For the fiscal year ended: Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Annual Report on Form 10-K or any amendment to the Annual Report on Form 10-K. PART I 1. Business 1A. Risk Factors 1B. Unresolved Staff Comments 2. Properties 3. Legal Proceedings 4. (Removed and Reserved) PART II 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 6. Selected Financial Data 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 7A. Quantitative and Qualitative Disclosures About Market Risk 8. Financial Statements and Supplementary Data 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 9A. Controls and Procedures 9B. Other Information PART III 10. Directors, Executive Officers and Corporate Governance 11. Executive Compensation 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 13. Certain Relationships and Related Transactions 14. Principal Accountant Fees and Services PART IV 15. Exhibits and Financial Statement Schedules CONSOLIDATED FINANCIAL STATEMENTS Management's Report on Internal Control over Financial Reporting Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm Consolidated Statements of Financial Condition Consolidated Statements of Operations Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Supplemental Financial Information SIGNATURES EXHIBIT INDEX statements. investment banking efforts on small to mid-capitalization public companies as well as private companies. securities. vehicles. The resulting portfolio allocations are continuously analyzed and adjusted according to the outlook for each strategy and underlying-manager. The Company's fund of funds program invests with approximately Investment Banking origination activities. Information About Geographic Areas As of March regulation by the National Futures Association and the U.S. Commodities Futures Trading Commission. In addition, we are subject to regulation by the Department of Labor under the U.S. Employee Retirement Income Security Act of 1974 ("ERISA"). In the United Kingdom, we are subject to regulation by the U.K. Financial Services Authority ("FSA"), in Luxembourg by the Commission de Surveillance du Secteur Financier, in Japan by the Financial Services Agency and in Hong Kong by the Securities and Futures Commission ("SFC"). Our investment activities around the globe are subject to a variety of regulatory regimes that vary country by country. Authority ("FINRA"), adopt and enforce rules governing the conduct and activities of its member firms, including Cowen and Company. In addition, state securities regulators have regulatory or oversight authority over our broker-dealer entities. Accordingly, Cowen and Company is subject to regulation and oversight by the SEC and FINRA. Cowen and Company is also a member of, and subject to regulation by, the New York Stock Exchange ("NYSE"), the Chicago Board Options Exchange, the Philadelphia Stock Exchange, the American Stock Exchange, the International Stock Exchange, the Nasdaq Stock Exchange, the Chicago Board of Trade and the New York Mercantile Exchange. Rigorous legal and compliance analysis of our businesses and investments is important to our culture and risk management. In addition, disclosure controls and procedures and internal controls over financial reporting are documented, tested and assessed for design and operating effectiveness in compliance with the Sarbanes-Oxley Act of 2002. We strive to maintain a culture of compliance through the use of policies and procedures such as oversight compliance, codes of conduct, compliance systems, communication of compliance guidance and employee education and training. Our corporate risk management function further analyzes our business, investment and other key risks, reinforcing their importance in our environment. We have a compliance group that monitors our compliance with all of the regulatory requirements to which we are subject and manages our compliance policies and procedures. Our General Counsel supervises our compliance group, which is responsible for addressing all regulatory and compliance matters that affect our activities. Our compliance policies and procedures address a variety of regulatory and compliance risks such as the handling of material non-public information, position reporting, personal securities trading, valuation of investments on a fund-specific basis, document retention, potential conflicts of interest and the allocation of investment opportunities. Our compliance group also monitors the information barriers that we maintain between each of our different businesses. We believe that our various businesses' access to the intellectual capital, contacts and relationships that reside throughout our firm benefits all of our businesses. However, in order to maximize that access without compromising our legal and contractual obligations, our compliance group oversees and monitors the communications between or among our firm's different businesses. reputations and relationships with our clients are critical elements in obtaining and executing client engagements. Ramius and Cowen and Company encounter intense competition for qualified employees from other companies inside and outside of their industries. From time to time, Ramius and Cowen and Company have experienced departures of professionals. Losses of key personnel have occurred and may occur in the future. In addition, if any of our client-facing employees or executive officers were to join an existing competitor or form a competing company, some of our clients could choose to use the services of that competitor instead of the services of Ramius and Cowen and Company. reflected in the statement of operations at each measurement period. Therefore, continued volatility in the value of the Company's investments and securities portfolios or other assets and liabilities, including funds, will result in volatility of the Company's results. As a result, changes in value may have an adverse effect on the Company's financial condition or operations in the future. investment management business is subject to regulation by various regulatory authorities that are charged with protecting the interests of investors. The activities of certain of the Company's subsidiaries are regulated primarily within the United States by the SEC, FINRA, and the National Futures Association, as well as various state agencies, and are also subject to regulation by other agencies in the various jurisdictions in which they operate, including the FSA, the Financial Services Agency of Japan, the SFC, the German Federal Financial Supervisory Authority and the Commission de Surveillance du Secteur Financier in Luxembourg. The activities of Ramius LLC, Ramius Advisors, LLC, Ramius Asia LLC, Ramius Alternative Solutions LLC, Ramius Structured Credit Group LLC and Ramius Trading Strategies Cowen and Company, Ramius and the Company are subject to third party litigation risk and regulatory risk which could result in significant liabilities and reputational harm which, in turn, could materially adversely affect their business, results of operations and financial condition. The Company may be unable to successfully identify, manage and execute future acquisitions, investments and strategic alliances, which could adversely affect our results of operations. ability to manage its expansion opportunities, which pose numerous risks and uncertainties, including the need to integrate new operations into its existing business in an efficient and timely manner, to combine accounting and data processing systems and management controls and to integrate relationships with customers and business partners. In addition, future acquisitions or joint ventures may involve the issuance of additional shares of common stock of the Company, which may dilute the ownership of the Company's stockholders. Certain provisions of the Company's amended and restated certificate of incorporation and bylaws and Delaware law may have the effect of delaying or preventing an acquisition by a third party. earns. Negative performance of the Enterprise Fund, COIL and ROIL also decreases revenue derived from the Company's returns on investment of its own capital. result in the relevant funds and/or Ramius being in breach of applicable legal, regulatory and contractual requirements in relation to such redemptions, resulting in possible regulatory and investor actions against Ramius, the Company's funds and/or the Company. If the Company's funds or managed accounts underperform, existing investors may decide to reduce or redeem their investments or transfer asset management responsibility to other asset managers and the Company may be unable to obtain new alternative investment management business. Any such action could potentially cause further redemptions and/or make it more difficult to attract new investors. return of the lent securities and an alternative lending source cannot be found or if the fund is otherwise unable to borrow securities that are necessary to hedge its positions. Furthermore, recent rulemaking by the SEC and other regulatory authorities outside the United States have imposed trading restrictions and reporting requirements on short selling, which in certain circumstances may impair hedge funds' ability to use short selling effectively. geographic locations in a time-sensitive, efficient and accurate manner. If any of these systems does not operate properly or are disabled, the Company could suffer financial loss, a disruption of its business, liability to the Company's funds, regulatory intervention and/or reputational damage. In addition, Ramius is highly dependent on information systems and technology, and the cost of maintaining such systems may increase from its current level. Such a failure to accommodate Ramius's operational needs, or an increase in costs related to such information systems, could have a material adverse effect on the Company, both with respect to a decrease in the operational performance of its alternative investment management business and an increase in costs that may be necessary to improve such systems. Risk management activities may materially adversely affect the return on the Company's funds' investments if such activities do not effectively limit a fund's exposure to decreases in investment values or if such exposure is overestimated. type of investment. Nevertheless, when conducting due diligence and making an assessment regarding an investment, Ramius is limited to the resources available, including information provided by the target of the investment and, in some circumstances, third party investigations. The due diligence investigation that Ramius conducts with respect to any investment opportunity may not reveal or highlight all relevant facts that may be necessary or helpful in evaluating such investment opportunity. Moreover, such an investigation will not necessarily result in the investment being successful, which may adversely affect the performance of the Company's funds and managed accounts and the Company's ability to generate returns on its own invested capital from any such investment. benchmarks, peer groups or competing asset managers. The competitive market environment may result in increased downward pressure on fees, for example, by reduced management fee and incentive allocation percentages. The future results of operations of the Company's alternative investment management business are dependent in part on its ability to maintain appropriate fee levels for its products and services. In the current economic environment, many competing asset managers have experienced substantial declines in investment performance, increased redemptions, or counterparty exposures which impair their businesses. Some of these asset managers have reduced their fees in an attempt to avoid additional redemptions. Competition within the alternative investment management industry could lead to pressure on the Company to reduce the fees that it charges its clients for alternative investment management be deemed to be an investment company under the Investment Company Act, requirements imposed by the Investment Company Act, including limitations on their respective capital structures, ability to transact business with affiliates (including subsidiaries) and ability to compensate key employees, could make it impractical for either Ramius or the Company to continue their respective businesses as currently conducted, impair the agreements and arrangements between and among them, their subsidiaries and their senior personnel, or any combination thereof, and materially adversely affect their business, financial condition and results of operations. Accordingly, Ramius or the Company may be required to limit the amount of investments that it makes as a principal or otherwise conduct its business in a manner that does not subject Ramius or the Company to the registration and other requirements of the Investment Company Act. increase. Company is participating, we will earn little or no revenue from the transaction, and we may incur significant expenses that may not be recouped. This risk may be intensified by Cowen and Company's focus on growth companies in the healthcare, technology, media and telecommunications, consumer, aerospace and defense, have merged with other financial institutions. These firms have the ability to offer a wider range of products than Cowen and Company does which may enhance their competitive position. They also have the ability to support their investment banking and advisory groups with commercial banking and other financial services in an effort to gain market share, which has resulted, and could further result, in pricing pressure in Cowen and Company's businesses. If we are unable to compete effectively with our competitors in the investment banking industry, the Company's business and results of operations may be adversely affected. operations. marketing is completed before an investment bank commits to purchase securities for resale. The Company anticipates participating in this trend and, as a result, Cowen and Company will be subject to increased risk as it commits capital to facilitate business. Furthermore, Cowen and Company may suffer losses as a result of the positions taken in these transactions even when economic and market conditions are generally favorable for others in the industry. Company's ability to service and interact with its clients may suffer, and the Company may not be able to implement successfully contingency plans that depend on communication or travel. LaBranche Litigation First Quarter Second Quarter Third Quarter Fourth Quarter results of Cowen Holdings for the period from November 2, 2009 through December 31, 2009 and for the Consolidated Statements of Operations Data: Revenues Investment banking Brokerage Management fees Incentive income Interest and dividends Reimbursement from affiliates Other revenues Consolidated Funds revenues Total revenues Expenses Employee compensation and benefits Non-compensation expense Goodwill impairment Consolidated Funds expenses Total expenses Other income (loss) Net gain (loss) on securities, derivatives and other investments Consolidated Funds net gains (losses) Total other income (loss) Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Income (loss) attributable to redeemable non-controlling interests Special allocation to the Managing Member Net income (loss) attributable to Cowen Group stockholders Weighted average common shares outstanding: Basic Diluted Earnings (loss) per share: Basic Diluted Consolidated Statements of Financial Condition Data: Total assets Total liabilities Redeemable non-controlling interests Total Stockholders' Equity clients seeking to trade securities, principally in our target sectors. Historically, we have focused our investment banking efforts on small to mid-capitalization public companies as well as private companies. operations. linked to the incentive allocation rates we charge as a percentage of 2012. capital Management fees fiscal year that exceeds cumulative unrecovered net losses, if any, that have carried forward from prior years. For the products we offer, incentive income earned is typically 20% for hedge funds and 10% for fund of funds and alternative solutions products (in certain cases on performance in excess of a benchmark), underwriting fee and therefore reduce the revenue the Company recognizes as co-manager. Such amounts are adjusted to reflect actual expenses in the period in which the Company receives the final settlement, typically within 90 days following the closing of the Reimbursement from affiliates view, is more likely than not to be realized in the foreseeable future. This level will be estimated based on a number of factors, especially the amount of net deferred tax assets of the Company that are actually expected to be realized, for tax purposes, in the foreseeable future. As of Hedge Funds Alternative Solutions(2) Multi-Strategy Commodity Trading Real Estate(3) Debt Cowen Healthcare Royalty Partners(5) Royalty Interests Other(6) Cash Management Total Beginning Assets under Management Net Subscriptions (Redemptions) Net Performance(1) Ending Assets under Management Fund Performance both price volatility and correlation across multiple asset classes. investment strategy focuses on making investments along side the Company's alternative investment management clients in Ramius managed funds such as the RCG Longview platform, as well as in direct investments in commercial real estate projects. Hedge Funds Ramius Global Credit Fund LP Ramius Enterprise LP Alternative Solutions Managed Accounts Activist Portfolio with Hedging Overlay Global Macro/Managed Futures RTS Global Fund LP RTS Global 3X Fund LP Real Estate Debt RCG Longview Debt Fund IV, L.P.(3) Equity RCG Longview Equity Fund, L.P.(3) Other Cash Management Revenues Revenues Investment banking Brokerage Management fees Incentive income Interest and dividends Reimbursement from affiliates Other revenue Consolidated Funds revenues Total revenues Expenses Expenses Employee compensation and benefits Interest and dividends General, administrative and other expenses Consolidated Funds expenses Total expenses Other income (loss) Other income (loss) Net gain (loss) on securities, derivatives and other investments Consolidated Funds net gains (losses) Total other income (loss) Income (loss) before income taxes Income taxes expense (benefit) Net income (loss) Income (loss) attributable to redeemable non-controlling interests Net income (loss) attributable to Cowen Group stockholders increased$13.6 million to $52.5 million for the year ended December 31, 2011 compared with $38.8 million in 2010. The increase was primarily a result of: decreased $0.3 million to $1.6 million for the year ended December 31, 2011 compared with $1.9 million in 2010. The higher amount in 2010 was primarily related to a non recurring investment advisory agreement. Revenues Consolidated Funds Revenues Income Taxes Revenues Investment banking Brokerage Management fees Incentive income Interest and dividends Reimbursement from affiliates Other revenue Consolidated Funds revenues Total revenues Expenses Employee compensation and benefits Interest and dividends General, administrative and other expenses Goodwill impairment Consolidated Funds expenses Total expenses Other income (loss) Net gain (loss) on securities, derivatives and other investments Consolidated Funds net gains (losses) Total other income (loss) Income (loss) before income taxes Income taxes expense (benefit) Net income (loss) Income (loss) attributable to redeemable non-controlling interests Net income (loss) attributable to Cowen Group stockholders Segment Analysis and Economic Income (Loss) Prior to the consummation of the Transactions, the Company conducted its operations through one reportable segment, the alternative investment management segment, which provides management services to its hedge funds, fund of funds, real estate and other investment platforms. Following the combination of Ramius and Cowen Holdings in 2009, the Company The consolidated financial results of the Company for the year ended December 31, 2011 excludes LaBranche's operating results related to its ETF market-making business from the date of acquisition since these results are determined to be discontinued operations and excluded from economic income. Consolidated Funds. Economic Income (Loss) is considered by management as a supplemental measure to the US GAAP results to provide a more complete understanding of each segment's performance as measured by management. For a reconciliation of Economic Income (Loss) to US GAAP net income (loss) for the periods presented and additional information regarding the reconciling adjustments discussed above, see Note operations. non-compensation expenses—fixed, for the year ended Economic Income Revenues Economic Income Revenues Investment banking Brokerage Management fees Incentive income (loss) Investment income (loss) Other revenue Total economic income revenues Total economic income revenues Economic Income Expenses Economic Income Expenses Compensation and benefits Non-compensation expenses—Fixed Non-compensation expenses—Variable Reimbursement from affiliates Total economic income expenses Total economic income expenses Net economic income (loss) (before non-controlling interest) Net economic income (loss) (before non-controlling interest) Non-controlling interest Non-controlling interest Economic income (loss) Economic income (loss) Economic Income Revenues For purposes of the following section all references to revenue refers to economic income revenues. Brokerage. Brokerage revenues increased $94.4 million Non-compensation expenses—fixed: Non-compensation expenses—fixed: Interest expense Interest expense Professional, advisory and other fees Professional, advisory and other fees Occupancy and equipment Occupancy and equipment Depreciation and amortization Depreciation and amortization Service fees Service fees Other Other Total non-compensation expenses associated with the legacy Cowen and Company business during 2009 related to Cowen and Company's investment banking and broker dealer businesses as compared to twelve months during 2010. During the fourth quarter of 2010, variable expenses of $4.3 million were incurred related to Luxembourg reinsurance transactions, of which $3.3 million related to transaction related costs, and $1.0 million related to administrative costs. Non-compensation expenses—Variable: Non-compensation expenses—Variable: Floor brokerage and trade execution Floor brokerage and trade execution Expenses related to Luxembourg reinsurance companies Expenses related to Luxembourg reinsurance companies Marketing and business development Marketing and business development Total Economic Income Revenues Investment banking Brokerage Management fees Incentive income (loss) Investment income (loss) Other revenue Total economic income revenues Economic Income Expenses Compensation and benefits Non-compensation expenses—Fixed Non-compensation expenses—Variable Reimbursement from affiliates Total economic income expenses Net economic income (loss) (before non-controlling interest) Non-controlling interest Economic income (loss) Non-compensation expenses—fixed: Interest expense Professional, advisory and other fees Occupancy and equipment Depreciation and amortization Other Total Non-compensation expenses—Variable: Floor brokerage and trade execution Marketing and business development Total Liquidity and Capital Resources In April 2011, the Company committed $15.0 million to Starboard Value and Opportunity Fund LP, which may increase or decrease over time with the performance of Starboard Value and Opportunity Fund LP. As of capital of approximately As of December 31, 2011, Cowen Capital, LLC had total net capital of approximately $11.9 million, which exceeded minimum requirements by $10.9 million. time. The agreements continue on a day-to-day basis. no payments had been made on these leases. Equipment Leases, Service Payments and Facility Leases Equipment Leases, Service Payments and Facility Leases Real Estate Real Estate Service Payments Service Payments Capital leases Capital leases Aircraft Aircraft Total Debt Debt Line of Credit Interest Payable—Line of Credit Notes Payable Notes Payable Letter of Credit Benefit Plan Total Clawback obligations 19). members would be required to meet the shortfall. Cowen and Company's liability under these arrangements is not quantifiable and could exceed the cash and securities it has posted as collateral. However, management believes that the potential for Cowen and Company to be required to make payments under these arrangements is remote. Accordingly, no contingent liability is carried in the accompanying consolidated statements of financial condition for these arrangements. estimates. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting operating entity ("VOE") or a variable interest entity ("VIE") under US GAAP. partner and investment manager. 3X Fund LP (“RTS Global 3X”). However, the FASB has deferred the application of the Under both guidelines, the Company determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a variable interest entity and reconsiders that conclusion on a periodic basis. 2011 and 2010, respectively with unrealized gains (losses) resulting from changes in fair value reflected as a component of operations. Accordingly, the accompanying consolidated financial statements reflect different accounting policies for investments depending on whether or not they are held through a consolidated investment company. In addition, the Company's Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes . have the ability to redeem its investment or cannot do so in the near term, the Portfolio Fund is categorized as a below. made a firm commitment for the purchase of Impact on Incentive Income Company's investments or the Company's funds have exposure to exchange rates would not have a material effect on the Company's revenues, net loss or Economic Income. required to purchase or sell financial instruments at prevailing market prices to fulfill clients' obligations. Assets Assets Cash and cash equivalents Cash collateral pledged Securities owned, at fair value Securities purchased under agreement to resell Other investments Receivable from brokers Fees receivable Due from related parties (see Note 23) Fixed assets, net of accumulated depreciation and amortization of $17,764 and $16,449, respectively Goodwill Intangible assets, net of accumulated amortization of $8,146 and $4,506, respectively Other assets Consolidated Funds Cash and cash equivalents Securities owned, at fair value Other investments, at fair value Other assets Total Assets Liabilities and Stockholders' Equity Liabilities and Stockholders' Equity Securities sold, not yet purchased, at fair value Securities sold under agreement to repurchase Payable to brokers Compensation payable Short-term borrowings and other debt Fees payable (see Note 23) Due to related parties (see Note 23) Accounts payable, accrued expenses and other liabilities Consolidated Funds Capital withdrawals payable Accounts payable, accrued expenses and other liabilities Total Liabilities Commitments and Contingencies (see Note 17) Redeemable non-controlling interests Redeemable non-controlling interests Stockholders' equity Stockholders' equity Preferred stock, par value $0.01 per share; 10,000,000 shares authorized, no shares issued and outstanding Class A common stock, par value $0.01 per share: 250,000,000 shares authorized, 75,490,209 and 74,743,163 shares issued and outstanding as of December 31, 2010 and 2009, respectively (including 1,554,124 and 2,323,116 restricted shares, respectively) Class B common stock, par value $0.01 per share: 250,000,000 authorized, no shares issued and outstanding Additional paid-in capital (Accumulated deficit) retained earnings Accumulated other comprehensive income (loss) Total Stockholders' Equity Total Liabilities and Stockholders' Equity Revenues Revenues Investment banking Brokerage Management fees Incentive income Interest and dividends Reimbursement from affiliates Other revenues Consolidated Funds Interest and dividends Other Total revenues Expenses Expenses Employee compensation and benefits Floor brokerage and trade execution Interest and dividends Professional, advisory and other fees Service fees Communications Occupancy and equipment Depreciation and amortization Client services and business development Goodwill impairment Other Consolidated Funds Interest and dividends Professional, advisory and other fees Floor brokerage and trade execution Other Total expenses Other income (loss) Other income (loss) Net gains (losses) on securities, derivatives and other investments Consolidated Funds: Net realized and unrealized gains (losses) on investments and other transactions Net realized and unrealized gains (losses) on derivatives Net gains (losses) on foreign currency transactions Total other income (loss) Income (loss) before income taxes Income tax expense (benefit) Income tax expense (benefit) Net income (loss) Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries Net income (loss) attributable to Cowen Group, Inc. stockholders Weighted average common shares outstanding: Weighted average common shares outstanding: Basic Diluted Earnings (loss) per share: Earnings (loss) per share: Basic Diluted Balance, December 31, 2007 Comprehensive income (loss): Net income Defined Benefit Plans Total comprehensive income (loss) Capital contributions Capital distributions Balance, December 31, 2008 Balance, December 31, 2008 Comprehensive income (loss): Comprehensive income (loss): Net loss Defined Benefit Plans Foreign currency translation Total comprehensive income (loss) Total comprehensive income (loss) Capital contributions Capital contributions Capital distributions Capital distributions Acquisition of non-controlling interest (see Note 2) Acquisition of non-controlling interest (see Note 2) Common Stock issuance upon close of Transaction (see Note 2) Restricted stock awards issued Restricted stock awards issued Issuance of Common Stock on share offering (see Note 19) Amortization of share based compensation Amortization of share based compensation Balance, December 31, 2009 Balance, December 31, 2009 Comprehensive income (loss): Comprehensive income (loss): Net income (loss) Defined Benefit Plans Foreign currency translation Total comprehensive income (loss) Total comprehensive income (loss) Capital contributions Capital contributions Capital withdrawals Capital withdrawals Consolidation of Replication Ltd (see Note 3b) Consolidation of Replication Ltd (see Note 3b) Deconsolidation of CHRP (see Note 3b) Deconsolidation of CHRP (see Note 3b) Deconsolidation of Replication Ltd (see Note 3b) Deconsolidation of Replication Ltd (see Note 3b) Restricted stock awards issued Restricted stock awards issued Amortization of share based compensation Amortization of share based compensation Balance, December 31, 2010 Balance, December 31, 2010 Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash (used in) / provided by operating activities: Depreciation and amortization Share-based compensation Interest, custody and other expenses capitalized on the note payable balance Net loss on disposal of fixed assets Goodwill impairment Purchases of securities owned, at fair value Proceeds from sales of securities owned, at fair value Proceeds from the sale of securities sold, not yet purchased, at fair value Payments to cover securities sold, not yet purchased, at fair value Net (gains) losses on securities, derivatives and other investments Consolidated Funds: Purchases of securities owned, at fair value Proceeds from sales of securities owned, at fair value Purchases of other investments Proceeds from sales of other investments Net realized and unrealized (gains) losses on investments and other transactions (Increase) decrease in operating assets: Cash acquired upon transaction Cash collateral pledged Securities owned, at fair value, held at broker dealer Other investments, at fair value, held at broker dealer Receivable from brokers Fees receivable Securities purchased under agreement to resell Due from related parties Other assets Consolidated Funds: Cash and cash equivalents Other assets Increase (decrease) in operating liabilities: Securities sold, not yet purchased, at fair value, held at broker dealer Payable to brokers Compensation payable Fees payable Due to related parties Accounts payable, accrued expenses and other liabilites Consolidated Funds: Due to related parties Accounts payable, accrued expenses and other liabilities Net cash (used in) / provided by operating activities 2009 Cash flows from investing activities: Cash flows from investing activities: Securities purchased under agreement to resell Purchases of other investments Proceeds from sales of other investments Sale of fixed assets Purchase of fixed assets Net cash provided by / (used in) investing activities Cash flows from financing activities: Cash flows from financing activities: Securities sold under agreement to repurchase Borrowings on the line of credit Repayments on the line of credit Borrowings on notes payable Repayments on notes payable Proceeds from issuance of common stock Purchase of non-controlling interest (see Note 2) Capital contributions by members Capital withdrawals to members Capital contributions by non-controlling interests in operating entities Capital withdrawals to non-controlling interests in operating entities Consolidated Funds: Borrowings on the line of credit Repayments on the line of credit Non-controlling interest deconsolidation Capital contributions by non-controlling interests in Consolidated Funds Capital withdrawals to non-controlling interests in Consolidated Funds Net cash (used in) / provided by financing activities Change in cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Cash and cash equivalents at end of year Supplemental information Supplemental information Cash paid during the year for interest Cash paid during the year for taxes Supplemental non-cash information Supplemental non-cash information Cash collateral pledged and note payable Net assets of deconsolidated entities Assets aquired under capital lease obligations Common stock issuance to acquire non-controlling interest (see Note 2) Common stock issuance upon close of the Transactions (see Note 2) Capital contributions made through REOP Program (see Note 13) Interest, custody and other expenses capitalized on the note payable balance twelve months ended December 31, 2011. The Company's share price has traded below its book value for a substantial part of the last 52 weeks, and as the purchase consideration (the Exchange Ratio) was determined based on the stock price of Cowen on June 28, 2011, the purchase price allocation based on the fair value of LaBranche's net assets at acquisition date reflected in these consolidated financial statements has resulted in a bargain purchase gain. common stock at the acquisition date were converted into an equivalent number of restricted shares, restricted share units and stock options of the Company's Class A common stock. The table below summarizes the fair value of identifiable assets acquired and liabilities assumed at the acquisition date as well as the acquisition date fair value of the non-controlling interest in Cowen Holdings that was acquired: Cash and cash equivalents Cash and cash equivalents Cash collateral pledged Cash collateral pledged Securities owned, at fair value Securities owned, at fair value Receivable from brokers Receivable from brokers Other investments Other investments Fees receivable Due from related parties Due from related parties Fixed assets, net Fixed assets, net Intangible assets, net Intangible assets, net Other assets Other assets Securities sold, not yet purchased, at fair value Securities sold, not yet purchased, at fair value Payable to brokers Payable to brokers Compensation payable Compensation payable Accounts payable, accrued expenses and other liabilities Accounts payable, accrued expenses and other liabilities Total identifiable net assets acquired Non-controlling interest Goodwill Total purchase price be deductible for tax purposes. See Note 10 for a discussion of the intangible assets acquired and their amortization periods. Pro forma total revenues Pro forma net loss Pro forma net loss attributable to Cowen Group, Inc. stockholders Pro forma net loss per share: Basic Diluted consolidated financial statements, as further discussed below, are not subject to As 3X Fund LP (“RTS Global 3X”). on a periodic basis. 2011 and 2010, respectively under The preparation of the consolidated financial statements in conformity with US GAAP requires the management of the Company to make estimates and assumptions that affect the fair value of securities and other investments, the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, the accounting for goodwill and identifiable intangible assets and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are as follows: Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes The Company primarily uses the The Company categorizes its investments in Portfolio Funds within the fair value hierarchy dependent on date Such amounts are included in due from and due to related parties, respectively, on the consolidated statements of financial condition. . Fixed assets are stated at cost less accumulated depreciation or amortization. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful life or lease term. Other fixed assets are depreciated on a straight-line basis over their estimated useful lives. Telephone and computer equipment Computer software Furniture and fixtures Leasehold improvements Goodwill represents the excess of the purchase price consideration of acquired companies over the estimated fair value assigned to the individual assets acquired and liabilities assumed. probable and can be reasonably estimated, in accordance with The below. Management fees are generally paid on a quarterly basis at the beginning of each quarter in arrears and are prorated for capital inflows and redemptions. While some investors may have separately negotiated fees, . The Company earns underwriting revenues in securities offerings in which the Company When the Company is not the lead manager for The Company's strategic advisory revenues include success fees earned in connection with advising companies, . The Company earns agency placement fees in non-underwritten transactions such as private placements of debt and equity securities, including, private investment in public equity transactions concluded. Brokerage revenue consists of commissions, principal transactions, net and equity research fees. Commission revenue includes fees from executing client Principal transaction, net revenue includes net trading gains and losses from the Company's market-making activities in fixed income and over-the-counter equity securities, listed options trading, trading of convertible securities, and trading gains and losses on inventory and other firm positions, which include warrants previously received as part of investment banking transactions. Commissions associated with these transactions are also included herein. In certain cases, the Company provides liquidity to clients buying or selling blocks of shares of listed stocks without previously identifying the other side of the trade at execution, which subjects the Company to market risk. These positions are typically held for a very short duration. During the years ended December 31, 2011, 2010 and 2009, the Equity research fees are paid to the Company for providing equity research. Revenue is recognized once an arrangement exists, access to research has been provided, the fee amount is fixed or determinable, and collection is reasonably assured. During the years ended December 31, 2011, 2010 and 2009, the Company earned $6.5 million, $6.8 million and $1.5 million of revenues from equity research fees, respectively. gains (losses) on investments and other transactions and net realized and unrealized gains (losses) on derivatives, in the consolidated statements of operations. The Company adopted the accounting guidance for uncertainty in income taxes as of April 1, 2007. It requires recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company recognizes accrued interest and penalties related to its uncertain tax positions as a component of income tax expense. occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. As the guidance is limited to disclosures, adoption As of U.S. Government securities(a) Common stocks Restricted common stock Corporate bonds(b) Options Warrants and rights Mutual funds The Company's direct involvement with derivative financial instruments includes credit default swaps, futures, equity swaps, options and warrants and rights. Open equity positions in futures transactions are recorded as receivables from and payables to broker‑dealers or clearing brokers as applicable. The Company's derivatives trading activities exposes the Company to certain risks, such as price and interest rate fluctuations, volatility risk, credit risk, counterparty risk, foreign The operations. Other investments (1) Portfolio Funds, at fair value (2) Real estate investments, at fair value (3) Equity method investments (4) Lehman claims, at fair value The Portfolio Funds, at fair value as of December 31, Tapestry Investment Co PCC Ltd(a) Cowen Healthcare Royalty Partners(b)(*) Cowen Healthcare Royalty Partners II(b)(*) Ramius Global Credit Fund LP(c)(*) Ramius Alternative Replication Ltd(d)(*) RCG Special Opportunities Fund, Ltd(e)(*) Other affiliated funds(f)(*) The Company has no unfunded commitments regarding the portfolio funds Real estate investments as of December 31, 2011 and December 31, 2010 of accounting. Also included in equity method investments is the investment in (a) CHRP GP (see Note 3) RCG Longview Debt Fund IV Management, LLC Cowen Healthcare Royalty GP, LLC Cowen Healthcare Royalty GP II, LLC RCG Longview Partners, LLC RCG Longview Louisiana Manager, LLC RCG Urban American, LLC RCG Urban American Management, LLC RCG Longview Equity Management, LLC Urban American Real Estate Fund II, L.P. RCG Kennedy House, LLC Other consist of $1.0 U.S. Government securities(a) Common stocks Corporate bonds(b) Options Securities purchased under agreements to resell and securities sold under agreements to repurchase Securities purchased under agreements to resell Agreements with Barclays Capital Inc bearing interest of 0.07% - 0.14% due on January 3, 2011 Securities sold under agreements to repurchase Agreements with Royal Bank of Canada bearing interest of 1.415% due on February 22, 2011 to September 1, 2011 Agreements with Barclays Capital Inc bearing interest of 0.18% - 1.50% due on January 7, 2011 to June 6, 2011 December 31, 2011, the repurchase dates are open and the agreement can be terminated by either party at any time. The agreements continue on a day-to-day basis. Government sponsored securities* Corporate bond** (1) Portfolio Funds (2) Lehman claims As of December 31, 2011 and December 31, 2010 Investments of Enterprise LP Investments of consolidated fund of funds investment companies strategies. RTS Global Ramius Multi-Strategy Master FOF LP* Ramius Vintage Multi-Strategy Master FOF LP* Tapestry Pooled Account V LLC* Independently Advised Portfolio Funds* Externally Managed Portfolio Funds Externally Managed Portfolio Funds Externally Managed Portfolio Funds Externally Managed Portfolio Funds Externally Managed Portfolio Funds Ramius Multi-Strategy Master FOF LP* Ramius Vintage Multi-Strategy Master FOF LP* Tapestry Pooled Account V LLC* Externally Managed Portfolio Funds Externally Managed Portfolio Funds Externally Managed Portfolio Funds Externally Managed Portfolio Funds Externally Managed Portfolio Funds Externally Managed Portfolio Funds With respect to the aforementioned Lehman claims, the Total Net Equity Claim of Enterprise Master consists of $24.3 million. Included in this claim were assets with a value of $9.5 million at the time LBIE entered significant. and the funds managed by the Company decided that only the investors who were invested at the time of the Administration should participate in any profit or loss relating to the Estimated Recoverable Lehman Claim. As a result, Enterprise Master and certain of the funds managed by the Company with assets held at LBIE granted a 100% participation in the Estimated Recoverable Lehman Claims to Special Purpose Vehicles (the significant. 2011 Harvest Energy Trust 7.875% October 2011 Harvest Energy Trust 6.40% - 7.5% October 2012 - May 2015 Burlington Northern Sante Fe (common stock shares) U.S. Treasury notes, 0.75% - 8.75%, due September 2011 - August 2020, including futures U.S. Treasury notes, 1.375% - 3.625%, due April 2012 - November 2019, including futures Net realized and unrealized gains (losses) Consolidated Funds net gains (losses) on investments and other transactions: Net realized gains (losses) on investments and other transactions Net unrealized gains (losses) on investments and other transactions Consolidated Funds net gains (losses) on derivatives: Net realized gains (losses) on derivatives Net unrealized gains (losses) on derivatives Underlying Investments of Unconsolidated Funds Held by Consolidated Funds Bank debt Commercial mortgage backed securities Common stock Convertible debt Corporate bonds Exchange traded funds Foreign government debt Loans Options—put Options—call Over-the-counter foreign currency call option Preferred stock Private debt Private equity Restricted stock Rights Trade claims US Treasury notes Warrants Derivative contracts, at fair value, owned by Enterprise Master, net Asset swaps Credit default swaps—protection purchased Credit default swaps—protection sold Currency forwards Equity swaps—long exposure Futures Interest rate call swaption—long exposure Interest rate call swaption—short exposure Interest rate swaps—long exposure Total return swap 624 Art Holdings, LLC* QREX, LLC* Q Capital Strategies, LLC* RCG Longview Equity Fund, LP* RCG Longview II, LP* RCG Longview Debt Fund IV, LP* RCG Longview, LP* RCG Soundview, LLC* RCG Urban American Real Estate Fund, L.P.