the term of the loan is ten years. The
repayment schedule will utilize a 30-year amortization period, with a balloon on the remaining amount due at the end of ten years. The interest rate is 3.6%
for the first 7 years, and thereafter the interest rate shall be at the prime rate as reported by the Wall Street Journal, provided that the minimum interest rate
on any term loan will not be less than 3.6%. As part of the agreement, the Company must maintain a debt service coverage ratio of 1.4 to 1. The loan is
subject to a prepayment penalty over the first five years which is calculated as a percentage of the principal amount outstanding at the time of prepayment.
This percentage is 5% in the first year and decreases by 1% each year thereafter, with the prepayment penalty ending after 5 years. As of December 31,
2022, the Company was in compliance with all of its covenants related to this agreement.
Remaining Payments
Future remaining annual minimum principal payments for the mortgage with East West Bank as of December 31, 2022 were as follows:
2023
2024
2025
2026
Thereafter
Total
Amount
75,000
84,000
88,000
91,000
4,048,000
4,386,000
$
$
The interest expense related to this mortgage was $143,000 and $0 for the years ended December 31, 2022, and 2021, respectively. As of
December 31, 2022, the interest rate for this mortgage was 3.6%.
Loan with East West Bank
Overview
On July 22, 2020, the Company entered into a loan and security agreement with East West Bank. In accordance with the terms of this agreement,
the Company had the ability to borrow term loans in an aggregate principal amount not to exceed $10 million during the two-year period after July 22,
2020. The Company originally borrowed approximately $5.0 million and had an outstanding balance of $2.7 million as of December 31, 2022. The
Company’s ability to borrow an additional $5.0 million available on its loan with East West Bank expired on July 22, 2022.
The Company’s obligations under the agreement are secured by a lien on all of the Company’s cash, dividends, stocks and other monies and
property from time to time received or receivable in exchange for the Company’s equity interests in and any other rights to payment from the Company’s
subsidiaries; any deposit accounts into which the foregoing is deposited and all substitutions, products, proceeds (cash and non-cash) arising out of any of
the foregoing. Each term loan will have a term of four years, beginning when the draw is made. The repayment schedule will utilize a five-year (60 month)
amortization period, with a balloon on the remaining amount due at the end of four years.
Term loans made pursuant to the agreement shall bear interest at the prime rate as reported by the Wall Street Journal, provided that the minimum
interest rate on any term loan will not be less than 3.25%. In addition to the foregoing, on the date that each term loan is made, the Company shall pay to
the lender an origination fee equal to 0.25% of the principal amount of such term loan. Pursuant to the loan agreement, the Company paid all lender
expenses in connection with the loan agreement.
This agreement contains certain financial and non-financial covenants. The financial covenants are that the Company must maintain a debt service
coverage ratio of 1.35 to 1, an effective tangible net worth of a minimum of $25 million, and MSCO must maintain a net capital ratio that is not less than
10% of aggregate debit items. Certain other non-financial covenants include that the Company must promptly notify East West Bank of the creation or
acquisition of any subsidiary that at any time owns assets with a value of $100,000 or greater. As of December 31, 2022, the Company was in compliance
with all its covenants related to this agreement.
Siebert 2022 Form-10K 62
In addition, the Company’s obligations under the agreement are guaranteed pursuant to a guarantee agreement by and among, John J. Gebbia and
Gloria E. Gebbia, individually, and as a co-trustees of the John and Gloria Living Trust, U/D/T December 8, 1994 (“John and Gloria Gebbia Trust”).
Remaining Payments
Future remaining annual minimum principal payments for the loan with East West Bank as of December 31, 2022 were as follows:
2023
2024
Total
Amount
998,000
1,661,000
2,659,000
$
$
The interest expense related to the loan was $144,000 and $138,000 for the years ended December 31, 2022 and 2021, respectively. As of
December 31, 2022, the interest rate for this loan was 7.5%.
14. Notes Payable - Related Party
During 2022 the Company had notes payable to Gloria E. Gebbia and Hedge Connection of $3 million and $600,000, respectively; however, as of
December 31, 2022, the Company had no outstanding balance on these notes payables.
As of December 31, 2021, the Company had various notes payable to Gloria E. Gebbia, the details of which are presented below:
Description
4.00% due December 30, 2022**
4.00% due June 30, 2022**
4.00% due November 30, 2022***
Total Notes payable – related party
Issuance Date
December 30, 2021
December 31, 2021
November 30, 2020
Face Amount
Unpaid Principal
Amount
2,000,000 $
2,000,000
3,000,000
7,000,000 $
2,000,000
2,000,000
3,000,000
7,000,000
$
$
**On March 31, 2022, $2,880,000 in aggregate of notes payable to Gloria E. Gebbia was exchanged for 24% ownership interest in RISE. During
the year ended December 31, 2022, the Company paid the remainder of these notes payable.
***This note payable is subordinated to MSCO and is subordinated to the claims of general creditors, approved by FINRA, and is included in
MSCO’s calculation of net capital and the capital requirements under FINRA and SEC regulations. On August 17, 2021, this note payable was renewed
with a maturity of November 30, 2022.
The Company’s interest expense for these notes payable for the years ended December 31, 2022 and 2021 was $151,000 and $206,000,
respectively. The Company’s interest payable related to these notes payable was $0 as of both December 31, 2022 and 2021.
Siebert 2022 Form-10K 63
15. Deferred Contract Incentive
Effective August 1, 2021, MSCO entered into an amendment to its clearing agreement with NFS that, among other things, extends the term of
their arrangement for an additional four-year period commencing on August 1, 2021 and ending July 31, 2025.
As part of this agreement, the Company received a one-time business development credit of $3 million from NFS, and NFS will pay the Company
four annual credits of $100,000, which are recorded in the line item “Deferred contract incentive” on the statements of financial condition. Annual credits
shall be paid on the anniversary of the date on which the first credit was paid. The business development credit and annual credits will be recognized as
contra expense over four years and one year, respectively, in the line item “Clearing fees, including execution costs” on the statements of operations. The
amendment also provides for an early termination fee if the Company chooses to end its agreement before the end of the contract term.
In relation to this agreement, the Company recognized $850,000 and $354,000 in contra expense for the years ended December 31, 2022, and
2021, respectively. The balance of the deferred contract incentive was approximately $2.0 million and $2.7 million as of December 31, 2022 and 2021,
respectively.
16. Principal Transactions and Proprietary Trading
In 2022 the Company invested in treasury bill and treasury notes, which are primarily in the line item “Cash and securities segregated for
regulatory purposes” on the statements of financial condition, in order to enhance its yield on its excess 15c3-3 deposits. During 2022, there was an
increase in U.S. government securities yields, which created an unrealized loss of approximately $3.9 million on the Company’s U.S. government securities
portfolio for the year ended December 31, 2022. The aggregate unrealized loss on the portfolio will be returned over the duration of the government
securities, at a point no later than the maturity of the securities. The maturities of the government securities are primarily in 2023 and the latest maturity is
August 2024.
The following table represents the detail related to principal transactions and proprietary trading.
Principal transactions and proprietary trading
Realized and unrealized gain on primarily riskless principal transactions
Unrealized loss on portfolio of U.S. government securities
Total Principal transactions and proprietary trading
17. Soft Dollar Arrangement
Year Ended December 31,
2022
2021
(Year over
Year Decrease)
$
$
7,643,000 $
(3,900,000 )
3,743,000 $
15,675,000 $
(28,000)
15,647,000 $
(8,032,000)
(3,872,000)
(11,904,000)
For certain clients of RISE, the Company had soft dollar and commission sharing arrangements with customers that fall both within, and outside
of, the safe harbor provisions of Rule 28(e) of the Securities Exchange Act of 1934 ("Rule 28(e)"), as amended. These soft dollar arrangements were
determined to be a separate performance obligation that should be allocated a portion of the transaction price.
Under these arrangements, the Company charged additional dollars on customer trades and used these fees to pay third parties for research,
brokerage services, market data, and related expenses (“research services”) on behalf of clients. The Company was an agent in these arrangements, as it did
not control the research services before they were transferred to the customer. As such, the revenue from these agreements were recognized net of cost in
the line item “Commissions and fees” on the statements of operations.
