The following discussion provides a narrative of our financial performance and
condition that should be read in conjunction with the accompanying financial
statements and related notes included under Part I, Item 1 of this Report.
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, technology development, and prime brokerage
through our wholly-owned subsidiaries and VIE.
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.
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. The Company primarily earns 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.
RISE
Arrangements with GSCO and JonesTrading
On August 30, 2021, 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 $3.5 million and $0.4 million, respectively, for the three months
ended June 30, 2021. Revenue and pre-tax income from customers that have
transitioned to other prime service providers was approximately $8.4 million and
$1.5 million, respectively, for the six months ended June 30, 2021.
On October 7, 2021, RISE signed an agreement with JonesTrading Institutional
Services, LLC ("JonesTrading") to transfer certain customers of RISE to
JonesTrading. In exchange, JonesTrading agreed to pay RISE a percentage of the
net revenue produced by those clients less any related expenses. For the three
and six months ended June 30, 2022, this agreement resulted in pre-tax income of
$36,000 and $76,000, respectively. We do not anticipate the pre-tax income
related to this agreement will offset the reduction in pre-tax income from
customers that have transitioned to other prime service providers.
Relaunch of RISE
RISE relaunched its business as a woman-owned and operated prime brokerage with
a specific emphasis on aligning the mission-driven initiatives with the
technological needs of institutional customers. Cynthia DiBartolo was appointed
as the new CEO of RISE, and Gloria E. Gebbia, one of Siebert's and RISE's
directors, was appointed as the Chief Impact Officer of RISE. In addition, on
January 21, 2022, RISE entered into an agreement with Hedge Connection, a
woman-owned fintech company founded by Lisa Vioni that provides capital
introduction software solutions for the prime brokerage industry.
While we believe our expertise and industry relationships will enable us to
execute this strategic direction, our business plan for RISE is new and
untested, and it is uncertain whether our efforts will attract the prime
brokerage customers and revenue necessary to compete in a new market for prime
customers. Any failure to adapt to these evolving trends may reduce our revenue
or operating margins and could have a material adverse effect on our business,
results of operations and financial condition.
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As of the date of this Report, management is assessing the strategic direction
of RISE, taking into consideration current market conditions, demand trends, and
resources, and is currently reviewing RISE's originally proposed business plan
and evaluating whether we can accomplish those plans as contemplated.
Membership Interests of 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. As a result of these transactions, Siebert's ownership percentage in
RISE declined from 76% as of December 31, 2021 to approximately 44% as of March
31, 2022, and remained unchanged as of June 30, 2022. Management will continue
to assess whether RISE remains a VIE and whether Siebert remains the primary
beneficiary on an on-going basis. Refer to Note 1 - Organization and Basis of
Presentation for additional detail.
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
As of
June 30, December 31,
2022 2021
Retail and institutional customer net worth (in billions) $ 14.0 $ 17.3
Client Account Metrics - Retail Customers
As of
June 30, December 31,
2022 2021
Retail customer net worth (in billions) $ 13.8 $ 16.8
Retail customer margin debit balances (in billions) $ 0.5 $ 0.5
Retail customer credit balances (in billions) $ 0.8 $ 0.8
Retail customer money market fund value (in billions) $ 0.7 $ 0.8
Retail customer accounts
117,821 115,380
•
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
As of
June 30, December 31,
2022 2021
Institutional customer net worth (in billions) $ 0.2 $ 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
Client Activity Metrics - Retail Customers
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Total retail trades 91,389 111,028 201,341 253,903
•
Total retail trades represents retail trades that generate commissions
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Statements of Operations and Financial Condition
Statements of Operations for the Three Months Ended June 30, 2022 and 2021
Revenue
Commissions and fees for the three months ended June 30, 2022 were $1,853,000
and decreased by $2,472,000 from the corresponding period in the prior year,
primarily due to the loss of institutional customers due to the termination of
GSCO's clearing agreement with RISE as well as market conditions during the
second quarter of 2022.
Interest, marketing and distribution fees for the three months ended June 30,
2022 were $3,151,000 and decreased by $472,000 from the corresponding period in
the prior year, primarily due to the loss of institutional customers due to the
termination of GSCO's clearing agreement with RISE, partially offset by an
increase in margin interest, 12b-1fees, as well as interest on U.S. treasuries
and cash deposits within MSCO.