* RCG International Sarl* Ramius Navigation Fund Ltd* Portside Growth & Opportunity Fund* RCG Special Opportunities Fund, Ltd* Ramius Credit Opportunities Fund Ltd* RCG Endeavour, LLC* RCG Energy, LLC * RCG Renergys, LLC* Other Private Investments Real Estate Investments Ramius Fixed Income Arbitrage FOF LP* Ramius Hedged Equity FOF LP* Ramius Vintage Multi-Strategy Master FOF LP* Tapestry Pooled Account I, LLC* Tapestry Pooled Account II, LLC* Tapestry Pooled Account V, LLC* Externally Managed Funds Externally Managed Funds Externally Managed Funds Externally Managed Funds Externally Managed Funds Externally Managed Funds Externally Managed Funds Externally Managed Funds Externally Managed Funds RTS Global Bond future Commodity call option Cash Currency option Commodity forward Commodity future Currency forward Currency future Index future Interest rate future Securities owned and derivatives Securities owned and derivatives US Government securities Common stocks Restricted common stock Corporate bonds Futures Options Warrants and rights Mutual funds Other investments Portfolio Funds Real estate investments Lehman claim Securities sold, not yet purchased and derivatives US Government securities Common stocks Corporate bonds Equity swaps—short exposure Futures Options Securities owned US Government securities Common stocks Corporate bonds Options Warrants and rights Mutual funds Other investments Portfolio Funds Real estate investments Lehman claim Securities sold, not yet purchased Common stocks Options Securities owned US Government securities Corporate bonds Other investments Portfolio Funds Lehman claims Other investments Portfolio Funds Lehman claims Balance at December 31, 2008 Purchases Sales Transfers in (out) Realized gains (losses) Unrealized gains (losses) Balance at December 31, 2009 Transfers in (out) Purchases Sales Realized gains (losses) Unrealized gains (losses) Balance at December 31, 2010 Pursuant to the Deposits Prepaid expenses Taxes receivable Derivative contracts, at fair value Interest receivable Other Deferred rent obligations (see Note 3s) Acquired lease liability (see Note 2) Deferred income on sale-leaseback (see Note 3s) Deferred lease incentive Equity in RCG Longview Partners II, LLC (see Note 5a(3)) Litigation reserve (Note 17) Drafts payable Prepaid payroll taxes Derivative contracts, at fair value Accrued expenses and accounts payable Accrued tax liabilities Interest and dividends payable Telephone and computer equipment Computer software Furniture and fixtures Leasehold improvements Assets acquired under capital leases—equipment Construction in progress Other Less: Accumulated depreciation and amortization Based on a valuation performed by an independent valuation firm in order to test the goodwill for impairment as of December 31, 2010, it has been determined that no impairment loss would need to be recognized for the year ended December 31, 2010. The testing was performed using market multiples and discounted cash flow analysis. The following table presents the changes in the Company's goodwill balance, by segment, for the years ended December 31, Beginning balance: Beginning balance: Goodwill Accumulated impairment charges Net Activity: Activity: Goodwill acquired Ending balance: Ending balance: Goodwill Accumulated impairment charges Net Investment contracts Trade name Customer relationships Customer contracts The estimated future amortization expense for the Company's intangible assets as of December 31, 2011 2012 2013 2014 2015 Thereafter Consolidated Subsidiaries Redeemable non-controlling interests in consolidated subsidiaries Operating Companies(a) Consolidated Funds (Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries Operating Companies Consolidated Funds and certain real estate entities Also in connection with the Transactions, the Company recorded non-controlling interest in the CHRP GPs of Other revenues for the year ended December 31, 2009 include legal settlement income of $1.9 million. Plan to bring the total equal to 7.5% of the Company's outstanding shares of stock. In connection with the Transactions, 892,782 stock options of Cowen Holdings common stock outstanding at the effective time of the merger were converted into stock options of the Company on a one-for-one basis. There were no other stock options granted or exercised during the years ended Balance outstanding at December 31, 2008 Options granted Options acquired Options exercised Options forfeited Options expired Balance outstanding at December 31, 2009 Options granted Options acquired Options exercised Options forfeited Options expired Balance outstanding at December 31, 2010 Options exercisable at December 31, 2009 Options exercisable at December 31, 2010 insignificant. restricted stock. The following table summarizes the Company's restricted share and restricted stock unit activity for the year ended Balance outstanding at December 31, 2008 Granted Vested Cancelled Forfeited Balance outstanding at December 31, 2009 Granted Vested Cancelled Forfeited Balance outstanding at December 31, 2010 Balance outstanding at December 31, 2008 Granted Vested Forfeited Balance outstanding at December 31, 2009 Granted Vested Forfeited Balance outstanding at December 31, 2010 The fair value of the RCG Grants was determined based on the number of the Company's shares underlying the RCG membership interest and the quoted price of the Company's common stock on the date of the Transactions. 2009. The following summarizes the REOP Program awards activity for the year ended December 31, 2009: Unvested awards at January 1, 2009 Awards granted during 2009 Awards vested/exercised during 2009 Awards expired during 2009 Awards forfeited during 2009 Unvested awards at December 31, 2009 Unvested awards at January 1, 2009 Awards granted during 2009 Awards vested/exercised during 2009 Awards expired during 2009 Awards forfeited during 2009 Unvested awards at December 31, 2009 For the year ended December 31, 2009, cash used to settle awards under the Rapp Program was $0.7 million. The following amounts contained in the following tables relate to the above plans in aggregate as of Projected benefit obligation Projected benefit obligation Benefit obligation at beginning of year Service cost Interest cost Actuarial loss (gain) Benefits paid Curtailments Lump sum settlement Effect of change in currency conversion Benefit obligation at end of year Change in plan assets Change in plan assets Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Benefits paid Fair value of plan assets at the end of year Funded balance at end of year Funded balance at end of year Amounts recognized in the consolidated statement of financial condition Amounts recognized in the consolidated statement of financial condition Liabilities Accumulated benefit obligation Accumulated benefit obligation Components of net periodic benefit cost included in employee compensation and benefits Components of net periodic benefit cost included in employee compensation and benefits Service cost Interest cost Expected return on plan assets Amortization of (loss) / gain Amortization of prior service cost Effect of curtailment Effect of settlement Net periodic benefit cost Other changes in plan assets and benefit obligations recognized in other comprehensive loss Other changes in plan assets and benefit obligations recognized in other comprehensive loss Net loss Effect of curtailment Effect of settlement Amortization of loss / (gain) Amortization of prior service cost Total recognized in other comprehensive loss Total recognized in net periodic benefit cost and other comprehensive loss Total recognized in net periodic benefit cost and other comprehensive loss Amounts recognized in accumulated other comprehensive loss Amounts recognized in accumulated other comprehensive loss Net gain (loss) Prior service cost Effect of change in currency conversion Total recognized in accumulated other comprehensive loss Estimated amounts to be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year Estimated amounts to be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year Prior service cost Net gain (loss) Discount Rate Rate of Compensation Increase The assumed long term rate of return on the Cash Balance Plan assets was 6% as of Ramius Multi-Strategy Fund Ltd(a) Ramius Global Credit Fund Ltd(b) External Mutual Funds—Total return(c) External Mutual Funds—Real Return(d) External Mutual Funds—Conservative(e) Estimated future benefits payments 2010 2011 2012 2013 2014 2015 - 2020 The components of the Company's income tax expense for the years ended December 31, 2011, 2010 Current tax expense/(benefit) Federal State and local Foreign Total Deferred tax expense/(benefit) Deferred tax expense/(benefit) Federal State and local Foreign Total Total Tax expense/(benefit) Pre-tax loss at U.S. statutory rate Partnership loss not subject to corporate tax Change in valuation allowance Deferred asset recognition Minority interest reversal Other, net Total The components of the Company's deferred tax assets and liabilities as of Deferred tax assets, net of valuation allowance Deferred tax assets, net of valuation allowance Deferred compensation Net operating loss Goodwill Acquired lease liability Unrealized losses on investments Foreign tax credits Other Total deferred tax assets Valuation allowance Deferred tax assets, net of valuation allowance Deferred tax liabilities Deferred tax liabilities Basis difference on investments Intangible assets Fixed assets Other Total deferred tax liabilities Deferred tax assets, net 2010 in the recognition of this deferred tax Operations. Jurisdiction: Net operating loss (in millions) Year of expiration Further, the acquisition of LaBranche by the Company on June 28, 2011 caused an ownership change of LaBranche under Section 382. As such, the portion of the Company's deferred tax assets representing the net operating losses from LaBranche will be subject to a separate annual limitation. The limitation is approximately $6.7 million annually and applies to approximately $101.7 million of net operating losses. Beginning Balance Beginning Balance Additions: Additions: Current year tax positions Prior year tax positions Reductions: Reductions: Expired statue of limitations Ending Balance Ending Balance The Company intends to permanently reinvest the capital and accumulated earnings of its foreign subsidiaries in the respective subsidiary, but remits the current earnings of its foreign subsidiaries to the United States to the extent permissible under local regulatory rules. The undistributed earnings of the Company's foreign subsidiaries totaled 2011 2012 2013 2014 2015 Thereafter The actual clawback liability, however, does not become realized until the end of a fund's life. The life of the real estate In April 2011, the Company committed $15.0 million to Starboard Value and Opportunity Fund LP, which may increase or decrease over time with the performance of Starboard Value and Opportunity Fund LP. As of Based on information currently available, the Company believes that the amount of reasonably possible losses will not have a material adverse effect on the Company's consolidated statements of financial condition or cash flows. However, in light of the uncertainties involved in such proceedings, losses may be material to the Company's operating results in a future period, depending in part, on the operating results for such period and the size of the loss or liability imposed. Other Debt Line of credit Letter of credit Notes payable Capital lease obligations available. The first borrowing under this line occurred on June 30, 2009. As of December 31, 2011. The Company entered into several capital leases for computer equipment during the fourth quarter of 2010. These leases amount to $6.3 million and are recorded in fixed assets and as capital lease obligations, which is included in short-term borrowings and other debt in the accompanying consolidated statements of financial condition, and have lease terms that range from 48 to 60 months and interest rates that range from leases. 2011 2012 2013 2014 2015 Thereafter Subtotal Less: Amount representing interest(a) Total In the event of the liquidation, dissolution or winding up of the Company, subject to the preferences of the holders of any preferred stock of the Company that may be outstanding from time to time, holders of Class A common stock and Class B common stock will be entitled to share equally and ratably in the assets available for distribution to the Company's stockholders. There are no redemption or sinking fund provisions applicable to the Class A or the Class B common stock. 2011 were calculated as the sum of (a) the amount of compensation cost attributed to future services and not yet recognized and (b) the amount of tax benefit that was credited to additional paid-in capital assuming vesting and delivery of the restricted stock. The tax benefit is the amount resulting from a tax deduction for compensation in excess of compensation expense recognized for financial statement reporting purposes. All outstanding stock options and unvested restricted shares Net (loss) income attributable to Cowen Group, Inc. shareholders Shares for basic and diluted calculations: Average shares used in basic computation Stock options Restricted stock Average shares used in diluted computation Earnings (loss) per share: Earnings (loss) per share: Basic Diluted associated investment related expenses. For US GAAP purposes, these items are included in each of their respective line items. Economic Income revenues also include management fees, incentive income and investment income earned through the Company's investment as a general partner in certain real estate entities. For US GAAP purposes, all of these items are recorded in other income (loss). In addition, Economic Income (Loss) expenses are reduced by reimbursement from affiliates, which for US GAAP purposes is presented gross as part of revenue. The following tables set forth operating results for the Company's alternative investment management and Revenues Investment banking Brokerage Management fees Incentive income Investment Income Interest and dividends Reimbursement from affiliates Other revenue Consolidated Funds revenues Total revenues Expenses Employee compensation and benefits Interest and dividends Non-compensation expenses—Fixed Non-compensation expenses—Variable Non-compensation expenses Reimbursement from affiliates Consolidated Funds expenses Total expenses Other income (loss) Net gain (loss) on securities, derivatives and other investments Consolidated Funds net gains (losses) Total other income (loss) Income (loss) before income taxes and non-controlling interests Income taxes expense / (benefit) Economic Income (Loss) / Net income (loss) before non-controlling interests (Income) loss attributable to redeemable non-controlling interests Economic Income (Loss) / Net Income (loss) attributable to Cowen Group stockholders Revenues Revenues Investment banking Brokerage Management fees Incentive income Investment Income Interest and dividends Reimbursement from affiliates Other revenue Consolidated Funds revenues Total revenues Expenses Expenses Employee compensation and benefits Interest and dividends Non-compensation expenses—Fixed Non-compensation expenses—Variable Non-compensation expenses Goodwill impairment Reimbursement from affiliates Consolidated Funds expenses Total expenses Other income (loss) Other income (loss) Net gain (loss) on securities, derivatives and other investments Consolidated Funds net gains (losses) Total other income (loss) Income (loss) before income taxes and non-controlling interests Income taxes expense/(benefit) Economic Income (Loss)/Net income (loss) before non-controlling interests (Income) loss attributable to redeemable non-controlling interests Economic Income (Loss)/Net Income (loss) attributable to Cowen Group stockholders Revenues Revenues Investment banking Brokerage Management fees Incentive income Investment Income Interest and dividends Reimbursement from affiliates Other revenue Consolidated Funds revenues Total revenues Expenses Expenses Employee compensation and benefits Interest and dividends Non-compensation expenses—Fixed Non-compensation expenses—Variable Non-compensation expenses Goodwill impairment Reimbursement from affiliates Consolidated Funds expenses Total expenses Other income (loss) Other income (loss) Net gain (loss) on securities, derivatives and other investments Consolidated Funds net gains (losses) Total other income (loss) Income (loss) before income taxes and non-controlling interests Income taxes expense/(benefit) Economic Income (Loss) / Net income (loss) before non-controlling interests (Income) loss attributable to redeemable non-controlling interests Economic Income (Loss) / Net Income (loss) available to all Members As of December 31, 2011, Cowen Capital, LLC had total net capital of approximately $11.9 million, which exceeded minimum requirements by $10.9 million. Ramius UK Ltd. related parties. agreements with investors. Such amounts have been recorded in fees receivable and due to related parties, respectively, in the consolidated statements of financial condition. The remaining balance yet to be paid was 2012. The Company is a member of various securities exchanges. Under the standard membership agreements, members are required to guarantee the performance of other members and, accordingly, if another member becomes unable to satisfy its obligations to the exchange, all other members would be required to meet the shortfall. The Company's liability under these arrangements is not quantifiable and could exceed the cash and securities it has posted as collateral. However, management believes that the potential for the Company to be required to make payments under these arrangements is remote. Accordingly, no contingent liability is recorded in the consolidated statements of financial condition for these arrangements. Consolidated Financial Statements (Continued) Total revenues Total revenues Net Income (loss) before income taxes Net Income (loss) before income taxes Provision (benefit) for taxes Net Income (loss) Net Income (loss) attributable to non-controlling interests in consolidated subsidiaries Net income (loss) attributable to Cowen Group, Inc. stockholders Net income (loss) attributable to Cowen Group, Inc. stockholders Earnings (loss) per share: Earnings (loss) per share: Basic and diluted Weighted average number of common shares: Weighted average number of common shares: Basic and diluted Total revenues Total revenues Net Income (loss) before income taxes Net Income (loss) before income taxes Provision (benefit) for taxes Net Income (loss) Net Income (loss) Net Income (loss) attributable to non-controlling interests in consolidated subsidiaries Net income (loss) attributable to Cowen Group, Inc. stockholders Net income (loss) attributable to Cowen Group, Inc. stockholders Earnings (loss) per share: Earnings (loss) per share: Basic and diluted Weighted average number of common shares: Weighted average number of common shares: Basic and dilutedDecember 31, 20102011 Commission file number: 001-34516 Title of Each Class Name of Exchange on Which Registered Class A Common Stock, par value $0.01 per share The Nasdaq Global Market ýQýQýQ No oYes o NoýQ ýQ ýQ2010,2011, the last business day of the registrant's most recently completed second fiscal quarter, based upon the closing sale price of the Class A common stock on the NASDAQ Global Market on that date was $138,580,525.$301,319,256.10, 20118, 2012 there were 75,882,678114.4 million shares of the registrant's common stock outstanding.20112012 Annual Meeting of Stockholders.Item No. Page No. Page No. 1 9 31 31 31 40 41 41 43 83 87 87 87 87 88 88 88 88 88 89 F-1 F-2 F-3 F-3 F-4 F-5 F-6 F-8 F-84 ii following the Transactions, Cowen Group, Inc., a Delaware corporation, its consolidated subsidiaries and entities in which it has a controlling financial interest, taken as a whole, as well as any predecessor entities, unless the context otherwise indicates.is a holding company formed in connection with the business combination of Ramius LLC ("Ramius") and Cowen Holdings, Inc. ("Cowen Holdings"). The Company was jointly formed on June 1, 2009, by Cowen Holdings and RCG Holdings LLC ("RCG") in connection with the transactions contemplated by the Transaction Agreement and the Agreement and Plan of Merger, dated as of June 3, 2009 (the "Transactions"). Cowen Group, Inc. is a diversified financial services firm and, together with its consolidated subsidiaries (collectively, "Cowen", "Cowen Group" or the "Company"), provides alternative investment management, investment banking, research, and sales and trading services through its two business segments: Ramius LLC and its affiliates (“Ramius”) comprise the Company's alternative investment management segment, while Cowen and Company, LLC ("Cowen and Company") isand its broker-dealer segment. Prior toaffiliates comprise the consummation of the Transactions on November 2, 2009, the Company conducted its operations through one reportable segment, the alternative investment managementCompany's broker-dealer segment. For a discussion of certain financial information regarding our revenues from external customers, a measure of profit or loss and total assets broken down by segment, please see the notes to the Company's consolidated financial statements appearing elsewhere in this Form 10-K.$9$10.3 billion of assets under management as of January 1, 2011.2012. The predecessor to this business was founded in 1994 and, through one of its subsidiaries, has been a registered investment adviser under the Investment Advisers Act since 1997. Our alternative investment management products, solutions and services include hedge funds, replication products, mutual funds, managed futures funds, fund of funds, real estate, healthcare royalty funds, and cash management and mortgage advisory services offered primarily under the Ramius name. Our institutional investors include pension funds, insurance companies, banks, foundations and endowments, wealth management organizations and family offices. In February 2010, we integrated senior management and certain aspects of the infrastructure of our hedge fund and fund of funds businesses to improve institutional efficiency and service. In March 2010, we expanded our alternative investment management business with the formation of the Ramius Trading Strategies managed futures platform. In July 2010, we announced the further expansion of our alternative investment management business through the launch of our first mutual fund, the Ramius Dynamic Replication Fund. The fund focuses on replication of a custom alternative investment index and provides investors the opportunity to access market exposures typically characterized by investments in less liquid alternative investments, but with the daily liquidity of a mutual fund. The fund began trading in the beginning of August 2010 with over $120 million in initial capital.financial technology,industrials, REITs and alternative energy sectors. We provide research and brokerage services to over 1,000 domestic and international clients seeking to trade securities, principally in our target sectors. Historically, we have focused our2010,LaBranche & Co Inc. (“LaBranche”), a market-maker in exchange traded funds (“ETFs”) on various exchanges domestically and internationally. In the last quarter of 2011, we expandeddecided to discontinue this business as the subsidiaries were not meeting the Company's expectations as to their results of operations and were not generating positive cash flows.investment banking services to include creditsales and fixed income, including publictrading platform with the addition of a group focused on Institutional Options and private debt placements, exchange offers, consent solicitationsEvent Driven Strategies, which includes both equity and tender offers. We also addedoptions sales and trading.capabilities forof corporate fixed income and convertible securities. In addition, we have enhanced our presenceUnder the terms of the agreement, it is anticipated that Cowen and Company's Investment Banking and Global Capital Markets teams will focus on origination activities, while CRT will utilize its sales force in the Private investment in public equity transaction ("PIPE") and registered direct market by adding personnel over the course of the year. With the additiondistribution of these additional capital markets capabilities we also established a unified capital markets group which we believe will allow us to be more effective in providing cohesive solutions for our clients.$9.0$10.3 billion of assets under management as of January 1, 2011.2012. The predecessor to this business was founded in 1994 and, through one of its subsidiaries, has been a registered investment adviser under the Investment Advisers Act since 1997. Our alternative investment management products, solutions and services include hedge funds, replication products, mutual funds, managed futures funds, fund of funds, real estate, healthcare royalty funds, and cash management and mortgage advisory services offered primarily under the Ramius name. Our institutional investors include pension funds, insurance companies, banks, foundations and endowments, wealth management organizations and family offices.Funds.FundsSolutions.Solutions12575 underlying fund managers and was established in 1998..Funds.Funds2010,2011, the Ramius Urban American Funds owned interests in and managed approximately 12,30012,346 multi family housing units in the New York metropolitan area. The RCG Longview platform provides bridge senior loans, subordinated mortgages, mezzanine loans, and preferred equity through its debt fund series, and makes equity investments through its equity fund. As of December 31, 2010,2011, the members of the general partners of the RCG Longview platform,Platform and its affiliates, independent of the RCG Longview Funds, collectively owned or managed directlyinterests in and/or indirectly, 56,924 residential units, 25.1manage approximately 27,000 apartments and over 22 million square feet of retail, 13.4 million square feet of officecommercial space and 1,340 hotel rooms.for their own accounts. The Company's ownership interests in the various general partners of the Ramius Urban American Funds and RCG Longview Funds range from 30% to 55%..Prior to the consummation of the Transactions, the CHRP Funds were part of Cowen Holdings's business. We share the net management fees from the CHRP Funds equally with the founders of the CHRP Funds. In addition, we have interests in the general partners of the CHRP Funds ranging from 32.1%27% to 40.2%.Services.Services financial technology,industrials, REITs and alternative energy sectors. We provide research and sales and trading services to over 1,000 domestic and international clients seeking to trade securities, principally in our target sectors. We focus our investment banking efforts on growth-oriented public companies as well as private companies.financial technology,industrials, REITs and alternative energy sectors. By focusing on Cowen and Company's target sectors over a long period of time, we have developed a significant understanding of the unique challenges and demands with respect to public and private capital raising and strategic advice in these sectors. Our advisory and capital raising capabilities begin at the early stages of a private company's accelerated growth phase and continue through its evolution as a public company. Our advisory business focuses on mergers and acquisitions, including providing fairness opinions and providing advice on other strategic transactions. Our capital markets capabilities include equity, including private investments in public equity and registered direct offerings, credit and fixed income, including public and private debt placements, exchange offers, consent solicitations and tender offers, as well as origination and distribution capabilities for convertible securities. We have a unified capital markets group which we believe will allow us to be more effective in providing cohesive solutions for our clients. Historically, a significant majority of Cowen and Company's investment banking revenue has been earned from high-growth small and mid-capitalization companies. We believe that our relationship with CRT for the high levelorigination and distribution of expertisecorporate fixed income and client trust Cowen and Company has developed allows it to generate repeat business. During 2010, we generated a significant amount ofconvertible securities will enhance our investment banking business from companies based in China, and we were one of only two non-bulge bracket investment banks to book-run at least two U.S. IPOs for Chinese companies. We believe our expanded capital markets capabilities and unified capital markets group will allow us to be even more effective in providing cohesive solutions for our clients.2010,2011, we have a research team of 2726 senior analysts covering approximately 400405 companies. Within our coverage universe, approximately 104135 are healthcare companies, 145120 are technology companies, 6848 are consumer companies, 3129 are aerospace and defense companies, 1011 are alternative energy companies, 3339 are REITs and 723 are Chinese companies. Our differentiated approach to research focuses our analysts' efforts toward delivering specific investment ideas and de-emphasizes maintenance research. We have developed surveys and professional networks that provide us with frequent and timely industry insights regarding evolving trends in our target sectors. We sponsor a number of conferences every year that are focused on our target sectors and sub-sectors. During these conferences we highlight our investment research and provide significant investor access to corporate management teams.thoughthrough Cowen Latitude Advisorsand Company (Asia) Limited ("CLAL"Cowen Asia"). We provide investment banking services to companies and institutional investor clients in Europe through our U.K. broker-dealer, Cowen International Limited ("CIL").Employees10, 2011,8, 2012, the Company had 553589 employees.Factors—RisksFactors-Risks Related to the Company's Alternative Investment Management Business" and "Risk Factors—RisksFactors-Risks Related to the Company's Broker-Dealer Business."and regulations of the Investment Advisers Act of 1940 (the "Advisers Act"). and the regulations promulgated thereunder. Such requirements relate to, among other things, fiduciary duties to clients, maintaining an effective compliance program, solicitation agreements, conflicts of interest, recordkeeping and reporting requirements, disclosure requirements, limitations on agency cross and principal transactions between an advisor and advisory clients and general anti-fraud prohibitions. AllWe believe all of our wholly-owned investment advisers to our alternative investment funds comply in all material respects with the Advisers Act requirements and regulations.ofto our alternative investment funds are also subject toIn addition, theThe Dodd-Frank Act establishes the Financial Services Oversight Council (the "FSOC") to identify threats to the financial stability of the United States; promote market discipline; and respond to emerging risks to the stability of the United States financial system. The FSOC is empowered to determine whether the material financial distress or failure of a non-bank financial company would threaten the stability of the United States financial system, and such a determination can subject a non-bank financial company to supervision by the Board of Governors of the Federal Reserve and the imposition of standards and supervision including stress tests, liquidity requirements and enhanced public disclosures. The FSOC has released a proposed rule regarding its authority to require the supervision and regulation of systemically significant non-bank financial companies. A final rule and designations of systemically significant non-bank financial companies are expected later this year. The Dodd-Frank Act also mandates the preparation of studies on a wide range of issues that could lead to additional regulatory changes. Until these rules and resulting changes are fully developed, it is not practical to assess the impact that the Dodd-Frank Act or the resulting rules and regulations will have on us and on the financial services industry. On February 9, 2012 the CFTC issued final rules on the registration and compliance of commodity pool operators (“CPOs”), including rescinding an exemption relating to private funds and narrowing an exception from registration with respect to registered investment companies. While certain details have yet to be clarified, these new rules are expected to result in additional regulatory and registration requirements for certain of the private funds and registered funds managed by our investment advisers. See "Item 1A Risk Factors" for more information. as a broker-dealer with the SEC and in all 50 states, the District of Columbia and Puerto Rico. Self-regulatory organizations, including the Financial Industry Regulatorya registered broker-dealerbroker-dealers and membermembers of various self-regulatory organizations, Cowen and Company isand Cowen Capital LLC ("Cowen Capital") are subject to the SEC's uniform net capital rule,rule. Rule 15c3-1 under the Exchange Act. Rule 15c3-1 specifies the minimum level of net capital a broker-dealer must maintain and also requires that a significant part of a broker-dealer's assets be kept in relatively liquid form. The SEC and various self-regulatory organizations impose rules that require notification when net capital falls below certain predefined criteria, limit the ratio of subordinated debt to equity in the regulatory capital composition of a broker-dealer and constrain the ability of a broker-dealer to expand its business under certain circumstances. Additionally, the SEC's uniform net capital rule requires us to give prior notice to the SEC for certain withdrawals of capital. As a result, our ability to withdraw capital from our broker-dealer subsidiarysubsidiaries may be limited. alternative investment management and broker-dealer businesses have incurred losses in several recent periods, including a substantial loss in 2011, and the Company's alternative investment management and broker dealer businesses have also recorded net losses in certain quarters within other fiscal years. The Company may incur losses in any of its future periods. Future losses may have a significant effect on the Company's liquidity as well as our ability to operate.during 2010, hiring a number of senior professionals to create a fixed-incomeexpand our sales and equity-linked origination and distribution platform.trading product offerings. Accordingly, the Company will need to increase its revenues at a rate greater than its expenses to achieve and maintain profitability. If the Company's revenues do not increase sufficiently, or even if its revenues increase but it is unable to manage its expenses, the Company will not achieve and maintain profitability in future periods. As an alternative to increasing its revenues, the Company may seek additional capital through the sale of additional common stock or other forms of debt or equity financing. Particularly in light of current market conditions, the Company cannot be certain that it would have access to such financing on acceptable terms.vestsvest over a period of years, which is not as attractive to existing and potential employees as compensation consisting solely of cash or a lesser percentage of stock or other deferred compensation that may be offered by our competitors.sufferedand has resulted in substantial stress, volatility, illiquidity and disruption. Market turbulence reached unprecedented levels during the third and fourth quarters of 2008, as investors lost confidence in the financial system resulting in an historically unprecedented lack of liquidity, a general decline in asset values (including real estate assets), and the bankruptcy or acquisition of, or government assistance to, several major domestic and international financial institutions. These factors, combined with volatile commodity prices and foreign exchange rates, contributed to recessionary economic conditions globally and a deterioration in consumer and corporate confidence and could further exacerbate the overall market disruptions and risks to market participants, including the Company's funds and managed accounts. These market conditions may affect the level and volatility of securities prices and the liquidity and the value of investments in the Company's funds, including Ramius Enterprise LP (which we refer to as Enterprise Fund), Cowen Overseas Investment LP (which we refer to as COIL) and Ramius Optimum Investments LLC (which we refer to as ROIL) in which the Company has investments of approximately $153.6$125.8 million, $88.8$149.7 million and $48.7$35.6 million, respectively, of its own capital as of December 31, 20102011 and managed accounts, and the Company may not be able to effectively manage its alternative investment management business's exposure to these market conditions. Losses in the Enterprise Fund, COIL and ROIL could adversely affect our results of operations. The Company is subject to the provisions of Accounting Standards Codification ("ASC") Topic 820 (whichrefer to as ASC 820) which RCG, as the accounting predecessor of the Company, adopted on January 1, 2008. ASC 820 definesdefine fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a framework for measuring fair value and a valuation hierarchy based upon the transparency of inputs used in the valuation of an asset or liability. Changes in fair value areisand Cowen Capital are subject to the net capital requirements of the SEC and various self-regulatory organizations of which it is a member.they are members. These requirements typically specify the minimum level of net capital a broker-dealer must maintain and also mandate that a significant part of its assets be kept in relatively liquid form. CIL the Company's U.K. registered broker-dealer subsidiary, is subject to the capital requirements of the FSA. CLACowen Asia is subject to the financial resources requirements of the SFC of Hong Kong. Any failure to comply with these capital requirements could impair the Company's ability to conduct its investment banking business. LLC and Ramius Value and Opportunity Advisors LLC are all regulated by the SEC due to their registrations as U.S. investment advisers. In addition, the funds in the Company's alternative investment management business are subject to regulation in the jurisdictions in which they are organized. These and other regulators in these jurisdictions have broad regulatory powers dealing with all aspects of financial services including, among other things, the authority to make inquiries of companies regarding compliance with applicable regulations, to grant permits and to regulate marketing and sales practices and the maintenance of adequate financial resources. The Company is also subject to applicable anti-money laundering regulations and net capital requirements in the jurisdictions in which it operates. Additionally, the regulatory environment in which the Company operates frequently changes and has seen significant increased regulation in recent years and it is possible that this trend may continue. Such additional regulation could, among other things, increase compliance costs or limit our ability to pursue investment opportunities and strategies.turbulent as regulators around the world respond to the recent financial crisis.turbulent. There is an extraordinary volume of regulatory discussion papers, draft directives and proposals being issued around the world and these initiatives are not always coordinated. The European Commission has issued a draft Directive on Alternative Investment Fund Managers, recommendations on directors' pay and financial services sector compensation and proposals on packaged retail investment products. In addition, the FSA of the United Kingdom has issued a discussion paper entitled "A Regulatory Response to the Global Banking Crisis" as well as undertaken an exercise to collect data to assess the systemic risk that hedge funds may or may not pose. The Bank of England is also collecting data on the systemic risk of hedge funds. Recent rulemaking by the SEC and other regulatory authorities outside the United States have imposed trading restrictions and reporting requirements on short selling, which have impacted certain of the investment strategies of the Company's investment funds and managed accounts, and continued restrictions on or further regulations of short sales could negatively impact the performance of the investment funds and managed accounts.As a result of the Transactions, there exists theThe potential for conflicts of interest within the Company, and a failure to appropriately identify and deal with conflicts of interest could adversely affect our businesses.Required reductions in the available credit under the Company's secured revolving loan facility may limit our ability to maintain sufficient liquidity and any additional financing that we may need may not be available on favorable terms, or at all. Under the terms of the Company's secured revolving loan facility the amount of capital available was reduced to $25 million from $50 million on January 4, 2010 and the facility terminates on September 29, 2011. Such reduction in our available liquidity could have a material adverse impact on our future financial condition and results of operations and we may be required to obtain additional financing from other sources. There can be no assurance that we can find such financing in the amounts required or that the terms, covenants and the cost of such financing will be as favorable as those which were available under our existing secured revolving loan facility. If we are unable to obtainadditional capital, we may have to alter our business and capital expenditure plans, which would have a materially adverse effect on our future results of operations.investment bankingbroker-dealer businesses. In the future, we may seek additional acquisitions, investments, strategic alliances or similar arrangements, which may expose us to risks such as:•••••••••••43.2%22.5% of our Class A common stock and therefore has significant influence over matters requiring approval by the Company's stockholders, including in the election of directors and approval of significant corporate transactions. Furthermore, RCG's managing member is controlled by certain members of our senior management, including Peter A. Cohen, our Chairman and Chief Executive Officer. RCG's concentration of ownership may discourage a third party from proposing a change of control or other strategic transaction concerning the Company or otherwise have the effect of delaying or preventing a change of control of the Company that other stockholders may view as beneficial. As a result, the Company's Class A common stock could trade at prices that do not reflect a "control premium" to the same extent as do the stocks of similarly situated companies that do not have any single stockholder with an ownership interest as large as RCG's ownership interest.BA Alpine Holdings, Inc., its designee on the Company's board of directors and RCG may have interests that conflict with the interests of our stockholders. BA Alpine Holdings, Inc., its designee on the Company's board of directors and RCG may have interests that conflict with, or are different from, those of the Company and our stockholders. Conflicts of interest between BA Alpine Holdings, Inc. and/or RCG and the Company may arise, and such conflicts of interest may not be resolved in a manner favorable to the Company, including potential competitive business activities (in the case of BA Alpine Holdings, Inc.), corporate opportunities, indemnity arrangements, registration rights and sales or distributions by RCG, BA Alpine Holdings, Inc. or their respective affiliates of Class A common stock. Company's amended and restated certificate of incorporation and by-laws do not contain any provisions designed to facilitate resolution of actual or potential conflicts of interest, or to ensure that potential business opportunities that may become available to BA Alpine Holdings, Inc. and the Company will be reserved for or made available to the Company. In addition, RCG, as the holder of a significant portion of the Company's issued and outstanding shares of Class A common stock, could delay or prevent an acquisition or merger even if such a transaction would benefit other stockholders.Commencing on January 1, 2011, the Company's failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-OxleySarbanes‑Oxley Act could have a material adverse effect on the Company's financial condition, results of operations and business and the price of our Class A common stock. As a result of the business combination of Ramius and Cowen Holdings, which was consummated on November 2, 2009, the Company must be fully compliant with the requirements of Section 404 of the Sarbanes-Oxley Act as of January 1, 2011. Sarbanes-OxleySarbanes‑Oxley Act and the related rules require our management to conduct an annual assessment of theSarbanes-OxleySarbanes‑Oxley Act, we are required to document formal policies, processes and practices related to financial reporting that are necessary to comply with Section 404. Such policies, processes and practices are important to ensure the identification of key financial reporting risks, assessment of their potential impact and linkage of those risks to specific areas and activities within our organization. While market improved in 2010, they have been and remain inherently unpredictable and outside of the Company's control, and may result in reductions in Ramius's revenue and results of operations. Such reductions may be caused by a decline in assets under management, resulting in lower management fees and incentive income, an increase in the cost of financial instruments, lower investment returns or reduced demand for assets held by the Company's funds, which would negatively affect the funds' ability to realize value from such assets or continued investor redemptions, resulting in lower fees and increased difficulty in raising new capital.as they did in 2008, and in the case of certain real estate funds, in 2009, the investors in these funds or managed accounts would need to recover cumulative losses before Ramius can earn incentive income with respect to the investments of those investors who previously suffered losses. As of December 31, 2010, the products currently offered by Ramius are all above their high-water marks, though Ramius is not earning incentive income with respect to the investments of some of its investors who transferred assets from our multi-strategy funds, which are being wound down, to these products.