The Company paid client expenses of approximately $8,000 and $625,000 for the years ended December 31, 2022 and 2021, respectively. The
Company did not have an outstanding receivable or payable as of December 31, 2022 related to these arrangements.
As of both December 31, 2022 and 2021, no allowance for uncollectible commissions was necessary as the Company believes all commissions
receivable will be realized.
18. Referral Fees
In relation to the operations of RISE, the Company had agreements with various third parties to share commissions and pay fees as defined in the
respective agreements. These expenses were approximately $0 and $1,213,000 for the years ended December 31, 2022 and 2021, respectively, which are in
the line item “Referral fees” on the statements of operations.
Siebert 2022 Form-10K 64
19. Income Taxes
In August 2022, the Inflation Reduction Act (“IRA”) and CHIPS and Science Act (“CHIPS Act”) were both enacted. This new legislation includes
the implementation of a new corporate alternative minimum tax, an excise tax on stock buybacks, and tax incentives for energy and climate initiatives,
among other provisions. The income tax provisions of the IRA or the CHIPS Act had limited applicability to the Company and did not have a material
impact on the Company’s financial statements.
The Company’s provision for (benefit from) income taxes is comprised of the following:
Current
Federal
State and local
Total Current
Deferred
Federal
State and local
Total Deferred
Total Provision for (benefit from) income taxes
Year Ending December 31,
2022
2021
$
(749,000)
104,000
(645,000)
(305,000)
(350,000)
(655,000)
1,084,000
114,000
1,198,000
96,000
427,000
523,000
(1,300,000)
$
1,721,000
$
$
$
The Company’s effective tax rate differs from the U.S. federal statutory income tax rate of 21% for the periods indicated are as follows:
Federal statutory income tax rate
Tax amortization of intangible assets
Non-deductible fines and penalties
Share based compensation
Permanent differences
State and local taxes, net of federal benefit
Change in valuation allowance
Other
Effective tax rate
Year Ending December 31,
2021
2022
21.0%
6.5%
—%
—%
(6.1%)
9.4%
2.0%
(2.5%)
30.3%
21.0%
(4.1%)
0.8%
1.0%
0.8%
5.6%
(—%)
(0.4%)
25.5%
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as
follows:
Deferred tax assets:
Net operating losses
Lease liabilities
Share-based compensation
Investment in Tigress
Investment in RISE
Accrued compensation
Other
Subtotal
Less: valuation allowance
Total Deferred tax assets
Deferred tax liabilities:
Fixed assets
Share-based compensation
Total Deferred tax liabilities
Net Deferred tax assets
$
$
$
$
As of December 31,
2022
2021
5,023,000
648,000
—
775,000
10,000
—
45,000
6,501,000
(978,000)
5,523,000
(1,126,000)
—
(1,126,000)
4,397,000
$
$
$
$
5,437,000
749,000
—
—
140,000
62,000
13,000
6,401,000
(1,070,000)
5,331,000
(892,000)
(145,000)
(1,037,000)
4,294,000
Siebert 2022 Form-10K 65
In assessing the Company’s ability to recover its deferred tax assets, the Company evaluated whether it is more likely than not that some portion or
the entire deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in
those periods in which temporary differences become deductible and/or net operating losses can be utilized. The Company considered all positive and
negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not
limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income.
Based on historical operating profitability, positive trend of earnings and projected future taxable income, the Company concluded as of December
31, 2022 that its U.S. deferred tax assets are realizable on a more-likely-than-not basis with the exception of certain investments that will result in future
capital losses which are only available to offset capital gain income and certain state net operating losses. The amount of the Company’s valuation
allowance decreased $92,000 during 2022. The Company will continue to evaluate its deferred tax assets to determine whether any changes in
circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company’s deferred income tax
assets satisfy the realization standards, the valuation allowance will be reduced accordingly.
As of December 31, 2021, the Company had U.S. federal net operating loss carryforwards of approximately $8.2 million of which $6.4 million
expires in varying amounts in 2035 and 2036 if not utilized but available to offset 100% of future taxable income and $1.8 million which is permitted to be
carried forward indefinitely but only available to offset 80% of future taxable income. Approximately $6.4 million of the U.S. federal net operating loss
carryforwards are subject to annual limitation under Section 382.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:
Balance as of December 31, 2020
Additions for tax positions taken during current year
Additions for tax positions taken during prior year
Reductions for tax positions taken during prior years
Settlements
Expirations of statutes of limitations
Balance as of December 31, 2021
Additions for tax positions taken during current year
Additions for tax positions taken during prior year
Reductions for tax positions taken during prior years
Settlements
Expirations of statutes of limitations
Balance as of December 31, 2022
Amount
1,105,000
1,315,000
—
(2,000)
—
—
2,418,000
—
12,000
(834,000)
—
—
1,596,000
$
$
$
Of the amounts reflected above as of December 31, 2022, the entire amount would reduce the Company’s effective tax rate if recognized. The
Company records accrued interest and penalties related to income tax matters as part of the provision for income taxes. For the years ended December 31,
2022 and 2021, the Company recognized expense related to interest and penalties on unrecognized tax benefits of $100,000 and $27,000, respectively. For
the years ended December 31, 2022 and 2021, the accrued balance of interest and penalties on unrecognized tax benefits was $127,000 and $27,000,
respectively. The Company does not believe that the amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.
The Company files a federal income tax return and income tax returns in various state tax jurisdictions. The Company is not currently under
examination by the IRS or any state or local taxing authority for any tax year. The open tax years for the federal and state income tax filings is generally
2019 through 2022.
Siebert 2022 Form-10K 66
20. Capital Requirements
MSCO
Net Capital
MSCO is subject to the Uniform Net Capital Rules of the SEC (Rule 15c3-1) of the Exchange Act. Under the alternate method permitted by this
rule, net capital, as defined, shall not be less than the lower of $1 million or 2% of aggregate debit items arising from customer transactions. As of
December 31, 2022, MSCO’s net capital was $30.6 million, which was approximately $29.2 million in excess of its required net capital of $1.4 million, and
its percentage of aggregate debit balances to net capital was 44.49%.
As of December 31, 2021, MSCO’s net capital was $36.4 million, which was approximately $34.3 million in excess of its required net capital of
$2.1 million, and its percentage of aggregate debit balances to net capital was 34.9%.
Special Reserve Account
MSCO is subject to Customer Protection Rule 15c3-3 which requires segregation of funds in a special reserve account for the exclusive benefit of
customers. As of December 31, 2022, MSCO had cash and securities deposits of $276.2 million (cash of $135.2 million, securities with a fair value of
$141.0 million) in the special reserve accounts which was $11.9 million in excess of the deposit requirement of $264.3 million. The Company made no
subsequent deposits or withdrawals on January 3, 2023.
As of December 31, 2021, MSCO had cash deposits of $326.8 million in the special reserve accounts which was $31.9 million in excess of the
deposit requirement of $294.9 million. After adjustments for deposit(s) and / or withdrawal(s) made on January 3, 2022, MSCO had $1.9 million in excess
of the deposit requirement.
Siebert 2022 Form-10K 67
RISE
Net Capital
RISE, as a member of FINRA, is subject to the SEC Uniform Net Capital Rule 15c3-1. This rule requires the maintenance of minimum net capital
and that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1 and that equity capital may not be withdrawn, or cash
dividends paid if the resulting net capital ratio would exceed 10 to 1. RISE is also subject to the CFTC’s minimum financial requirements which require
that RISE maintain net capital, as defined, equal to the greater of its requirements under Regulation 1.17 under the Commodity Exchange Act or Rule 15c3-
1.
As of December 31, 2022, RISE’s net capital was approximately $1.2 million which was $0.9 million in excess of its minimum requirement of
$250,000 under 15c3-1. As of December 31, 2021, RISE’s net capital was approximately $1.7 million which was $1.4 million in excess of its minimum
requirement of $250,000 under 15c3-1.
21. Financial Instruments With Off-Balance Sheet Risk
Credit Risk
The Company is engaged in various trading and brokerage activities whose counterparties include broker-dealers, banks and other financial
institutions.