Principal transactions and proprietary trading for the three months ended June
30, 2022 were $1,081,000 and decreased by $3,026,000 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 market conditions.The increase in unrealized
loss on our portfolio of U.S. government securities was due to the following.
From January to June 2022, Siebert invested approximately $120 million in 1-year
treasury bills and 2-year treasury notes in order to enhance its yield on its
excess 15c3-3 deposits. For the six months ended June 30, 2022, there was an
increase in U.S. government securities yields, which created an unrealized loss
of approximately $617,000 on our government securities portfolio for the three
months ended June 30, 2022. We intend to hold these securities to maturity and
as such, the aggregate unrealized loss of $2.8 million on the portfolio as of
June 30, 2022 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. 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 as well as a maturity schedule of our portfolio of U.S.
government securities for the periods presented.
Three Months Ended June 30,
(Year over
2022 2021 Year Decrease)
Principal transactions and proprietary
trading
Realized and unrealized gain on primarily
riskless principal transactions $ 1,698,000 $ 4,114,000 $ (2,416,000 )
Unrealized loss on portfolio of U.S.
government securities (617,000 ) (7,000 ) (610,000 )
Total Principal transactions and
proprietary trading $ 1,081,000 $ 4,107,000 $ (3,026,000 )
As of
June 30,
2022 December 31, 2021
Market value of U.S. government securities
Maturing 05/18/2023, 2.790% Coupon Rate $ 9,773,000 $ -
Maturing 08/31/2023, 1.375% Coupon Rate 9,871,000 -
Maturing 12/31/2023, 0.750% Coupon Rate 62,932,000 -
Maturing 01/31/2024, 0.875% Coupon Rate 24,303,000 -
Maturing 05/31/2024, 2.500% Coupon Rate 9,939,000 -
Maturing 08/15/2024, 0.375% Coupon Rate 2,845,000 2,966,000
Total Market value of U.S. government securities $ 119,663,000 $ 2,966,000
Market making for the three months ended June 30, 2022 was $535,000 and
decreased by $1,223,000 from the corresponding period in the prior year,
primarily due to market conditions.
Stock borrow / stock loan for the three months ended June 30, 2022 was
$4,148,000 and increased by $1,908,000 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.
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Advisory fees for the three months ended June 30, 2022 were $476,000 and
increased by $73,000 from the corresponding period in the prior year, primarily
due to the expansion of the advisory business line.
Other income for the three months ended June 30, 2022 was $479,000 and increased
by $142,000 from the corresponding period in the prior year, primarily due to an
increase in consulting services to institutional, partners partially offset by
lower payment for order flow in the second quarter of 2022.
Operating Expenses
Employee compensation and benefits for the three months ended June 30, 2022 were
$7,368,000 and decreased by $1,377,000 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 fixed income
commissions, partially offset by an increase in payouts related to stock borrow
/ stock loan.
Clearing fees, including execution costs for the three months ended June 30,
2022 were $375,000 and decreased by $914,000 from the corresponding period in
the prior year, primarily due to a decrease in our institutional clearing costs
as well as the recognition of the business development credit from our agreement
with NFS.
Technology and communications expenses for the three months ended June 30, 2022
were $978,000 and decreased by $122,000 from the corresponding period in the
prior year, primarily due to a decrease in technology costs related to RISE,
partially offset by miscellaneous technology expenses.
Other general and administrative expenses for the three months ended June 30,
2022 were $935,000 and decreased by $253,000 from the corresponding period in
the prior year, primarily due to a legal settlement occurring in the second
quarter of 2021, partially offset by an increase in travel and entertainment in
2022.
Data processing expenses for the three months ended June 30, 2022 were $687,000
and decreased by $8,000 from the corresponding period in the prior year.
Rent and occupancy expenses for the three months ended June 30, 2022 were
$456,000 and decreased by $14,000 from the corresponding period in the prior
year, primarily due to a reduction in rent related RISE's operations.