••••••the funds'Ramius's internal review of the creditworthiness of their counterparties may prove inaccurate. The absence of a regulated market to facilitate settlement and the evaluation of creditworthiness may increase the potential for losses. fund performance or assets under management and losses of key management personnel, each of which may be beyond our control. In the event of any such termination, the Company's funds or managed accounts may not be able to enter into alternative arrangements with other counterparties and our business may be materially adversely affected.$26.9$36 million and anticipates recovering approximately $87.8$114.4 million more from Lehman Brothers and its affiliates.$153.6$125.8 million, $88.8$149.7 million and $48.7$35.6 million, respectively, of its own capital invested as of December 31, 2010)2011) invest a portion of their assets in securities that are not publicly traded and funds invested in by the Ramius fund of funds platform may do the same. In many cases, such funds may be prohibited by contract or by applicable securities laws from selling such securities for a period of time or there may not be a public market for such securities. Even if the securities are publicly traded, large holdings of securities can often be disposed of only over a substantial length of time, exposing the investment returns to risks of downward movement in market prices during the disposition period. Accordingly, under certain conditions, the Company's funds, or funds invested in by the Ramius fund of funds platform, may be forced to either sell securities at lower prices than they had expected to realize or defer, potentially for a considerable period of time, sales that they had planned to make. Investing in these types of investments can involve a high degree of risk, and the Company's funds (including the Enterprise Fund, COIL and ROIL) may lose some or all of the principal amount of such investments, including our own invested capital. During 2008, 2009 and continuing through 2010,As a result,If these conditions were to occur again transaction volume has droppedmay drop precipitously, negatively impacting the valuation and performance of the Ramius real estate funds significantly. Additionally, if the Ramius real estate funds acquire direct or indirect interests in undeveloped land or underdeveloped real property, which may often be non-income producing, they will be subject to the risks normally associated with such assets and development activities, including risks relating to the availability and timely receipt of zoning and other regulatory or environmental approvals, the cost, potential for cost overruns and timely completion of construction (including risks beyond the control of Ramius fund, such as weather or labor conditions or material shortages) and the availability of both construction and permanent financing on favorable terms.••legislation was proposed in the U.S.SEC has adopted rules that would impose recordkeeping, disclosure, and reporting requirements upon investment funds advised byrequire a firm that is registered with the SEC under the Advisers Act. Should this or similar legislation be adopted,Act to file reports with the Company'sSEC disclosing extensive information regarding certain private funds may become subject to additional registration, reporting and other requirements.managed by the firm. As a result, compliance costs and burdens upon the Ramius business may increase and the additional requirements may constrain Ramius's ability to conduct its business as currently conducted, which may adversely affect Ramius's and the Company's business, results of operations or financial condition. recent highly publicized financial scandals, investors, regulators and the general public have exhibited concerns over the integrity of both the U.S. financial markets and the regulatory oversight of these markets. As a result, the business environment in which Ramius operates is subject to heightened regulation. With respect to alternative investment management funds, in recent years, there has been debate in both U.S. and foreign governments about new rules or regulations, including increased oversight or taxation, in addition to the recently proposed legislation described above. As calls for additional regulation have increased, there may be a related increase in regulatory investigations of the trading and other investment activities of alternative investment management funds, including the Company's funds. Such investigations may impose additional expenses on the Company, may require the attention of senior management and may result in fines if any of the Company's funds are deemed to have violated any regulations. The Company generates a significant proportion of its alternative investment management revenue from a small number of its largest clients. As of January 1, 2011, Ramius's largest institutional investorrepresented approximately 12.4% of assets under management, with the five largest investors collectively representing approximately 22.8% of assets under management. The loss of all or a substantial portion of the business provided by one or more of thesekey investors wouldcould have a material impact on income derived from management fees and incentive allocations and consequently have a material adverse effect on our alternative investment management business and results of operations or financial condition.financial technology,industrials, REITs and alternative energy sectors of the economy. Therefore, volatility in the business environment in these sectors or in the market for securities of companies within these sectors could substantially affect the Company's financial results and, thus, the market value of the Class A common stock. The business environment for companies in these sectors has been subject to substantial volatility, and Cowen and Company's financial results have consequently been subject to significant variations from year to year. The market for securities in each of Cowen and Company's target sectors may also be subject to industry-specific risks. For example, changes in policies of the United States Food and Drug Administration, along with changes in Medicare and government reimbursement policies, may affect the market for securities of healthcare companies. Further, current and proposed regulatory initiatives that are geared towards scaling back the emission of greenhouse gases may present opportunities for the growth of alternative energy. Expansion in the alternative energy sector has also been enhanced, in part, by government-backed financial and tax incentives. However, should proposed limitations on the emission of greenhouse gases not be adopted or governmental incentives for alternative energy be significantly diminished or eliminated, the alternative energy sector could be adversely affected.financial technology,industrials, REITs and alternative energy sectors as the market for securities of these companies has experienced significant variations in the number and size of equity offerings. Many companies initiating the process of an IPO are simultaneously exploring other strategic alternatives, such as a merger and acquisition transaction. The Company's investment banking revenues would be adversely affected in the event that an IPO for which it is acting as an underwriter is preempted by the company's sale if Cowen and Company is not also engaged as a strategic advisor in such sale. As a result, our investment banking business is unlikely to achieve steady and predictable66.9%63% of Cowen and Company's revenues during 2010.2011. Along with other firms, Cowen and Company has experienced price competition in this business in recent years. In particular, the ability to execute trades electronically and through alternative trading systems has increased the pressure on trading commissions and spreads. We expect to continue to experience competitive pressures in these and other areas in the future as some of our competitors in the investment banking industry seek to obtain market share by competing on the basis of price or use their own capital to facilitate client trading activities. In addition, the Company faces pressure from Cowen and Company's larger competitors, who may be better able to offer a broader range of complementary products and services to clients in order to win their trading business. We are committed to maintaining and improving Cowen and Company's comprehensive research coverage to support its brokerage business and the Company may be required to make additional investments in Cowen and Company's research capabilities.2010,2011, Cowen and Company derived a portion of its investment banking revenues from companies based in China and expects to pursue additional business in China in the future. Cowen and Company's ability to generate revenue from Chinese companies is significantly affected by investors' views of the Chinese economy and of the sophistication and integrity of a Chinese company's management. For instance, during 2010,in the last few years, several publicly listed Chinese companies, one of which was a Cowenclient and Companyanother of which was a potential client, were alleged to be engaging in fraud. Although this was limited to a small number of Chinese companies, negative publicity was generated for all Chinese issuers. While Cowen and Company performs extensive due diligence on all potential investment banking clients, including those located in China, if any such clients were alleged to be engaging in fraud, Cowen and Company may be subject to legal liability and reputational harm, which could adversely affect our results of operations and business condition. In addition, the current government leadership of the People's Republic of China has been pursuing economic reform policies that encourage private economic activity, greater economic decentralization and globalization, there is no assurance that the Chinese government will continue to pursue these policies, or that it will not significantly alter these policies from time to time, with or without notice. Further, the China region and markets may experience volatility, political turmoil, uncertainty or difficult economic or market conditions that differ from those in the United States. Any of these changes could negatively impact Cowen and Company's current business and itsoperations42,43442,217 square feet of space at 1221 Avenue of the Americas, New York, New York pursuant to a sublease agreement expiring in 2013. On December 31, 2011, the Company ceased using the leased premises located at 1221 Avenue of Americas. We acquired, through the LaBranche transaction during the second quarter of 2011, 48,000 square feet of leased space at 33 Whitehall Street which was subleased in the fourth quarter of 2011. We lease 38,217 square feet of space at Two International Place in Boston pursuant to a lease agreement expiring in 2014, which is used primarily by our broker-dealer segment. In San Francisco, we lease approximately 29,072 square feet of space at 555 California Street, pursuant to a lease agreement expiring in 2015 and used by our broker-dealer segment. Our London offices are located at Broadgate West Phase II, 1 Snowden Street, subject to a lease agreement expiring in 2017 that is used by our alternative investment management and broker-dealer segments, respectively. We also lease property at 10 Bruton Street in London subject to a lease agreement expiring in 2011. Our other offices, all of which are leased, are located in Atlanta, Chicago, Dallas, Stamford, Geneva, Munich, Purchase (New York), Luxembourg, Tokyo, Hong Kong, Beijing and Shanghai. We face significantare named as defendants in, or as parties to, various legal risksactions and proceedings. Certain of these actions and proceedings assert claims or seek relief in connection with alleged violations of securities, banking, anti-fraud, anti-money laundering, employment and other statutory and common laws. Certain of these actual or threatened legal actions and proceedings include claims for substantial or indeterminate compensatory or punitive damages, or for injunctive relief.businessesaffiliates and subsidiaries are investment banks, registered broker-dealers, futures commission merchants, investment advisers or other regulated entities and, in recent years,those capacities, are subject to regulation by various U.S., state and foreign securities, commodity futures and other regulators. In connection with formal and informal inquiries by these regulators, we receive requests, and orders seeking documents and other information in connection with various aspects of our regulated activities.volumeglobal scope of claimsour operations, and presence in countries around the world, we may be subject to litigation, and governmental and regulatory examinations, information gathering requests, investigations and proceedings (both formal and informal), in multiple jurisdictions with legal and regulatory regimes that may differ substantially, and present substantially different risks, from those we are subject to in the United States.litigation and regulatory proceedings against financial institutions have been increasing. These risks include potential liability under federal securities and other laws ineach pending matter.securities offeringsCowen Holdings' previous initial public offering (“IPO”) and other transactions, as well as advice and opinions we provide concerning strategic transactions. In addition, like most financial institutions, we are often the subject of claims made by current and former employees arising out of their employment or termination of employment with us. We are involvedseparation from Société Générale (“SG”) in a number of judicial, regulatory and arbitration matters arising in connection with our business including those described below. Pursuant to ASC Topic 450, we review the need for any loss contingency reserves, and we have established reserves for certain of these matters that we believe are adequate where, in the opinion of management, the likelihood of liability is probable and the extent of such liability is reasonably estimable. In addition, in connection with the Cowen Holdings's IPO,2006, Cowen Holdings entered into an indemnification agreement (which we refer to as the Indemnification Agreement) with Société Générale, wherein Société Générale agreed toSG under which (1) SG will indemnify, and will defend and hold harmless Cowen Holdings for all liability arising out ofall known, pending or threatened litigation and arbitrations and certain specified regulatory matters that existed at the timeeach of the Cowen Holdings IPO. The Indemnification Agreement provides that Société GénéraleHoldings' subsidiaries from and against certain liabilities assumed or retained by SG; and (2) SG will indemnify Cowen Holdings for all known, or unknown liabilities, includingpending and threatened litigation (including the costs of such litigation) and relatedcertain known regulatory matters, arising from any business conducted by Société Générale or previously conducted by Cowen Holdingsin each case, that existed prior to the extent that such business was not part of the businesses conducted by Cowen Holdings at the timedate of the Cowen Holdings IPO. The liabilities for which Société Générale will indemnify Cowen Holdings include the costs of legal fees and related expenses incurred in connection with the indemnified matters as well as any settlements or awards. Under the Indemnification Agreement, Cowen Holdings has agreed to indemnify Société Générale for all claims made after the Cowen HoldingsHoldings' IPO to the extent they relate to the businesses conducted by Cowen Holdings at the timecost of such litigation results in payments in excess of the Cowen Holdings IPOamount placed in escrow to fund such matters (the “Indemnification Agreement”). To the extent thatwere not known or threatened atliabilities will be paid out of escrow pursuant to an escrow agreement with SG. As of December 31, 2011 and 2010, the time of the Cowen Holdings IPO. All of the Company's material pending legal proceedings are described below. Certain of these material proceedings, along with certain other immaterial known, pending or threatened litigations and arbitrations, are subjecttotal amount reserved in relation to indemnification by Société Générale under the Indemnification Agreement as indicated below.In re: Initial Public Offering Securities Litigation Cowenwas $0.5 million, respectively, and Company is one of many financial institutions named as a defendantaccrued in a number of putative securities class actions entitledIn re: Initial Public Offering Securities Litigation, filedaccounts payable, accrued expenses and other liabilities in the United States District Courtconsolidated statement of financial condition.Southern District of New York ("SDNY") relating to numerous initial and other public offerings of common stock from approximately 1998 through 2000. The various complaints allege that the underwriters of certain IPOs, including Cowen and Company, made material misrepresentations and omissions to purchasers of the stock sold in the IPOs, thereby inflating the value of the stock. Specifically, the plaintiffs allege that the defendants failed to disclose, among other things, the purported existence of improper tie-in and compensation arrangements they had with certain purchasers of the stock and alleged conflicts of interest relating to research published by the underwriters, all in violation of federal securities laws. The district court granted plaintiffs' motion to certify six "focus" cases as class actions. Cowen and Company was a named defendant in one of these "focus" cases. Cowen and Company appealed the class certification decision to the Second Circuit Court of Appeals (the "Second Circuit") and on December 4, 2006, the Second Circuit reversed the SDNY's decision and remanded the matter for reconsideration in light of the Second Circuit's opinion. Plaintiffs petitioned for rehearing and rehearing en banc by the Second Circuit. On December 14, 2006, the SDNY stayed discovery. On April 6, 2007, the Second Circuit denied plaintiffs' petition for rehearing en banc. Plaintiffs amended their complaints and revised their class definitions in an attempt to comply with the Second Circuit's December 4, 2006 decision. Defendants in the six focus cases, including Cowen and Company, moved to dismiss the amended complaints in each case and opposed plaintiffs' motion for class certification. On March 26, 2008, the SDNY denied defendants' motion to dismiss the amended complaints. On October 3, 2008, plaintiffs withdrew their motion for class certification without prejudice. On April 2, 2009, counsel for plaintiffs filed a Motion for Preliminary Approval of Settlement with the SDNY. On June 10, 2009, the SDNY granted plaintiffs' Motion for Preliminary Approval of Settlement and, on June 11, 2009, issued a Preliminary Order in Connection with Settlement Proceedings. On October 5, 2009, the SDNY issued a final order approving the settlement. On October 23, 2009, certain class members filed with the Second Circuit Court a petition pursuant to Federal Rule of Civil Procedure 23(f) for leave to appeal the portion of the SDNY's October 5, 2009 order certifying a settlement class. Separately, certain other class members filed appeals with the Second Circuit of the SDNY's final order approving the settlement. On April 16, 2010, plaintiffs filed a motion with the SDNY requesting that those class members who appealed the SDNY's final order approving the settlement be required to post appeal bonds. On June 17, 2010, the SDNY granted the motion and set the bond amount at $25,000. On July 16, 2010, those class members appealing the SDNY's final order approving the settlement posted a $25,000 appeal bond. Plaintiffs thereafter settled the objections with all but two of the objecting class members. On November 3, 2010,the appeal of one of the objecting class members was dismissed by the Second Circuit Court. To the extent that the Company incurs legal fees, costs or expenses related to this settlement, it will be indemnified by Société Générale.Adelphia Communications Corp. Litigation Cowen and Company is a named defendant in several litigations relating to Adelphia Communications, a cable company that filed for bankruptcy in June 2002. The complaints generally allege that the Rigas family, who controlled Adelphia, took advantage of Adelphia's assets, including through the use of certain loans, or "co-borrowing facilities," that allowed the family to take more than $3 billion for their private use. Cowen and Company has been named as a defendant in four actions arising out of certain offerings of Adelphia securities in which Cowen and Company participated as a member of the underwriting syndicate. All four actions are pending before the SDNY. The complaints in each of these actions raise a variety of claims arising out of the sale of Adelphia securities, including claims under the federal securities laws. These actions are generally referred to as the "Adelphia Securities Class Action," "W.R. Huff Asset Management" (or "Huff"), "Appaloosa" and "Stocke." The SDNY granted Cowen and Company's motion to dismiss all federal securities claims brought against Cowen and Company in the Adelphia Securities Class Action. Thereafter, the financial institution defendants reached a settlement with the plaintiffs. On June 15, 2006, the SDNY preliminarily approved the settlement. A fairness hearing was held on November 10, 2006, and the settlement was approved on November 20, 2006. Cowen and Company's share of the settlement is approximately $1.7 million plus interest at 4.37% beginning December 1, 2006 (all of which is covered by the Indemnification Agreement). In November 2006, this amount was placed in an attorneys' escrow account bearing the required rate of interest. On December 8, 2006, a group of class members appealed the order approving the settlement agreement with the class plaintiffs to the Second Circuit. The SDNY also has granted in part, and denied in part, certain motions to dismiss filed by various defendants, including Cowen and Company, in Huff, Appaloosa and Stocke. On April 7, 2008, the Stocke action was dismissed by stipulation and order following a ruling by the Second Circuit that affirmed in all respects the SDNY's approval of the class settlement, which ruling is now final. Accordingly, the claims made by all class members who did not opt out, including the Stocke plaintiffs, have been dismissed and released. On April 19, 2010, the Appaloosa plaintiffs filed with the SDNY a Stipulation and Order of Dismissal with Prejudice, which was signed by the SDNY on April 20, 2010. In addition, in August 2005, the SDNY denied Cowen and Company's motion to dismissmatters described below, based on Huff's lack of standing, and subsequently granted leave to file an interlocutory appeal to the Second Circuit ofcurrently available information, we do not believe that ruling. The Second Circuit granted Cowen and Company's petition to appeal under 28 U.S.C. § 1292. In December 2008, the Second Circuit held that Huff lacks standing to pursue the claims it had asserted, and remanded the case. In January 2009, the SDNY issued an order dismissing the Huff case. Huff subsequently moved to vacate the dismissal order, which was denied, and for reconsideration, which also was denied. Thereafter, Huff moved to (among other things) amend the complaint in an effort to overcome the effect of the Second Circuit's ruling. On May 21, 2009, the SDNY issued an opinion and order granting plaintiff Huff leave to amend the complaint to add the actual purchasers of the securities, but in addition, granted defendants leave to serve discovery regarding the identity of those purchasers and the circumstances under which Huff was purportedly prosecuting claims on their behalf. That discovery has now been completed, and the defendants (including Cowen and Company) have moved to dismiss many of the newly named plaintiffs. Further, following Appaloosa's amendment of the complaint, Cowen and Company (and most of the other defendants) have filed answers. Certain defendants in Appaloosa have filed a motion to dismiss challenging the newly amended complaint. Discovery in Huff and Appaloosa remains stayed until the pending motions have been resolved, which motion is still pending. In addition to the cases in which Cowen and Company has been named as a defendant, Cowen may also face potential liability pursuant to the applicable master agreements among underwriters for any judgments or settlements in other cases involving the Adelphia securities offerings in which Cowen participated. To the extent that the Company incurs additional legal fees or pays any fine or monetary sanction, it will be indemnified by Société Générale. Cowen and Company was also named as one of many defendants in two related adversary proceedings that originally were filed in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). These adversary proceedings were filed by the Official Committee of Unsecured Creditors (the "Creditors' Committee") and the Official Committee of Equity Security Holders (collectively, the "Committees"). Both of these cases raised a variety of common law and federal claims, which were generally similar to the claims asserted in the Adelphia cases described above. With respect to Cowen and Company and other investment banks, the complaints taken together originally set forth claims for violation of the Bank Holding Company Act, equitable disallowance or equitable subordination, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, aiding and abetting fraud, gross negligence and breach of contract, among others. Cowen and Company filed motions to dismiss the claims asserted by the Committees, which were granted in part and denied in part, by the Bankruptcy Court in two decisions issued on June 11, 2007 and August 17, 2007, respectively. Cowen and Company appealed to the SDNY those portions of the Bankruptcy Court's June 11, 2007 decision that denied Cowen and Company's motion to dismiss the claims asserted against Cowen and Company by the Creditors' Committee. On January 17, 2008, the SDNY denied Cowen and Company's appeal and affirmed, in part, the June 11, 2007 decision, with the exception of the Bank Holding Company Act claim which was dismissed against Cowen and Company and the other investment banks. As part of the bankruptcy plan confirmation process, claims by both Committees were assigned to a litigation trust. In October 2007, the trust filed an amended complaint in the SDNY against multiple defendants, including Cowen and Company, in which it repleaded several of its claims, including, without limitation, the following claims: aiding and abetting fraud; fraudulent concealment; fraud; equitable disallowance; equitable subordination; and violation of the Bank Holding Company Act. On January 4, 2008, Cowen and Company filed an answer to the amended complaint and a joinder to a motion filed by certain investment banks seeking a dismissal of several counts in the amended complaint. On June 17, 2008, the SDNY issued an Opinion and Order dismissing certain claims contained in the amended complaint, including, without limitation, the equitable disallowance and equitable subordination claims. On May 4, 2009, the SDNY issued an opinion that resolved the pending motions to dismiss portions of the amended complaint filed by the litigation trust. In its decision, the SDNY dismissed the fraudulent concealment claim and the fraud claim as to certain alleged misstatements. The court denied the motions to dismiss the remaining claims. The litigation trust appealed the June 17, 2008 Opinion and Order issued by the SDNY, which was affirmed by the Second Circuit Court on May 26, 2010. On October 25, 2010, the Adelphia Recovery Trust and Cowen and Company, among others, settled the remaining claims pending against Cowen and Company, among others, in connection with this litigation. The settlement was approved by the SDNY at a hearing on November 18, 2010 and on January 3, 2011, the claims against the Company were voluntarily dismissed. To the extent that the Company incurs additional legal fees or pays any fine or monetary sanction, it will be indemnified by Société Générale.In re: HealthSouth Corporation Bondholder Litigation Cowen and Company was named as a defendant in a purported class action filed in the United States District Court for the Northern District of Alabama on January 8, 2004 as a result of Cowen and Company's predecessor's involvement as one of the initial purchasers in a March 1998 private placement of debt securities issued by HealthSouth Corporation, which were subsequently exchanged for materially identical registered securities. The complaint alleges that the offering materials for theprivate placement and the registration statement in the associated offering violated federal securities laws by failing to disclose HealthSouth's subsequently revealed accounting irregularities. On June 8, 2006, the District Court, among other things, dismissed the claims arising out of the March 1998 private placement (the only claims against Cowen and Company). On August 21, 2006, following plaintiffs' subsequent submission of amendments to the complaint, the District Court so-ordered a stipulation and order dismissing all amended counts against Cowen and Company. The dismissal was not yet a "final" judgment from which an appeal may be taken by plaintiffs. However, on July 26, 2010, the District Court for the Northern District of Alabama approved a settlement between plaintiffs and certain other defendants, entered a partial final judgment as to those defendants, and dismissed the case as to another defendant. By virtue of the District Court's rulings, plaintiffs had 30 days from July 26, 2010 to appeal the District Court's dismissal of Cowen and Company from the case. No appeal was filed. To the extent that the Company incurs additional legal fees or pays any fine or monetary sanction, it will be indemnified by Société Générale.Madden Litigation On June 28, 2006, a group of approximately 60 medical doctors filed a lawsuit against Cowen and Company in San Francisco Superior Court. Plaintiffs allege that Cowen and Company negligently rendered a fairness opinion in 1998 in connection with the acquisition of Orange Coast Managed Care Services and St. Joseph Medical Corporation by FPA Medical Management, Inc. ("FPA"). According to the complaint, plaintiffs received restricted FPA stock as consideration in the sale and, shortly after the acquisition, FPA went bankrupt, rendering the stock worthless. On August 14, 2006, Cowen and Company removed the case to the United States District Court for the Northern District of California (the "NDCA"). On August 17, 2006 Cowen and Company filed a motion to dismiss the complaint. Plaintiffs sought a remand to state court. On March 18, 2007, the Court granted Cowen and Company's motion to dismiss, with leave to replead, and denied plaintiffs' motion to remand. By stipulation and order dated April 20, 2007, the Court directed entry of a final judgment dismissing the complaint with prejudice. On May 17, 2007, plaintiffs filed with the United States Court of Appeals for the Ninth Circuit (the "Ninth Circuit"), a Notice of Appeal of the District Court's dismissal. On February 11, 2009, the Ninth Circuit issued an opinion vacating the NDCA's judgment and remanding the matter back to state court. On March 4, 2009, Cowen and Company filed with the Ninth Circuit a petition for panel rehearing and suggestion for rehearing en banc. On August 7, 2009, the Ninth Circuit issued an opinion denying Cowen and Company's petition for rehearing and rehearing en banc, but also superseding the February 11, 2009 opinion and remanding the matter back to the NDCA to determine whether the case should be dismissed or remanded to state court. On January 29, 2010, plaintiffs filed with the NDCA a motion to remand the case to state court and on February 12, 2010, defendants filed an opposition to that motion and moved to dismiss the complaint. On April 14, 2010, the NDCA denied Cowen and Company's motion to dismiss and granted plaintiffs' motion to remand the case to the San Francisco Superior Court. On May 20, 2010, Cowen and Company filed a demurrer in San Francisco Superior Court seeking dismissal of the complaint. On October 14, 2010, a hearing was held on the demurrer, at which time the court denied the demurrer. Cowen and Company filed an answer to the complaint on January 6, 2011. To the extent that the Company incurs additional legal fees or pays any fine or monetary sanction, it will be indemnified by Société Générale.WorldSpace Litigation Cowen and Company is named as an underwriter defendant in several putative securities class actions brought in the SDNY in 2007. In all of the cases, plaintiffs seek to recover for losses allegedly caused by misrepresentations and omissions in connection with the August 4, 2005 IPO of WorldSpace, Inc., a satelliteradio provider. The complaints allege that the WorldSpace prospectus referenced a subscriber count that improperly included subscribers who had stopped paying for the service and failed to disclose that WorldSpace lacked the internal systems necessary to accuratelydetermine the number of subscribers to its service. On June 21, 2007, the SDNY issued an order consolidating the actions and appointing a lead plaintiff. The consolidated amended complaint was filed on August 9, 2007. On October 9, 2007, Cowen and Company filed a motion to dismiss the consolidated amended complaint, which was denied by the SDNY on July 21, 2008. On August 25, 2008, Cowen and Company filed an answer to the consolidated amended complaint. On October 17, 2008, WorldSpace filed for Chapter 11 bankruptcy protection with the United States Bankruptcy Court for the District of Delaware (the "Delaware Bankruptcy Court"). The SDNY subsequently entered a stay of the securities class action litigation in light of the ongoing WorldSpace bankruptcy proceedings. On August 16, 2010, the Delaware Bankruptcy Court granted lead plaintiff's motion for limited modification of the automatic stay to permit plaintiff to obtain document discovery from WorldSpace, effective October 14, 2010. On September 14, 2010, the SDNY lifted the stay in the securities class action litigation, permitting lead plaintiff to move forward with discovery as of October 14, 2010. The SDNY subsequently referred the matter to a magistrate and instructed the parties to submit a proposed scheduling order for discovery and an eventual motion for summary judgment.China Sunergy Litigation Cowen and Company is named as one of several underwriter defendants in two cases filed in the SDNY in 2007. Plaintiffs in both cases seek to recover for losses allegedly caused by misrepresentations and omissions in the prospectus relating to the May 17, 2007 IPO of China Sunergy Co. Ltd ("China Sunergy"). Principally, the complaints allege that China Sunergy's prospectus failed to disclose that China Sunergy was having difficulty obtaining sufficient raw materials to achieve its revenue objectives, and also failed to disclose that China Sunergy would likely face a loss in the second quarter of 2007. On September 29, 2008, the SDNY appointed a lead plaintiff. On December 5, 2008, the lead plaintiff filed a consolidated amended complaint, and on January 26, 2009, defendants filed a motion to dismiss that complaint. On October 16, 2009, the plaintiffs filed a Stipulation and Agreement of Settlement with the SDNY, which is pending final approval by the court.Opnext Litigation Cowen and Company is one of five underwriters named as defendants in two cases filed in March 2008 in the United States District Court of New Jersey ("DNJ"), relating to the February 14, 2007 IPO of Opnext, Inc. ("Opnext"). Both complaints assert claims against the underwriters under federal securities laws and allege generally that the financial statements in the registration statement and prospectus contained materially false and misleading statements and omissions, which resulted in the financial statements being restated by Opnext due to an error in the valuation of inventory consigned to one of its contract manufacturers. On June 30, 2008, the DNJ appointed a lead plaintiff, and on July 30, 2008, the lead plaintiff filed a consolidated class action complaint. The underwriter defendants filed an answer and affirmative defenses to the consolidated complaint on October 21, 2008. On January 30, 2009, the DNJ entered an order referring the matter to non-binding mediation and staying any further discovery in the litigation until April 30, 2009. On October 2, 2009, plaintiffs filed a motion for preliminary approval of settlement and, on October 6, 2009, the DNJ issued an order preliminarily approving the settlement. On January 6, 2010, the DNJ held a fairness hearing and issued an order and final judgment approving the settlement. No settlement contribution was made by the underwriter defendants, including Cowen and Company.Global Cash Litigation On August 18, 2008, Cowen and Company was named as a defendant, along with several other underwriters, in a consolidated complaint filed in the SDNY relating to the September 22, 2005 initial public offering and subsequent secondary offering of Global Cash Access Holdings, Inc. ("GCA") common stock. The consolidated complaint alleges generally that the registration statements and prospectuses for the GCA IPO and secondary offering were false and misleading and failed to disclose,among other things, that GCA incorrectly calculated the amount of commissions payable to GCA's customers and that GCA's financial statements understated the GCA's expenses and overstated net income for 2005 and 2006. On September 18, 2008, the SDNY granted a motion made by certain defendants to transfer venue of the case to the United States District Court for the District of Nevada ("DNV"). On November 14, 2008, the underwriter defendants moved to dismiss the consolidated amended complaint. On June 23, 2009, the DNV heard oral argument on defendants' motion to dismiss the consolidated amended complaint, and on June 29, 2009, the DNV issued an order denying that motion. The defendants filed an answer to the consolidated amended complaint on July 29, 2009. Certain pretrial discovery was conducted in the matter, including the production of documents, pursuant to a scheduling order entered by the DNV. On October 23, 2009, plaintiffs filed a motion for class certification. The underwriter defendants' filed an opposition to that motion on November 20, 2009. On December 16, 2009, the parties conducted a settlement mediation of the case, and shortly thereafter, a tentative settlement of the case was negotiated, pursuant to which the claims against the underwriter defendants will be dismissed, and no settlement contribution will be made by the underwriters. On February 17, 2010, a Stipulation of Settlement was executed and submitted to the DNV for preliminary and final approval. On June 25, 2010, the DNV held a fairness hearing entered a final order and judgment in which it approved and confirmed the settlement, and dismissed the litigation.CardioNet Litigation On March 5, 2010, Cowen and Company was named as a defendant, along with several other underwriters, in a putative class action filed in the San Diego Superior Court, in connection with an August 2008 follow-on offering for CardioNet, Inc. ("CardioNet"). The complaint alleges, among other things, that the prospectuses for CardioNet's March 2008 initial public offering (in which Cowen and Company did not participate) and subsequent follow-on equity offering (in which Cowen and Company did participate) were false and misleading and failed to disclose, among other things, that CardioNet incorrectly reported revenue and failed to disclose certain risks relating to Medicare reimbursement rates for CardioNet's services. On April 5, 2010, Cowen and Company and the other defendants moved to remove the case to the United States District Court for the Southern District of California and, on April 7, 2010, moved to transfer the case to the United States District Court for the Eastern District of Pennsylvania. On April 23, 2010, plaintiffs moved to remand the case back to California state court. The motions to transfer and remand remain pending. The Company cannot presently predict the ultimate outcome of the litigation or estimate the possible loss or range of loss, if any.Fuqi Litigation In March 2010, Cowen and Company was named, along with several other underwriters, as a defendant in two putative class actions filed in the SDNY in connection with a July 2009 follow-on offering for Fuqi International, Inc. ("Fuqi"). The complaint alleges, among other things, that the prospectus for Fuqi's follow-on offering was false and misleading and contained materially inaccurate financial statements that overstated Fuqi's gross profit and net income. On July 26, 2010, the court consolidated the two putative class actions in which Cowen and Company was named as a defendant with several related actions and appointed lead plaintiffs. On August 20, 2010 the court ordered that plaintiffs shall file their consolidated complaint no later than 30 days after Fuqi publicly releases its financial statements for the fiscal year ended December 31, 2009 and its restated financial statements for the periods ended March 31, June 30, and September 30, 2009. The court further ordered that defendants will have 45 days after the datea material adverse effect on which plaintiffs file their complaint at answer, plead, or otherwise response to the complaint. The Company cannot presently predict the ultimate outcome of the litigation or estimate the possible loss or range of loss, if any."LaBranche"“LaBranche”), and Louisiana Merger Sub, Inc. On February 26, 2011, a separate lawsuit was filed, captionedBorowka v. LaBranche & Co., et al., in the Supreme Court of the State of New York, County of New York naming as defendants the same parties. The lawsuits challengechallenged LaBranche's decision to sell all of its outstanding shares of common stock to the Company for $192.8 million. The complaints allege,alleged, among other things, that the Company aided and abetted the LaBranche defendants in breaching their fiduciary duties to shareholders by failing to maximize the sale price for LaBranche. The Company cannot presently predictultimate outcomeparties to the consolidated lawsuit reached an agreement in principle to settle the consolidated lawsuit. On October 25, 2011, the parties executed a stipulation of settlement, which was filed with the Supreme Court on October 26, 2011. A hearing was held on February 1, 2012, at which the Supreme Court approved the settlement, which resolved all of the litigationclaims that were or estimatecould have been brought in the possible lossactions being settled, including all claims relating to the acquisition, the Merger Agreement and any disclosure made in connection therewith.range of loss, if any.Alphatec Litigation On February 22, 2011, a putativeabout October 16, 2003 through December 16, 2003, four purported class action captionedMallen v. Alphatec Holdings, Inc., et. al., waslawsuits were filed in the United States District Court for the Southern DistrictSDNY by persons or entities who purchased and/or sold shares of California, naming as defendants Alphatec Holdings, Inc. ("Alphatec"), membersstocks of the Alphatec board of directors, Healthpoint Capital Partners, LLP, Healthpoint Capital Partners II, LLP, as well as Jefferies & Co., Inc., Canaccord Adams, Inc., Lazard Capital Markets, LLC, and Cowen and Company (the "Underwriter Defendants"). The complaint brings claims against the Underwriter Defendants under sections 11 and 12 of the Securities Act of 1933 for alleged materially inaccurate and misleading statements and omissions in the registration statement and prospectus for an April 2010 offering of common stock of Alphatec regarding the success of Alphatec's acquisition of a company named Scient'x. The Company cannot presently predict the ultimate outcome of the litigation or estimate the possible loss or range of loss, if any.Lehman Brothers Certain of the hedge funds managed by Ramius used Lehman Brothers International (Europe) ("LBIE") as one of their prime brokers and some of these funds also held assets through accounts at Lehman Brothers, Inc. ("LBI"). As a result of LBIE being placed into administration on September 15, 2008 by order of the English Court and LBI entering liquidation proceedings under the Securities Investor Protection Act of 1970, as amended, the assets,NYSE listed companies, including securities and cash, held by Ramius and the hedge funds in their LBIE accounts and LBI accounts were frozen at LBIE and LBI, respectively. The net assets of the Ramius hedge funds held at LBIE at the time of administration, which we refer to as the total net equity claim, were approximately $232.6 million. Given the great degree of uncertainty as to the status of the assets held at LBIE and the process and prospects of the return of those assets, the Company initially valued the total net equity claim at an 80% discount, or approximately $46.5 million, which the Company believed, at the time, was a reasonable estimate of value that ultimately may be recovered with respect to the total net equity claim. Since the status and ultimate resolution of the assets under LBIE's administration proceedings is uncertain, the Company decided that only the investors who were invested at the time of the administration should participate in any profit/loss relating to the estimated recoverable Lehman claim. As such, the Company has segregated the Lehman claims for the benefit of such investors for so long as they remain in the funds. These segregated Lehman claims do not earn management fees. In November 2008, one of the hedge funds managed by Ramius was appointed as a member of the unsecured creditors' committee of LBIE and representatives of the Company have been attending regular meetings of the creditors' committee and assisting in working on potential solutions to provide a framework for returning assets to clients. In this connection, in the fall of 2009, LBIE proposedenteringmultilateral contract between LBIE and its clients, referredMemorandum of Understanding (MOU) reflecting an agreement in principle to assettle the Claims Resolution Agreement, or CRA, which would govern the basis on which assets can be returned by LBIE. On December 29, 2009, LBIE announced that the CRA had become effective with respect to LBIE and the signatories to the CRA, which includes the Ramius hedge funds who had assets at LBIE.action. The CRA included a March 19, 2010 bar date for LBIE 's trust creditors to notify LBIE of claims to anyportion of the trust assets controlled by LBIE. Given (1) the fact that the bar date has passedsettlement amount allocated to LaBranche & Co Inc., LaBranche & Co. LLC and (2) the additional information Ramius has received from LBIE regarding the various components of the Ramius hedge funds' claims against LBIE, Ramius has decidedMr. LaBranche pursuant to value its total net equity claim as follows: (i) the trust assets that we have been informed are within the control of LBIE and are expected to be distributed to us in the relatively near term are being valued at market less a 1% discount that corresponds to the fee that will be charged under the CRA for the return of trust assets, (ii) the trust assets that are not within the control of LBIE, but that Ramius believes are held by LBIE through LBI, are being valued at 47% which represents the present value of the mid-point between what Ramius believes are reasonable estimates of the low-side and high-side potential recovery rates with respect to its LBI exposure, (iii) the trust assets that are not within the control of LBIE and are not believed to be held through LBI are being valued at 47% US denominated Assets and 30% foreign denominated Assets, which represents Ramius's estimate of potential recovery rates with respect to this exposure and (iv) Ramius's remaining unsecured claims against LBIE are being valued at 40%, which represents Ramius's estimate of potential recovery rates with respect to this exposure. In addition, the Company currently estimates that the combined net exposure of the hedge funds to LBI amounts to approximately $21.5 million in cash and securities. On September 19, 2008, LBI was placed in a Securities Investor Protection Corporation ("SIPC") liquidation proceeding after the filing for bankruptcy of its parent Lehman Brothers Holdings, Inc. The status of the assets under LBI's bankruptcy proceedings has not been determined. The amount that will ultimately be recovered from LBI will depend on the amount of assets available in the fund of customer property to be established by the trustee appointed under the Securities Investor Protection Act (the "SIPA Trustee") as approved by the bankruptcy court as well as the total amount of customer claims that seek recovery from the fund of customer property. Based on recent court filings by the SIPA Trustee, the total amount of customer claims exceeds the assets that are likely to be in the fund of customer property. In addition, the court filings also indicate that Barclays plc has submitted a substantial claim against LBI relating to the asset purchaseconfidential allocation agreement entered into by Barclaysthe defendants will be paid by the Company with LBIE near the timeamounts to be received from one of the SIPC liquidation proceedingCompany's insurers, we do not beleive that could affectthis matter will have a material effect on the amountCompany's operating results for the year ended December 31, 2011. The MOU contemplates the negotiation and execution of assets that are included in the fund of customer property. As a result of these uncertaintiesfinal settlement agreement, and the timing of any distributions from LBI in respect of our customer claims, Ramius estimated its recovery with respectsettlement is subject to our LBI exposure at 47%, which representsnotice to the present value of the mid point between what it believes are reasonable estimates of the low sideclass and high side potential recovery rates with respect to its LBI exposure. The estimated recoverable amountapproval by the Ramius hedge funds may differ from the actual recoverable amount of the pending LBI claim, and the differences may be material. At the end of June 2010, LBIE returned certain trust assets that were under their control. Such assets were sold in July 2010 and the subsequent proceeds distributed. As part of this distribution, the Company received $5.3 million, which represents approximately 58.62% of Company's share of the Enterprise Fund's Estimated Recoverable Lehman Claims as of June 30, 2010. We expect the balance of the trust assets within the control of LBIE to be distributed to us in the relatively near term. As a result of Ramius being an investor in the Enterprise Fund and due to Ramius's additional direct exposure to LBIE, Ramius had a total exposure to LBIE of $3.8 million and a total exposure to LBI of $2.7 million, as of December 31, 2010. At December 31, 2010, the value of Ramius's exposure to LBIE and LBI after the mark downs discussed above, was $6.5 million.Regulatory Inquiries and Investigations In addition to the civil litigation matters described above, we are also involved in a number of regulatory inquiries and investigations, which are not covered by the Indemnification Agreement. The most significant regulatory matters are as follows:•On January 13, 2010, Ramius's broker-dealer subsidiary, referred to as Ramius Securities, received a Wells Notice from FINRA's Department of Market Regulation indicating that it intended to recommend an enforcement action be brought against Ramius Securities for certain alleged violations of Regulation SHO regarding the short sale of securities. Ramius Securities responded to the Wells Notice on March 24, 2010. On November 17, 2010, FINRA closed this matter with no action against Ramius.