In the event the counterparties do not fulfill their obligations, the Company may sustain a loss if the market value of the instrument is different
from the contract value of the transaction. The risk of default primarily depends upon the credit worthiness of the counterparties involved in the
transactions. It is the Company’s policy to review, as necessary, the credit standing of each counterparty with which it conducts business. The Company has
experienced no material historical losses in relation to its counterparties for the years ended December 31, 2022 and 2021.
Off-Balance Sheet Risks
The Company enters into various transactions to meet the needs of customers, conduct trading activities, and manage market risks and is,
therefore, subject to varying degrees of market and credit risk.
In the normal course of business, the Company’s customer activities involve the execution, settlement, and financing of various customer
securities transactions. These activities may expose the Company to off-balance sheet risk in the event the customer or other broker is unable to fulfill their
contracted obligations and the Company has to purchase or sell the financial instrument underlying the contract at a loss.
The Company’s customer securities activities are transacted on either a cash or margin basis. In margin transactions, the Company extends credit
to its customers, subject to various regulatory and internal margin requirements, and is collateralized by cash and securities in the customers’ accounts. In
connection with these activities, the Company executes and clears customer transactions involving the sale of securities not yet purchased, substantially all
of which are transacted on a margin basis subject to individual exchange regulations.
Siebert 2022 Form-10K 68
Such transactions may expose the Company to off-balance sheet risk in the event margin requirements are not sufficient to fully cover losses that
customers may incur. In the event the customer fails to satisfy obligations, the Company may be required to purchase or sell financial instruments at
prevailing market prices to fulfill the customer’s obligations.
The Company seeks to control the risks associated with its customer activities by requiring customers to maintain margin collateral in compliance
with various regulatory requirements and internal guidelines which meet or exceed regulatory requirements. The Company monitors required margin levels
daily and pursuant to such guidelines, requires customers to deposit additional collateral or to reduce positions when necessary.
The Company’s customer financing and securities settlement activities may require the Company to pledge customer securities as collateral in
support of various secured financing sources such as bank loans and securities loaned. In the event the counterparty is unable to meet its contractual
obligation to return customer securities pledged as collateral, the Company may be exposed to the risk of acquiring the securities at prevailing market
prices in order to satisfy its customer obligations. The Company seeks to mitigate this risk by monitoring the market value of securities pledged on a daily
basis and by requiring adjustments of collateral levels in the event of excess market exposure. In addition, the Company establishes credit limits for such
activities and continuously monitors compliance.
The Company’s securities lending transactions are subject to master netting agreements with other broker-dealers; however, amounts are presented
gross in the statements of financial condition. The Company further mitigates risk by using a program with a clearing organization which guarantees the
return of cash to the Company as well as using industry standard software to ensure daily changes to market value are continuously updated and any
changes to collateralization are immediately covered.
As of December 31, 2022, the Company had margin loans extended to its customers of approximately $365.4 million, of which $52.1 million is in
the line item “Receivables from customers” on the statements of financial condition. As of December 31, 2021, the Company had margin loans extended to
its customers of approximately $581.8 million, of which $84.2 million is in the line item “Receivables from customers” on the statements of financial
condition. There were no material losses for unsettled customer transactions for the years ended December 31, 2022 and 2021.
22. Commitments, Contingencies and Other
Legal and Regulatory Matters
The Company is party to certain claims, suits and complaints arising in the ordinary course of business.
For activity related to operations of StockCross prior to the Company’s acquisition of StockCross, FINRA’s Division of Enforcement is currently
investigating UIT transactions that were executed by StockCross that the enforcement staff believes were terminated early. The Company believes that
many of these transactions were UIT transactions that were the subject of its prior settlements with the Commonwealth of Massachusetts (Dkt. No. E-2017-
0104) and the State of California (CRD No.s: 6670 and 2400211). All of these transactions occurred prior to the Company’s acquisition of StockCross on
January 1, 2020.
Management cannot at this time assess either the duration or the likely outcome or consequences of the FINRA investigation. Nevertheless,
FINRA has the authority to impose sanctions on the Company or require that it make offers of restitution to other customers who FINRA believes incurred
sales charges in early liquidations of UITs. No assurances can be given that a mutual settlement with FINRA regarding the investigation can be reached or
that any amount paid in settlement will not be material.
As of December 31, 2022, all other legal matters are without merit or involve amounts which would not have a material impact on the Company’s
results of operations or financial position.
Siebert 2022 Form-10K 69
Overnight Financing
As of December 31, 2022 and 2021, MSCO had an available line of credit for short term overnight demand borrowing with BMO Harris Bank
(“BMO Harris”) of up to $25 million and $15 million, respectively. As of those dates, MSCO had no outstanding loan balance and there were no
commitment fees or other restrictions on the line of credit. On May 23, 2022, MSCO increased its principal amount for this line of credit from $15 million
to $25 million. The Company utilizes customer or firm securities as a pledge for short-term borrowing needs.
The interest expense for this credit line was $2,000 and $17,000 for the years ended December 31, 2022 and 2021, respectively. There were no
fees associated with the utilization of this credit line for the years ended December 31, 2022 and 2021.
At the Market Offering
On May 27, 2022, the Company entered into a Capital on DemandTM Sales Agreement (the “Sales Agreement”) with JonesTrading as agent,
pursuant to which the Company may offer and sell, from time to time through JonesTrading, shares of the Company’s common stock having an aggregate
offering amount of up to $9.6 million under the Company’s shelf registration statement on Form S-3. The Company is not obligated to make any sales of
shares under the Sales Agreement. The Company agreed to pay JonesTrading a commission rate equal to 3.0% of the aggregate gross proceeds from each
sale of shares. The Company or JonesTrading may suspend or terminate the offering upon notice to the other party and subject to other conditions. Whether
the Company sells securities under the Sales Agreement will depend on a number of factors, including the market conditions at that time, the Company’s
cash position at that time and the availability and terms of alternative sources of capital.
For the year ended December 31, 2022, the Company did not sell any shares pursuant to this Sales Agreement. For the year ended December 31,
2022, the Company incurred approximately $98,000 in legal and audit fees related to this Sales Agreement, which are in the line item “Professional
services” on the statements of operations, and were expensed as incurred.
NFS Contract
Effective August 1, 2021, MSCO entered into an amendment to its clearing agreement with NFS that, among other things, extends the term of the
arrangement through July 31, 2025. If the Company chooses to exit this agreement before the end of the contract term, the Company is under the obligation
to pay an early termination fee upon occurrence pursuant to the table below:
Date of Termination
Prior to August 1, 2023
Prior to August 1, 2024
Prior to August 1, 2025
Early Termination
Fee
$
$
$
7,250,000
4,500,000
3,250,000
For the years ended December 31, 2022 and 2021, there has been no expense recognized for any early termination fees. The Company believes
that it is unlikely it will have to make material payments related to early termination fees and has not recorded any contingent liability in the financial
statements related to this arrangement.
General Contingencies
In the normal course of its business, the Company indemnifies and guarantees certain service providers against specified potential losses in
connection with their acting as an agent of, or providing services to, the Company. 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
material payments under these arrangements and has not recorded any contingent liability in the financial statements for these indemnifications.
The Company 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 that it is unlikely it will have to make material payments under these arrangements and has not recorded any
contingent liability in the financial statements for these indemnifications.
The Company, through its affiliate, KCA is self-insured with respect to employee health claims. KCA maintains stop-loss insurance for certain
risks and has a health claim reinsurance limit capped at approximately $65,000 per employee as of December 31, 2022.
The estimated liability for self-insurance claims is initially recorded in the year in which the event of loss occurs and may be subsequently
adjusted based upon new information and cost estimates. Reserves for losses represent estimates of reported losses and estimates of incurred but not
reported losses based on past and current experience. Actual claims paid and settled may differ, perhaps significantly, from the provision for losses. This
adds uncertainty to the estimated reserves for losses. Accordingly, it is at least possible that the ultimate settlement of losses may vary significantly from
the amounts included in the financial statements. The Company believes that its present insurance coverage and reserves are sufficient to cover currently
estimated exposures, but there can be no assurance that the Company will not incur liabilities in excess of recorded reserves or in excess of its insurance
limits.
Siebert 2022 Form-10K 70
As part of this plan, the Company recognized expenses of $1,529,000 and $1,405,000 for the years ended December 31, 2022 and 2021,
respectively.