Professional fees for the three months ended June 30, 2022 were $1,032,000 and
increased by $455,000 from the corresponding period in the prior year, primarily
due to an increase in legal and consulting fees related to certain transactions.
Depreciation and amortization expenses for the three months ended June 30, 2022
were $261,000 and decreased by $113,000 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 three months ended June 30, 2022 were $0 and decreased by
$353,000 from the corresponding period in the prior year, primarily due to the
loss of our institutional clients.
Interest expense for the three months ended June 30, 2022 was $103,000 and
increased by $14,000 from the corresponding period in the prior year, primarily
due to the interest from the mortgage with East West Bank in 2022, partially
offset by a decrease in interest from notes payable - related party.
Advertising and promotion expense for the three months ended June 30, 2022 was
$59,000 and increased by $59,000 from the corresponding period in the prior
year, primarily due to an increase in promotional costs for various marketing
initiatives.
Earnings of Equity Method Investments in Related Parties
The earnings of equity method investment in related party for the three months
ended June 30, 2022 was $14,000 and increased by $14,000 from the corresponding
period in the prior year, primarily due to our proportional income from our
investment in Tigress.
Benefit From Income Taxes
The benefit from income taxes for the three months ended June 30, 2022 was
$1,027,000 and decreased from the provision for income taxes by $1,511,000 from
the corresponding period in the prior year. The change from the corresponding
period in the prior year is primarily due to the reversal of the uncertain tax
position related to the 2018 amended tax return coupled with lower pre-tax
earnings. Refer to Note 15 - Income Taxes for additional detail.
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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 three months ended June 30, 2022 was $201,000, and increased by $201,000
from the corresponding period in the prior year.
Statements of Operations for the Six Months Ended June 30, 2022 and 2021
Revenue
Commissions and fees for the six months ended June 30, 2022 were $4,193,000 and
decreased by $7,140,000 from the corresponding period in the prior year,
primarily due to the loss of institutional customers due to the termination of
GSCO's clearing agreement with RISE as well as market conditions during 2022.
Interest, marketing and distribution fees for the six months ended June 30, 2022
were $5,513,000 and decreased by $1,569,000 from the corresponding period in the
prior year, primarily due to the loss of institutional customers due to the
termination of GSCO's clearing agreement with RISE, partially offset by an
increase in margin interest, 12b-1fees, as well as interest on U.S. treasuries
and cash deposits within MSCO.
Principal transactions and proprietary trading for the six months ended June 30,
2022 were $814,000 and decreased by $7,541,000 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 market conditions. The increase in unrealized
loss on our portfolio of U.S. government securities was due to the following.
From January to June 2022, Siebert invested approximately $120 million in 1-year
treasury bills and 2-year treasury notes in order to enhance its yield on its
excess 15c3-3 deposits. For the six months ended June 30, 2022, there was an
increase in U.S. government securities yields, which created an unrealized loss
of approximately $2.8 million on our government securities portfolio for the six
months ended June 30, 2022. We intend to hold these securities to maturity and
as such, the aggregate unrealized loss of $2.8 million on the portfolio as of
June 30, 2022 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. 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.
Six Months Ended June 30,
(Year over
2022 2021 Year Decrease)
Principal transactions and proprietary
trading
Realized and unrealized gain on primarily
riskless principal transactions $ 3,616,000 $ 8,369,000 $ (4,753,000 )
Unrealized loss on portfolio of U.S.
government securities (2,802,000 ) (14,000 ) (2,788,000 )
Total Principal transactions and
proprietary trading $ 814,000 $ 8,355,000 $ (7,541,000 )Market making for the six months ended June 30, 2022 was $1,299,000 and
decreased by $2,073,000 from the corresponding period in the prior year,
primarily due to market conditions.
Stock borrow / stock loan for the six months ended June 30, 2022 was $7,726,000
and increased by $3,639,000 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 six months ended June 30, 2022 were $983,000 and increased
by $224,000 from the corresponding period in the prior year, primarily due to
overall expansion of the advisory business line.
Other income for the six months ended June 30, 2022 was $1,503,000 and increased
by $774,000 from the corresponding period in the prior year, primarily due to an
increase in consulting services to institutional partners.