•On April 30, 2010, Cowen and Company received a Letter of Acceptance, Waiver and Consent from FINRA's Department of Market Regulation seeking the payment of a fine and the implementation of remedial measures regarding certain alleged trade reporting violations. On June 8, 2010, Cowen and Company offered to settle the matter without admitting or denying the allegations and pay a fine. Cowen and Company's offer of settlement was accepted on August 25, 2010 and Cowen and Company paid a fine of approximately $0.1 million.10, 2011,8, 2012, there were approximately 5876 holders of record of our Class A common stock. This number does not include stockholders for whom shares were held in "nominee" or "street" name.2010.2011. On March 10, 2011,8, 2012, the last reported sale price of our common stock was $4.08.$2.70.2011 Fiscal Year High Low First Quarter $ 5.02 $ 3.74 Second Quarter 4.42 3.41 Third Quarter 4.28 2.56 Fourth Quarter 3.00 2.32 High Low High Low $ 6.02 $ 4.84 $ 6.02 $ 4.84 6.02 3.87 6.02 3.87 4.51 2.99 4.51 2.99 5.04 3.25 5.04 3.25 For the period from November 2, 2009 through December 31, 2009, the high trading price for the Company's Class A common stock was $9.00, and the low was $4.94.Our ability to pay cash dividends is restricted under the terms of the HVB Credit Facility. We currently intend to retain any future earnings to fund the operation, development and expansion of our business, and therefore we do not anticipate paying any cash dividends in the foreseeable future. None.Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs Month 1 (July 1, 2011 – July 31, 2011) Common stock repurchases(1) — $ — — — (3) Employee transactions(2) — $ — — — Total Month 2 (August 1, 2011 – August 31, 2011) Common stock repurchases(1) 1,104,326 $ 3.41 — — (3) Employee transactions(2) 114,482 $ 3.57 — — Total Month 3 (September 1, 2011 – September 30, 2011) Common stock repurchases(1) 1,352,013 $ 3.30 — — (3) Employee transactions(2) 338,769 $ 3.45 — — Total Month 4 (October 1, 2011 – October 31, 2011) Common stock repurchases(1) — $ — — — (3) Employee transactions(2) 134,035 $ 2.90 — — Total Month 5 (November 1, 2011 – November 30, 2011) Common stock repurchases(1) 659,161 $ 2.63 — — (3) Employee transactions(2) 540,479 $ 2.75 — — Total Month 6 (December 1, 2011 – December 31, 2011) Common stock repurchases(1) 528,820 $ 2.66 — — (3) Employee transactions(2) 74,917 $ 2.52 — — Total Total (July 1, 2011 – December 31, 2011) Common stock repurchases(1) 3,644,320 $ 3.12 — — (3) Employee transactions(2) 1,202,682 $ 3.02 — — Total (1) As announced in July 2011, the Company's Board of Directors authorized the repurchase, subject to market conditions, of up to $20 million of the Company's outstanding common stock. (2) Represents shares of common stock withheld in satisfaction of tax withholding obligations upon the vesting of equity awards. (3) Board approval of repurchases is based on dollar amount. The Company cannot estimate the number of shares that may yet be purchased. 2007, and 2006.2007. The selected consolidated statements of financial condition data and consolidated statements of operations data as of and for the years ended December 31, 2011, 2010, 2009, 2008, 2007, and 20062007 have been derived from our audited consolidated financial statements. Our selected consolidated financial data are only a summary and should be read in conjunction with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The selected financial data includes theyear ended December 31, 2010. Year Ended December 31, 2010 2009 2008 2007 2006 (in thousands except per share data) $ 38,965 $ 10,557 $ — $ — $ — 112,217 17,812 — — — 38,847 41,694 70,818 73,950 65,635 11,363 1,911 — 60,491 81,319 11,547 477 1,993 16,356 17,189 6,816 10,326 16,330 7,086 4,070 1,936 4,732 6,853 5,086 8,038 12,119 36,392 31,739 25,253 35,897 233,810 123,901 127,733 188,222 212,148 194,919 96,592 84,769 123,511 112,433 136,902 69,818 54,856 79,020 54,277 — — 10,200 — — 8,121 23,581 34,268 21,014 39,300 339,942 189,991 184,093 223,545 206,010 21,980 (2,154 ) (2,006 ) 94,078 54,765 31,062 20,999 (198,485 ) 84,846 78,656 53,042 18,845 (200,491 ) 178,924 133,421
(53,090
)
(47,245
)
(256,851
)
143,601
139,559
(21,400
)
(8,206
)
(1,301
)
1,397
4,814 (31,690 ) (39,039 ) (255,550 ) 142,204 134,745
13,727
16,248
(113,786
)
66,343
74,189
—
—
—
26,551
21,195 (45,417 ) (55,287 ) (141,764 ) 49,310 39,361 73,149 41,001 37,537 37,537 37,537 73,149 41,001 37,537 37,537 37,537 $ (0.62 ) $ (1.35 ) $ (3.78 ) $ 1.31 $ 1.05 $ (0.62 ) $ (1.35 ) $ (3.78 ) $ 1.31 $ 1.05 As of December 31, 2010 2009 2008 2007 2006 $ 1,247,170 $ 959,441 $ 797,831 $ 2,113,532 $ 2,468,195 653,568 255,091 182,003 1,430,029 1,657,992 144,346 230,825 284,936 203,523 514,761 $ 449,256 $ 473,525 $ 330,892 $ 479,980 $ 295,442 Year Ended December 31, 2011 2010 2009 2008 2007 (in thousands except per share data) Consolidated Statements of Operations Data: Revenues Investment banking $ 50,976 $ 38,965 $ 10,557 $ — $ — Brokerage 99,611 112,217 17,812 — — Management fees 52,466 38,847 41,694 70,818 73,950 Incentive income 3,265 11,363 1,911 — 60,491 Interest and dividends 22,306 11,547 477 1,993 16,356 Reimbursement from affiliates 4,322 6,816 10,326 16,330 7,086 Other revenues 1,583 1,936 4,732 6,853 5,086 Consolidated Funds revenues 749 12,119 36,392 31,739 25,253 Total revenues 235,278 233,810 123,901 127,733 188,222 Expenses Employee compensation and benefits 203,767 194,919 96,592 84,769 123,511 Non-compensation expense 161,955 136,902 69,818 54,856 79,020 Goodwill impairment 7,151 — — 10,200 — Consolidated Funds expenses 2,782 8,121 23,581 34,268 21,014 Total expenses 375,655 339,942 189,991 184,093 223,545 Other income (loss) Net gain (loss) on securities, derivatives and other investments 15,128 21,980 (2,154 ) (2,006 ) 94,078 Bargain purchase gain 22,244 — — — — Consolidated Funds net gains (losses) 4,395 31,062 20,999 (198,485 ) 84,846 Total other income (loss) 41,767 53,042 18,845 (200,491 ) 178,924 Income (loss) before income taxes (98,610 ) (53,090 ) (47,245 ) (256,851 ) 143,601 Income tax expense (benefit) (20,073 ) (21,400 ) (8,206 ) (1,301 ) 1,397 Net income (loss) from continuing operations (78,537 ) (31,690 ) (39,039 ) (255,550 ) 142,204 Net income (loss) from discontinued operations, net of tax (23,646 ) — — — — Net income (loss) (102,183 ) (31,690 ) (39,039 ) (255,550 ) 142,204 Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries 5,827 13,727 16,248 (113,786 ) 66,343 Special allocation to managing member — — — — 26,551 Net income (loss) attributable to Cowen Group, Inc. stockholders $ (108,010 ) $ (45,417 ) $ (55,287 ) $ (141,764 ) $ 49,310 Weighted average common shares outstanding: Basic 95,532 73,149 41,001 37,537 37,537 Diluted 95,532 73,149 41,001 37,537 37,537 Earnings (loss) per share: Basic Income (loss) from continuing operations $ (0.88 ) $ (0.62 ) $ (1.35 ) $ (3.78 ) $ 1.31 Income (loss) from discontinued operations $ (0.25 ) $ — $ — $ — $ — Diluted Income (loss) from continuing operations $ (0.88 ) $ (0.62 ) $ (1.35 ) $ (3.78 ) $ 1.31 Income (loss) from discontinued operations $ (0.25 ) $ — $ — $ — $ — As of December 31, 2011 2010 2009 2008 2007 Consolidated Statements of Financial Condition Data: Total assets $ 1,535,838 $ 1,247,170 $ 959,441 $ 797,831 $ 2,113,532 Total liabilities 922,786 653,568 255,091 182,003 1,430,029 Redeemable non-controlling interests 104,587 144,346 230,825 284,936 203,523 Total Stockholders' Equity $ 508,465 $ 449,256 $ 473,525 $ 330,892 $ 479,980 funds, healthcare royalty funds, cash management services and mortgage advisory services, offered primarily under the Ramius name. The broker-dealer segment offers industry focused investment banking for growth-oriented companies including advisory and global capital markets origination and domain knowledge-driven research and a sales and trading platform for institutional investors, primarily under the Cowen name.$9.0$10.3 billion of assets under management as of January 1, 2011.2012. The predecessor to this business was founded in 1994 and, through one of its subsidiaries, has been a registered investment adviser under the Investment Advisers Act since 1997. Our alternative investment management products, solutions and services include hedge funds, replication products, mutual funds, managed futures funds, fund of funds, real estate, healthcare royalty funds, and cash management services.services and mortgage advisory services. Our institutional investors include pension funds, insurance companies, banks, foundations and endowments, wealth management organizations and family offices. In February 2010, we integrated senior management and certain aspects of the infrastructure of our hedge fund and fund of funds businesses to improve institutional efficiency and service. In March 2010, we expanded our alternative investment management business with the formation of the Ramius Trading Strategies managed futures platform. In July 2010, we announced the further expansion of our investment management business through the launch of our first mutual fund, the Ramius Dynamic Replication Fund. The fund focuses on replication of a custom alternative investment index and provides investors the opportunity to access market exposures typically characterized by investments in less liquid alternative investments, but with the daily liquidity of a mutual fund. The fund began trading in the beginning of August with over $120.0 million in initial capital.financial technology, REITsindustrials, real estate investment trusts ("REITs") and alternative energy sectors.sectors. We provide research and brokerage services to over 1,000 domestic and international In2010, we expanded our investment banking product offerings28, 2011. These operating results are related to include creditthe ETF market making operations and, fixed income, including public and private debt placements, exchange offers, consent solicitations and tender offers. We also added origination and distribution capabilities for convertible securities. In addition, we have enhanced our presenceprior to being discontinued, were included in the PIPE and registered direct market by adding personnel overCompany's broker-dealer segment. Since the course ofCompany discontinued the year. With the addition of these capital markets capabilities we also established a unified capital markets group which we believe will allow us to be more effective in providing cohesive solutions for our clients. InLaBranche operations during the fourth quarter of 2010, the Company recorded deferred2011, these operating results are reported in net income (loss) from discontinued operations, net of tax benefits generated by a Luxembourg subsidiary. In the same quarter, the Company acquired four reinsurance companies in Luxembourg, including two from the master fund of one of its Consolidated Funds, offering a service program that provides reinsurance coverage to the Company against certain risks. The reinsurance companies had deferred tax liabilities and upon their purchase the deferred tax benefits referenced above fully offset these liabilities, resulting in the recognitionaccompanying consolidated statements of the deferred tax benefits. Also, the Company incurred acquisition-related legal fees, professional fees, and financing costs, as well as operational and administrative expenses in the fourth quarter of 2010 as a result of these transactions. Success in our business is highly dependent on human capital; accordingly, compensation and benefits comprise the largest component of our expenses, and our performance is dependent upon our ability to attract, develop and retain highly skilled employees who are motivated and committed to provide the highest quality of service and guidance to our clients.•itsour ability to retain assets under management and to grow assets under management from existing and new products. In addition, positive performance increases assets under management which results in higher management fees. In May 2010, the Company announced its intention to close the Ramius Multi-Strategy and the Enterprise funds. In addition, asAs previously disclosed, redemptions in Ramius Multi-Strategy Fund Ltd triggered certain contractual rights of affiliates of UniCredit S.p.A ("(“UniCredit S.p.A"S.p.A”), which would have allowed them to withdraw their assets held in that fundModification Agreement,modification agreement, to extend the time period pursuant to which the Company mustwas required to return the bulk of its assets in our funds to the end of 2010. AsThe Company returned a significant portion of the assets during 2010 and as of December 31, 2010,2011, including redemptions effective on January 1, 2011,2012, we have returned approximately $437.5$526.6 million to affiliates of UniCredit S.p.A and these affiliates had a remaining investment of approximately $231.5$159.2 million invested in our investment vehicles, including a fund of funds managed account. A significant portion of the remaining investments held by the affiliates of UniCredit S.p.A will be returned to them in the first quarter of 2011.••performance drivenperformance-driven asset growth. Our incentive allocations are generally subject to "high-water“high-water marks,"” whereby incentive income is generally earned by us only to the extent that the net asset value of a fund at the end of a measurement period exceeds the highest net asset value as of the end of the precedingearlier measurement period for which we earned incentive income. Our incentive allocations, are also subject, in some cases, are subject to performance hurdles.•2011,2012, we had investments of approximately $153.6$125.8 million, $88.8$149.7 million and $48.7$35.6 million in the Enterprise Fund (an entity which invests its capital in Ramius Enterprise Master Fund Ltd), Cowen Overseas Investment LP (COIL)(“COIL”) and Ramius Optimum Investments LLC (ROIL)(“ROIL”), respectively. Enterprise Fund is a fund vehicle that currently has external investors, is closed to new investors and is in liquidation. COIL and ROIL are wholly owned entities managed by Ramius that the Company uses solely for the firm's invested capital.andor market conditions can be caused by declines in economic growth, business activity or investor or business confidence, limitations on the availability or(or increases in the cost ofof) credit and capital, increases in inflation or interest rates, exchange rate volatility, unfavorable global asset allocation trends, outbreaks of hostilities or other geopolitical instability, corporate, political or other scandals that reduce investor confidence in the capital markets, or a combination of these or other factors. Our businesses and profitability have been and may continue to be adversely affected by market conditions in many ways, including the following:•always possible that we could intermittently experience redemptions above historical levels, regardless of fund performance.•the economics from our traditional equity offering business.investment banking and capital markets businesses. The same factors also affect trading volumes in secondary financial markets, which affect our brokerage business. Commission rates, market volatility, increased competition from larger financial firms and other factors also affect our brokerage revenues and may cause these revenues to vary from period to period.• The Company has agreed to spin-off its Value and Opportunity business, which focuses on investing in deep value situations and using shareholder activism to generate superior returns, into stand-alone and independent business that will be managed by Starboard Value LP ("Starboard").Upon completion of the spin-off,In January 2012, the Company will maintain a significant minority interest in Starboard. The Company expects to complete the separation by March 31, 2011. In February 2011, the Company and LaBranche & Co Inc. ("LaBranche") announcedentered into a definitive merger agreement under which the Company has agreed to acquire LaBranche,Algorithmic Trading Management, LLC (“ATM”), a market-maker in options, exchange traded funds and futures on various exchanges domestically and internationally. Under the termsprovider of the merger agreement andglobal, multi-asset class algorithmic execution trading models. The transaction, which is subject to the satisfaction or waiver of certain regulatory approvals and customary closing conditions, is expected to close in the Company will acquire LaBranche in a stock-for-stock merger transaction valued, assecond quarter of the signing date, at approximately $192.8 million. LaBranche shareholders will receive upon closing a fixed ratio of 0.9980 of a share of the Company Class A common stock for each outstanding share of LaBranche common stock. The total Company shares to be issued to LaBranche shareholders will represent approximately 35.1 percent of the combined company and 33.8 percent on a fully diluted basis.underas promulgated by the Financial Accounting Standards Board ("FASB") through Accounting Standards Codification as the source of authoritative accounting principles in the preparation of financialsfinancial statements, of the Company appearing elsewhere in Part IV of this Form 10-K include the accounts of the Company, its subsidiaries, and entities in which the Company has a controlling financial interest or a substantive, controlling general partner interest. All material intercompany transactions and balances have been eliminated in consolidation. Certain fund entities that are consolidated in the consolidated financial statements, are not subject to thesethe consolidation provisions with respect to their own investments pursuant to their specialized accounting."Consolidated Funds"“Consolidated Funds”). Consequently, the Company's consolidated financial statements reflect the assets, liabilities, income and expenses of these funds on a gross basis. The ownership interests in the Consolidated Fundsthese funds which are not owned by the Company are reflected as redeemable non-controlling interests in consolidated subsidiaries in the consolidated financial statements appearing elsewhere in this Form 10-K. The management fees and incentive income and other intercompany transactionsearned by the Company from these funds are eliminated in consolidation.as an "acquisition" by Ramiusunder the acquisition method of Cowen Holdings, as that term is used under accounting principles generally accepted in the United States of America ("GAAP") for accounting and financial reporting purposes.according with US GAAP. As a result, the historical financial statements of Ramius (the business of which was operated by RCG Holdings LLC, the Company's accounting predecessor, prior to the consummation of the Transactions) have become the historical financial statements of the Company. As a result, the Company's 2010 results reflect twelve months of combined operations, while 2009 results reflect twelve months of legacy Ramius and two months of legacy Cowen operations.capital.pursuant to side letter arrangements, in general the management fees are as follows:•Funds—Funds. Management fees for the Company's hedge funds are generally charged at an annual rate of up to 2% of assets under management. Management fees are generally calculated monthly based on assets under management at the end of each month before incentive income.•Solutions—Solutions.Management fees for the Alternative Solutions business are generally charged at an annual rate of up to 2% of assets under management. Management fees are generally calculated monthly based on assets under management at the end of each month before incentive income or based on assets under management at the beginning of the month. Management fees earned from the Alternative Solutions business are based and initially calculated on estimated net asset values and actual fees ultimately earned could be impacted to the extent of any changes in these estimates.•Funds—Funds. Management fees from the Company's real estate funds are generally charged by their general partners at an annual rate between 1% andto 1.5% of total capital commitments during the investment period and of invested capital or net asset value of the applicable fund after the investment period has ended. Management fees are typically paid to the general partners on a quarterly basis, at the beginning of the quarter in arrears, and are prorated for changes in capital commitments throughout the investment period and invested capital after the investment period. The general partners of the Company's real estate funds are owned jointly by the Company and third parties. Accordingly, the management fees (in addition to incentive income and investment income) generated by these real estate funds are split between the Company and the other general partners. Pursuant to US GAAP, these fees and other income received by the general partners that are accounted for under the equity method of accounting and are reflected under net gains (losses) on securities, derivatives and other investments insteadin the consolidated statements of management fees.operations. •Funds—Funds. During the investment period (as defined in the management agreement of the CHRP Funds), management fees for the CHRP Funds are generally charged at an annual rate of up to 2% of committed capital. After the investment period, management fees are generally charged at an annual rate of up to 2% of assets under management. Management fees for the CHRP Funds are calculated on a quarterly basis.•Strategies—Strategies. Management fees and platform fees for the Company's private commodity trading advisory business are generally charged at an annual rate of up to 3% and 1.50%, respectively, for the levered vehicle and 1% and 0.50%, respectively, for the unlevered vehicle. In addition, management fees for Ramius Trading Strategies Managed Futures Fund, a mutual fund launched in September 2011, are 1.60% per annum (subject to an overall expense cap of 1.85%). Management and platform fees are generally calculated monthly based on assets under management at the end of each month.•Other—The Company also provides other investment advisory services. Other management fees are primarily earned from the Company's cash management business and range from annual rates of 0.04% to 0.20% of assets, based on the average daily balances of the assets under management.certain managed accounts, allocable for eachin each case,generally, of the net profits earned for the full year that are attributable to each fee-paying investor. IncentiveGenerally, incentive income on real estate investmentsfunds is earned after the investor has received a full return of their invested capital, plus a preferred return. However in certain real estate funds, the yearCompany is entitled to receive incentive fees earlier provided that the investors have received their preferred return on a current basis. These funds are subject to a potential clawback of that incentive income upon the liquidation of the fund if the investor has not received a sale or realizationfull return of a private investment.its invested capital plus the preferred return thereon. Incentive income in the CHRP Funds is earned only after investors receive a full return of their capital plus a preferred return."high-water“high-water mark."” The Company has elected to record incentive income revenue in accordance with "Method 2"“Method 2” of the Financial Accounting Standards Board ("FASB") accounting standards.US GAAP. Under Method 2, the incentive income from the Company's funds and managed accounts for any period is based upon the net profits of those funds and managed accounts at the reporting date. Any incentive income recognized in a quarter'sthe consolidated statement of operations may be subject to reversal in a subsequent quarter as a result ofbased on subsequent negative investment performance of the funds prior to the conclusion of the fiscal year, when all contingencies have been resolved. As a result of negative investment performance in 2008, andcase of certain real estate funds in 2009, the Company entered 2010 with high-water marks in certain of its fund products. These high-water marks require the funds to recover cumulative losses before the Company can begin to earn incentive income in 2010 and beyond with respect to the investments of investors who previously suffered losses. In 2010, the Ramius Value and Opportunity Funds surpassed their high water marks and the Company began to earn incentive income again on these products. Carried interest is subject to clawback to the extent that the carried interest actually distributed to date exceeds the amount due to the Company based on cumulative results. As such, the accrual for potential repayment of previously received carried interest, which is a component of due to related parties,accounts payable, accrued expenses and other liabilities, represents all amounts previously distributed to the Company, less an assumed tax liability, that would need to be repaid to certain real estate funds if these funds were to be liquidated based on the current fair value of the underlying funds' investments as of the reporting date. Generally, theThe actual clawback liability does not become realized until the end of a fund's life.financial technology,industrials, REITs and alternative energy.•feesfees.The Company earns underwriting revenues in securities offerings in which the Company acts as an underwriter, such as initial public offerings, follow-on equity offerings, debt offerings, and convertible security offerings. Underwriting revenues include management fees, selling concessions and underwriting fees. Fee revenue relating to underwriting commitments is recorded when all significant items relating to the underwriting process have been completed and the amount of the underwriting revenue has been determined. This generally is the point at which all of the following have occurred: (i) the issuer's registration statement has become effective with the SEC, or the other offering documents are finalized; (ii) the Company has made a firm commitment for the purchase of sharessecurities from the issuer; and (iii) the Company has been informed of the number of sharessecurities that it has been allotted.a registered equityan underwriting transaction, management must estimate the Company's share of transaction-related expenses incurred by the lead manager in order to recognize revenue. Transaction-related expenses are deducted from the
.transaction.•feesfees.The Company's strategic advisory revenues include success fees earned in connection with advising companies, both buyers and sellers, principally in mergers and acquisitions.acquisitions and liability management transactions. The Company also earns fees for related advisory work such as providing fairness opinions. The Company records strategic advisory revenues when the services for the transactions are completed under the terms of each assignment or engagement and collection is reasonably assured. Expenses associated with such transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded.•feesfees.The Company earns agency placement fees in non-underwritten transactions such as private placements of debt and equity securities, including, private investment in public equity transactions ("PIPEs"(“PIPEs”) and transactions ("RDs").offerings. The Company records private placement revenues when the services for the transactions are completed under the terms of each assignment or engagement and collection is reasonably assured. Expenses associated with such transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded.•Commissions•Transactions,Transactions. net Principal transaction, net revenue includes net trading gains and losses from the Company's market-making activities in fixed income and over-the-counter equity securities, listed options trading, trading of convertible securities, and trading gains and losses on inventory and other firm positions, which include warrants previously received as part of investment banking transactions. Commissions associated with these transactions are also included herein. In certain cases, the Company provides liquidity to clients buying or selling blocks of shares of listed stocks without previously identifying the other side of the trade at execution, which subjects the Company to market risk. These positions are typically held for a very short duration. During the years ended December 31, 2011, 2010 and 2009, the Company earned $27.1 million, $36.1 million and $7.0 million of revenues from principal transactions, net, respectively. •FeesFees.Equity research fees are paid to the Company for providing equity research. Revenue is recognized once an arrangement exists, access to research has been provided, the fee amount is fixed or determinable, and collection is reasonably assured. During the years ended December 31, 2011, 2010 and 2009, the Company earned $6.5 million, $6.8 million and $1.5 million of revenues from equity research fees, respectively. marketing, risk and technology expenses that directly relate to administering the assets of the funds. Such expenses that have been reimbursed at their actual costs are included in the consolidated statements of operations as employee compensation and benefits, professional, advisory and other fees, communications, occupancy and equipment, client services and business development and other.Other revenues The Company receives other revenues which are unrelated to its principal sources of revenue and which may vary from year to year. Sources of such other revenues primarily include other fees earned from real estate entities and deferred gains from a sale of an asset.••Amounts included within interestInterest and dividenddividends expense relates primarily relate to interest incurred on our credit facility (which wasrevolving line of credit.investments.•• Prior to November 2009, Ramius, the accounting predecessorCompany, operated as a limited liability company that was treated as a partnership and was not subject toCompany's U.S. federal or state income taxes. However, as a partnership, Ramius was subject to New York City unincorporated business tax, on its business and investment activities conducted in New York City. In 2010 and in the future, the Company will beoperations are subject to U.S. federal, state and city taxation as a corporation. The Company is also subject to foreign taxation on income it generates in certain countries.2010,2011, the Company recorded a valuation allowance against substantially all of its net deferred tax assets.2010,2011, the Company recorded tax receivables resulting from refund claims stemmingresulting from the carry back of net operating losses to the Company's 2006 tax return. The Company received $4.1 million related to one of its refund claims in June 2010.2011,2012, the Company had assets under management of $9.0$10.3 billion, an 8.75%10.7% increase as compared to assets under management of $8.3$9.3 billion as of December 31, 2009.2010. The $728 million$1.0 billion increase in assets under management during the year ended 20102011 resulted from $578 million$1.1 billion in net subscriptions (this includes total redemptions during the year ended 2010, includingDecember 31, 2011, and redemptions effective on January 1, 2011,2012, of $824$187.0 million, which represents assets returned to investors as a result of closing the Ramius Multi-Strategy Fund and theRamius Enterprise Fundfunds and the return of assets to UniCredit pursuant to the terms of Modification Agreement), andpartially offset by a $150$76.6 million performance-related increasedecrease in assets.assets under management.2011.2012. Total Assets
under Management Primary Strategies (dollars in millions) $ 1,385 (1) Multi-Strategy Single Strategy
1,750
(2) Single Strategy Customized Solutions Hedging Strategies
1,125 Advisory
1,628
(4) Equity
1,041
(4)
2,113 Mortgage Advisory
$
9,042 Platform Total Assets
under Management Primary Strategies (dollars in millions) Hedge Funds (1) 1,918 (2) Multi-Strategy Single Strategy Alternative Solutions (3) 1,894 Multi-Strategy Single Strategy Customized Solutions Hedging Strategies 855 Advisory Ramius Trading Strategies (4) 262 Commodity Trading Advisory Real Estate (1) 1,628 (7) Debt Equity Cowen Healthcare Royalty Partners (5) 1,473 (7) Royalty Interests Other (6) 2,235 Cash Management Mortgage Advisory Total 10,265 (1) The Company owns between 30% and 55% of the general partners of the real estate business and of the activist business (one of the single strategy hedge funds). We do not possess unilateral control over any of these general partners. (2) (3) (4) (5) The Company shares the management fees from the CHRP Funds equally with the founders of the CHRP Funds. In addition, the Company receives a share of the carried interests of the general partners of the CHRP Funds of between 27% and 40.2%. (6) The Company's cash management services business provides clients with investment guidelines for managing cash and establishes investment programs for managing their cash in separately managed accounts. The Company also provides mortgage advisory services where the Company manages collateralized debt obligations held by investors. (7) This amount reflects committed capital. (1)This amount includes the Company's invested capital of approximately $154 million as of January 1, 2011.(2)This amount includes the Company's invested capital of approximately $32 million (which includes the notional amount of one of the fund of funds products) as of January 1, 2011.(3)The Company owns between 30% and 55% of the general partners of the real estate business. We do not possess unilateral control over any of these general partners.(4)This amount reflects committed capital.(5)The Company shares the management fees from the CHRP Funds equally with the founders of the CHRP Funds. In addition, the Company receives a share of the carried interests of the general partners of the CHRP Funds of between 32.1% and 40.2%.(6)The Company's cash management services business provides clients with investment guidelines for managing cash and establishes investment programs for managing their cash in separately managed accounts. The Company also provides mortgage advisory services where the Company manages collateralized debt obligations ("CDOs") held by investors and liquidates CDOs that were historically managed by others.period: Year ended December 31, Year ended December 31, January 1,
2011 January 1,
2012 2010 2009 2008 2007 2011 2010 2009 2008 (dollars in thousands) (dollars in thousands) $ 9,276,278 $ 8,313,638 $ 9,765,230 $ 12,900,355 $ 9,592,135 $ 10,347,173 $ 9,276,278 $ 8,313,638 $ 9,765,230 $ 12,900,355 (234,832 ) 812,555 (1,780,117 )(2) (1,066,714 ) 2,601,939 (81,680 ) 1,147,447 812,555 (1,780,117 ) (2) (1,066,714 ) — 150,085 328,525 (2,068,411 ) 706,281 — (76,552 ) 150,085 328,525 (2,068,411 ) $ 9,041,446 $ 9,276,278 $ 8,313,638 $ 9,765,230 $ 12,900,355 $ 10,265,493 $ 10,347,173 $ 9,276,278 $ 8,313,638 $ 9,765,230 (1) Net performance is net of all management and incentive fees and includes the effect of any foreign exchange translation adjustments and leverage in certain funds. (2) Net redemptions for 2009 include $807 million of capital commitments to the CHRP Funds that were part of Cowen Holdings prior to the Transactions. (1)Net performance is net of all management and incentive fees and includes the effect of any foreign exchange translation adjustments and leverage in certain funds.(2)Net redemptions for 2009 include $807 million of capital commitments to the CHRP Funds that were part of Cowen Holdings prior to the Transactions. The year 2010 was marked byreversal in investors' appetite for risk assets. The year was also noteworthy for market participants' changing views on global economic activity and their focusnumber of overriding macro concerns that had been weighing on the effectmarkets remained in place. These concerns included softening global growth and rising industrial commodity prices, the unresolved European debt crisis, tensions in the Middle East and political inaction in the U.S. regarding the country's current deficit, increasing debt burden and employment rate. However, the “risk on, risk off” approach that dominated investor activity throughout 2011 reversed course after a weak third quarter and adopted a “risk on” position to close out the year. As one example, following a double- digit decline in the S&P 500 during the third quarter, U.S. equities rallied to have the index close out the year unchanged. Final results for the entire year often masked the day-to-day and week-to-week volatility experienced in many major markets and asset classes, including high yield debt, leveraged loans and real assets such as crude oil. Fourth quarter results also masked to some degree one of increased government interventionthe more troubling aspects of global market activity during 2011- that of a substantial deterioration in liquidity. The lack of liquidity was evidenced in multiple asset classes, but was especially true in the fixed income markets at various points in time throughout the year. As was stated in the previous quarter's report, trading liquidity was often reminiscent of the fourth quarter of 2008, with the added pressure of liquidity providers aggressively withdrawing capital. Economic, regulatory and new global policy initiatives. In effect, macro considerations seemedmarket uncertainties all contributed to play a larger rolerecurrent spikes in almost every investment strategy.endedhad varying results within the fourth quarter, but those funds that we would expect to participate in a recovery in risk assets did so. As had been the general trend throughout the year, longer-dated investments in real estate continued to benefit from firmer underlying investment valuations, further extending the recovery from the 2009 lows. More liquid but specialized funds investing in the equity and credit markets closed the year with positive fourth quarter performance. The small cap activist funds finished the year substantially ahead of any small cap long-only indices. In long/short corporate credit, third quarter losses had been concentrated within a small group of investments during a period dominated by high volatility and vastly reduced liquidity. Subsequent portfolio modifications led to reduced volatility and a positive result for the final quarter. The global macro and managed futures sectors had modestly negative fourth quarter results, as the sudden reversal in each category. A combination of well-timed hedges earlierrisk appetite during October --to "risk on"--presented challenges to the underlying managers. Prevailing trends were captured later in the year, followed by solid execution in creating liquidity, provided investors infourth quarter of 2011, but not to the degree necessary to overcome October results. The multi-strategy funds withmaintained their focus on capital preservation, while still executing an opportunistic strategy for the sale of certain assets in order to make distributions to investors. Results were positive returns even as assets were being liquidated and distributions made. In 2010,for the directly managed hedge funds as well as the customizedfourth quarter of 2011, led by an especially strong final month. Customized hedge fund of funds portfolios have either met or exceededand client-specific solutions-based portfolios also had satisfactory results.parametersgrowth of their individual mandates. In addition, longer-datedits alternative investment vehiclesmanagement and broker/dealer businesses. Management allocates capital to three primary investment categories: (i) trading strategies; (ii) merchant banking investments; and (iii) real estate investments. The Company aims to make strategic and opportunistic investments in areasvarying capital structures across a diverse array of businesses, hedge funds and mutual funds. Much of the Company's trading strategy portfolio is invested along side the Company's alternative investmentenjoyed higher valuations, rebounding sharply from 2009.sets forth performance information as of December 31, 2010, forpresents the Company's funds with assets greater than $200 million as well as information with respect to the firm's single-strategy hedge fundsinvested equity capital by strategy and RTS funds. The performance reflected below is representative of the net return of the most recently issued full fee paying class of fund interests offered for the respective fund. The net returns are net of all management and incentive fees, and are calculated monthly based on the change in an investor's current month ending equity as a percentage of their prior month's endingCowen Group's stockholders' equity adjusted for the current month's subscriptions and redemptions. Such returns are compounded monthly in calculating the final net year to date return. Performance information for the CHRP Funds are not presented due to existing confidentiality provisions. The following table presents fund performance for the year ended December 31, 2010, 2009,2011. The net values presented in the table below do not tie to Cowen Group's consolidated statement of financial condition as of December 31, 2011 because they are included in various line items of the consolidated statement of financial condition, including “securities owned, at fair value”, “other investments”, “cash and 2008: Performance for Year Ended December 31, Strategy Largest Fund(1) 2010 2009 2008 Single Strategy Ramius Value and Opportunity Fund Ltd.