The Company had an accrual of $86,000 as of December 31, 2022, which represents the historical estimate of future claims to be recognized for
claims incurred during the period.
23. Employee Benefit Plans
The Company, through KCA, sponsors a defined-contribution retirement plan under Section 401(k) of the Internal Revenue Code that covers
substantially all employees of the Company. Participant contributions to the plan are voluntary and are subject to certain limitations. The Company may
also make discretionary contributions to the plan. No contributions were made by the Company or KCA for the years ended December 31, 2022 and 2021.
On September 17, 2021, the Company’s shareholders approved the Siebert Financial Corp. 2021 Equity Incentive Plan (the “Plan”). The Plan
provides for the grant of stock options, restricted stock, and other equity awards of the Company’s common stock to employees, officers, consultants,
directors, affiliates and other service providers of the Company. There were 3 million shares reserved under the Plan, 296,000 shares were issued during the
year ended December 31, 2022, and 2,704,000 shares remained as of December 31, 2022. The Company did not issue any shares for the year ended
December 31, 2021.
The Company granted 296,000 restricted stock units at a weighted average price of $1.56 to employees and consultants of the Company for the
year ended December 31, 2022. These units were fully vested upon grant date and the Company recognized equity stock compensation expense of
$461,000 in the line item “Employee compensation and benefits” in the statements of operations for the year ended December 31, 2022.
24. Related Party Disclosures
KCA
KCA is an affiliate of the Company and is under common ownership with the Company. To gain efficiencies and economies of scale with billing
and administrative functions, KCA serves as a paymaster for the Company for payroll and related functions, the entirety of which KCA passes through to
the subsidiaries of the Company proportionally. In addition, KCA sponsors a defined-contribution retirement plan under Section 401(k) of the Internal
Revenue Code that covers substantially all employees of the Company.
KCA owns a license from the Muriel Siebert Estate / Foundation to use the names "Muriel Siebert & Co., Inc." and "Siebert" within business
activities, which expires in 2025. KCA passed through to the Company its cost of $60,000 in each of the years ended December 31, 2022 and 2021 for the
use of these names.
For the years ended December 31, 2022 and 2021, KCA has earned no profit for providing any services to the Company as KCA passes through
any revenue or expenses to the Company’s subsidiaries.
PW
PW brokers the insurance policies for related parties. Revenue for PW from related parties was $129,000 and $70,000 for the years ended
December 31, 2022 and 2021, respectively.
Gloria E. Gebbia, John J. Gebbia, and Gebbia Family Members
On March 31, 2022, Gloria E. Gebbia exchanged approximately $2.9 million of her notes payable to the Company for 24% of the outstanding and
issued membership interests in RISE.
Siebert 2022 Form-10K 71
The Company entered into various debt agreements with Gloria E. Gebbia, the Company’s principal stockholder, which have been paid back as of
December 31, 2022. Refer to Note 14 – Notes Payable – Related Party for additional detail.
The Company’s obligations under its loan with East West Bank are guaranteed pursuant to a guarantee agreement by and among, John J. Gebbia
and Gloria E. Gebbia, individually, and as a co-trustees of the John and Gloria Gebbia Trust. Refer to Note 13 – Long-Term Debt for additional detail.
Gloria E. Gebbia has extended loans to certain Company employees for the purchase of the Company’s shares. These transactions have not
materially impacted the Company’s financial statements.
The sons of Gloria E. Gebbia and John J. Gebbia hold executive positions within the Company’s subsidiaries and their compensation was in
aggregate $2,427,000 and $1,179,000 for the years ended December 31, 2022 and 2021, respectively. Part of their compensation includes performance-
based payments related to key revenue streams.
Gebbia Sullivan County Land Trust
The Company operates on a month-to-month lease agreement for its branch office in Omaha, Nebraska with the Gebbia Sullivan County Land
Trust, the trustee of which is a member of the Gebbia Family. For the years ended December 31, 2022 and 2021, rent expense was $60,000 for this branch
office.
Tigress, Hedge Connection, Ms. DiBartolo, and Ms. Vioni
The Company has entered into various agreements and subsequent terminations with Tigress and its CEO, Ms. DiBartolo as well as Hedge and its
founder, Ms. Vioni. Refer to Note 3 – Transactions with Tigress and Hedge Connection and Note 11– Equity Method Investment in Related Parties for
further detail.
RISE
During the year ended 2022, RISE issued and Siebert sold membership interests of RISE to Siebert employees, directors and affiliates. Refer to
Note 4 – RISE for further detail.
25. Subsequent Events
The Company has evaluated events that have occurred subsequent to December 31, 2022 and through March 29, 2023, the date of the filing of this
report.
Management has determined there have been no material subsequent events that occurred during such period that would require disclosure in this
report or would be required to be recognized in the consolidated financial statements as of December 31, 2022.
Siebert 2022 Form-10K 72
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Executive Vice President/Chief
Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this
report pursuant to Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act. Based on that evaluation, our management, including the Executive Vice
President/Chief Financial Officer, concluded that our disclosure controls and procedures are effective to ensure that the information we are required to
disclose in reports that we file or submit under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the
rules and forms of the SEC, and to ensure that information required to be disclosed is accumulated and communicated to our management, including our
Executive Vice President/Chief Financial Officer, to allow timely decisions regarding required disclosure.
Based on its evaluation, our management, including our Executive Vice President/Chief Financial Officer, concluded that as of the end of the
period covered by this annual report, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
No change in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) was identified during the year
ended December 31, 2022, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as that term is defined in
Exchange Act Rule 13a-15(f)). 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 assurances that transactions are recorded as
necessary to permit preparation of financial statements in accordance with U.S. GAAP, 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.
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial
reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any,
within our Company have been detected. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Management does not expect that the Company’s disclosure controls and procedures or its internal control
over financial reporting will prevent or detect all errors and all fraud.
To evaluate the effectiveness of our internal control over financial reporting, we use the 2013 framework in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “2013 COSO Framework”). Using the 2013 COSO
Framework, our management, including our Executive Vice President/Chief Financial Officer, evaluated our internal control over financial reporting and
concluded that our internal controls over financial reporting were effective as of December 31, 2022 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.
ITEM 9B. OTHER INFORMATION
None.
Siebert 2022 Form-10K 73
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Identification of Directors
The names of our Directors and their ages, positions, and biographies are set forth below.
PART III
Gloria E. Gebbia
Age 80
Gloria E. Gebbia is the managing manager of KCA. Ms. Gebbia was an owner and a director of StockCross. Additionally, Ms. Gebbia also serves
as the President of Associates for Breast and Prostate Cancer Research, a non-profit organization that raises funds for the John Wayne Cancer Institute,
which, under Ms. Gebbia’s leadership, has raised over $16 million for breast and prostate cancer research.
John J. Gebbia
Age 84
From February 2017 to May 2020, John J. Gebbia served as a Special Advisor to the Board of Directors. John J. Gebbia commenced his
employment in the brokerage industry in 1959. In 1962, Mr. Gebbia became Executive Vice President of Walston & Company. After becoming CEO of
Jesup & Lamont, an institutional brokerage firm, Mr. Gebbia purchased the company in 1983. Thereafter, Mr. Gebbia owned and/or controlled various
brokerage firms including Kennedy Cabot & Co., which was sold in 1997 to Toronto Dominion Bank for $160,000,000.
Charles A. Zabatta
Age 80
Charles A. Zabatta served as a consultant to StockCross from 2011 until 2016, acting as its head of Corporate Development. Mr. Zabatta has and
continues to have a distinguished and successful career, predominately in the financial services industry, including holding various positions with the New
York Stock Exchange, Paine Webber, Securities Settlement Corp., Josephthal Lyon & Ross, Kennedy Cabot & Co. and TD Waterhouse. Mr. Zabatta’s
creative business skills have been instrumental in several acquisitions of small to midsize companies in various industries. Mr. Zabatta currently advises on
capital raising, general business structure and management. Previously, Mr. Zabatta has served as a member of the board of Knight Capital and Kennedy
Cabot & Co. Currently, Mr. Zabatta serves on the board of Paraco Gas Corporation, a large privately held independent energy company in the Northeast.
Mr. Zabatta holds a B.A. in Industrial Psychology from Iona College.