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Operating Expenses
Employee compensation and benefits for the six months ended June 30, 2022 were
$14,462,000 and decreased by $3,449,000 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 fixed income
commissions, partially offset by an increase in payouts related to stock borrow
/ stock loan.
Clearing fees, including execution costs for the six months ended June 30, 2022
were $869,000 and decreased by $2,273,000 from the corresponding period in the
prior year, primarily due to a decrease in our institutional clearing costs as
well as the recognition of our business development credit from our agreement
with NFS.
Technology and communications expenses for the six months ended June 30, 2022
were $2,160,000 and decreased by $181,000 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 other technology expenses.
Other general and administrative expenses for the six months ended June 30, 2022
were $1,866,000 and decreased by $92,000 from the corresponding period in the
prior year, primarily due to a legal settlement occurring in the second quarter
of 2021, partially offset by an increase in travel and entertainment cost in
2022.
Data processing expenses for the six months ended June 30, 2022 were $1,203,000
and decreased by $289,000 from the corresponding period in the prior year,
primarily due to a reduction in market data analytics and service bureau costs.
Rent and occupancy expenses for the six months ended June 30, 2022 were $929,000
and decreased by $111,000 from the corresponding period in the prior year,
primarily due to a reduction in rent related RISE's operations, partially offset
by an increase in other occupancy expenses.
Professional fees for the six months ended June 30, 2022 were $1,728,000 and
increased by $536,000 from the corresponding period in the prior year, primarily
due to an increase in legal and consulting fees related to certain transactions.
Depreciation and amortization expenses for the six months ended June 30, 2022
were $520,000 and decreased by $246,000 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 six months ended June 30, 2022 were $0 and decreased by
$760,000 from the corresponding period in the prior year, primarily due to the
loss of our institutional clients.
Interest expense for the six months ended June 30, 2022 was $227,000 and
increased by $35,000 from the corresponding period in the prior year, primarily
due to the interest from the mortgage with East West Bank in 2022.
Advertising and promotion expense for the six months ended June 30, 2022 was
$172,000 and increased by $172,000 from the corresponding period in the prior
year, primarily due to an increase in promotional costs for various marketing
initiatives.
Earnings of Equity Method Investments in Related Parties
The earnings of equity method investment in related party for the six months
ended June 30, 2022 was $215,000 and increased by $215,000 from the
corresponding period in the prior year, primarily due to our proportional income
from our investments in Tigress and Hedge Connection.
Benefit From Income Taxes
The benefit from income taxes for the six months ended June 30, 2022 was
$1,309,000 and decreased from the provision for income taxes by $2,528,000 from
the corresponding period in the prior year. The change from the corresponding
period in the prior year is primarily due to the reversal of the uncertain tax
position related to the 2018 amended tax return coupled with lower pre-tax
earnings. Refer to Note 15 - Income Taxes for additional 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 six months ended June 30, 2022 was $320,000, and increased by $320,000 from
the corresponding period in the prior year.
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Statements of Financial Condition as of June 30, 2022 and December 31, 2021
Assets
Assets as of June 30, 2022 were $1,151,034,000 and decreased by $253,201,000
from December 31, 2021, primarily due to a decrease in securities borrowed and
receivables from customers.
Liabilities
Liabilities as of June 30, 2022 were $1,097,696,000 and decreased by
$256,033,000 from December 31, 2021, primarily due to a decrease in securities
loaned and payables to customers.
Liquidity and Capital Resources
Overview
The indicators of our liquidity are cash and cash equivalents. Our cash and cash
equivalents are unrestricted and are used to fund our working capital needs. Our
cash and cash equivalents as of June 30, 2022 and December 31, 2021 were $4.1
million and $3.8 million, respectively. We believe that our operating cash
flows, cash and cash equivalents, borrowing capacity, and overall access to
capital markets are sufficient to fund our operating, investing and financing
requirements for the foreseeable future.
Sources of Liquidity and Planned Obligations
As of June 30, 2022, we had a variety of debt instruments and sources of
borrowing capability. As of June 30, 2022, the debt instruments and their
outstanding obligations were as follows: $4.4 million mortgage with East West
Bank, $3.2 million line of credit with East West Bank, and $3.3 million in notes
payable to related parties. We have an additional $5.0 million available on our
line of credit with East West Bank and have an available line of credit for
short term overnight demand borrowing of up to $25 million with BMO Harris.