(Inception Mar. 1, 2006) 31.70 % 16.88 % (20.81 )%
(Inception Oct. 1, 2009)
17.68%
(4)
n/a
n/a
(Inception Jan. 1, 2008)
3.53%
(2)
4.92
%
(25.38
)%(2)
(Inception Sept. 1, 2007)
6.93
%
12.03
%
(8.90
)%
(Inception Mar. 1, 2010)
4.61%
(4)
n/a
n/a
(Inception Mar. 1, 2010)
18.51%
(4)
n/a
n/a
(Inception Nov. 12, 2007)
14.48
%
(19.46
)%
(8.57
)%
(Inception Nov. 22, 2006)
21.74
%
(0.87
)%
(14.85
)%
0.96
%
(0.28
)%
3.67
%Strategy Net Value % of Stockholders' Equity (dollars in millions) Trading $ 293.8 58% Merchant Banking 100.0 20% Real Estate 48.3 9% Total 442.1 87% Stockholders' Equity 508.5 100% (1)Products included above represent funds and accounts with assets under management greater than $200 million (excluding CHRP and Ramius Multi-Strategy Fund Ltd), the Company's single-strategy funds and the Ramius Trading Strategies funds. Ramius Multi-Strategy Fund Ltd and Ramius Enterprise LP have been closed to new investors and we began winding down these fundsThe allocations shown in 2010. Ramius Enterprise LP has been included above as the firm maintains a substantial proprietary equity investment in this entity. The inception date for a fund or account represent the initial date that the fund or account accepted capital from third party investors. As of January 1, 2011, the net assets of the funds presented above were $3.6 billion, or 40% of the total assets under management as of January 1, 2011 of $9.04 billion. Excluded from the table above are funds and managed accounts with $5.44 billion, or 60%, of total assets under management as of January 1, 2011. These include a total of 63 smaller individual funds and managed accounts, the Ramius Multi-Strategy Fund Ltd and the Cowen Healthcare Royalty Partners funds.(2)Performance does not reflect any increase in valuation for Lehman Brothers International (Europe) ("LBIE") assets which have been segregated.(3)Returns for each year represent net internal rates of return to limited partners after management fees and incentive allocations, if any, and are computed on a year-to-year basis consistent with industry standards. Incentive allocations are computed based on a hypothetical liquidation of net assets of each fund as of the balance sheet date. Returns are calculated for the investors as a whole. The computation of such returns for an individual investor may vary from these returns based on different management fee and incentive arrangements and the timing of capital transactions. The hypothetical liquidation value may not reflect the ultimate value that may be realized from the real estate investments, particularly given the relatively long period of time that the real estate investments may be held under the terms of the real estate fund documents.(4)Performance reflects application of the fee terms applicable to the Class B interests, which is the class of interests offered by the Fund beginning on July 1, 2010. As a result, the 2010 year to date data is pro forma for the period beginning on January 1, 2010 and ending on June 30, 2010.
will change over time."Management's“Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company—SegmentCompany-Segment Analysis and Economic Income" (Loss),” and Note 2123 to the Company's consolidated financial statements, appearing elsewhere in this Form 10-K, for a reconciliation of Economic Income (Loss) to total Company US GAAP net income (loss).20102011 Compared with the Year Ended December 31, 2009 The Company's 2010 results reflect twelve months of combined operations, while 2009 results reflect twelve months of legacy Ramius and two months of legacy Cowen.2009
2010 Year ended December 31, Period to Period Year ended December 31, Period to Period 2010 2009 $ Change % Change 2011 2010 $ Change % Change (dollars in thousands) (dollars in thousands) $ 38,965 $ 10,557 $ 28,408 269.1 % 112,217 17,812 94,405 530.0 % 38,847 41,694 (2,847 ) (6.8 )% 11,363 1,911 9,452 494.6 % 11,547 477 11,070 NM 6,816 10,326 (3,510 ) (34.0 )% 1,936 4,732 (2,796 ) (59.1 )% 12,119 36,392 (24,273 ) (66.7 )% 233,810 123,901 109,909 88.7 % Investment banking $ 50,976 $ 38,965 $ 12,011 31 % Brokerage 99,611 112,217 (12,606 ) (11 )% Management fees 52,466 38,847 13,619 35 % Incentive income 3,265 11,363 (8,098 ) (71 )% Interest and dividends 22,306 11,547 10,759 93 % Reimbursement from affiliates 4,322 6,816 (2,494 ) (37 )% Other revenues 1,583 1,936 (353 ) (18 )% Consolidated Funds revenues 749 12,119 (11,370 ) (94 )% Total revenues 235,278 233,810 1,468 1 % 194,919 96,592 98,327 101.8 % 8,971 1,601 7,370 460.3 % 127,931 68,217 59,714 87.5 % 8,121 23,581 (15,460 ) (65.6 )% 339,942 189,991 149,951 78.9 % Employee compensation and benefits 203,767 194,919 8,848 5 % Interest and dividends 8,839 8,971 (132 ) (1 )% General, administrative and other expenses 153,116 127,931 25,185 20 % Goodwill impairment 7,151 — 7,151 NM Consolidated Funds expenses 2,782 8,121 (5,339 ) (66 )% Total expenses 375,655 339,942 35,713 11 % 21,980 (2,154 ) 24,134 NM 31,062 20,999 10,063 47.9 % 53,042 18,845 34,197 181.5 % (53,090 ) (47,245 ) (5,845 ) 12.4 % (21,400 ) (8,206 ) (13,194 ) 160.8 % (31,690 ) (39,039 ) 7,349 (18.8 )% 13,727 16,248 (2,521 ) (15.5 )% $ (45,417 ) $ (55,287 ) $ 9,870 (17.9 )% Net gain (loss) on securities, derivatives and other investments 15,128 21,980 (6,852 ) (31 )% Bargain purchase gain 22,244 — 22,244 NM Consolidated Funds net gains (losses) 4,395 31,062 (26,667 ) (86 )% Total other income (loss) 41,767 53,042 (11,275 ) (21 )% Income (loss) before income taxes (98,610 ) (53,090 ) (45,520 ) 86 % Income taxes expense (benefit) (20,073 ) (21,400 ) 1,327 (6 )% Net income (loss) from continuing operations (78,537 ) (31,690 ) (46,847 ) 148 % Net income (loss) from discontinued operations, net of tax (23,646 ) — (23,646 ) NM Net income (loss) (102,183 ) (31,690 ) (70,493 ) 222 % Income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries 5,827 13,727 (7,900 ) (58 )% Net income (loss) attributable to Cowen Group, Inc. stockholders $ (108,010 ) $ (45,417 ) $ (62,593 ) 138 % Year ended December 31, Period to Period 2010 2009 $ Change % Change (dollars in thousands) Revenues Investment banking $ 38,965 $ 10,557 $ 28,408 269 % Brokerage 112,217 17,812 94,405 530 % Management fees 38,847 41,694 (2,847 ) (7 )% Incentive income 11,363 1,911 9,452 495 % Interest and dividends 11,547 477 11,070 NM Reimbursement from affiliates 6,816 10,326 (3,510 ) (34 )% Other revenues 1,936 4,732 (2,796 ) (59 )% Consolidated Funds revenues 12,119 36,392 (24,273 ) (67 )% Total revenues 233,810 123,901 109,909 89 % Expenses Employee compensation and benefits 194,919 96,592 98,327 102 % Interest and dividends 8,971 1,601 7,370 460 % General, administrative and other expenses 127,931 68,217 59,714 88 % Consolidated Funds expenses 8,121 23,581 (15,460 ) (66 )% Total expenses 339,942 189,991 149,951 79 % Other income (loss) Net gain (loss) on securities, derivatives and other investments 21,980 (2,154 ) 24,134 NM Consolidated Funds net gains (losses) 31,062 20,999 10,063 48 % Total other income (loss) 53,042 18,845 34,197 181 % Income (loss) before income taxes (53,090 ) (47,245 ) (5,845 ) 12 % Income taxes expense (benefit) (21,400 ) (8,206 ) (13,194 ) 161 % Net income (loss) (31,690 ) (39,039 ) 7,349 (19 )% Income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries 13,727 16,248 (2,521 ) (16 )% Net income (loss) attributable to Cowen Group, Inc. stockholders $ (45,417 ) $ (55,287 ) $ 9,870 (18 )% or 269.1%, to $38.9$39.0 million for the year ended December 31, 2010 compared with $10.6 million in 2009. The 2009 revenues represent the investment banking activity for the period from November 2, 2009 to December 31, 2009, compared to a full year in 2010. or 530.0%, to $112.2 million for the year ended December 31, 2010 compared with $17.8 million in 2009. The 2009 revenues represent the brokerage activity for the period from November 2, 2009 to December 31, 2009, compared to a full year in 2010.$2.8$2.9 million or 6.8%, to $38.8 million for the year ended December 31, 2010 compared with $41.7 million in 2009. The decrease was a result of returning assets to investors in 2010, as a result of closing the Ramius Multi-Strategy and Ramius Enterprise funds, and the return of assets to, and no longer charging management fees, to certain affiliates of UniCredit S.p.A effective July 1, 2010, pursuant to the terms of the Modification Agreement. This was partially offset by increases in assets under management in our single-strategy funds.of (i) of: marks, (ii) year (iii) $11.1$11.0 million to $11.5 million for the year ended December 31, 2010 compared with $0.5 million in 2009. The increase was primarily attributable to an increase in interest income resulting from an increased number of investments in interest bearing securities during 2010 compared to 2009. or 34.0%, to $6.8 million for the year ended December 31, 2010 compared with $10.3 million in 2009. The decrease was attributable to a decrease in assets under management associated with the funds from which the Company receives the majority of its reimbursements.Revenuerevenuerevenues decreased $2.8 million or 59.1%, to $1.9 million for the year ended December 31, 2010 compared with $4.7 million in 2009. The higher amount in 2009 was primarily related to a $1.9 million one-time legal settlement claim.$24.2$24.3 million or 66.7%, to $12.1 million for the year ended December 31, 2010 compared with $36.4 million in 2009. The decrease was primarily attributable to a decrease in Enterprise Fund's holdings of interest bearing securities due to unwinding of its investments.$98.3$98.4 million or 101.8%, to $195.0$194.9 million for the year ended December 31, 2010 compared with $96.6 million in 2009. The increase was due to the impact of including two months of compensation and benefits expense associated with the legacy Cowen Holdings business in 2009 compared with twelve months in 2010, partially offset by lower accruals for incentive compensation and lower base salaries and benefit expense associated with a reduction in head count in 2010 compared to 2009.dividenddividends expense increased $3.3$7.4 million or 203.4%, to $4.9$9.0 million for the year ended December 31, 2010 compared with $1.6 million in 2009. Interest and dividends expense relates to interest on our credit facility in addition to increased trading activity with respect to the Company's investments.or 87.5%, to $128$127.9 million for the year ended December 31, 2010 compared with $68.2 million in 2009. The increase was due to the impact of including two months of general, administrative and other expense associated with the legacy Cowen Holdings business during 2009 compared with twelve months of 2010, or $62.2 million, partially offset by implementing approximately $2.5 million of cost savings related to the integration of systems and facilities related to the Transactions. or 65.6%, to $8.1 million for the year ended December 31, 2010 compared with $23.6 million in 2009. The decrease was attributable to a decrease in interest expense recognized by the Enterprise Fund due to a decrease in short holdings of interest bearing securities, due to the unwinding of its investment portfolio. or 181.5%, to $53.0 million for the year ended December 31, 2010 compared with $18.8 million in 2009. This primarily relates to an increase of $24.1 million in the performance of the Company's directly owned traded invested capital. In addition, the increase in consolidated funds net gains (losses) of $10.1 million was primarily attributable to the performance of RTS Global 3x3X Fund LP, which was consolidated by the Company in the first quarter of 2010 and a decrease in net losses from derivative activities in Thethe Enterprise Fund. This was partially offset by the decrease in the performance of certain of Ramius consolidated multi-strategy funds and Thethe Enterprise Fund due to the closing and ongoing wind down of these funds in 2010. The gains and losses shown under Consolidated Funds reflect the consolidated total performance for such funds, and the portion of those gains or losses that are attributable to other investors is allocated to a non-controlling interest.non-controllingNon-controlling InterestsYear Ended December 31, 2009 Compared with the Year Ended December 31, 2008 The Company's 2009 results reflect twelve months of legacy Ramius results and two months of legacy Cowen Holdings results. The Company's 2008 results reflect twelve months of legacy Ramius results only.Year Ended December 31, 2009 Compared with the Year Ended December 31, 2008Consolidated Statements of Operations Year ended December 31, Period to Period 2009 2008 $ Change % Change (dollars in thousands) $ 10,557 $ — $ 10,557 NM 17,812 — 17,812 NM 41,694 70,818 (29,124 ) (41.1 )% 1,911 — 1,911 NM 477 1,993 (1,516 ) (76.1 )% 10,326 16,330 (6,004 ) (36.8 )% 4,732 6,853 (2,121 ) (30.9 )% 36,392 31,739 4,653 14.7 % 123,901 127,733 (3,832 ) (3.0 )% 96,592 84,769 11,823 13.9 % 1,601 1,820 (219 ) (12.0 )% 68,217 53,036 15,181 28.6 % — 10,200 (10,200 ) (100.0 )% 23,581 34,268 (10,687 ) (31.2 )% 189,991 184,093 5,898 3.2 % (2,154 ) (2,006 ) (148 ) 7.4 % 20,999 (198,485 ) 219,484 (110.6 )% 18,845 (200,491 ) 219,336 (109.4 )% (47,245 ) (256,851 ) 209,606 (81.6 )% (8,206 ) (1,301 ) (6,905 ) 530.7 % (39,039 ) (255,550 ) 216,511 (84.7 )% 16,248 (113,786 ) 130,034 (114.3 )% $ (55,287 ) $ (141,764 ) $ 86,477 (61.0 )% RevenuesInvestment Banking Investment banking revenues were $10.6 million for the year ended December 31, 2009, representing the investment banking activity of Cowen Holdings for the period from November 2, 2009through December 31, 2009. There were no investment banking revenues in 2008 as the historic results of operations only reflect the legacy Ramius business.Brokerage Brokerage revenues were $17.8 million for the year ended December 31, 2009, representing the brokerage activity of Cowen Holdings for the period from November 2, 2009 through December 31, 2009. There were no brokerage revenues in 2008 as the historic results of operations only reflect the legacy Ramius business.Management Fees Management fees decreased $29.1 million, or 41%, to $41.7 million for the year ended December 31, 2009 compared with $70.8 million in 2008. The decrease was primarily due to the lower level of assets under management in 2009 relative to the prior year.Incentive Income Incentive income was $1.9 million for the year ended December 31, 2009, compared to no incentive income for 2008. In addition, due to losses in 2008, many of our funds now have high-water marks such that Ramius will not earn incentive income with respect to the assets of the fund investors who suffered such losses in 2008 until these investors recover their losses. Incentive income earned in 2009 relates primarily to fees earned on one of our fund of funds products that went over its high water mark in December 2009.Interest and Dividends Interest and dividends decreased $1.5 million, or 76%, to $0.5 million for the year ended December 31, 2009, compared with $2.0 million in 2008. The decrease was primarily attributable to a combination of lower average interest rates and lower average interest bearing assets in 2009 compared with 2008.Reimbursements from Affiliates Ramius's reimbursements from affiliates decreased $6.0 million, or 37%, to $10.3 million for the year ended December 31, 2009 compared with $16.3 million for 2008. The decrease was attributable to lower assets under management in 2009 as the Company generally limits such allocations based on a percentage of assets under management.Other Revenue Other revenue decreased $2.2 million, or 31%, to $4.7 million for the year ended December 31, 2009 compared with $6.9 million in 2008. The decrease was primarily due to the elimination of stock loan fee income as the Company exited that business in the fourth quarter of 2008, and the reduction of placement fee income. The Company exited the placement agent business in the third quarter of 2009.Consolidated Funds Revenues Consolidated Funds revenues increased $4.7 million, or 14.7%, to $36.4 million for the year ended December 31, 2009 compared with $31.7 million in 2008. The increase was primarily attributable to an increase in the interest and dividends earned by the Enterprise Fund due to a larger concentration in fixed income securities.ExpensesEmployee Compensation and Benefits Employee compensation and benefits expenses increased $11.8 million, or 14%, to $96.6 million for the year ended December 31, 2009 compared with $84.8 million in 2008. The increase was due to the impact of including two months of compensation and benefits expense associated with the legacy Cowen Holdings business, partially offset by lower accruals for incentive compensation and lower base salaries and benefit expense associated with a reduction in head count in 2009 compared to 2008 for the legacy Ramius business.Interest and Dividends Interest and dividend expense remained substantially unchanged at $1.6 million for the year ended December 31, 2009 compared to $1.8 million for 2008. Interest expense relates primarily to interest on our credit facility.General, Administrative and Other Expenses General, administrative and other expenses increased $15.2 million, or 29%, to $68.2 million for the year ended December 31, 2009 compared with $53.0 million in 2008. This increase was primarily due to the inclusion of two months of activity for Cowen Holdings after the closing of the Transactions in 2009, professional, advisory and other fees related to the Transactions, and legal fees incurred in connection with an arbitration initiated by the Company in 2009. These increases were partially offset by a decrease in occupancy and equipment, as a result of the Company subleasing its former office space for the entire year ended December 31, 2009 compared to only the final eight months of 2008, and a decrease in client service and business development expenses. The Company does not expect to incur additional expense in connection with the arbitration matter referenced above and expects that transaction related expenses, if any, to be minimal.Consolidated Funds Expenses Consolidated Funds expenses decreased $10.7 million, or 31.2%, to $23.6 million for the year ended December 31, 2009 compared with $34.3 million in 2008. The decrease was attributable to a decrease in interest and dividend expense recognized by the Enterprise Fund due to a general decrease in interest rates.Goodwill Impairment The Company recorded a goodwill impairment charge of $10.2 million for the year ended December 31, 2008. This non-cash charge related to the impairment of its then 50% ownership of the fund of funds business. In the fourth quarter of 2008, the Company conducted its annual goodwill impairment test and, due to the decline in assets under management and the resulting decline in expected management fees and incentive income, recognized an impairment. There were no goodwill impairment charges recorded in the year ended December 31, 2009.Other Income (Loss) Other income (loss) increased $219.3 million to income of $18.8 million for the year ended December 31, 2009 compared to a loss of $200.5 million in 2008. The increase is a result of positive fund performance in the current year period versus negative performance in the prior year period as a result of the general unprecedented levels of market volatility, and liquidity constraints that began in the third quarter of 2008 and affected almost every asset class globally. As previously described, the Company invests its own capital primarily in the Enterprise Fund with any gains or losses from the Company's investment in the Enterprise Fund shown under Consolidated Funds for that period. Thegains and losses shown under Consolidated Funds reflect the consolidated total performance for such funds, and the portion of those gains or losses that are attributable to other investors is allocated to a non-controlling interest.Income Taxes Income tax benefit increased $6.9 million to $8.2 million for the year ended December 31, 2009 from $1.3 million in 2008. The increase was primarily related to a tax benefit of $6.0 million representing the Company's proportionate share of deferred tax benefits generated by the master fund of one of the Consolidated Funds. During the third quarter of 2009, this master fund acquired reinsurance companies in Luxembourg as part of a service program that provides reinsurance coverage to the master fund. In order to obtain reinsurance coverage against certain risks, this master fund, through a local subsidiary, acquired reinsurance companies in Luxembourg that had deferred tax liabilities. Pursuant to an Advance Tax Agreement, upon these purchases, the local subsidiary generated deferred tax assets that fully offset these liabilities, resulting in the recognition of the deferred tax benefit.(Income) Loss Attributable to Redeemable non-controlling Interests Income (loss) attributable to redeemable non-controlling interests increased $130.0 million, to a gain of $16.2 million for the year ended December 31, 2009 compared with a loss of $113.8 million in 2008. The period over period change was the result of improved performance in certain of the Consolidated Funds.Segmentsconductshas conducted its operations through two segments: an alternative investment management segment and a broker-dealer segment. The Company's alternative investment management segment currently includes its hedge funds, replication products, managed futures funds, fund of funds, real estate, cash management services, and mortgage advisory services and other investment platforms businesses, as well as CHRP, which was a legacy Cowen Group operating business prior to the Transactions. The Company's broker-dealer segment currently includes its investment banking, brokerage and equity research businesses.2123 to the Company's audited consolidated financial statements included in this Form 10-K.presents the Company's results of operations withouteliminates the impact resulting from theof consolidation of any of the Company'sfor consolidated funds, (ii) excludes equity award expense related to the November 2009 Ramius/Cowen transaction, (iii) excludes certain other acquisition-related and/or reorganization expenses (including the discontinued operations of LaBranche), (iv) excludes goodwill impairment, (although there were no goodwill impairment charges in either period presented), (iii) excludes allocations to the managing member, as there will be no such allocations in the future (although there were no allocations made to the managing member in either period presented), and (iv)(v) excludes the reorganization expenses forbargain purchase gain which resulted from the Transactions (in the 2009 period only) and one-time equity awards made in connection with the Transactions (in the 2010 period only)LaBranche acquisition. In addition, Economic Income (Loss) revenues include investment income that represents the income the Company has earned in investing its own capital, including realized and unrealized gains and losses, interest and dividends, net of associated investment related expenses. For US GAAP purposes, these items are included in each of their respective line items. Economic Income revenues also include management fees, incentive income and investment income earned through the Company's investment as a general partner in certain real estate entities. For US GAAP purposes, all of these items are recorded in other income (loss). In addition, Economic Income (Loss) expenses are reduced by reimbursement from affiliates, which for US GAAP purposes is presented gross as part of revenue.invested, which is principally the Enterprise Fund.invested. The Company periodically receives other Economic Income revenue which is unrelated to our own invested capital or our activities on behalf of the Company's funds, such as certain placement fee income received by a non-wholly owned subsidiary that engaged in the distribution of interests in the real estate funds.financial technology,industrials, REITs and alternative energy. The Company's brokerage revenues consist of commissions, principal transactions and fees paid for equity research. Management reviews brokerage revenue on a combined basis as the vast majority of the revenue is derived from the same group of clients. The Company derives its brokerage revenue primarily from trading equity and equity-linked securities on behalf of institutional investors. The majority of the Company's trading gains and losses are a result of activities that support the facilitation of client orders in both listed and over-the-counter securities, although all trading gains and losses are recorded in brokerage.Tablebrokerage in the consolidated statement of ContentsNon-wholly-owned entitiesThe non-wholly-owned entity included is Cowen Healthcare Royalty Management, LLC. Year ended
December 31, 2011 2010 Total
Period-to-Period Alternative
Investment
Management Total
2011 Alternative
Investment
Management Total
2010 Broker-Dealer Broker-Dealer $ Change % Change (dollars in thousands) Economic Income Revenues Investment banking $ — $ 50,976 $ 50,976 $ — $ 38,965 $ 38,965 $ 12,011 31 % Brokerage — 99,611 99,611 — 112,217 112,217 (12,606 ) (11 )% Management fees 67,309 — 67,309 51,440 — 51,440 15,869 31 % Incentive income (loss) 10,366 — 10,366 9,615 — 9,615 751 8 % Investment income (loss) 39,149 2,198 41,347 59,638 (221 ) 59,417 (18,070 ) (30 )% Other revenues 622 (7 ) 615 932 7 939 (324 ) (35 )% Total economic income revenues 117,446 152,778 270,224 121,625 150,968 272,593 (2,369 ) (1 )% Economic Income Expenses Compensation and benefits 50,838 143,970 194,808 58,831 127,062 185,893 8,915 5 % Non-compensation expenses—Fixed 34,138 69,778 103,916 29,228 64,255 93,483 10,433 11 % Non-compensation expenses—Variable 17,085 24,412 41,497 7,338 27,022 34,360 7,137 21 % Reimbursement from affiliates (4,602 ) — (4,602 ) (7,315 ) — (7,315 ) 2,713 (37 )% Total economic income expenses 97,459 238,160 335,619 88,082 218,339 306,421 29,198 10 % Net economic income (loss) (before non-controlling interest) 19,987 (85,382 ) (65,395 ) 33,543 (67,371 ) (33,828 ) (31,567 ) 93 % Non-controlling interest (6,042 ) — (6,042 ) (1,759 ) — (1,759 ) (4,283 ) 243 % Economic income (loss) $ 13,945 $ (85,382 ) $ (71,437 ) $ 31,784 $ (67,371 ) $ (35,587 ) $ (35,850 ) 101 % Alternative Solutions LLC,Trading Strategies funds,2009 period only,secondsubsequenta result of generally overall poor credit and equity markets and decreased performance of real estate investments. This was offset by the increase in the recognition of deferred tax benefits of $3.5 million for 2011 as compared to 2010, pursuant to the Transactionsacquisition of a Luxembourg reinsurance company, which is reflected in Investment income in our economic income.entity became a wholly-owned subsidiarylocation. Company. Year ended
December 31, Period-to-Period 2011 2010 $ Change % Change (dollars in thousands) Non-compensation expenses—fixed: Interest expense $ 735 $ 1,026 $ (291 ) (28 )% Professional, advisory and other fees 14,707 13,366 1,341 10 % Occupancy and equipment 21,660 18,167 3,493 19 % Depreciation and amortization 8,740 11,432 (2,692 ) (24 )% Service fees 15,619 15,813 (194 ) (1 )% Other 42,455 33,679 8,776 26 % Total $ 103,916 $ 93,483 $ 10,433 11 % Year ended
December 31, Period-to-Period 2011 2010 $ Change % Change (dollars in thousands) Non-compensation expenses—Variable: Floor brokerage and trade execution $ 11,818 $ 15,280 $ (3,462 ) (23 )% CHRP Syndication Costs 5,644 666 4,978 747 % Expenses related to Luxembourg reinsurance companies 8,789 4,279 4,510 105 % Marketing and business development 15,246 14,135 1,111 8 % Total $ 41,497 $ 34,360 $ 7,137 21 % Year ended
December 31, Year ended
December 31, 2010 2009 Total
Period-to-Period 2010 2009 Total
Period-to-Period Alternative
Investment
Management Total
2010 Alternative
Investment
Management Total
2009 Alternative
Investment
Management Total
2010 Alternative
Investment
Management Total
2009 Broker-Dealer Broker-Dealer $ Change % Change Broker-Dealer Broker-Dealer $ Change % Change (dollars in thousands) (dollars in thousands) $ — $ 38,965 $ 38,965 $ — $ 10,557 $ 10,557 $ 28,408 269.1 % — 112,217 112,217 — 17,812 17,812 94,405 530.0 % 51,440 — 51,440 53,940 — 53,940 (2,500 ) (4.6 )% 9,615 — 9,615 (6,996 ) — (6,996 ) 16,611 (237.4 )% 59,638 (221 ) 59,417 21,958 — 21,958 37,459 170.6 % 932 7 939 3,536 — 3,536 (2,597 ) (73.4 )% Investment banking $ — $ 38,965 $ 38,965 $ — $ 10,557 $ 10,557 $ 28,408 269 % Brokerage — 112,217 112,217 — 17,812 17,812 94,405 530 % Management fees 51,440 — 51,440 53,940 — 53,940 (2,500 ) (5 )% Incentive income (loss) 9,615 — 9,615 (6,996 ) — (6,996 ) 16,611 (237 )% Investment income (loss) 59,638 (221 ) 59,417 21,958 — 21,958 37,459 171 % Other revenues 932 7 939 3,536 — 3,536 (2,597 ) (73 )% 121,625 150,968 272,593 72,438 28,369 100,807 171,786 170.4 % 121,625 150,968 272,593 72,438 28,369 100,807 171,786 170 % 58,831 127,062 185,893 63,207 30,032 93,239 92,654 99.4 % 29,894 64,255 94,149 41,889 10,946 52,835 41,314 78.2 % 6,672 27,022 33,694 3,467 3,674 7,141 26,553 371.8 % (7,315 ) — (7,315 ) (11,044 ) — (11,044 ) 3,729 (33.8 )% Compensation and benefits 58,831 127,062 185,893 63,207 30,032 93,239 92,654 99 % Non-compensation expenses—Fixed 29,228 64,255 93,483 41,889 10,946 52,835 40,648 77 % Non-compensation expenses—Variable 7,338 27,022 34,360 3,467 3,674 7,141 27,219 381 % Reimbursement from affiliates (7,315 ) — (7,315 ) (11,044 ) — (11,044 ) 3,729 (34 )% 88,082 218,339 306,421 97,519 44,652 142,171 164,250 115.5 % 88,082 218,339 306,421 97,519 44,652 142,171 164,250 116 % 33,543 (67,371 ) (33,828 ) (25,081 ) (16,283 ) (41,364 ) 7,536 (18.2 )% 33,543 (67,371 ) (33,828 ) (25,081 ) (16,283 ) (41,364 ) 7,536 (18 )% (1,759 ) — (1,759 ) (602 ) — (602 ) (1,157 ) 192.2 % (1,759 ) — (1,759 ) (602 ) — (602 ) (1,157 ) 192 % $ 31,784 $ (67,371 ) $ (35,587 ) $ (25,683 ) $ (16,283 ) $ (41,966 ) $ 6,379 (15.2 )% $ 31,784 $ (67,371 ) $ (35,587 ) $ (25,683 ) $ (16,283 ) $ (41,966 ) $ 6,379 (15 )% Economic Incomeeconomic income revenues were $272.6 million for the year ended December 31, 2010, an increase of $171.8 million compared to economic income revenues of $100.8 million for the year ended December 31, 2009. or 4.6%, to $51.4 million for the year ended December 31, 2010 compared with $53.9 million for 2009. The decrease was a result of returning assets to investors in 2010, asof (i) of:marks, (ii) marks; year (iii) Revenue.Revenues. Other revenuerevenues for the segment decreased $2.5 million to $1.0 million for the year ended December 31, 2010, compared to $3.5 million for 2009. or 269%, to $39.0 million for the year ended December 31, 2010 compared with $10.6 million for 2009. The 2009 represents the investment banking activity of Cowen and Company for the period from November 2, 2009 through December 31, 2009. During the year ended December 31, 2010, the Company completed thirty one underwriting transactions, six private capital raising transactions and twelve strategic advisory transactions. During November and December of 2009, the Company completed five underwriting transactions, two private capital raising transactions and three strategic advisory transactions. or 530%, to $112.2 million for the year ended December 31, 2010 compared with $17.8 million for 2009. The increase was primarily attributable to the inclusion of only two months of the legacy Cowen Holdings brokerage revenues as compared to twelve months during 2010. or 99.4%, to $185.9 million for the year ended December 31, 2010, compared with $93.2 million in 2009. The increase was primarily attributable to the inclusion of only two months of legacy Cowen Holdings compensation and benefits expense during 2009. or 6.9%, to $58.8 million for the year ended December 31, 2010 compared with $63.2 million in 2009. The decrease was driven by lower accruals for incentive compensation and lower base salaries and benefit expense associated with a reduction in head count.$41.3$40.7 million or 78.2%, to $94.1$93.5 million for the year ended December 31, 2010 compared to $52.8 million in 2009. The increase was primarily due to the inclusion of two months of fixed non-compensation expenses associated with the legacy Cowen Holdings business during 2009, partially offset by a decrease in non-compensation expense from the alternative investment management business.$12.0$12.7 million or 28.6%, to $29.9$29.2 million for the year ended December 31, 2010 compared with $41.9 million in 2009. Fixed non-compensation expenses for the broker-dealer segment increased $53.4 million to $64.3 million for the year ended December 31, 2010 compared with $10.9 Year ended
December 31, Period-to-Period Year ended
December 31, Period-to-Period 2010 2009 $ Change % Change 2010 2009 $ Change % Change (dollars in thousands) (dollars in thousands) $ 1,026 $ 1,549 $ (523 ) (33.8 )% $ 1,026 $ 1,549 $ (523 ) (34 )% 14,032 12,249 1,783 14.6 % 13,366 12,249 1,117 9 % 18,167 13,969 4,198 30.1 % 18,167 13,969 4,198 30 % 11,432 5,751 5,681 98.8 % 11,432 5,751 5,681 99 % 15,813 4,453 11,360 255.1 % 15,813 4,453 11,360 255 % 33,679 14,864 18,815 126.6 % 33,679 14,864 18,815 127 % $ 94,149 $ 52,835 $ 41,314 78.2 % Total $ 93,483 $ 52,835 $ 40,648 77 % $26.6$27.2 million to $33.7$34.4 million for the year ended December 31, 2010 compared to $7.1 million in 2009. The increase was due to the inclusion of two months of variable Year ended
December 31, Period-to-Period Year ended
December 31, Period-to-Period 2010 2009 $ Change % Change 2010 2009 $ Change % Change (dollars in thousands) (dollars in thousands) $ 15,280 $ 2,451 $ 12,829 523.4 % $ 15,280 $ 2,451 $ 12,829 523 % CHRP Syndication Costs 666 — 666 NM 4,279 — 4,279 NM 4,279 — 4,279 NM 14,135 4,690 9,445 201.4 % 14,135 4,690 9,445 201 % $ 33,694 $ 7,141 $ 26,553 371.8 % Total $ 34,360 $ 7,141 $ 27,219 381 % or 33.8%, to $7.3 million for the year ended December 31, 2010 compared with $11.0 million in 2009. The decrease was mainly attributable to a decrease in AUM associated with the funds for which the Company receives the majority of its reimbursements.Year Ended December 31, 2009 Compared with the Year Ended December 31, 2008 In 2009, the Company's alternative investment management segment includes twelve months of its hedge funds, fund of funds, real estate and other investment platforms operating results. In addition, the alternative investment management segment includes two months of CHRP's operating results in 2009, as a result of the Transactions. In 2008, the Company's alternative investment management segment reflects twelve months of its hedge funds, fund of funds, real estate and other investment platforms operating results, but does not include any of CHRP's operating results. In 2009, the Company's broker-dealer segment includes two months of its investment banking and brokerage businesses' operating results. There were no investment banking nor brokerage operating results in 2008 as the historic results of operations only reflect the legacy Ramius business. Year ended
December 31, 2009 2008 Total
Period-to-Period Alternative
Investment
Management Total
2009 Total