Francis V. Cuttita
Age 54
Francis V. Cuttita is a Senior Partner of Cuttita, LLP, a New York based law firm. Mr. Cuttita has over 26 years of practicing law in the areas of
real estate and business transactions, media, sports and entertainment. Mr. Cuttita’s list of clients include Fortune 100 corporations, CEOs, hedge fund
managers, legendary professional athletes, entertainment icons and Grammy award winning musicians. Mr. Cuttita also serves as an advisor to several
national financial, insurance and sports businesses and is an active supporter and member of various nonprofit organizations. Mr. Cuttita graduated from
Swarthmore College and received his law degree from Fordham University School of Law.
Andrew H. Reich
Age 67
Andrew H. Reich has served as Executive Vice President, Chief Financial Officer and Assistant Secretary of the Company since December 16,
2016. Prior thereto, Andrew H. Reich served in a variety of executive positions with StockCross from 2002 until 2016. Additionally, Mr. Reich is the owner
of Aarianna Realty Inc., a real estate company. Mr. Reich has more than 30 years of experience in the financial industry, including more than 14 years as
senior management of StockCross. Mr. Reich holds a M.B.A. from the University of Southern California and a B.B.A. from the Bernard Baruch College.
Siebert 2022 Form-10K 74
Jerry M. Schneider, CPA
Age 78
Jerry M. Schneider is a certified public accountant and has over 40 years of relevant accounting experience. Mr. Schneider is licensed to practice
public accounting in New York and Florida and is a member of the American Institute of Certified Public Accountants, the New York State Society of
Certified Public Accountants and the Florida Institute of Certified Public Accountants. Mr. Schneider was the Managing Partner of Schneider & Associates
LLP, a CPA firm with approximately 20 professional staff and was the driving force in that firm’s growth and development until it merged with Marks
Paneth LLP in 2008. From January 2011 to December 31, 2017, Mr. Schneider was a Partner Emeritus and Senior Consultant at Marks Paneth LLP. Mr.
Schneider is also a member of the Board of Directors of Prometheum, Inc., a company that is authorized by FINRA to run an AST for the general public
for digital asset securities. In 2018, Mr. Schneider was appointed to the Board of Directors and the Audit Committee of Fiduciary Trust International South
(a subsidiary of Fiduciary Trust International, which is owned by Franklin Templeton). In December 2019, Mr. Schneider was elected to be the chairman of
the Audit Committee and was appointed to the Board of Directors of the Trust Committee of Fiduciary Trust International South. Mr. Schneider’s practice
was concentrated in the areas of business planning, high net worth individuals, manufacturing, retailing, securities broker-dealers, the hospitality industry,
private educational institutions and estate planning.
Siebert 2022 Form-10K 75
Identification of Executive Officers
Name
Age
Position
Andrew H. Reich
67
Executive Vice President, Chief Operating Officer, Chief Financial Officer and Secretary
Andrew H. Reich has served as Executive Vice President, Chief Financial Officer and Assistant Secretary of the Company
since December 16, 2016. Prior thereto, Andrew H. Reich served in a variety of executive positions with StockCross from
2002 until 2016. Additionally, Mr. Reich is the owner of Aarianna Realty Inc., a real estate company. Mr. Reich has more
than 30 years of experience in the financial industry, including more than 14 years as senior management of StockCross. Mr.
Reich holds a M.B.A. from the University of Southern California and a B.B.A. from the Bernard Baruch College.
Corporate Governance
Board Meetings
The Board of Directors held 4 regular meetings and 8 special meetings during 2022. Each incumbent director attended at least 75% of his or her
Board of Directors meetings and all of his or her committee meetings.
Controlled Company
We are a “Controlled Company” as defined in Rule 5615(c)(1) of the Nasdaq Stock Market because Gloria E. Gebbia and her family members
hold more than 50% of our voting power for the election of directors. As a Controlled Company, we are not required to have a majority of our Board of
Directors comprised of independent directors, a compensation committee comprised solely of independent directors, or a nominating committee comprised
solely of independent directors.
Audit Committee of the Board of Directors
The Audit Committee of our Board of Directors currently consists of Mr. Schneider, Chairman, Mr. Zabatta and Mr. Cuttita. The Board of
Directors has determined that Mr. Schneider, Mr. Zabatta and Mr. Cuttita is each an “independent director” within the meaning of Rule 5605 (a)(2) of the
Nasdaq Stock Market and within the meaning of the applicable rules and regulations of the SEC.
The Audit Committee held 6 meetings during 2022.
The Board of Directors has determined that Mr. Schneider qualifies as an “audit committee financial expert” under the applicable rules of the SEC.
The Audit Committee was established to (i) assist the Board of Directors in its oversight responsibilities regarding the integrity of our financial
statements, our compliance with legal and regulatory requirements and our auditor’s qualifications and independence, (ii) prepare the report of the Audit
Committee contained herein, (iii) retain, consider the continued retention and termination of our independent auditors, (iv) approve audit and non-audit
services performed by our independent auditors and (v) perform any other functions from time to time delegated by the Board of Directors. The Board of
Directors has adopted a written charter for the Audit Committee, which is available on our website at www.siebert.com/company/investor-
relations/shareholder-information.
Siebert 2022 Form-10K 76
Compensation Committee of the Board of Directors
The Compensation Committee of our Board of Directors currently consists of Mr. Zabatta and Mr. Cuttita. The Compensation Committee reviews
and determines all forms of compensation provided to our executive officers and directors. The Compensation Committee will administer a stock option
and other employee benefit plans. The Compensation Committee does not function pursuant to a formal written charter, and as a Controlled Company, we
are not required to comply with the Nasdaq Stock Market’s independence requirements. The Compensation Committee held no meetings during 2022.
The Compensation Committee will evaluate the performance of our executive officers in terms of our operating results and financial performance
and will determine their compensation in connection therewith.
In accordance with general practice in the securities industry, our executive compensation includes base salaries, an annual discretionary cash
bonus, and equity incentives that are intended to align the financial interests of our executives with the returns to our shareholders.
As part of its oversight of the Company’s executive compensation, the Compensation Committee will consider the impact of the Company’s
executive compensation, and the incentives created by the compensation awards that it administers, on the Company’s risk profile. In addition, the
Compensation Committee will review the Company’s compensation policies and procedures, including the incentives that they create and factors that may
reduce the likelihood of excessive risk taking, to determine whether they present a significant risk to the Company.
Nominating Committee of the Board of Directors
The Nominating Committee of the Board of Directors currently consists of Mr. Zabatta and Mr. Cuttita. The Nominating Committee does not
function pursuant to a formal written charter, and as a Controlled Company, we are not required to comply with the Nasdaq Stock Market’s independence
requirements. The Nominating Committee did not meet in 2022.
The purpose of the Nominating Committee is to identify individuals qualified to become members of our Board of Directors and to recommend to
the Board of Directors or the shareholders that such individuals be selected for directorship. In identifying and evaluating nominees for director, the
Nominating Committee considers each candidate’s experience, integrity, background and skills as well as other qualities that the candidate may possess and
factors that the candidate may be able to bring to the Board of Directors. We do not have a formal policy with regard to the consideration of diversity in
identifying director nominees. However, the Board of Directors believes that it is essential that its members represent diverse viewpoints, with a broad
array of experiences, professions, skills, geographic representation and backgrounds that, when considered as a group, provide a sufficient mix of
perspectives to allow the Board of Directors to best fulfill its responsibilities to the long-term interests of our shareholders.
The Nominating Committee will consider shareholder nominees for election to our Board of Directors. In evaluating such nominees, the
Nominating Committee will use the same selection criteria the Nominating Committee uses to evaluate other potential nominees.
Indemnification of Officers and Directors
We are parties to indemnification agreements with our executive officers and directors and indemnify them to the extent permitted by applicable
law against liabilities incurred as a result of their service to us and against liabilities incurred as a result of their service as directors of other corporations
when serving at our request. We have a director’s and officer’s liability insurance policy, underwritten by the American International Group, Inc.
Annual Shareholders Meeting Attendance Policy
It is the policy of our Board of Directors that all our directors are strongly encouraged to attend each annual shareholder meeting. All of our
directors attended the 2022 annual meeting of shareholders.