Our ability to borrow incremental amounts for the line of credit with East West
Bank is set to terminate by July 2022; however, we are in discussions to extend
and possibly increase this line of credit. As of June 30, 2022, we were in
compliance with all of our covenants related to our debt agreements.
As of June 30, 2022, the aggregate future payment obligations related to these
debt instruments were $6.7 million through 2026 and $4.1 million thereafter. The
remaining balance of our lease payments for operating leases with initial terms
of greater than one year was $0.6 million during 2022, and $2.4 million
thereafter.
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 $1.4 million, with $338,000 financed through a
commitment with East West Bank and the remainder being cash.
At the Market Offering
On May 27, 2022, we entered into a Capital on DemandTM 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 price of up to $9.6 million under our shelf registration statement on
Form S-3. For the six months ended June 30, 2022, we did not sell any shares
pursuant to this Sales Agreement. Refer to Note 18 - Commitments, Contingencies,
and Other for additional detail.
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.
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For the three and six months ended June 30, 2022 and 2021, MSCO and RISE met all
of their respective liquidity and regulatory capital requirements. Refer to Note
16 - Capital Requirements for additional detail on our capital requirements.
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 its
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 three and six months ended June 30, 2022
and 2021. Refer to Note 17 - Financial Instruments with Off-Balance Sheet Risk
for additional detail.
Uncertain Tax Positions
We account for uncertain tax positions in accordance with the authoritative
guidance issued under ASC 740-10, which addresses the determination of whether
tax benefits claimed or expected to be claimed on a tax return should be
recorded in the financial statements. We may recognize the tax benefit from an
uncertain tax position only if it is more likely than not that the tax position
will be sustained on examination by the taxing authorities based on the
technical merits of the position. The tax benefits recognized in the financial
statements from such position should be measured based on the largest benefit
that has a greater than fifty percent likelihood of being realized upon ultimate
settlement. ASC 740-10 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods and disclosure
requirements.
We recognize interest and penalties related to unrecognized tax benefits on the
provision for income taxes line on the statements of operations. Accrued
interest and penalties would be included on the related tax liability line on
the statements of financial condition.
As of June 30, 2022, and December 31, 2021, the Company recorded an uncertain
tax position of $1,583,000 and $2,418,000, respectively, related to various tax
matters. During the three months ended June 30, 2022, the Company reversed its
uncertain tax position related to the 2018 amended tax return due to the
expiration of the statute of limitations.
Related Party Disclosures
During the course of business, we enter into various agreements and transactions
with related parties. Refer to Note 19 - Related Party Disclosures for
additional detail.
Fair Value Measurements
We have securities that are valued using the fair value framework under ASC 820
within our assets and liabilities as of June 30, 2022 and December 31, 2021.
Refer to Note 5 - Fair Value Measurements for additional detail.
Impairment
We have concluded as of June 30, 2022, there has been no impairment to the
carrying value of Siebert's goodwill and tangible assets, and there are no
intangible assets. Refer to Note 10 - Goodwill for additional information.
Segment
We concluded as of June 30, 2022, Siebert 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 Siebert from a consolidated perspective.
Critical Accounting Policies
Certain of our accounting policies that involve a higher degree of judgment and
complexity are discussed in Part I, Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K
as well as in the below section. As of June 30, 2022, there have been no changes
to our critical accounting policies or estimates other than the below.
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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
June 30, 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
We did not adopt any new accounting standards during the three and six months
ended June 30, 2022. In addition, we evaluated other recently issued accounting
standards and do not believe that any of these standards will have a material
impact on our financial statements and related disclosures as of June 30, 2022.
Regulatory Matters
We are party to certain claims, suits and complaints arising in the ordinary
course of business. As of June 30, 2022, we had one pending regulatory matter
related to operations of StockCross prior to our acquisition of StockCross on
January 1, 2020. Refer to Note 18 - Commitments, Contingencies, and Other for
additional detail.
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