2008 Broker-Dealer $ Change % Change (dollars in thousands) $ — $ 10,557 $ 10,557 $ — $ 10,557 NM — 17,812 17,812 — 17,812 NM 53,940 — 53,940 84,621 (30,681 ) (36.3 )% (6,996 ) — (6,996 ) (2,586 ) (4,410 ) 170.5 % 21,958 — 21,958 (104,939 ) 126,897 (120.9 )% 3,536 — 3,536 4,004 (468 ) (11.7 )% 72,438 28,369 100,807 (18,900 ) 119,707 (633.4 )% 63,207 30,032 93,239 84,769 8,470 10.0 % 41,889 10,946 52,835 48,061 4,774 9.9 % 3,467 3,674 7,141 4,030 3,111 77.2 % (11,044 ) — (11,044 ) (17,394 ) 6,350 (36.5 )% 97,519 44,652 142,171 119,466 22,705 19.0 % (25,081 ) (16,283 ) (41,364 ) (138,366 ) 97,002 (70.1 )% (602 ) — (602 ) 5,501 (6,103 ) (110.9 )% $ (25,683 ) $ (16,283 ) $ (41,966 ) $ (132,865 ) $ 90,899 (68.4 )% Economic Income Revenues Total economic income revenues were $100.8 million for the year ended December 31, 2009, an increase of $119.7 million compared to a revenue loss of $18.9 million for the year ended December 31, 2008.Alternative Investment Management Segment Alternative investment management segment economic income revenues were $72.4 million for the year ended December 31, 2009, an increase of $91.3 million compared to a revenue loss of $18.9 million for the year ended December 31, 2008. Management Fees. Management fees for the segment decreased $30.7 million, or 36%, to $53.9 million for the year ended December 31, 2009 compared with $84.6 million for 2008. The decrease was due to the decrease in assets under management. Incentive Income (Loss). Incentive loss for the segment increased $4.4 million to a loss of $7.0 million for the year ended December 31, 2009 compared to a loss of $2.6 million for 2008 primarily as a result of an increase in a reversal, in the current year period, of previously recorded incentive income allocations from Ramius's interests in the general partner of a certain real estate fund pursuant to the terms of the governing documents of such fund. In addition, as of December 31, 2009 there was a $4.5 million accrual pertaining to subordination agreements entered into by the general partners of two real estate funds with those funds' lead investor. Furthermore, many of the funds now have high-water marks so that Ramius will not earn incentive income with respect to the investments of the fund investors who suffered such losses last year until the investors recover their losses. Investment Income. Investment income for the segment increased $127.0 million, or 121%, to a gain of $22.0 million for the year ended December 31, 2009, compared with a loss of $105.0 million for 2008. The increase is a result of positive fund performance in the current year period versus negative performance in the prior year period as a result of the general unprecedented levels of market volatility, and liquidity constraints that began in the third quarter of 2008 that affected almost every asset class globally. Other Revenue. Other revenue for the segment decreased $0.5 million, or 12%, to $3.5 million for the year ended December 31, 2009, compared with $4.0 million for 2008. The decrease was primarily due to the elimination of stock loan fee income as Ramius exited that business in the fourth quarter of 2008, and the elimination of placement fee income. Ramius exited the placement agent business in the third quarter of 2009.Broker-Dealer Segment Broker-dealer segment economic income revenues were $28.4 million for the year ended December 31, 2009. There were no broker-dealer segment revenues in 2008 as the historic results of operations only reflect the legacy Ramius business. Investment Banking. Investment banking revenues were $10.6 million for the year ended December 31, 2009, representing the investment banking activity of Cowen and Company for the period from November 2, 2009 through December 31, 2009. During November and December of 2009, the Company completed 5 underwriting transactions, 2 private capital raising transactions and 3 strategic advisory transactions. There were no investment banking revenues in 2008 as the historic results of operations only reflect the legacy Ramius business. Brokerage. Brokerage revenues were $17.8 million for the year ended December 31, 2009, representing the brokerage activity of Cowen and Company for the period from November 2, 2009 through December 31, 2009. There were no brokerage revenues in 2008 as the historic results of operations only reflect the legacy Ramius business.Economic Income Expenses Compensation and Benefits. Total compensation and benefits expense increased to $93.2 million for the year ended December 31, 2009, an increase of $8.4 million compared to $84.8 million in 2008. The increase was attributable to the inclusion of two months of legacy Cowen and Company compensation and benefits expense in 2009. Compensation and benefits expenses for the alternative investment management segment decreased $21.6 million, or 25%, to $63.2 million for the year ended December 31, 2009 compared with $84.8 million in the prior year period. The decrease was driven by lower accruals for incentive compensation and lower base salaries and benefit expense associated with a reduction in head count. Compensation and benefits expenses for the broker-dealer segment were $30.0 million for the year ended December 31, 2009, which represents two months of operations of legacy Cowen. There were no broker-dealer segment compensation and benefits expenses in 2008 as the historic results of operations only reflect the legacy Ramius business. Non-compensation Expenses—fixed. Non-compensation expenses for the alternative investment management segment were $41.9 million for the year ended December 31, 2009. Non-compensation expenses for the broker-dealer segment were $10.9 million for the year ended December 31, 2009, which represents two months of legacy Cowen Holdings. The following table shows the components of the non-compensation expenses, in total, for the year ended December 31, 2009 and 2008. The following table shows the components of the non-compensation expenses—fixed, for the year ended December 31, 2009 and 2008: Year ended
December 31, Period-to-Period 2009 2008 $ Change % Change (dollars in thousands) $ 1,549 $ 1,500 $ 49 3.3 % 12,249 13,803 (1,554 ) (11.3 )% 13,969 11,401 2,568 22.5 % 5,751 4,611 1,140 24.7 % 19,317 16,746 2,571 15.4 % $ 52,835 $ 48,061 $ 4,774 9.9 % Non-compensation Expenses—Variable. Variable non-compensation expenses, which primarily are comprised of expenses which are incurred as a direct result of the processing and soliciting of revenue generating activities, increased $3.1 million to $7.1 million for the year ended December 31, 2009 compared to $4 million in the prior year. The increase was due to the inclusion of two months variable non-compensation expenses associated with the legacy Cowen Holdings business during 2009 related to Cowen Holdings investment banking and broker dealer businesses and was offset by a reduction in variable non-compensation expenses in the Alternative Investment management business. The following table shows the components of the non-compensation expenses—variable, for the year ended December 31, 2009 and 2008: Year ended
December 31, Period-to-Period 2009 2008 $ Change % Change (dollars in thousands) $ 2,451 $ — $ 2,451 NM 4,690 4,030 660 16.4 % $ 7,141 $ 4,030 $ 3,111 77.2 % Reimbursement from Affiliates. Reimbursements from affiliates, which relate to the alternative investment management segment, decreased $6.4 million, or 37%, to $11.0 million for the year ended December 31, 2009 compared with $17.4 million for 2008. The decrease was attributable to lower assets under management in the 2009 period as such allocations are largely made based on a percentage of assets under management. Non-Controlling Interest. Non-Controlling interest represents the portion of the net income or loss attributable to certain non-wholly owned subsidiaries that is allocated to other investors.be to:••repay borrowings and related interest expense; and•2010,2011, we had cash and cash equivalents of $36.4$126.9 million, which includes $12.4$24.4 million held in foreign subsidiaries, and net liquid investment assets of $233$218.9 million. At December 31, 2010, the Company's investment in the Enterprise Fund was valued at $153.6 million. The Company received total distributions of $142.4 million from the Enterprise Fund during 2010 which includes the January 1, 2011 redemption of $12.5 million. On September 29, 2011, the Company will need to repay all amounts outstanding under the loan facility.bi-weeklysemi-monthly during the year, cash bonus payments, which can make up a significant portion of total compensation, are generally paid once a year in February."Management's“Management's Discussion and Analysis of Financial Condition and Results of Operations—CertainOperations-Certain Factors Impacting Our Business"Business” we have entered into a modification agreement with affiliates of Unicredit S.p.A. ItS.p.A in May 2010 and it is not expected to have a material impact on the Company's liquidity and capital resources.2010, 2011, the Company had unfunded commitments of $8.3$6.4 million pertaining to capital commitments in three real estate investments held by the Company, all of which pertain to related party investments. Such commitments can be called at any time, subject to advance notice. In addition, theThe Company also has committed to invest $40.7$42.2 millionin CHRP Fundsthe funds managed by Cowen Healthcare Royalty Partners (the “CHRP Funds”) as a limited partner of the CHRP Funds and also as a member of Cowen Healthcare RoyaltyCHRP GP, LLC, the general partner of the CHRP Funds. This commitment is expected to be called over a two to five year period. The Company will make its pro-rata investment in the CHRP Funds along with the other limited partners. ThroughDecember 31, 2010, 2011, the Company has funded $18.9$23.9 milliontowards these commitments.broker-dealer,broker‑dealers, Cowen and Company isand Cowen Capital LLC (formerly known as LaBranche Capital, LLC) are subject to the SEC's Uniform Net Capital Rule 15c3-1 (the "Rule"“Rule”), which requires the maintenance of minimum net capital. Under the alternative method permitted by the Rule, Cowen and Company's minimum net capital requirement, as defined, is $1.0 million. Cowen and CompanyCapital LLC is required to maintain minimum net capital, as defined, at an equivalent to the greater of $1.0 million or 2% of aggregate indebtedness, as defined. The broker-dealers are not permitted to withdraw equity if certain minimum net capital requirements are not met. As of December 31, 2010, 2011, Cowen and Company had total net$27.7$64.9 million, which was approximately $26.7$63.9 million in excess of its minimum net capital requirement of $1.0$1 million.("PAIB"(“PAIB”) held at the clearing broker are considered allowable assets for net capital purposes, pursuant to agreements between Cowen and Company and the clearing broker, which require, among other things, that the clearing broker performs computations for PAIB and segregates certain balances on behalf of Cowen and Company, if applicable.("(“Ramius UK"UK”) and Cowen International Limited ("CIL"(“CIL”) are subject to the capital requirements of the Financial Services Authority ("FSA"(“FSA”) of the UK. Financial Resources, as defined, must exceed the total Financial Resources requirement of the FSA. AtAs of December 31, 2010,2011, Ramius UK's Financial Resources of $3.8$0.6 million exceeded its minimum requirement of $0.4$0.5 million by $3.4$0.1 million. At As ofDecember 31, 2010, 2011, CIL's Financial Resources of $5.1$5.4 million exceeded its minimum requirement of $2.7$2.3 million by $2.4$3.1 million.Limited ("CLAL")Limited) is subject to the financial resources requirements of the Securities and Futures Commission ("SFC"(“SFC”) of Hong Kong. Financial Resources, as defined, must exceed the Total Financial Resources requirement of the SFC. At As ofDecember 31, 2010, CLAL's2011, CCAL's Financial $0.8$1.4 million exceeded the minimum requirement of $0.1$0.4 million by $0.7$1.0 million.addition, ourparticular, securities purchased and sold under Repurchase Agreements are used for short-term liquidity purposes. As of December 31, 2011, Repurchase Agreements are secured revolvingpredominantly by liquid corporate credit facilityand/or government-issued securities. The use of Repurchase Agreements will fluctuate with UniCredit Bank AG (formerly knownthe Company's need to fund short term credit or obtain competitive short term credit financing. The Company's securities purchased under agreements to resell and securities sold under agreements to repurchase were transacted pursuant to agreements with multiple counterparties as Bayerische Hypo-und Vereinsbank AG) ("HVB AG") referenced below prohibits usof December 31, 2011 and certainDecember 31, 2010.our subsidiaries from incurringthe Company's Repurchase Agreements. The following table represents the Company's securities purchased under agreements to resell and securities sold under agreements to repurchase as of December 31, 2011 and December 31, 2010: As of December 31, 2011 (dollars in thousands) Securities purchased under agreements to resell Agreements with Barclays Capital Inc bearing interest of (0.38%) - 0.25% due on January 3, 2012 $ 166,260 Securities sold under agreements to repurchase Agreements with Royal Bank of Canada bearing interest of 1.53% - 1.58% due on January 3, 2012 to June 25, 2012 49,450 Agreements with Barclays Capital Inc bearing interest of 0.03% - 0.08% due on January 3, 2012 179,333 $ 228,783 As of December 31, 2010 (dollars in thousands) Securities purchased under agreements to resell Agreements with Barclays Capital Inc bearing interest of 0.07% - 0.14% due on January 3, 2011 $ 97,755 Securities sold under agreements to repurchase Agreements with Royal Bank of Canada bearing interest of 1.42% due on February 22, 2011 to September 1, 2011 48,532 Agreements with Barclays Capital Inc bearing interest of 0.18% - 1.50% due on January 7, 2011 to June 6, 2011 143,633 $ 192,165 indebtedness, other than certain indebtedness permitted under the facility.capital and borrowings under its line of credit.capital. The Company's primary uses of cash include compensation, general and administrative expenses anditsthe former line of credit. Cash flow results during the year ended December 31, 2008 only reflect the cash flows and net loss of Ramius LLC prior to the Transactions. The cash flow results during the year ended December 31, 2009 only include the cash flows of the legacy Cowen Holdings business for two months. As a result, the cash flow amounts from operating, investing and financing activities for the year ended December 31, 2011, 2010 2009,, and 20082009 are not comparable.operatinginvesting activities of $96.7$85.0 million for the year ended December 31, 20082011 was predominatelyprimarily from the purchase of other investments related to a net cash loss, partially offset by the reduction in securities ownedCompany's invested capital and fees receivable. In 2008, the Company wound down its securities lending operation which resulted in a significant change in receivables from brokers mostly offset by a corresponding change in payable to brokers. Investing Activities.increased reverse repurchase agreement activity. Net cash used in investing activities of $109.5 million for the year ended December 31, 2010 was primarily from the purchase of other investments related to the Company's invested capital and increased reverse repurchase agreement activity. Net cash provided by investing activities of $8.9$8.8 million for the year ended December 31, 2009 was primarily due to the proceeds from sale of other investments.investingfinancing activities of $16.1 million for the year ended December 31, 20082011 was $57.3 millionprimarily due to the purchase of fixed assets related to increased repurchase activity, repayments on short term borrowings and other debt and payments by the relocation of the Company's headquarters into new office space. Financing Activities.Consolidated Funds to investors for capital withdrawals. Net cash provided by financing activities for the year ended December 31, 2010 was $50 million primarily related to increased repurchase agreement activity partially offset by a repayment on the line of credit and payments by the Consolidated Funds for capital withdrawals. For the year ended December 31, 2009 net cash used in financing activities was $18.5 million, the financing activities excluding the consolidated entities provided net cash of $80.6 million due to proceeds from a capital raising event in December 2009 which was partially offset by capital withdrawals of $23.9 million, which were mostly redeemed prior to the Transactions, and $10.4 million used to purchase the 50% interest in Ramius Alternative Solutions. ForSolutions, and payments by the twelve months ended December 31, 2008 net cash provided by financing activities was $141.6 million, however, the financing activities excluding the consolidated entities used net cash of $11.7 million primarily driven by a net withdrawal of $21 million of member's capital.Consolidated Funds to investors for capital withdrawals.available, with a $7.0 million letter of credit sub-limit.available. The first borrowing under this line occurred on June 30, 2009. As of December 31, 20102011 and December 31, 2009,2010, the Company had borrowings of $24.0nil and $24 million, and $43.0 million, respectively, under the line of credit portion. The Company also had a letter of credit of $6.7 million at December 31, 2009 with HVB AG.respectively. At the Company's election and discretion, borrowings under this collateralized revolving credit agreement bear interest per annum (based on a 360 day year) equal to either: (a) 0.5% plus the greater of (1) the lender's prime rate, (2) the overnight federal funds rate plus 0.5% and (3) the LIBOR rate plus 1.0% or (b) the LIBOR rate plus 2.75%. Due to the variable interest rate on these borrowings, their carrying values approximate fair value. The Company is required to pay a quarterly commitment fee on the undrawn portion of the revolving credit facility equal to 1.0% per annum of the undrawn amount. For letters of credit, the Company will pay a fee on the stated amount of the letter of credit at a rate equal to 2.75%. The 2009 collateralized revolving credit agreement was to mature on November 2, 2009 but was extended; $25.0 million was extended through January 4, 2010 and $25 million was extended through September 29, 2011. All terms of the extended collateralized revolving credit agreement remain the same except the following: at the Company's election and discretion, borrowings under the extended 2009 collateralized revolving credit agreement bearbore interest per annum (based on a 360 day year) equal to either: (1) the lender's prime rate plus 1.5% or (2) the 1, 2 or 3 month LIBOR rate plus 3.5%. For letters of credit,Due to the variable interest rate on these borrowings, their carrying values approximate fair value. The Company willwas required to pay a quarterly commitment fee on the stated amountundrawn portion of the letter ofrevolving credit at a ratefacility equal to 3.5%.1.0% per annum of the undrawn amount. The 2009 collateralized revolving credit agreement was to mature on September 29, 2011. However, during 2011, the Company agreed to repay in full its obligations pursuant to the credit agreement and HVB AG agreed to terminate the credit agreement. On June 27, 2011, the Company fully repaid the then borrowing amount outstanding of $23 million and the credit agreement was terminated as of that date. The 2009 collateralized revolving credit agreement contained financial and other restrictive covenants that limited the Company's ability to incur additional debt and engage in other activities. As of December 31, 2010 and duringDuring the period from June 3, 2009 to December 31, 2010,through June 27, 2011 the Company was in compliance with these covenants. During 2010,credit. Upon termination of the credit agreement on June 27, 2011, the Company's collateral pledge to HVB AG notified us that they will not be renewingwas released and the $6.7 million letter ofCompany is no longer subject to the restrictive covenants contained in the credit which supports the lease of office space in New York. agreement.hashad replaced thatthe HVB AG letter of credit with a new letter of credit by another financial institution which expiresexpired December 12, 2011. Interest 2009 and 2008 2009was $1.0$0.4 million, $1.5$1 million and $1.5 million, respectively. Cash collateral pledged at December 31, 2009, on the consolidated statements of financial condition, represents collateral that was required to be posted for obligations or potential obligations under the letter of credit discussed above pursuant to the lease agreement for the Company's premises in New York City. This collateral was released with the terms of the extended collateralized revolving credit agreement. The Company's investment in Enterprise Master through the Enterprise Fund has been pledged as collateral under the line of credit portion of the revolving credit agreement discussed above.TheseAs ofbearpayable were paid in full. The interest atrate on these notes were 5.05% and 4.95%, respectivelyrespectively. Interest expense for the year endedDecember 31, 2011and2010was not significant. In addition, during the fourth quarter of 2010, the Company incurred $4.1 million of financing costs relating to short‑term borrowings from affiliated funds to finance the acquisition of one of the Luxembourg reinsurance captives.duerecorded in Octoberfixed assets and as capital lease obligations, which is included in short-term borrowings and other debt in the accompanying consolidated statements of 2011.financial condition, and have lease terms that range from 48 to 60 months and interest rates that range from 0.60% to 6.14%. As of December 31, 2010, 2011, the outstandingremaining balance on these combined notes payablecapital leases was $1.4$5.3 million. Interest expense for the year endedDecember 31, 2011was $0.2 million and for the year ended December 31, 2010, was not significant.2010 2011, the Company also has four additionalsix irrevocable letters of credit, for which there is cash or bond collateral pledged, including (i) $50,000, which expires on July 12, 2011,2012, supporting workers' compensation insurance with Safety National Casualty Corporation, (ii) $57,000, which expires on May 12, 2011,2012, supporting Cowen Healthcare Royalty Management, LLC's Stamford office lease, and (iii) $82,000, which expires on May 12, 2011,2012, supporting the Company's San Francisco office, and (iv) $1.2 million which expires on August 31, 2011,2012, supporting the Company's lease of additional office space in New York, (v) $6.7 million, which expires December 12, 2012, supporting the lease of office space in New York which the Company pays a fee on the stated amount of the letter of credit at a rate equal to 0.5% and (vi) $0.9 million which expires May 25, 2017, supporting the lease of additional office space in New York. To20102011 and December 31, 2009, there2010, there were no amounts due related to these letters of credit. Ramius Levered Multi-Strategy FOF LP had a $100.0 million line of credit with a major financial institution with a minimum borrowing amount of $20.0 million. Levered FOF could borrow on this line of credit up to 72% of the amount of collateral pledged. In accordance with the loan agreement, interest accrued on the loan as well as custodian and other fees incurred by Levered FOF in connection with the loan was capitalized and added to the total outstanding balance of the loan. During 2008, due to Levered FOF going into liquidation, the minimum borrowing amount was waived. As of December 31, 2008, the outstanding balance on this line of credit was $10.0 million. This loan bears interest at LIBOR plus 1.35% per annum. Due to the floating rate of interest, its carrying value approximates fair value. At December 31, 2008, all investments owned by Levered FOF were pledged as collateral in connection with this line of credit. Interest incurred on Levered FOF's line of credit during the years ended December 31, 2009 and 2008 was $0 and $1.6 million, respectively. Levered FOF's line of credit was repaid in full as of February 5, 2009 and was discontinued on that date.2010: Total 1-3 Years 4-5 Years More Than
5 Years Total 1-3 Years 4-5 Years More Than
5 Years (dollars in thousands) (dollars in thousands) $ 135,439 $ 52,081 $ 22,104 $ 61,254 $ 121,857 $ 47,005 $ 22,357 $ 52,495 37,079 28,943 8,136 — 32,067 28,842 3,225 — 6,974 4,475 2,422 77 5,729 4,484 1,245 — 5,426 5,279 147 — 3,666 3,666 — — $ 184,918 $ 90,778 $ 32,809 $ 61,331 Total $ 163,319 $ 83,997 $ 26,827 $ 52,495 $ 24,000 $ 24,000 $ — $ — 132 132 — — 1,396 1,396 — — 370 370 — — — — — — 633 633 — — $ 26,161 $ 26,161 $ — $ — Total $ 370 $ 370 $ — $ — (1) (1)Estimated 2010 funding requirements for the Company's defined benefit plan. Future contributions to the plan beyond 2010 cannot reasonably be estimated and are excluded from the table above.2010,2011, the clawback obligations were $6.2 million.million (See Note 23 "Related Party Transactions"Notes 25 and Note 17 "Commitments and Contingencies" in the Notes to the Consolidated Financial Statements.)2010.2011. However, through indemnification provisions in our clearing agreement, customer activities may expose us to off-balance-sheet credit risk. Pursuant to the clearing agreement, we are required to reimburse our clearing broker, without limit, for any losses incurred due to a counterparty's failure to satisfy its contractual obligations. However, these transactions are collateralized by the underlyingestimates:ConsolidationFinancial Accounting Standards Board ("FASB") accounting standards. In accordance with these standards, the Company presently consolidates five funds deemed to be VOEs for which it acts as the general partner and investment manager. RTS Global 3x Fund LP ("RTS Global 3x") was first consolidated in the first quarter of 2010, when it commenced operations.US GAAP.FASB accounting standards,US GAAP, the usual condition for a controlling financial interest in an entitya VOE is ownership of a majority voting interest. Accordingly, the Company consolidates VOEs in which it owns a majority of the entity's voting shares or units. FASB accounting standardsUS GAAP also provideprovides that a general partner of a limited partnership (or a managing member, in the case of a limited liability company) is presumed to control the partnership, and thus should consolidate it, unless a simple majority of the limited partners has the right to remove the general partner without cause or to terminate the partnership. In accordance with these standards, the Company presently consolidates five funds deemed to be VOEs for which it acts as the general partner.atof December 31, 2011 and 2010 the Company consolidates the following funds (the "Consolidated Funds"“Consolidated Funds”): theRamius Enterprise Fund,LP (“Enterprise LP”), Ramius Multi-StrategyMulti‑Strategy FOF LP ("Multi-Strat FOF"(“Multi‑Strat FOF”), Ramius Vintage Multi-StrategyMulti‑Strategy FOF LP ("(“Vintage LP"FOF”), Ramius Levered Multi-StrategyMulti‑Strategy FOF LP ("(“Levered FOF"FOF”), and RTS Global 3x.FASB accounting standards,US GAAP, an enterprise must consolidate all VIEs of which it is the primary beneficiary. Under the new FASBUS GAAP consolidation model for VIEs, (as discussed in "Recently adopted accounting pronouncements"), an enterprise that (1) has the power to direct the activities of a VIE that most significantly impacts the VIE's economic performance, and (2) has an obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE, is considered to have a controlling financial interest inbe the primary beneficiary of the VIE and thus is required to consolidate it.newrevised consolidation model for VIEs that meet certainthe following conditions: (a) the entity has all the attributes of an investment company as defined under AICPA Audit and Accounting Guide, Investment Companies, or does not have all the attributes of an investment company but is an entity for which it is acceptable based on industry practice to apply measurement principles that are consistent with investment companies, (b) the reporting entity does not have explicit or implicit obligations to fund any losses of the entity that could potentially be significant to the entity, and (c) the entity is not a securitization entity, asset‑backed financing entity or an entity that was formerly considered a qualifying special‑purpose entity. The Company's involvement with its funds is such that all three of the above conditions as discussed in "Recent adopted accounting pronouncements".are met. Where the VIEs have qualified for the deferral, the analysis is based on previous consolidation rules. These rules requirethis condition isthese conditions are met, the Company is considered to have a controlling financial interest inbe the primary beneficiary of the VIE and thus is required to consolidate it.continuously.terms of any contractscontractual agreements between the Company and the VIE, whichthe economic interests that create or absorb variability, related party relationships and the design of the VIE.As of December 31, 2011 and 2010, the Company does not consolidate any VIEs. The("(“Replication Ltd"Ltd”) was consolidated as of April 1, 2010, when the Company first invested in the fund. This fund was deconsolidated on October 1, 2010 when the investment in the fund ceased providing the Company with a controlling interest and is included within portfolio funds,Portfolio Funds, at fair value as of December 31, 2010.atof December 31, 20102011 and 2009, 2010, the Company holds a variable interest in Ramius Enterprise Master Fund Ltd ("(“Enterprise Master"Master”), Ramius Multi-StrategyMulti‑Strategy Master FOF LP and Ramius Vintage Multi-StrategyMulti‑Strategy Master FOF LP (the "Unconsolidated“Unconsolidated Master Funds"Funds”) through three of its Consolidated Funds: the Enterprise Fund, Multi-StratLP, Multi‑Strat FOF and Vintage FOF (the "Consolidated“Consolidated Feeder Funds"Funds”), respectively. Investment companies like the Consolidated Feeder Funds, which account for their investments under the specialized industry accounting guidance for investment companies prescribed under FASB accounting standards,US GAAP, are not subject to the consolidation provisions for their investments. Therefore, the Company has not consolidated the Unconsolidated Master Funds.equity inshare of earnings or losses from equity method investees is included in net gains (losses) on securities, derivatives and other investments in the consolidated statements of operations.FASB accounting standards.US GAAP. The Consolidated Funds report their investments on the consolidated statements of financial condition at their estimated fair value,broker-dealerbroker‑dealer subsidiaries, Ramius SecuritiesCowen and Company, LLC ("Ramius Securities"(“Cowen and Company”), Cowen Capital LLC, Cowen International Trading Limited (“CITL”), Cowen and Company (Asia) Limited (“CCAL”), and Cowen and Company,Structured Products Hong Kong Limited (“CSPH”), apply the specialized industry accounting for brokers and dealers in securities also prescribed under FASB accounting standards.US GAAP. The Company also has retained this specialized accounting in consolidation. FASB accounting standards establishLevel 1Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date;Level 1 Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has Level 2Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; andLevel 3Fair value is determined based on pricing inputs that are unobservable and includes situations where there is little, if any, market activity for the asset or liability. The determination of fair value for assets and liabilities in this category requires significant management judgment or estimation."observable"“observable” requires significant judgment by the Company. The Company considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Company's perceived risk of that instrument.analyses,analysis, public market comparables, and other techniques and may be based, at least in part, on independently sourced market information. The material estimates and assumptions used in these models include the timing and expected amount of cash flows, the appropriateness of discount rates used, and, in some cases, the ability to execute, timing of, and estimated proceeds from expected financings. Significant judgment and estimation goes into the selection of an appropriate valuation methodology as well as the assumptions used in these models, and the timing and actual values realized with respect to investments could be materially different from values derived based on the use of those estimates. The valuation methodologies applied impact the reported value of the Company's investments and the investments held by the Consolidated Funds in the consolidated financial statements.Table Certain of Contentsthe Company's investments are relatively illiquid or thinly traded and may not be immediately liquidated on demand if needed. Fair values assigned to these investments may differ significantly from the fair values that would have been used had a ready market for the investments existed and such differences could be material"market approach"“market approach” valuation technique to value its financial instruments measured at fair value. In determining an instrument's placement within the hierarchy, the Company separates the Company's financialexchange-tradedexchange‑traded or privately negotiated over-the-counter ("OTC"(“OTC”). Exchange-tradedExchange‑traded derivatives, such as futures contracts and exchange traded option contracts, are typically classified within level 1 or level 2 of the fair value hierarchy depending on whether or not they are deemed to be actively traded. OTC derivatives, such as generic forwards, swaps and options, have inputs which can generally be corroborated by market data and are therefore classified within level 2. Derivative contractsFutures, equity swaps and credit default swaps are included within other assets on the consolidated statements of financial condition. Other investments—Other investments measuredcondition and all other derivatives are included within securities owned, at fair value on the consolidated statements of financial condition.and real estate investments and equity method investments, which are valued as follows:i.Portfolio fundsfollows—Portfolio funds ("Portfolio Funds") include interests in funds and investment companies managed externally by the Company and unaffiliated managers. In September 2009, the FASB issued a new accounting pronouncement regarding fair value measurements and disclosures relating to investments in certain entities that calculate net asset value ("NAV") per share (or its equivalent). The guidance permits, as a practical expedient, an entity holding investments in certain entities that either are investment companies as defined by the AICPA Audit and Accounting Guide, Investment Companies, or have attributes similar to an investment company, and calculate net asset value per share or its equivalent for which the fair value is not readily determinable, to measure the fair value of such investments on the basis of that NAV per share, or its equivalent, without adjustment. The Company has adopted this guidance effective with the issuance of its December 31, 2009 financial statements. As this guidance is consistent with the Company's existing fair value measurement policy for its Portfolio funds, the Company's adoption did not have an impact on its financial condition, results of operations or cash flows.