Siebert 2022 Form-10K 77
Code of Ethics
We have adopted a Code of Ethics for Senior Financial Officers applicable to our Chief Executive Officer, Chief Financial Officer, Treasurer,
Controller, Principal Accounting Officer, and any of our other employees performing similar functions. A copy of the Code of Ethics for Senior Financial
Officers is available on our website at www.siebert.com/company/investor-relations/shareholder-information.
Board Leadership Structure and Board of Directors
Our Board of Directors does not have a chairman nor a lead independent director. The Company believes this structure allows all of the directors
to participate in the full range of the Board of Director’s responsibilities with respect to its oversight of the Company’s management. The Board of
Directors has determined that this leadership structure is appropriate given the size of the Company, the number of directors overseeing the Company, and
the Board of Directors’ oversight responsibilities.
The Board of Directors intends to hold at least four regular meetings each year to consider and address matters involving the Company. The Board
of Directors also may hold special meetings to address matters arising between regular meetings. These meetings may take place in person or by telephone.
The independent directors also regularly meet in executive sessions outside the presence of management. The Board of Directors has access to legal
counsel for consultation concerning any issues that may occur during or between regularly scheduled Board meetings. As discussed above, the Board has
established an Audit Committee, a Compensation Committee and a Nominating Committee to assist the Board in performing its oversight responsibilities.
Board of Directors’ Role in Risk Oversight
Consistent with its responsibility for oversight of the Company, the Board of Directors, among other things, oversees risk management of the
Company’s business affairs directly and through the committee structure that it has established. The principal risks associated with the Company are risks
related to securities market volatility and the securities industry, lower price levels in the securities markets, intense competition in the brokerage industry,
extensive government regulation, net capital requirements, customers’ failure to pay, an increase in volume on our systems or other events which could
cause them to malfunction, reliance on information processing and communications systems, continuing changes in technology, dependence on the ability
to attract and retain key personnel, the ability of our principal shareholder to control many key decisions, and there may be a limited public market for our
common stock, among other risks and uncertainties detailed in under Part I, Item 1A - Risk Factors of this Form 10-K as well as in our filings with the
SEC.
The Board of Directors’ role in the Company’s risk oversight process includes regular reports from senior management on areas of material risk to
the Company, including operational, financial, legal, regulatory, strategic and reputational risks. The full Board of Directors (or the appropriate committee)
receives these reports from management to identify and discuss such risks.
The Board of Directors periodically reviews with management its strategies, techniques, policies and procedures designed to manage these risks.
Under the overall supervision of the Board of Directors, management has implemented a variety of processes, procedures and controls to address these
risks.
The Board of Directors requires management to report to the full Board of Directors on a variety of matters at regular meetings of the Board of
Directors and on an as-needed basis, including the performance and operations of the Company and other matters relating to risk management. The Audit
Committee also receives reports from the Company’s independent registered public accounting firm on internal control and financial reporting matters.
These reviews are conducted in conjunction with the Board of Directors’ risk oversight function and enable the Board of Directors to review and assess any
material risks facing the Company.
10b5-1 Plans
Andrew H. Reich, Gloria E. Gebbia, Charles Zabatta, Francis V. Cuttita, and certain employees of Siebert entered into 10b5-1 plans in September
2021 and the plans expired in November 2022.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our executive officers and directors and persons who beneficially own more than 10% of our common
stock to file initial reports of ownership and reports of changes in ownership with the SEC. These executive officers, directors and shareholders are
required by the SEC to furnish us with copies of all forms they file pursuant to Section 16(a).
Based upon a review of Section 16(a) forms furnished to the Company, except as disclosed below, the Company believes that all applicable
Section 16(a) filing requirements were met during the year ended December 31, 2022.
Siebert 2022 Form-10K 78
Delinquent Section 16(a) Reports
On November 30, 2022, Ms. DiBartolo reported on Form 3 her resignation from the Company’s Board of Directors. Ms. DiBartolo did not file an
initial Form 3 when she became a director of the Company in November 2021. On December 14, 2022, Richard Gebbia reported a family gift on Form 4
one day after the two-day reporting period.
Advisors to the Company
Senior Advisors
John M. Gebbia and Richard Gebbia, sons of Gloria E. Gebbia, are Co-CEO’s of MSCO and serve as Registered Principals and associated persons
of MSCO. Before the close of the acquisition of StockCross, they were also serving as executive officers and directors of StockCross. Both Richard Gebbia
and John M. Gebbia have extensive experience in the securities industry and work with MSCO and senior management of the Company to identify cost
saving opportunities and improvements to the Company’s business.
John M. Gebbia has been in the brokerage industry in various capacities since 1990. Mr. Gebbia was the President and CEO of Kennedy Cabot &
Co., from 1992 to 1997 when it was acquired by Toronto Dominion Bank. Thereafter he was active with various Gebbia family businesses. From 2007 to
2020, Mr. Gebbia was associated with StockCross, most recently as a Director and its Executive Vice President.
Richard S. Gebbia has been in the brokerage industry since 1993. From 2007 to 2020, Mr. Gebbia was associated with StockCross in various
capacities. Mr. Gebbia was the CEO and a Director of StockCross.
David J. Gebbia has been in the brokerage industry since 1993. Mr. Gebbia is currently the President of the Company’s insurance subsidiary, PW.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table presents the annual compensation paid to or earned by our current Executive Vice President, Chief Operating Officer and
Chief Financial Officer (the “Named Executive Officer”) during the years ended December 31, 2022 and 2021.
Name and
Principal
Position
*
Andrew H. Reich
Year
Salary
Bonus
Stock
Awards
Option
Awards
Non-Equity
Incentive Plan
Compensation
Non-Qualified
Deferred
Compensation
Earnings
Other
Compensation
Totals
25,000
2022 $ 225,000 $
2021 $ 225,000 $ 125,000
$32,000
—
—
—
—
—
—
—
— $ 282,000
— $ 350,000
* Represents the dollar amount recognized for financial statement reporting in accordance with ASC 718. Mr. Reich was named to the positions of
Executive Vice President, Chief Operating Officer and Chief Financial Officer effective December 16, 2016.
Outstanding Equity Awards as of December 31, 2022
As of December 31, 2022, the Company had 296,000 shares of common stock outstanding and fully vested as part of equity compensation.
Employment Agreements
We are not a party to an employment agreement with any Named Executive Officer. All of our Named Executive Officers are employees at will.
Option Agreements
As of December 31, 2022, we had no option agreements with our Named Executive Officers.
Compensation of Directors
The following table discloses the cash, equity awards, and other compensation earned, paid, or awarded, as the case may be, to each of the
Company’s directors during the year ended December 31, 2022.
Siebert 2022 Form-10K 79
Name
Gloria E. Gebbia
John J. Gebbia
Andrew H. Reich
Francis V. Cuttita
Charles Zabatta
Jerry M. Schneider
Cynthia DiBartolo
Fees Earned or
Paid in Cash
Stock Awards
Option
Awards
—
—
—
106,000
106,000
106,000
—
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Non-Equity
Incentive Plan
Compensation
Nonqualified
Deferred
Compensation
Earnings
All Other
Compensation
Total
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
— $
— $
—
—
—
—
106,000
106,000
106,000
—
Audit Committee Report to Shareholders
The Audit Committee has reviewed and discussed with management the audited financial statements for the fiscal year ended December 31, 2022.
The Audit Committee has also discussed with our independent registered public accounting firm the matters required to be discussed by Auditing Standards
No. 16, adopted by the PCAOB (United States) regarding, “Communications with Audit Committees,” including our critical accounting policies and our
interests, if any, in “off-balance sheet” entities. Additionally, the Audit Committee has received the written disclosures and representations from the
independent registered public accounting firm required by applicable requirements of the PCAOB (United States) regarding “Communication with Audit
Committees Concerning Independence.”
Based on the review and discussions referred to within this report, the Audit Committee recommended to the Board of Directors that the audited
financial statements for the fiscal year ended December 31, 2022 be included in Siebert Financial Corp.’s Annual Report on Form 10-K for filing with the
SEC.