:i. theits ability to redeem the investment. If the Company has the ability to redeem its investment at NAV at the measurement date or within the near term, the Portfolio Fund is categorized as a Levellevel 2 investment within the fair value measurement.hierarchy. If the Company does not know when it willLevellevel 3 investment within the fair value measurement.hierarchy. See Note 5Notes 6 and 7 for further details of the Company's investments in Portfolio Funds.ii.Real estate investments—Real estate investments are valued at estimated fair value. The fair value of real estate investments are estimated based on the price that would be received to sell an asset in an orderly transaction between marketplace participants at the measurement date. Real estate investments without a public market are valued based on assumptions and valuation techniques used by the Company. Such valuation techniques may include discounted cash flow analysis, prevailing market capitalization rates or earning multiples applied to earnings from the investment, analysis of recent comparable sales transactions, actual sale negotiations and bona fide purchase offers received from third parties, consideration of the amount that currently would be required to replace the asset, as adjusted for obsolescence, as well as independent external appraisals. In general, the Company considers several valuation techniques when measuring the fair value of a real estate investment. However, in certain circumstances, a single valuation technique may be appropriate. Real estate investments are reviewed on a quarterly basis by the Company for significant changes at the property level or a significant change in the overall market which would impact the value of the real estate investment resulting in unrealized appreciation or depreciation.ii. date.Levela level 3 investment within the fair value hierarchy as management uses significant unobservable inputs in determining their estimated fair value.Note 5 to the Company's audited consolidated financial statementsNotes 6 and 7 for further information regarding the Company's investments, including equity method investments, and fair value measurements.Company generates revenue through severalCompany's principal sources of revenue are derived from two segments: an alternative investment management segment and a broker-dealer segment, as more fully described below:for whichthat it serves as the investment manager based on a fixed percentage of net asset value, committed capitalassets under management. The actual management fees received vary depending on distribution fees or invested capital. Management fees are based on contractual terms specifiedfee splits paid to third parties either in connection with raising the underlying investment management agreements with each specific fundassets or managed account. structuring the investment.our fund of funds products and certain portfolio fundsthe Alternative Solutions business are based and initially calculated on estimated net asset values and actual fees ultimately earned could be impacted to the extent of any changes in these estimates.Incomeincomethe net profits as(as defined in the respective investment management agreementsagreements) with respect to certain of the Company's funds and certain managed accounts, allocable for each fiscal year that exceeds cumulative unrecovered net losses, if any, that have carried forward from prior years. IncentiveFor the products we offer, incentive income earned is typically between 10% and 20% for hedge funds and 10% for fund of funds and alternative solutions products (in certain cases on performance in excess of a benchmark), generally, of the net profits earned for the full year that are attributable to each fee-paying investor. IncentiveGenerally, incentive income on real estate investmentsfunds is earned after the investor has received a full return of their invested capital, plus a preferred return. However in certain real estate funds, the yearCompany is entitled to receive incentive fees earlier provided that the investors have received their preferred return on a current basis. These funds are subject to a potential clawback of that incentive income upon the liquidation of the fund if the investor has not received a sale or realizationfull return of a private investment.its invested capital plus the preferred return thereon. Incentive income in the CHRP Funds is earned only after investors receive a full return of their capital plus a preferred return.recovered. Incentive income, once earned, is not subjectrecovered, an arrangement commonly referred to repayment.as a “high-water mark.” The Company has elected to record incentive income revenue in accordance with "Method 2"“Method 2” of FASB accounting standards.the US GAAP. Under Method 2, the incentive income from the Company's funds and managed accounts for any period is based upon the net profits of those funds and managed accounts at the reporting date. Any incentive income recognized in a quarter'sthe consolidated statement of operations may be subject to reversal in a subsequent quarter as a result ofbased on subsequent negative investment performance of the funds prior to the conclusion of the fiscal year, when all contingencies have been resolved. As a result of negative investment performance in 2008, andcase of certain real estate funds in 2009, the Company entered 2010 with high-water marks in many funds that the Company manages. These high-water marks require the funds to recover cumulative losses before the Company can begin to earn incentive income in 2010 and beyond until the high-water marks are reached with respect to the capital accounts of the funds' investors who suffered losses in 2008, and in the case of certain real estate funds, in 2009. In 2010, the Ramius Value and Opportunity Funds surpassed their high-water marks and the Company began to earn incentive income again on these products. Carried interest is subject to clawback to the extent that the carried interest actually distributed to date exceeds the amount due to the Company based on cumulative results. As such, the accrual for potential repayment of previously received carried interest, which is a component of due to related parties,accounts payable, accrued expenses and other liabilities, represents all amounts previously distributed to the Company, less an assumed tax liability, that would need to be repaid to certain real estate funds if these funds were to be liquidated based on the current fair value of the underlying funds' investments as of the reporting date. Generally, theThe actual clawback liability does not become realized until the end of a fund's life. RevenuesThe Company's investmentInvestment banking revenues are derived primarily from small and mid-capitalization companies within the Company's target sectors of healthcare, technology, media and telecommunications, consumer, aerospace &and defense, industrials, REITs and alternative energy.•IPOs,initial public offerings, follow-on equity offerings, debt offerings, and convertible security offerings. The Company's underwritingUnderwriting revenues include management fees, selling concessions and underwriting fees. Fee revenue relating to underwriting commitments is recorded when all significant items relating to the underwriting cycleprocess have been completed and the amount of the underwriting revenue has been determined. This generally is the point at which all of the following have occurred: (i) the issuer's registration statement has become effective with the SEC, or the other offering documents are finalized; (ii) the Company hassharessecurities from the issuer; and (iii) the Company has been informed of the number of sharessecurities that it has been allotted.a registered equityan underwriting transaction, management must estimate the Company's share of transaction relatedtransaction-related expenses incurred by the lead manager in order to recognize revenue. Transaction-related expenses are deducted from the underwriting fee and therefore reduce the revenue the Company recognizes as co-manager. Such amounts are adjusted to reflect actual expenses in the period in which the Company receives the final settlement, typically within 90 days following the closing of the transaction.
.•both buyers and sellers, principally in mergers and acquisitions.acquisitions and liability management transactions. The Company also earns fees for related advisory work such as providing fairness opinions. The Company records strategic advisory revenues when the services for the transactions are completed under the terms of each assignment or engagement and collection is reasonably assured. Expenses associated with such transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded.•PIPEsof debt and RDs.equity securities, including, private investment in public equity transactions (“PIPEs”) and registered direct offerings. The Company records private placement revenues when the services for the transactions are completed under the terms of each assignment or engagement and collection is reasonably assured. Expenses associated with such transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded.TheGoodwill is allocated to the Company's reporting units at the date the goodwill is initially recorded. Once goodwill has been allocated to the reporting units, it generally no longer retains its identification with a particular acquisition, but instead becomes identifiable with the reporting unit. As a result, all of the fair value of each reporting unit is available to support the value of goodwill allocated to the unit.method described in FASB accounting standards.approach. The first step involvesrequires a comparison of the estimated fair value of the reporting unit to its carrying amount,value, including goodwill. If the estimated fair value of the reporting unit exceeds its carrying amount, itsvalue, the related goodwill is not considered impaired and the second step of the impairment testno further analysis is not necessary.required. If the carrying amountvalue of the reporting unit exceeds its estimatedthe fair value, thenthere is an indication that the secondrelated goodwill might be impaired and the step two is performed to measure the amount of the goodwill impairment, test must be performed. if any.unitunit's goodwill with its carrying amount to measure the amount of impairment, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In other words, the estimated fair value of the reporting unit is allocated to all of its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment is recognized in an amount equal to that excess. Goodwill is tested annually for impairment during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances. Goodwill impairment tests are subject toinvolve significant judgment in determining the estimationestimates of future cash flows, discount rates, economic forecast and other assumptions.assumptions which are then used in acceptable valuation techniques, such as the market approach (earning and or transactions multiples) and / or income approach (discounted cash flow method). Changes in these estimates and assumptions could have a significant impact on the fair value and any resulting impairment of goodwill.asset'sasset or asset group's carrying value may not be fully recoverable. An impairment loss, calculated as the difference between the estimated fair value and the carrying value of an asset or asset group, isTable recognized in the consolidated statements of Contentsrecognizedoperations if the sum of the estimated undiscounteddiscounted cash flows relating to the asset or asset group is less than the corresponding carrying value.FASB accounting standards.US GAAP. These amounts are reported in other expenses, net of recoveries, in the consolidated statements of operations. The consolidated statements of operations do not include litigation expenses incurred by the Company in connection with indemnified litigation matters. See Note 17 to the Company's consolidated financial statements19 for further discussion. As the successor of the named party in these litigation matters, the Company recognizes the related legal reserve in the consolidated statements of financial condition.Future AsDecember 31, 2010, nonerecently adopted and future adoption of the changes to the Codification issued by the FASB that are not yet effective are expected to have an impact on the Company's financial position or resultsaccounting pronouncements.incldeinclude price verification procedures, position reconciliations and reviews of transaction booking. We believe these procedures, which stress timely communications between traders, trading management and senior management, are important elements of the risk management process.20102011 would result in a change of approximately $904 million$1.0 billion in our assets under management and would impact management fees by approximately $5.1$7.0 million. This number is an estimate. The amount would be dependent on the fee structure of the particular fund or funds that experienced such a change. As we may hold interest-sensitive assets and liabilities from time to time, we are exposed to additional interest rate risk arising from changes in the level and volatility of interest rates and in the shape of the yield curve. In the event that LIBOR, and rates directly or indirectly tied to LIBOR, were to increase by 10% over LIBOR as of December 31, 2009, based on the Company's funds' debt investments and obligations as of December 31, 2009, we estimate that the net effect on interest income and interest expense would not result in a material impact on our results of operations. A tightening of credit and increase in prevailing interest rates could make it difficult for us to raise capital and sustain our growth rate. In addition, the Company's debt obligations bear interest at rates indexed to LIBOR. For every 1% increase in LIBOR, as of December 31, 2009, our annual interest expense will increase by $0.2 million.2010,2011, the Company had recorded no liability.StatementStandards for Attestation Engagements (SSAE) No. 16, Reporting on Auditing Standards No. 70Controls at a Service Organization report on the state of its internal controls. We are focused on maintaining our overall operational risk management framework and minimizing or mitigating these risks through a formalized control assessment process to ensure awareness and adherence to key policies and control procedures.20102011 we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and were operating at the reasonable assurance level.20102011 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. None.20112012 annual meeting of stockholders under the captions "Executive Officers," "Board of Directors," "Information Regarding the Board of Directors and Corporate Governance—Committees of the Board—Audit Committee," "Information Regarding the Board of Directors and Corporate Governance—Director Nomination Process," "Information Regarding the Board of Directors and Corporate Governance—Procedures for Nominating Director Candidates," "Information Regarding the Board of Directors and Corporate Governance—Code of Business Conduct and Ethics" and "Section 16(a) Beneficial Ownership Reporting Compliance" is incorporated herein by reference.20112012 annual meeting of stockholders under the captions "Executive Compensation—Compensation and Benefits Committee Report," "Certain Relationships and Related Transactions—Compensation and Benefits Committee Interlocks and Insider Participation" and "Information Regarding the Board of Directors and Corporate Governance—Compensation Program for Non-Employee Directors" is incorporated herein by reference.20112012 annual meeting of stockholders under the captions "Security Ownership—Beneficial Ownership of Directors, Nominees and Executive Officers," "Security Ownership—Beneficial Owners of More than Five Percent of our Common Stock" and "Securities Authorized for Issuance Under Equity Compensation Plans" are incorporated herein by reference.20112012 annual meeting of stockholders under the captions "Information Regarding the Board of Directors and Corporate Governance—Director Independence," "Certain Relationships and Related Transactions—Transactions with Related Persons," and "Certain Relationships and Related Transactions—Review and Approval of Transactions with Related Persons" is incorporated herein by reference.20112012 annual meeting of stockholders under the captions "Audit Committee Report and Payment of Fees to Our Independent Auditor—Auditor Fees" and "Audit Committee Report and Payment of Fees to Our Independent Auditor—Auditor Services Pre-Approval Policy" is incorporated herein by reference.(a)(a) Documents filed as part of this Annual Report on Form 10-K: F-85F-71 hereof.E-4E-2 for a list of the exhibits being filed or furnished with or incorporated by reference into this Annual Report on Form 10-K.Consolidated Financial Statements Page F-51Note 10—Goodwill and Intangible AssetsF-51Note 11—13—Redeemable Non-controlling Interests in Consolidated Subsidiaries 20102011 fiscal year, management conducted an assessment of the Company's internal control over financial reporting based on the framework established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company's internal control over financial reporting as of December 31, 20102011 was effective.20102011 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included herein, which expresses an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2010.2011.20102011 and 2009,2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20102011 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010,2011, based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing on page F-2. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our audits (which was anwere integrated auditaudits in 2011 and 2010). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.11, 20119, 201220102011 and 2009
2010 As of December 31, As of December 31, 2010 2009 2011 2010 $ 36,354 $ 147,367 8,633 7,246 474,095 54,153 97,755 — 40,320 28,490 95,937 32,525 31,688 22,446 16,370 14,860 36,591 32,603 27,179 27,179 12,754 16,394 19,456 24,199 7,210 625 8,722 — 333,374 550,407 732 947 $ 1,247,170 $ 959,441 Cash and cash equivalents $ 126,889 $ 36,354 Cash collateral pledged 9,785 8,633 Securities owned, at fair value 744,914 474,095 Securities purchased under agreement to resell 166,260 97,755 Other investments 61,929 40,320 Receivable from brokers 62,046 95,937 Fees receivable 22,297 31,688 Due from related parties 16,554 16,370 Fixed assets, net of accumulated depreciation and amortization of $23,852 and $17,764, respectively 37,042 36,591 Goodwill 20,028 27,179 Intangible assets, net of accumulated amortization of $20,220 and $8,146, respectively 5,760 12,754 Other assets 26,620 19,456 Consolidated Funds Cash and cash equivalents 297 7,210 Securities owned, at fair value 6,334 8,722 Other investments, at fair value 228,820 333,374 Other assets 263 732 Total Assets $ 1,535,838 $ 1,247,170 $ 197,916 $ 14,812 192,165 — 85,655 3,817 76,204 80,923 31,733 49,746 8,797 5,387 9,187 8,103 42,267 65,599 7,817 26,312 1,827 392 653,568 255,091 Securities sold, not yet purchased, at fair value $ 334,251 $ 197,916 Securities sold under agreement to repurchase 228,783 192,165 Payable to brokers 213,360 85,655 Compensation payable 71,223 76,204 Short-term borrowings and other debt 5,650 31,733 Fees payable 5,503 8,797 Due to related parties 1,914 9,187 Accounts payable, accrued expenses and other liabilities 61,462 42,267 Consolidated Funds Capital withdrawals payable 394 7,817 Accounts payable, accrued expenses and other liabilities 246 1,827 Total Liabilities 922,786 653,568 Commitments and Contingencies (Note 19) 144,346 230,825 104,587 144,346 — — 726 726 — — 504,480 483,872 (55,970 ) (10,553 ) 20 (520 ) 449,256 473,525 $ 1,247,170 $ 959,441 Preferred stock, par value $0.01 per share; 10,000,000 shares authorized, no shares issued and outstanding — — 1,135 726 Class B common stock, par value $0.01 per share: 250,000,000 authorized, no shares issued and outstanding — — Additional paid-in capital 688,427 504,480 (Accumulated deficit) retained earnings (163,980 ) (55,970 ) Accumulated other comprehensive income (loss) (215 ) 20 Less: Class A common stock held in treasury, at cost, 5,346,003 shares as of December 31, 2011 (16,902 ) — Total Stockholders' Equity 508,465 449,256 Total Liabilities and Stockholders' Equity $ 1,535,838 $ 1,247,170 2009 and 2008
2009 Year ended December 31, Year ended December 31, 2010 2009 2008 2011 2010 2009 $ 38,965 $ 10,557 $ — 112,217 17,812 — 38,847 41,694 70,818 11,363 1,911 — 11,547 477 1,993 6,816 10,326 16,330 1,936 4,732 6,853 11,733 33,697 30,267 386 2,695 1,472 233,810 123,901 127,733 Investment banking $ 50,976 $ 38,965 $ 10,557 Brokerage 99,611 112,217 17,812 Management fees 52,466 38,847 41,694 Incentive income 3,265 11,363 1,911 Interest and dividends 22,306 11,547 477 Reimbursement from affiliates 4,322 6,816 10,326 Other revenues 1,583 1,936 4,732 Consolidated Funds Interest and dividends 569 11,733 33,697 Other revenues 180 386 2,695 Total revenues 235,278 233,810 123,901 194,919 96,592 84,769 17,143 2,451 — 8,971 1,601 1,820 14,547 20,140 9,829 15,814 4,452 3,974 13,972 2,906 1,574 18,119 11,835 11,401 11,543 5,761 4,611 14,470 7,804 8,647 — — 10,200 22,323 12,868 13,000 3,078 14,017 28,806 3,094 6,500 2,790 995 707 1,228 954 2,357 1,444 339,942 189,991 184,093 Employee compensation and benefits 203,767 194,919 96,592 Floor brokerage and trade execution 16,475 17,143 2,451 Interest and dividends 8,839 8,971 1,601 Professional, advisory and other fees 33,702 14,547 20,140 Service fees 16,365 15,814 4,452 Communications 16,350 13,972 2,906 Occupancy and equipment 25,673 18,119 11,835 Depreciation and amortization 15,472 11,543 5,761 Client services and business development 16,725 14,470 7,804 Goodwill impairment 7,151 — — Other 12,354 22,323 12,868 Consolidated Funds Interest and dividends 147 3,078 14,017 Professional, advisory and other fees 2,136 3,094 6,500 Floor brokerage and trade execution — 995 707 Other 499 954 2,357 Total expenses 375,655 339,942 189,991 21,980 (2,154 ) (2,006 ) 33,116 55,908 (216,910 ) (761 ) (31,750 ) 6,771 (1,293 ) (3,159 ) 11,654 53,042 18,845 (200,491 ) (53,090 ) (47,245 ) (256,851 ) Net gains (losses) on securities, derivatives and other investments 15,128 21,980 (2,154 ) Bargain purchase gain 22,244 — — Consolidated Funds: Net realized and unrealized gains (losses) on investments and other transactions 4,925 33,116 55,908 Net realized and unrealized gains (losses) on derivatives (583 ) (761 ) (31,750 ) Net gains (losses) on foreign currency transactions 53 (1,293 ) (3,159 ) Total other income (loss) 41,767 53,042 18,845 Income (loss) before income taxes (98,610 ) (53,090 ) (47,245 ) (21,400 ) (8,206 ) (1,301 ) (20,073 ) (21,400 ) (8,206 ) (31,690 ) (39,039 ) (255,550 )
13,727
16,248
(113,786
) $ (45,417 ) $ (55,287 ) $ (141,764 ) Net income (loss) from continuing operations (78,537 ) (31,690 ) (39,039 ) Net income (loss) from discontinued operations, net of tax (23,646 ) — — Net income (loss) (102,183 ) (31,690 ) (39,039 ) Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries 5,827 13,727 16,248 Net income (loss) attributable to Cowen Group, Inc. stockholders $ (108,010 ) $ (45,417 ) $ (55,287 ) 73,149 41,001 37,537 73,149 41,001 37,537 Basic 95,532 73,149 41,001 Diluted 95,532 73,149 41,001 $ (0.62 ) $ (1.35 ) $ (3.78 ) $ (0.62 ) $ (1.35 ) $ (3.78 ) Basic Income (loss) from continuing operations $ (0.88 ) $ (0.62 ) $ (1.35 ) Income (loss) from discontinued operations $ (0.25 ) $ — $ — Diluted Income (loss) from continuing operations $ (0.88 ) $ (0.62 ) $ (1.35 ) Income (loss) from discontinued operations $ (0.25 ) $ — $ — 2009 and 2008
2009 Common Shares Outstanding Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings/ Accumulated deficit Total Stockholders' Equity Redeemable Noncontrolling Interest Total Comprehensive Income (Loss) 37,536,826 $ 375 $ 264,999 $ (290 ) $ 214,896 $ 479,980 $ 203,523 — — — — (141,764 ) (141,764 ) (113,786 ) $ (255,550 ) — — — (873 ) — (873 ) — (873 ) Common Shares Outstanding Common Stock Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings/ (Accumulated deficit) Total Stockholders' Equity Redeemable Non-controlling Interest Total Comprehensive Income (Loss) — — — (873 ) (141,764 ) (142,637 ) (113,786 ) (256,423 ) — — 12,465 — — 12,465 236,886 — — — — (18,916 ) (18,916 ) (41,687 ) 37,536,826 375 277,464 (1,163 ) 54,216 330,892 284,936 37,536,826 $ 375 $ — $ 277,464 $ (1,163 ) $ 54,216 $ 330,892 $ 284,936 — — — — (55,287 ) (55,287 ) 16,248 (39,039 ) — — — 636 — 636 — 636 — — — 7 — 7 — 7 Net income (loss) — — — — — (55,287 ) (55,287 ) 16,248 $ (39,039 ) Defined benefit plans — — — — 636 — 636 — 636 Foreign currency translation — — — — 7 — 7 — 7 — — — 643 (55,287 ) (54,644 ) 16,248 (38,396 ) — — — — 643 (55,287 ) (54,644 ) 16,248 (38,396 ) — — 4,906 — — 4,906 1,613 — — — 4,906 — — 4,906 1,613 — — — — (9,482 ) (9,482 ) (60,214 ) — — — — — (9,482 ) (9,482 ) (60,214 ) 2,713,882 27 3,085 — — 3,112 (13,482 ) 2,713,882 27 — 3,085 — — 3,112 (13,482 ) 15,055,619 151 114,346 — — 114,497 1,724 Common stock issuance upon close of Transaction (see Note 2) 15,055,619 151 — 114,346 — — 114,497 1,724 2,144,138 — — — — — — 2,144,138 — — — — — — — 17,292,698 173 80,434 — — 80,607 — Issuance of common stock on share offering (see Note 21) 17,292,698 173 — 80,434 — — 80,607 — — — 3,637 — — 3,637 — — — — 3,637 — — 3,637 — 74,743,163 726 483,872 (520 ) (10,553 ) 473,525 230,825 74,743,163 726 — 483,872 (520 ) (10,553 ) 473,525 230,825 — — — — (45,417 ) (45,417 ) 13,727 (31,690 ) — — — 241 — 241 — 241 — — — 299 — 299 — 299 Net income (loss) — — — — — (45,417 ) (45,417 ) 13,727 (31,690 ) Defined benefit plans — — — — 241 — 241 — 241 Foreign currency translation — — — — 299 — 299 — 299 — — — 540 (45,417 ) (44,877 ) 13,727 $ (31,150 ) — — — — 540 (45,417 ) (44,877 ) 13,727 (31,150 ) — — — — — — 10,062 — — — — — — — 10,062 — — — — — — (105,869 ) — — — — — — — (105,869 ) — — — — — — 409 — — — — — — — 409 — — — — — — (1,713 ) — — — — — — — (1,713 ) — — — — — — (3,095 ) — — — — — — — (3,095 ) 747,046 — — — — — — 747,046 — — — — — — — — — 20,608 — — 20,608 — — — — 20,608 — — 20,608 — 75,490,209 $ 726 $ 504,480 $ 20 $ (55,970 ) $ 449,256 $ 144,346 75,490,209 726 — 504,480 20 (55,970 ) 449,256 144,346 Comprehensive income (loss): Net income (loss) — — — — — (108,010 ) (108,010 ) 5,827 (102,183 ) Defined benefit plans — — — — 25 — 25 — 25 Foreign currency translation — — — — (260 ) — (260 ) — (260 ) Total comprehensive income (loss) — — — — (235 ) (108,010 ) (108,245 ) 5,827 (102,418 ) Capital contributions — — — — — — — 4,038 Capital withdrawals — — — — — — — (53,094 ) Consolidation of RCG Linkem II LLC — — — — — — — 3,470 Restricted stock awards issued 3,053,298 — — — — — — — Common stock issuance upon acquisition (see Note 2) 40,850,133 409 — 155,639 — — 156,048 — Purchase of treasury stock, at cost (5,346,003 ) — (16,902 ) — — — (16,902 ) — Amortization of share based compensation — — — 28,308 — — 28,308 — Balance, December 31, 2011 114,047,637 $ 1,135 $ (16,902 ) $ 688,427 $ (215 ) $ (163,980 ) $ 508,465 $ 104,587 2009 and 2008
2009 Year ended December 31, 2010 2009 2008 (dollars in thousands) $ (31,690 ) $ (39,039 ) $ (255,550 ) 11,543 5,761 4,611 20,608 3,637 — — — 1,538 299 249 — — — 10,200 (3,415,775 ) (84,350 ) (44,199 ) 2,943,376 97,299 28,890 2,678,922 — — (2,556,056 ) — — (20,339 ) (1,891 ) 211 (445,913 ) — — 437,147 — — (30,583 ) (2,181 ) (234,550 ) 285,915 75,743 84,142 (34,316 ) (39,506 ) 199,983 — 97,903 — �� (8,132 ) 203 9,564 50,895 (34,133 ) 78,100 — — (769 ) (63,412 ) 13,279 759,982 (9,242 ) 1,686 78,261 — — (435 ) (1,510 ) 9,021 8,413 5,040 (1,682 ) 10,410 (4,024 ) (92 ) 4,752 215 (645 ) 4,248 75,075 1,980 — 81,838 (1,304 ) (767,313 ) (4,248 ) 4,425 (41,868 ) 3,410 (2,394 ) (30,067 ) 1,084 (2,446 ) (2,224 ) (23,332 ) 8,931 (3,393 ) — (136 ) 136 1,652 (20 ) 195 (51,553 ) 110,298 (96,732 ) Year ended December 31, 2011 2010 2009 (dollars in thousands) Cash flows from operating activities: Net income (loss) from continuing operations $ (78,537 ) $ (31,690 ) $ (39,039 ) Net income (loss) from discontinued operations, net of tax (23,646 ) — — Adjustments to reconcile net income (loss) to net cash (used in) / provided by operating activities: Bargain purchase gain (22,244 ) — — Depreciation and amortization 26,864 11,543 5,761 Share-based compensation 28,308 20,608 3,637 Deferred rent obligations (4,061 ) (8,574 ) (543 ) Net loss on disposal of fixed assets 103 299 249 Goodwill impairment 7,151 — — Purchases of securities owned, at fair value (8,953,879 ) (3,415,775 ) (84,350 ) Proceeds from sales of securities owned, at fair value 8,726,114 2,943,376 97,299 Proceeds from sales of securities sold, not yet purchased, at fair value 4,690,844 2,678,922 — Payments to cover securities sold, not yet purchased, at fair value (4,553,832 ) (2,556,056 ) — Net (gains) losses on securities, derivatives and other investments (3,164 ) (20,339 ) (1,891 ) Consolidated Funds: Purchases of securities owned, at fair value (480,251 ) (445,913 ) — Proceeds from sales of securities owned, at fair value 482,630 437,147 — Purchases of other investments (18,356 ) (30,583 ) (2,181 ) Proceeds from sales of other investments 127,664 285,915 75,743 Net realized and unrealized (gains) losses on investments and other transactions (4,746 ) (34,316 ) (39,506 ) (Increase) decrease in operating assets: Cash acquired from business acquisition 117,496 — 97,903 Cash collateral pledged (25 ) (8,132 ) 203 Securities owned, at fair value, held at broker dealer 152,080 50,895 (34,133 ) Receivable from brokers 127,645 (63,412 ) 13,279 Fees receivable 9,391 (9,242 ) 1,686 Due from related parties 3,286 (1,510 ) 9,021 Other assets (2,286 ) 5,040 (1,682 ) Consolidated Funds: Cash and cash equivalents 6,913 (4,024 ) (92 ) Other assets 469 215 (645 ) Increase (decrease) in operating liabilities: Securities sold, not yet purchased, at fair value, held at broker dealer (157,134 ) 75,075 1,980 Payable to brokers 46,169 81,838 (1,304 ) Compensation payable (12,107 ) (4,248 ) 4,425 Fees payable (4,263 ) 3,410 (2,394 ) Due to related parties (7,273 ) 1,084 (2,446 ) Accounts payable, accrued expenses and other liabilities 7,143 (14,758 ) 9,474 Consolidated Funds: Due to related parties — — (136 ) Accounts payable, accrued expenses and other liabilities (1,582 ) 1,652 (20 ) Net cash provided by / (used in) operating activities 232,884 (51,553 ) 110,298 2009 and 2008 Year ended December 31, Year ended December 31, (continued) (continued) 2010 2009 2008 2011 2010 2009 (dollars in thousands) (dollars in thousands) (97,755 ) — — (321,914 ) (233 ) (5,383 ) 316,063 9,477 7,602 — — 46 (5,853 ) (399 ) (18,388 ) (109,459 ) 8,845 (16,123 ) Securities purchased under agreement to resell (68,505 ) (97,755 ) — Purchases of other investments (67,914 ) (321,914 ) (233 ) Proceeds from sales of other investments 57,917 316,063 9,477 Purchase of fixed assets (6,539 ) (5,853 ) (399 ) Net cash provided by / (used in) investing activities (85,041 ) (109,459 ) 8,845 192,165 (1,425 ) — 6,000 — 68,203 (25,000 ) (203 ) (68,254 ) 2,059 — — (663 ) — — — 80,607 — — (10,370 ) — — — 11,899 — (23,943 ) (21,059 ) — — — — 486 (2,500 ) — — 14,900 — (10,207 ) (63,817 ) — — — 10,062 1,613 235,565 (134,624 ) (55,011 ) (33,372 ) 49,999 (18,453 ) 141,565 Securities sold under agreement to repurchase 36,618 192,165 (1,425 ) Borrowings on short-term borrowings and other debt 493 8,059 — Repayments on short-term borrowings and other debt (26,576 ) (25,663 ) (203 ) Purchase of treasury stock (11,365 ) — — Proceeds from issuance of common stock — — 80,607 Purchase of non-controlling interest (see Note 2) — — (10,370 ) Capital withdrawals to members — — (23,943 ) Capital withdrawals to non-controlling interests in operating entities (5,009 ) — 486 Consolidated Funds: Repayments on the line of credit — — (10,207 ) Capital contributions by non-controlling interests in Consolidated Funds 4,038 10,062 1,613 Capital withdrawals to non-controlling interests in Consolidated Funds (55,507 ) (134,624 ) (55,011 ) Net cash provided by / (used in) financing activities (57,308 ) 49,999 (18,453 ) (111,013 ) 100,690 28,710 90,535 (111,013 ) 100,690 147,367 46,677 17,967 36,354 147,367 46,677 $ 36,354 $ 147,367 $ 46,677 $ 126,889 $ 36,354 $ 147,367 $ 6,943 $ 1,277 $ 4,119 $ 1,310 $ — $ 2,530 Cash paid during the year for interest $ 9,007 $ 6,943 $ 1,277 Cash paid during the year for taxes $ 871 $ 1,310 $ — $ 6,746 $ — $ — $ 6,816 $ — $ — $ 6,337 $ — $ — $ — $ 20,490 $ — $ — $ 114,347 $ 3,722 $ — $ 4,906 $ —
(see Note 18) $ — $ — $ 1,538 Purchase of treasury stock, at cost, upon close of acquisition (see Note 21) $ 1,906 $ — $ — Purchase of treasury stock, at cost, through net settlement (See Note 21) $ 3,631 $ — $ — Net assets acquired upon acquisition (net of cash) (See Note 2) $ 58,486 $ — $ 11,167 Non compete agreements and covenants with limiting conditions acquired (see Note 2) $ 2,310 $ — $ — Common stock issuance upon close of acquisition (see Note 2) $ 156,048 $ — $ 114,497 Net assets of consolidated entities $ 3,470 $ — $ — Net assets of deconsolidated entities $ — $ 6,816 $ — Net settlement of cash collateral pledged with repayments on the line of credit $ — $ 6,746 $ — Assets acquired under capital lease obligations $ — $ 6,337 $ — Common stock issuance to acquire non-controlling interest (see Note 2) $ — $ — $ 20,490 Capital contributions made through REOP Program (see Note 15) $ — $ — $ 4,906 ("(“Transaction Agreement"Agreement”), dated as of June 3, 2009, by and among Cowen Holdings, Inc., (" (“Cowen Holdings,"” formerly Cowen Group, Inc.), Lexington Merger Corp., Ramius LLC ("(“Ramius,"” formerly Park Exchange LLC) and RCG Holdings LLC ("(“RCG,"” formerly Ramius LLC). For more information related to the acquisition, see Note 2."Cowen Group"“Cowen,” “Cowen Group” or the "Company"“Company”), provides alternative investment management, investment banking, research, market‑making and sales and trading services through its two business segments: alternative investment management and broker-dealer.broker‑dealer. The Company's alternative investment management segment includes hedge funds, replication products, mutual funds, managed futures funds, fund of funds, real estate, funds, healthcare royalty funds, cash management services and mortgage advisory services offered primarily under the Ramius name. The broker-dealerbroker‑dealer segment offers industry focusedresearch, brokerage and investment banking for growth-orientedservices to companies including advisory and global credit markets originationinstitutional investor clients primarily in the healthcare, technology, media and domain knowledge-driven researchtelecommunications, consumer, aerospace and a salesdefense, industrials, real estate investment trusts ("REITs") and trading platform for institutional investors,alternative energy sectors, primarily under the Cowen name. (dollars in thousands) Cash and cash equivalents $ 117,496 Cash collateral pledged 1,127 Securities owned, at fair value 221,855 Other investments 2,569 Receivable from brokers 93,754 Fixed assets, net 8,804 Intangibles 2,770 Other assets 5,137 Securities sold, not yet purchased, at fair value (175,391 ) Payable to brokers (81,536 ) Compensation payable (3,521 ) Fees payable (969 ) Unfavorable lease (3,388 ) Accounts payable, accrued expenses and other liabilities (12,725 ) Total net assets acquired $ 175,982 Non compete agreements and covenants with limiting conditions acquired 2,310 Goodwill/(Bargain purchase gain) on transaction (22,244 ) Total purchase price $ 156,048 "Transactions"“Transactions”), were consummated including (1) the merger of Lexington Merger Corp. with and into Cowen Holdings, pursuant to which each outstanding share of common stock of Cowen Holdings was converted into one share of Class A common stock of the Company and (2) the transfer by RCG (which prior to the consummation of the Transactions operated the Ramius business) of substantially all of its assets and liabilities to Park Exchange LLC in exchange for the Company's issuance to RCG of 37,536,826 shares of Class A common stock of the Company. Following the consummation of the Transactions, each of Park Exchange LLC and Cowen Holdings became wholly owned subsidiaries of the Company, and Park Exchange LLC was renamed Ramius LLC.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)2. Acquisition (Continued) Number of Cowen Holdings common shares outstanding at closing: Common float 12,072 (1) Restricted shares 2,785 (2) Restricted share units 27 (3) Total shares issued to Cowen Holdings stockholders 14,884 Estimated market price a Cowen Holdings common share $ 7.55 (4) Estimated purchase price of Cowen Holdings common shares $ 112,374 Add: Fair value of unvested restricted shares and options issued 2,123 (5) Estimated purchase price $ 114,497 (1) Based on the trading float of Cowen Holdings's common shares on the acquisition date. (2) Based on Cowen Holdings's unvested restricted shares outstanding on the acquisition date. Excludes restricted shares that were not subject to accelerated vesting as a result of the Transactions. (3) Based on Cowen Holdings's restricted share units outstanding on the acquisition date. (4) The $7.55 share price used in calculating the estimated purchase consideration represents the closing share price of Cowen Holdings common stock on October 30, 2009. (5) In connection with the Transactions, each outstanding Cowen Holdings stock option was exchanged for one stock option of the Company. Each newly issued stock option was fully vested upon issuance, and has a strike price and expiration date equal to that of the original stock option. Cowen Holdings had 892,782 stock options outstanding as of the closing date. The fair value of Cowen Holdings's stock option awards was estimated to be $0.7 million based on a Black‑Scholes valuation model. Also included in the $2.1 million is $1.4 million related to the fair value of pre-combination service on restricted shares that were not subject to accelerated vesting as a result of the Transactions. (1)Based on the trading float of Cowen Holdings's common shares on the acquisition date.(2)Based on Cowen Holdings's unvested restricted shares outstanding on the acquisition date. Excludes restricted shares that were not subject to accelerated vesting as a result of the Transactions.(3)Based on Cowen Holdings's restricted share units outstanding on the acquisition date.(4)The $7.55 share price used in calculating the estimated purchase consideration represents the closing share price of Cowen Holdings common stock on October 30, 2009.(5)In connection with the Transactions, each outstanding Cowen Holdings stock option was exchanged for one stock option of the Company. Each newly issued stock option was fully vested upon issuance, and has a strike price and expiration date equal to that of the original stock option. Cowen Holdings had 892,782 stock options outstanding as of the closing date. The fair value of Cowen Holdings's stock option awards was estimated to be $0.7 million based on a Black-Scholes valuation model. Also included in the $2.1 million is $1.4 million related to the fair value of pre-combination service on restricted shares that were not subject to accelerated vesting as a result of the Transactions.