Audit Committee,
Jerry M. Schneider, CPA, Chairman
Charles Zabatta
Francis V. Cuttita
Siebert 2022 Form-10K 80
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The following table lists share ownership of our common stock as of March 20, 2023. The information includes beneficial ownership by each of
our directors and the Named Executive Officers, all directors and executive officers as a group and beneficial owners known by our management to hold at
least 5% of our common stock. Except as indicated in footnotes to this table, we believe that the shareholders named in this table have sole voting and
investment power with respect to all shares of common stock shown to be beneficially owned by them based on information provided to us by these
shareholders. Percentage of ownership is based on 32,505,329 shares of common stock outstanding as of March 20, 2023.
Name and Address of Beneficial Owner
(1)
Shares of Common Stock
Percent of
Class
Named Executive Officers and Directors
(2)
Gloria E. Gebbia / John J. Gebbia
Andrew H. Reich
(3)
Charles Zabatta
Francis V. Cuttita
Jerry M. Schneider
Directors and named executive officers as a group
(6 persons)
Other Shareholders with 5% or More
(4)
Kimberly Gebbia
800 Collins Ave
Miami, FL 33139
John M. Gebbia
(5)
15 Exchange Place
Jersey City, NJ 07302
Andrew McDonald
9378 Wilshire Blvd
Beverly Hills, CA 90212
* Less than 1% of outstanding shares
17,539,200
758,238
600,439
187,773
3,000
19,088,650
3,278,400
2,127,091
1,773,676
54%
2%
2%
1%
*
59%
10%
7%
5%
1)
Unless otherwise indicated, the business address of each individual is c/o Siebert Financial Corp., 535 Fifth Avenue, 4 Floor, New York, NY 10017.
th
2)
Gloria E. Gebbia and John J. Gebbia are husband and wife. Includes 10,544,054 shares of our common stock owned by Gloria E. Gebbia, 2,689,592
shares owned by Kimberly Gebbia, 2,127,091 shares owned by John M. Gebbia, 1,473,218 shares owned by David J. Gebbia, 116,437 shares owned by a
family trust, and 588,808 shares owned by Richard S. Gebbia and the children of Richard and Kimberly Gebbia.
3)
Includes 500,439 shares owned by Charles Zabatta’s wife.
4)
Includes 588,808 shares owned by Richard S. Gebbia and the dependent children of Richard and Kimberly Gebbia.
5)
Includes 118,000 shares owned by the dependent children of John M. Gebbia.
Siebert 2022 Form-10K 81
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Review and Approval of Related Party Transactions
As set forth in our Amended and Restated Audit Committee Charter, the Audit Committee is responsible for reviewing and approving all related
party transactions.
Our Code of Ethics for Senior Financial Officers, applicable to our Chief Executive Officer, Chief Financial Officer, Controller, Treasurer,
Principal Accounting Officer and other employees performing similar functions, provides that our Senior Financial Officers should endeavor to avoid any
actual or potential conflict of interest between their personal and professional relationships and requires them to promptly report and disclose all material
facts relating to any such relationships or financial interests which give rise, directly or indirectly, to an actual or potential conflict of interest to the Audit
Committee. The Code of Ethics also provides that no Senior Financial Officer should knowingly become involved in any actual or potential conflict of
interest without the relationship or financial interest having been approved by the Audit Committee. Our Code of Ethics does not specify the standards that
the Audit Committee would apply to a request for a waiver of this policy.
Refer to Note 24 - Related Party Disclosures for further detail on our related party transactions.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Baker Tilly US, LLP (“Baker Tilly”) currently serves as our independent registered public accounting firm.
Audit and Tax Fees
Our Audit Committee has determined that the services described below that were rendered by Baker Tilly are compatible with the maintenance of
Baker Tilly’s independence from our management.
Audit Fees
The aggregate fees billed by Baker Tilly for professional services rendered for the 2022 and 2021 audit of our annual financial statements and
reviews of our quarterly financial statements were $112,000 and $156,000, respectively.
Audit-Related Fees
The aggregate fees billed by Baker Tilly for audit-related services were $184,000 and $194,000 for the years ended December 31, 2022 and 2021,
respectively.
Pre-Approval Policy
The Audit Committee pre-approves all audit and non-audit services provided by our independent auditors prior to the engagement of the
independent auditors with respect to such services. With respect to audit services and permissible non-audit services not previously approved, the Audit
Committee has authorized the Chairman of the Audit Committee to approve such audit services and permissible non-audit services, provided the Chairman
informs the Audit Committee of such approval at the next regularly scheduled meeting. All “Audit Fees” and “All Other Fees” set forth above were pre-
approved by the Audit Committee in accordance with its pre-approval policy.
Siebert 2022 Form-10K 82
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
The exhibits required by Item 601 of Regulation S-K filed as part of, or incorporated by reference in, this Annual Report are listed in the
accompanying Exhibit Index.
(a) The following documents are filed as part of this report:
1. Financial Statements
The consolidated financial statements for the years ended December 31, 2022 and 2021 commence on page 31 of this Annual Report on Form 10-
K.
2. Financial Statement Schedules
None.
3. Exhibits
The exhibits listed in the following Exhibit Index are filed or incorporated by reference as part of this Annual Report on Form 10-K.
Siebert 2022 Form-10K 83
Exhibit
No.
2.1
2.2
2.3
2.4
3.1
EXHIBIT INDEX
Description Of Document
Plan and Agreement of Merger between J. Michaels, Inc. and Muriel Siebert Capital Markets Group, Inc., dated as of April 24,
1996 (“Merger Agreement”) (incorporated by reference to Siebert Financial Corp.’s Annual Report on Form 10-K for the fiscal
year ended December 31, 1996)
Amendment No. 1 to Merger Agreement, dated as of June 28, 1996 (incorporated by reference to Siebert Financial Corp.’s Annual
Report on Form 10-K for the fiscal year ended December 31, 1996)
Amendment No. 2 to Merger Agreement, dated as of September 30, 1996 (incorporated by reference to Siebert Financial Corp.’s
Annual Report on Form 10-K for the fiscal year ended December 31, 1996)
Amendment No. 3 to Merger Agreement, dated as of November 7, 1996 (incorporated by reference to Siebert Financial Corp.’s
Annual Report on Form 10-K for the fiscal year ended December 31, 1996)
Certificate of Incorporation of Siebert Financial Corp., formerly known as J. Michaels, Inc. originally filed on April 9, 1934, as
amended and restated to date (incorporated by reference to Siebert Financial Corp.’s Annual Report on Form 10-K for the fiscal
year ended December 31, 1997)
3.1 (a)
Certificate of Amendment to Certificate of Incorporation of Siebert Financial Corp., as amended and restated, filed February 2,
2020. (incorporated by reference to Siebert Financial Corp.'s Annual Report on Form 10-K for the fiscal year ended December 31,
2019)
3.2
4.0
4.1
10.1
10.2
10.3
10.6
10.7
10.8
10.9
By-laws of Siebert Financial Corp. (incorporated by reference to Siebert Financial Corp.’s Registration Statement on Form S-1
(File No. 333-49843) filed with the SEC on April 10, 1998)
Description of Registrant’s Securities
Siebert Financial Corp. 2021 Equity Incentive Plan**
Acquisition Agreement, dated September 1, 2016, by and among, Siebert Financial Corp., the Majority Shareholder and KCA
(incorporated by reference to Siebert Financial Corp.’s Current Report on Form 8-K filed with the SEC on September 2, 2016)
Assignment dated December 16, 2016 by and between the Majority Shareholder and Siebert Financial Corp.
Consent and Waiver dated as of December 16, 2016 by and among Siebert Cisneros Shank Financial, LLC, Siebert Cisneros
Shank & Co. L.L.C. and Siebert Financial Corp.
Siebert Financial Corp. 2007 Long-Term Incentive Plan (incorporated by reference to Siebert Financial Corp.’s Registration
Statement on Form S-8 (File No. 333-144680) filed with the SEC on July 18, 2007)**
Fully Disclosed Clearing Agreement, by and between NFS LLC and Muriel Siebert & Co., Inc. dated May 5, 2010. (incorporated
by reference to Siebert Financial Corp.’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on
August 16, 2010)*
Asset Purchase Agreement, dated as of June 26, 2017 by and among StockCross Financial Services, Inc., Muriel Siebert & Co.,
Inc. and Siebert Financial Corp. (incorporated by reference to Siebert Financial Corp.’s Current Report on Form 8-K filed with the
SEC on June 28, 2017)
StockCross Share Repurchase Agreement dated as of January 18, 2019 by and among tZERO Group, Inc., a Delaware
corporation, StockCross Financial Services, Inc., a Massachusetts corporation and Muriel Siebert & Co., Inc., a Delaware
Corporation (incorporated by reference to Siebert Financial Corp.’s Current Report on Form 8-K filed with the SEC on January
25, 2019)
Siebert 2022 Form-10K 84
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
Equity Interests Purchase Agreement, dated as of September 27, 2019, by and among Siebert Financial Corp., Weeden Investors
L.P. and Weeden Securities Corporation. (incorporated by reference to Siebert Financial Corp.’s Current Report on Form 8-K filed
with the SEC on October 3, 2019)
Promissory Note, dated as of December 2, 2019, made by Siebert Financial Corp. in favor of Gloria E. Gebbia. (incorporated by
reference to Siebert Financial Corp.’s Current Report on Form 8-K filed with the SEC on December 4, 2019)
Agreement and Plan of Merger, dated as of December 31, 2019 by and among Siebert Financial Corp., Muriel Siebert & Co., Inc.,
StockCross Financial Services, Inc. (“StockCross”) and each of the shareholders of StockCross. (incorporated by reference to
Siebert Financial Corp.’s Current Report on Form 8-K filed with the SEC on January 7, 2020)
Loan and Security Agreement, dated as of July 22, 2020, by and between East West Bank and Siebert Financial Corp.
(incorporated by reference to Siebert Financial Corp.’s Current Report on Form 8-K filed with the SEC on July 28, 2020)
Form of Term Loan Note (incorporated by reference to Siebert Financial Corp.’s Current Report on Form 8-K filed with the SEC
on July 28, 2020)
Common Stock Purchase Agreement, dated as of January 31, 2021, between Siebert Financial Corp. and OpenHand Holdings, Inc.
(incorporated by reference)
Amendment to Fully Disclosed Clearing Agreement, dated as of August 1, 2021, by and between Muriel Siebert & Co., Inc. and
National Financial Services LLC. (incorporated by reference)
Guaranty Agreement, dated as of August 1, 2021, between Siebert Financial Corp. and National Financial Services LLC
(incorporated by reference)
Amendment No. 1 to Common Stock Purchase Agreement, dated as of August 18, 2021, between Siebert Financial Corp. and
OpenHand Holdings, Inc. (incorporated by reference)
10.19
Agreement between Siebert Financial Corp. and Tigress Holdings, LLC, dated November 16, 2021. (incorporated by reference)
10.20
10.21
Purchase Agreement dated as of December 30, 2021, for 653 Collins Ave, Miami Beach, FL, between Siebert Financial Corp. and
City National Bank of Florida, a national banking association, as trustee under the provisions of a certain Trust Agreement, dated
22nd day of March, 1993 (incorporated by reference)
Promissory Note, dated as of December 30, 2021, made by Siebert Financial Corp. in favor of Gloria E. Gebbia (incorporated by
reference)
Siebert 2022 Form-10K 85
10.22
Promissory Note and Loan and Security Agreement, dated as of December 30, 2021, between East West Bank and Siebert
Financial Corp. (incorporated by reference)
10.23
Agreement between Siebert Financial Corp. and Hedge Connection, Inc., dated January 21, 2022. (incorporated by reference)
10.24
10.25
10.26
10.27
21.1
23.1
31.1
Debt Exchange Agreement between Siebert Financial Corp. and Gloria E. Gebbia, dated March 31, 2022. (incorporated by
reference)
TM
Capital on Demand Sales Agreement, dated May 27, 2022, by and between Siebert Financial Corp. and JonesTrading
Institutional Services LLC. (incorporated by reference to Siebert Financial Corp.’s Current Report on Form 8-K filed with the
SEC on May 27, 2022).
Reorganization Agreement By and Among Tigress Holdings, LLC, Rise Financial Services, LLC, and Siebert Financial Corp.
dated October 18, 2022 (incorporated by reference to Siebert Financial Corp. Current Report on Form 8-K filed with the SEC on
October 21, 2022).
Termination Agreement By and Among Hedge Connection, Inc., Lisa Vioni, Rise Financial Services, LLC, and Siebert Financial
Corp., dated October 18, 2022 (incorporated by reference to Siebert Financial Corp. Current Report on Form 8-K filed with the
SEC on October 21, 2022).
Subsidiaries of the registrant***
Consent of Baker Tilly US, LLP***
Certification of Andrew H. Reich pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002***
32.1****
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant of Section 906 of the Sarbanes-Oxley Act of 2002.
101.
101.
101.
101.
101.
101.
104
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* Portions of the indicated document have been afforded confidential treatment and have been filed separately with the SEC pursuant to Rule 24b-2
of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended.
** Management contract or compensatory plan or arrangement.
*** Filed herewith
**** This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or
otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as
amended, or the Exchange Act.
ITEM 16. FORM 10-K SUMMARY
None
Siebert 2022 Form-10K 86
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
SIEBERT FINANCIAL CORP.
By:
/s/ Andrew H. Reich
Andrew H. Reich
Executive Vice President, Chief Operating Officer,
Chief Financial Officer, Secretary and Director
(Principal executive, financial and accounting officer)
Date: March 29, 2023
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.
Name
Title
/s/ Andrew H. Reich
Andrew H. Reich
/s/ Gloria E. Gebbia
Gloria E. Gebbia
/s/ John J. Gebbia
John J. Gebbia
/s/ Charles Zabatta
Charles Zabatta
/s/ Francis V. Cuttita
Francis V. Cuttita
/s/ Jerry M. Schneider
Jerry M. Schneider
Executive Vice President, Chief Operating Officer and
Chief Financial Officer, Secretary and Director (Principal executive,
financial and accounting officer)
Director
Director
Director
Director
Director
Date
March 29, 2023
March 29, 2023
March 29, 2023
March 29, 2023
March 29, 2023
March 29, 2023
Siebert 2022 Form-10K 87
Company
1. Muriel Siebert & Co., Inc.
2. Siebert AdvisorNXT, Inc.
3. Park Wilshire Companies, Inc.
4. Siebert Technologies, LLC
5. RISE Financial Services, LLC
6. StockCross Digital Solutions, Ltd.**
*Ownership percentage as of the date of this Report
**Inactive subsidiary
SUBSIDIARIES
Jurisdiction
Delaware
New York
Texas
Nevada
Delaware
Bermuda
Exhibit 21.1
% Owned*
100.0%
100.0%
100.0%
100.0%
68.0%
100.0%
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-262895) and Form S-8 (No. 333-269058) of Siebert
Financial Corp. (the “Company”), of our report dated March 29, 2023, relating to the consolidated financial statements of the Company, which appears on
page 37 of the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
/s/ BAKER TILLY US, LLP
New York, New York
March 29, 2023
CERTIFICATION
PURSUANT TO EXCHANGE ACT RULE 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Andrew H. Reich, certify that:
1.
I have reviewed this annual report on Form 10-K of Siebert Financial Corp.;
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(s) 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.
/s/ Andrew H. Reich
Andrew H. Reich
Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Secretary
(Principal executive, financial and accounting officer)
Date: March 29, 2023
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Siebert Financial Corp. (the “Company”) on Form 10-K for the year ended December 31, 2022, as filed with the
SEC (the “Report”), I, Andrew H. Reich, in my capacity as Executive Vice President, Chief Operating Officer, Chief Financial Officer and Secretary
hereby certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, that to my knowledge:
(1) The Report filed by the Company with the SEC fully complies with the requirements of Section 13(a) of the Securities and 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
for the period covered by the report.
/s/ Andrew H. Reich
Andrew H. Reich
Executive Vice President, Chief Operating Officer,
Chief Financial Officer, and Secretary
(Principal executive, financial and accounting officer)
Date: March 29, 2023
A signed original of this written statement required by Section 906, or other documents authenticating, acknowledging, or otherwise adopting the signature
that appears in typed form within the electronic version of this written statement required by section 906, has been provided to Siebert Financial Corp. and
will be retained by Siebert Financial Corp. and furnished to the SEC or its staff upon request.