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)2. Acquisition (Continued) (dollars in thousands) (dollars in thousands) $ 97,903 $ 97,903 501 501 17,555 17,555 19,893 19,893 Fees receivable 4,802 17,121 17,121 4,802 1,061 1,061 8,379 8,379 17,000 17,000 17,535 17,535 (12,832 ) (12,832 ) (1,304 ) (1,304 ) (37,592 ) (37,592 ) (40,952 ) (40,952 ) 109,070 (1,724 ) 7,151 $ 114,497 Total identifiable net assets acquired 109,070 Non-controlling interest (1,724 ) Goodwill 7,151 Total purchase price $ 114,497 "CHRP GPs"“CHRP GPs”), the general partners, respectively, to Cowen Healthcare Royalty Partners, L.P. and CHRP Overflow Fund, L.P. (the "CHRP Funds"“CHRP Funds”), and are recorded at fair value. The CHRP GPs' only significant assets are their investments in the CHRP Funds, which invest principally in commercial-stagecommercial‑stage biopharmaceutical products and companies through the purchase of royalty or synthetic royalty interests and structured debt and equity instruments. The CHRP Funds follow industry practices for valuation techniques including discounted cash flows, Black-ScholesBlack‑Scholes valuation models and sale price of recent transactions in the same or similar securities and significant inputs such as estimated future cash flows, discount rates, volatility and dividend yield to measure the fair value of the investments in the CHRP Funds. As such, the carrying value of CHRP GP's investments in the CHRP Funds, and the related non-controlling interest, approximate fair value.broker-dealerbroker‑dealer segment of the Company. None of the goodwill is expected toCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)2. Acquisition (Continued)statementsstatement of operations for the year ended 2009.yearsyear ended December 31, 2009 and 2008 as if the Transactions had occurred as of the beginning of eachthe period presented: Year ended December 31, 2009 2008 (in thousands, except per share data) (unaudited) $ 284,459 $ 345,057 (100,759 ) (290,900 ) (116,719 ) (182,363 ) $ (2.12 ) $ (3.31 ) $ (2.12 ) $ (3.31 ) Year ended December 31, 2009 (in thousands, except per share data) (unaudited) Revenues $ 284,459 Net income (loss) (100,759 ) Net income (loss) attributable to Cowen Group, Inc. stockholders (116,719 ) Net income (loss) per common share: Basic $ (2.12 ) Diluted (2.12 ) ("HVB"(“HVB”) the 50% interest in Ramius Alternative Solutions LLC ("(“Ramius Alternative Solutions"Solutions”), the Company's alternative solution business, that HVB owned in exchange for (1) the Company's issuance to HVB of 2,713,882 shares of the Company's Class A common stock and (2) approximately $10.4 million in cash, resulting in Ramius Alternative Solutions becoming an indirect wholly owned subsidiary of the Company. In accordance with applicable Financial Accounting Standards Board ("FASB") accounting standardsUS GAAP the acquisition of the additional interest in the Company's alternative solution business was treated as an equity transaction and the difference between the fair value of the consideration paid and the carrying value of the derecognized non-controlling interest was recognized in equity.a.Basis of presentationa. Basis of presentation generally accepted accounting principles in the United States of America ("US GAAP") underGAAP as promulgated by the Financial Accounting Standards Board ("FASB") through Accounting Standards Codification as the source of authoritative accounting principles in the preparation of financialsfinancial statements, and include the accounts of the Company, its operating and other subsidiaries, and entities in which the Company has a controlling financial interest or a substantive, controlling general partner interest. All material intercompany transactions and balances have been eliminated in consolidation. Certain fund entities that are consolidated in theseCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)3. Significant Accounting Policies (Continued)thesethe consolidation provisions with respect to their own controlled investments pursuant to their specialized accounting.retroactively to reflect the historical financial position or results of operations of Cowen Holdings. For periods after November 2, 2009, the results of operations of Cowen Holdings are included in the results of operations of the Company. Stockholders' equity has been retroactively restated to include the 37,536,826 shares of Class A common stock issued to RCG at the consummation of the Transactions (as defined in Note 2) as the issued capital for all periods prior to the Transactions.a substantive, controlling general partnerfinancial interest are consolidated with the Company pursuant to US GAAP as described below. Consequently, the Company's consolidated financial statements reflect the assets, liabilities, income and expenses of these funds on a gross basis. The ownership interests in these funds which are not owned by the Company are reflected as redeemable non-controlling interests in consolidated subsidiaries in the accompanying consolidated financial statements. The management fees and incentive income earned by the Company from these funds are eliminated in consolidation.b.Principlesb. Principles of consolidation Financial Accounting Standards Board ("FASB") accounting standards. In accordance with these standards, the Company presently consolidates five funds deemed to be VOEs for which it acts as the general partner and investment manager. RTS Global 3x Fund LP ("RTS Global 3x") was first consolidated in the first quarter of 2010, when it commenced operations.US GAAP. FASB accounting standards,US GAAP, the usual condition for a controlling financial interest in an entitya VOE is ownership of a majority voting interest. Accordingly, the Company consolidates VOEs in which it owns a majority of the entity's voting shares or units. FASB accounting standardsUS GAAP also provideprovides that a general partner of a limited partnership (or a managing member, in the case of a limited liability company) is presumed to control the partnership, and thus should consolidate it, unless a simple majority of the limited partners has the right to remove the general partner without cause or to terminate the partnership. In accordance with these standards, the Company presently consolidates five funds deemed to be VOEs for which it acts as the general partner.partner and investment manager. Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)3. Significant Accounting Policies (Continued)atof December 31, 2011"Consolidated Funds"“Consolidated Funds”): Ramius Enterprise LP ("(“Enterprise LP"LP”), Ramius Multi-StrategyMulti‑Strategy FOF LP ("Multi-Strat FOF"(“Multi‑Strat FOF”), Ramius Vintage Multi-StrategyMulti‑Strategy FOF LP ("(“Vintage LP"FOF”), Ramius Levered Multi-StrategyMulti‑Strategy FOF LP ("(“Levered FOF"FOF”), and RTS Global 3x.EntitiesEntities——VIEs are entities that lack one or more of the characteristics of a VOE. In accordance with FASB accounting standards,US GAAP, an enterprise must consolidate all VIEs of which it is the primary beneficiary. Under the new FASBUS GAAP consolidation model for VIEs, (as discussed in "Recently adopted accounting pronouncements"), an enterprise that (1) has the power to direct the activities of a VIE that most significantly impacts the VIE's economic performance, and (2) has an obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE, is considered to have a controlling financial interest inbe the primary beneficiary of the VIE and thus is required to consolidate it.newrevised consolidation model for VIEs that meet certainthe following conditions: (a) the entity has all the attributes of an investment company as defined under AICPA Audit and Accounting Guide, Investment Companies, or does not have all the attributes of an investment company but is an entity for which it is acceptable based on industry practice to apply measurement principles that are consistent with investment companies, (b) the reporting entity does not have explicit or implicit obligations to fund any losses of the entity that could potentially be significant to the entity, and (c) the entity is not a securitization entity, asset‑backed financing entity or an entity that was formerly considered a qualifying special‑purpose entity. The Company's involvement with its funds is such that all three of the above conditions as discussed in "Recently adopted accounting pronouncements".are met. Where the VIEs have qualified for the deferral, the analysis is based on previous consolidation rules. These rules require an analysis to (a) determine whether an entity in which the Company holds a variable interest is a variable interest entity and (b) whether the Company's involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (e.g., management and performance related fees), would be expected to absorb a majority of the VIE's expected losses, receive a majority of the VIEs expected residual returns, or both. If this condition isthese conditions are met, the Company is considered to have a controlling financial interest inbe the primary beneficiary of the VIE and thus is required to consolidate it. Under both guidelines, the Company determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a variable interest entity and reconsiders that conclusion continuously.terms of any contractscontractual agreements between the Company and the VIE, whichthe economic interests that create or absorb variability, related party relationships and the design of the VIE.As of December 31, 2011, and 2010the Company does not consolidate any VIEs. The("(“Replication Ltd"Ltd”) was consolidated as of April 1, 2010, when the Company first invested in the fund. This fund was deconsolidated on October 1, 2010 when the investment in the fund ceased providing the Company with a controlling interest and is included within Portfolio Funds, at fair value as of December 31, 2010.atof December 31, 20102011 and 2009, 2010, the Company holds a variable interest in Ramius Enterprise Master Fund Ltd ("(“Enterprise Master"Master”), Ramius Multi-StrategyMulti‑Strategy Master FOF LP and Ramius Vintage Multi-StrategyMulti‑Strategy Master FOF LP (the "Unconsolidated“Unconsolidated Master Funds"Funds”) through three of its Consolidated Funds: Enterprise LP, Multi-StratMulti‑Strat FOF and Vintage FOF (the "Consolidated“Consolidated Feeder Funds"Funds”), respectively. Investment companies like the Consolidated Feeder Funds, which account for their investments under the specialized industry accounting guidance for investment companies prescribedCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)3. Significant Accounting Policies (Continued)FASB accounting standards,US GAAP, are not subject to the consolidation provisions for their investments. Therefore, the Company has not consolidated the Unconsolidated Master Funds.thethese funds or real estate entities that are VIEs as it has concluded that it is not the primary beneficiary in each instance. Fund investors are entitled to all of the economics of these VIEs with the exception of the management fee and incentive income, if any, earned by the Company. The Company's involvement with funds and real estate entities that are unconsolidated VIEs is limited to providing investment management services in exchange for management fees and incentive income. Although the Company may advance amounts and pay certain expenses on behalf of the funds and real estate entities that it considers to be VIEs, it does not provide, nor is it required to provide, any type of substantive financial support to these entities outside of regular investment management services. and $1,224.8 million and $640.3 million as of December 31, 2009, , respectively. In addition, the maximum exposure relating to these variable interest entities as ofDecember 31, 2011was $211 million, all of which is in other investments, at fair value and as ofDecember 31, 2010was $307.8 million, of which $307.2 million is included in other investments, at fair value and $0.6 million is included in due from related parties and as of December 31, 2009 was $541.8 million, of which $540.5 million is included in other investments, at fair value and $1.3 million is included in due from related parties in the Company's consolidated statements of financial condition, respectively. The Consolidated Feeder Funds' maximum exposure to loss relatedprimarily relates to their respective Unconsolidated Master Funds at December 31, 2010 and December 31, 2009 was limited to theirthe Consolidated Feeder Funds' investment in their respective Unconsolidated Master Funds.Funds as ofDecember 31, 2011and December 31, 2010. See Note 56 for further information regarding the Company's investments.equity inshare of earnings or losses from equity method investees is included in net gains (losses) on securities, derivatives and other investments in the consolidated statements of operations. Cost Method InvestmentsOther—When the Company does not have a controlling financial interest and does not exert significant influence over an entity's operating and financial policies, but has an investment in private equity for which market quotations are not readily available and is not otherwiseCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)3. Significant Accounting Policies (Continued)accounted for at fair value, the Company accounts for its investment in accordance with the cost method of accounting. Other—If the Company does not consolidate an entity, apply the equity method of accounting or account for an investment under the cost method, the Company accounts for all other debt and marketable equity securities which are bought and held principally for the purpose of selling them in the near term as trading securities in accordance with FASB accounting standards,US GAAP, at fair value with unrealized gains (losses) resulting from changes in fair value reflected within net gains (losses) on securities, derivatives and other investments in the consolidated statements of operations.FASB accounting standards.US GAAP. The Consolidated Funds report their investments on the consolidated statements of financial condition at their estimated fair value, with unrealized gains (losses) resulting from changes in fair value reflected as a component of operations. Accordingly, the accompanying consolidated financial statements reflect different accounting policies for investments depending on whether or not they are held through a consolidated investment company. In addition, the Company's broker-dealerbroker‑dealer subsidiaries, Ramius Securities LLC ("Ramius Securities") and Cowen and Company, LLC ("(“Cowen and Company"Company”), Cowen Capital LLC, Cowen InternationalFASB accounting standards.US GAAP. The Company also has retained this specialized accounting in consolidation.c. Use of estimates c.Use of estimatesd. Certain reclassifications have been made to prior period amounts in order to conform with current period presentation.Cash and cash equivalentsd. Cash and cash equivalents e. Valuation of investments and derivative contracts e.Valuation of investments and derivative contracts The FASB accounting standards establishUS GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowestCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)3. Significant Accounting Policies (Continued)Level 1Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date;Level 2Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; andLevel 3Fair value is determined based on pricing inputs that are unobservable and includes situations where there is little, if any, market activity for the asset or liability. The determination of fair value for assets and liabilities in this category requires significant management judgment or estimation."observable"“observable” requires significant judgment by the Company. The Company considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Company's perceived risk of that instrument.analyses,analysis, public market comparables, and other techniques and may be based, at least in part, on independently sourced market information. The material estimates and assumptions used in these models include the timing and expected amount of cash flows, the appropriateness of discount rates used, and, in some cases, the ability to execute, timing of, and estimated proceeds from expected financings. Significant judgment and estimation goes into the selection of an appropriate valuation methodology as well as the assumptions used in these models, and the timing and actual values realized with respect to investments could be materially different from values derived based on the use of those estimates. The valuation methodologies applied impact the reported value of the Company's investments and the investments held by the Consolidated Funds in the consolidated financial statements. Certain of the Company's investments are relatively illiquid or thinly traded and may not be immediately liquidated on demand if needed. Fair values assigned to these investments may differ significantlymaterial.material.Table of ContentsCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)3. Significant Accounting Policies (Continued)"market approach"“market approach” valuation technique to value its financial instruments measured at fair value. In determining an instrument's placement within the hierarchy, the Company separates the Company's financial instruments into three categories: securities, derivative contracts and other investments. To the extent applicable, each of these categories can further be divided between those held long or sold short.exchange-tradedexchange‑traded or privately negotiated over-the-counter ("OTC"(“OTC”). Exchange-tradedExchange‑traded derivatives, such as futures contracts and exchange traded option contracts, are typically classified within level 1 or level 2 of the fair value hierarchy depending on whether or not they are deemed to be actively traded. OTC derivatives, such as generic forwards, swaps and options, have inputs which can generally be corroborated by market data and are therefore classified within level 2. Derivative contractsFutures, equity swaps and credit default swaps are included within other assets or accounts payable, accrued expenses and other liabilities on the consolidated statements of financial condition. The Company's direct involvement with derivative financial instruments includes credit default swaps, futures, equity swaps, optionscondition and warrants and rights whichall other derivatives are included within securities owned, at fair value inon the consolidated statements of financial condition.follows:i.Portfolio funds—followsPortfolio funds ("Portfolio Funds") include interests in funds and investment companies managed by the Company or its affiliates. The Company follows an accounting pronouncement regarding fair value measurements and disclosures relating to investments in certain entities that calculate net asset value ("NAV") per share (or its equivalent). The guidance permits, as a practical expedient, an entity holding investments in certain entities that either are investment companies as defined by the AICPA Audit and Accounting Guide, Investment Companies, or have attributes similar to an investment company, and calculate net asset value per share or its equivalent for which the fair value is not readily determinable, to measure the fair value of such investments on the basis of that NAV per share, or its equivalent, without adjustment.:i. Table of ContentsCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)3. Significant Accounting Policies (Continued)theits ability to redeem the investment. If the Company has the ability to redeem its investment at NAV at the measurement date or within the near term, the Portfolio Fund is categorized as a Levellevel 2 investment within the fair value measurement.hierarchy. If the Company does not know when it will have the ability to redeem its investment or cannot do so in the near term, the Portfolio Fund is categorized as a Levellevel 3 investment within the fair value measurement.hierarchy. See Note 5Notes 6 and Note 67 for further details of the Company's investments in Portfolio Funds.ii.ii. sell an asset in an orderly transaction between marketplace participants at the measurement date. Real estate investments without a public market are valued based on assumptions and valuation techniques used by the Company. Such valuation techniques may include discounted cash flow analysis, prevailing market capitalization rates or earning multiples applied to earnings from the investment, analysis of recent comparable sales transactions, actual sale negotiations and bona fide purchase offers received from third parties, consideration of the amount that currently would be required to replace the asset, as adjusted for obsolescence, as well as independent external appraisals. In general, the Company considers several valuation techniques when measuring the fair value of a real estate investment. However, in certain circumstances, a single valuation technique may be appropriate. Real estate investments are reviewed on a quarterly basis by the Company for Consolidated Financial Statements (Continued)date.Levela level 3 investment within the fair value hierarchy as management uses significant unobservable inputs in determining their estimated fair value.Note 5Notes 6 and 67 for further information regarding the Company's investments, including equity method investments, and fair value measurements.f.Due from/due to related partiesf. Due from/due to related parties Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)3. Significant Accounting Policies (Continued)g.Receivable from and payable to brokersg. Receivable from and payable to brokers h. Securities purchased under agreements to resell and securities sold under agreements to repurchase h.SecuritiesThe Company uses securities purchased under agreements to resell and securities sold under agreements to repurchase Transactions involving purchases (“Repurchase Agreements”) as part of its liquidity management activities and to support its trading and risk management activities. In particular, securities purchased and sold under Repurchase Agreements are used for short-term liquidity purposes. As of December 31, 2011, Repurchase Agreements are secured predominantly by liquid corporate credit and/or government issued securities. The use of Repurchase Agreements will fluctuate with the Company's need to fund short term credit or obtain competitive short term credit financing. The Company's securities purchased under agreements to resell are carried at their contract value which approximates fair value. As of December 31, 2010, the fair value of the collateral received by the Company was $95.5 million. Transactions involving the sale ofand securities sold under agreements to repurchase are carried at their contract value and are accounted for as collateralized financings. In connectionwere transacted pursuant to agreements with these financings,multiple counterparties as of December 31, 2011 and December 31, 2010 the Company had pledged collateral in the amount $207.4 million, which is included in securities owned, at fair value in the consolidated statements of financial condition.periodicallydaily and the Company and its counterparties may adjust the collateral or require additional collateral to be deposited when appropriate. Collateral held by counterparties may be sold or rehypothecatedre-hypothecated by such counterparties, subject to certain limitations sometimes imposed by the Company. Collateralized repurchase agreementsRepurchase Agreements may result in credit exposure in the event the counterparties to the transactions are unable to fillfulfill their contractual obligations. The Company minimizes the credit risk associated with this activity by monitoring credit exposure and collateral values, and by requiring additional collateral to be promptly deposited with or returned to the Company when deemed necessary. The Company's securities purchased under agreements to resell and securities sold under agreements to repurchase were transacted pursuant to agreements with multiple counterparties at December 31, 2010.i. Fixed assets Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)3. Significant Accounting Policies (Continued)i.Fixed assetsAsset Depreciable Lives Principal Method 3-5 years Straight-line 3-5 years Straight-line 3-8 years Straight-line 1-11 years 2-15Straight-lineCapitalized lease asset 5 years Straight-line j. Goodwill and intangible assets j.Goodwill and intangible assetsTheGoodwill is allocated to the Company's reporting units at the date the goodwill is initially recorded. Once goodwill has been allocated to the reporting units, it generally no longer retains its identification with a particular acquisition, but instead becomes identifiable with the reporting unit. As a result, all of the fair value of each reporting unit is available to support the value of goodwill allocated to the unit.method described in FASB accounting standards.approach. The first step involvesrequires a comparison of the estimated fair value of the reporting unit to its carrying amount,value, including goodwill. If the estimated fair value of the reporting unit exceeds its carrying amount, itsvalue, the related goodwill is not considered impaired and the second step of the impairment testno further analysis is not necessary.required. If the carrying amountvalue of the reporting unit exceeds its estimatedthe fair value, thenthere is an indication that the secondrelated goodwill might be impaired and the step two is performed to measure the amount of the goodwill impairment, test must be performed. if any. unitunit's goodwill with its carrying amount to measure the amount of impairment, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In other words, the estimated fair value of the reporting unit is allocated to all of its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment is recognized in an amount equal to that excess. Goodwill is tested annually for impairment during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances. Goodwill impairment tests are subject toinvolve significant judgment in determining the estimationestimates of future cash flows, discount rates, economic forecast and other assumptions.assumptions which are then used in acceptable valuation techniques, such as the market approach (earning and or transactions multiples) and / or income approach (discounted cash flow method). Changes in these estimates and assumptions could have a significant impact on the fair value and any resulting impairment of goodwill. See Note 10 for further discussion.undiscounteddiscounted cash flows relating to the asset or asset group is less than the corresponding carrying value.k. Deferred Rent k.Deferred rent primarily consists of step rent, allowances from landlords and valuing the Company's lease properties in accordance with US GAAP in relation to business combinations. Step rent represents the difference between actual operating lease payments due and straight-line rent expense, which is recorded by the Company over the term of the lease, including the build-out period. This amount is recorded as deferred rent in the early years of the lease, when cash payments are generally lower than straight-line rent expense, and reduced in the later years of the lease when payments begin to exceed the straight-line expense. Landlord allowances are generally comprised of amounts received and/or promised to the Company by landlords and may be received in the form of cash or free rent. These allowances are part of the negotiated terms of the lease. The Company recorded a receivable from the landlord and a deferred rent liability when the allowances are earned. This deferred rent is amortized into income (through lower rent expense) over the term (including the pre-opening build-out period) of the applicable lease, and the receivable is reduced as amounts are received from the landlord. Liabilities resulting from valuing the Company's leased properties acquired through business combinations are quantified by comparing the current fair value of the leased space to the current rental payments on the date of acquisition. Deferred rent, included in accounts payable, accruedCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)3. Significant Accounting Policies (Continued)FASB accounting standards.US GAAP. These amounts are reported in other expenses, net of recoveries, in the consolidated statements of operations. The consolidated statements of operations do not include litigation expenses incurred by the Company in connection with indemnified litigation matters. See Note 1719 for further discussion. As the successor of the named party in these litigation matters, the Company recognizes the related legal reserve in the consolidated statements of financial condition.l.Capital withdrawals payablem. Capital withdrawals payable m.Redeemable non-controlling interests in consolidated subsidiariesn. Redeemable non-controlling interests in consolidated subsidiaries n.Comprehensive Income (Loss)o. Treasury stock p. Comprehensive Income (Loss) q. Revenue recognition o.Revenue recognitionCompany generates revenue through severalCompany's principal sources of revenue are derived from two segments: an alternative investment management segment and a broker-dealer segment, as more fully described below:can vary depending on distribution fees or fee splits paid to third parties either in connection with raising the assets or structuring the investment.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)3. Significant Accounting Policies (Continued)pursuant to side letter arrangements, in general the management fees•Funds—Funds. Management fees for the Company's hedge funds are generally charged at an annual rate of up to 2% of assets under management. Management fees are generally calculated monthly based on assets under management at the end of each month before incentive income.•Solutions—Solutions.Management fees for the fund of fundsAlternative Solutions business are generally charged at an annual rate of up to 2% of assets under management. Management fees are generally calculated monthly based on assets under management at the end of each month before incentive income or based on assets under management at the beginning of the month. Management fees earned from the fund of fundsAlternative Solutions business are based and initially calculated on estimated net asset values and actual fees ultimately earned could be impacted to the extent of any changes in these estimates.•Funds—Funds. Management fees from the Company's real estate funds are generally charged by their general partners at an annual rate between 1% andto 1.5% of total capital commitments during the investment period and of invested capital or net asset value of the applicable fund after the investment period has ended. Management fees are typically paid to the general partners on a quarterly basis, at the beginning of the quarter in arrears, and are prorated for changes in capital commitments throughout the investment period and invested capital after the investment period. The general partners of the Company's real estate funds are owned jointly by the Company and third parties. Accordingly, the management fees (in addition to incentive income and investment income) generated by these real estate funds are split between the Company and the other general partners. Pursuant to US GAAP, these fees and other income received by the general partners that are accounted for as income fromunder the equity method investmentsof accounting and recorded withinare reflected under net gains (losses) on securities, derivatives and other investments in the consolidated statements of operations.•Funds—Funds. During the investment period (as defined in the management agreement of the CHRP Funds), management fees for the CHRP Funds are generally charged at an annual rate of up to 2% of committed capital. After the investment period, management fees are generally charged at an annual rate of up to 2% of assets under management. Management fees for the CHRP fundsFunds are calculated on a quarterly basis.
Management fees and platform fees for the Company's private commodity trading advisory business are generally charged at an annual rate of up to 3% and 1.50%, respectively, for the levered vehicle and 1% and 0.50%, respectively, for the unlevered vehicle. In addition, management fees for Ramius Trading Strategies Managed Futures Fund, a mutual fund launched in September 2011, are 1.60% per annum (subject to an overall expense cap of 1.85%). Management and platform fees are generally calculated monthly based on assets under management at the end of each month. •Other—thethe net profits as(as defined in the respective investment management agreementsagreements) with respect to certain of the Company's funds and certain managed accounts, allocable for each fiscal year that exceeds cumulative unrecovered net losses, if any, that have carried forward from prior years. IncentiveFor the products we offer, incentive income earned is typically between 10% and 20% for hedge funds and 10% for fund of funds and alternative solutions products (in certain cases on performance in excess of a benchmark), generally, of the net profits earned for the full year that are attributable to each fee-paying investor. IncentiveGenerally, incentive income on real estate investmentsfunds is earned after the investor has received a full return of their invested capital, plus a preferred return. However in certain real estate funds, the yearCompany is entitled to receive incentive fees earlier provided that the investors have received their preferred return on a current basis. These funds are subject to a potential clawback of that incentive income upon the liquidation of the fund if the investor has not received a sale or realizationfull return of aCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)3. Significant Accounting Policies (Continued)private investment.its invested capital plus the preferred return thereon. Incentive income in the CHRP Funds is earned only after investors receive a full return of their capital plus a preferred return.recovered. Incentive income, once earned, is not subjectrecovered, an arrangement commonly referred to repayment.as a “high-water mark.” The Company has elected to record incentive income revenue in accordance with "Method 2"“Method 2” of FASB accounting standards.the US GAAP. Under Method 2, the incentive income from the Company's funds and manageda quarter'sthe consolidated statement of operations may be subject to reversal in a subsequent quarter as a result ofbased on subsequent negative investment performance of the funds prior to the conclusion of the fiscal year, when all contingencies have been resolved. As a result of negative investment performance in 2008, andcase of certain real estate funds in 2009, the Company entered 2010 with high-water marks in many funds that the Company manages. These high-water marks require the funds to recover cumulative losses before the Company can begin to earn incentive income in 2010 and beyond until the high-water marks are reached with respect to the capital accounts of the funds' investors who suffered losses in 2008, and in the case of certain real estate funds, in 2009. In 2010, the Ramius Value and Opportunity Funds surpassed their high water marks and the Company began to earn incentive income fees on these products. Carried interest is subject to clawback to the extent that the carried interest actually distributed to date exceeds the amount due to the Company based on cumulative results. As such, the accrual for potential repayment of previously received carried interest, which is a component of due to related parties,accounts payable, accrued expenses and other liabilities, represents all amounts previously distributed to the Company, less an assumed tax liability, that would need to be repaid to certain real estate funds if these funds were to be liquidated based on the current fair value of the underlying funds' investments as of the reporting date. Generally, theThe actual clawback liability does not become realized until the end of a fund's life.&and defense, industrials, REITs and alternative energy.•can actacts as an underwriter, such as initial public offerings, follow-on equity offerings, debt offerings, and convertible security offerings. Underwriting revenues include management fees, selling concessions and underwriting fees. Fee revenue relating to underwriting commitments is recorded when all significant items relating to the underwriting cycleprocess have been completed and the amount of the underwriting revenue has been determined. This generally is the point at which all of the following have occurred: (i) the issuer's registration statement has become effective with the U.S. Securities and Exchange Commission ("SEC"),SEC, or the other offering documents are finalized; (ii) the Company has made a firm commitment for the purchase of sharessecurities from the issuer; and (iii) the Company has been informed of the number of sharessecurities that it has been allotted.Table of ContentsCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)3. Significant Accounting Policies (Continued)a registered equityan underwriting transaction, management must estimate the Company's share of transaction-related expenses incurred by the lead manager in order to recognize revenue. Transaction-related expenses are deducted from the underwriting fee and therefore reduce the revenue the Company recognizes as co-manager. Such amounts are adjusted to reflect actual expenses in the period in which the Company receives the final settlement, typically within 90 days following the closing of the transaction.•feesfees.both buyers and sellers, principally in mergers and acquisitions.acquisitions and liability management transactions. The Company also earns fees for related advisory work such as providing fairness opinions. The Company records strategic advisory revenues when the services for the transactions are completed under the terms of each assignment or engagement and collection is reasonably assured. Expenses associated with such transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded and recorded within other assets in the consolidated statements of financial condition.•("PIPEs"(“PIPEs”) and registered direct transactions ("RDs").offerings. The Company records private placement revenues when the services for the transactions are completed under the terms of each assignment or engagement and collection is reasonably assured. Expenses associated with such transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded and recorded within other assets in the consolidated statements of financial condition.Brokerage•CommissionsCommissions.transactions in listed securities.transactions. These fees are recognized on a trade date basis. The Company permits institutional customers to allocate a portion of their gross commissions to pay for research products and other services provided by third parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. Commissions on soft dollar brokerage are recorded net of the related soft dollar amount.expenditures on an accrual basis. During the years ended December 31, 2011, 2010 and 2009, the Cowen legacy businessCompany earned $76.1$66.0 million, $69.3 million and $10.8$9.3 million of revenues from commissions, respectively.•netnet.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)3. Significant Accounting Policies (Continued)Cowen legacy businessCompany earned $27.1 million, $36.1 million and $7.0 million of revenues from principal transactions, net, respectively.•feesfees.collectable.collectible. Interest income and expense includes premiums and discounts amortized and accreted on debt investments based on criteria determined by the Company using the effective yield method.method, which assumes the reinvestment of all interest payments. Dividends are recognized on the ex-dividend date. its operating subsidiaries, including its hedge fund, fund of funds and real estate businesses. These expenses relate to the administration of such subsidiaries and assets that the Company manages for its funds. In addition, pursuant to the funds' offering documents, the Company charges certain allowable expenses to the funds, including charges and personnel costs for legal, compliance, accounting, tax compliance, marketing, risk and technology expenses that directly relate to administering the assets of the funds. Such expenses that have been reimbursed at their actual costs are included in the consolidated statements of operations as employee compensation and benefits, professional, advisory and other fees, communications, occupancy and equipment, client services and business development and other.Other revenues The Company receives other revenues which is unrelated to its principal sources of revenue and which may vary from year to year. Historical sources of such other revenues primarily included deferred income from a sale-leaseback transaction of a plane, advisory fee income, and rebate income earned from stock lending activities of the Company. In accordance with financial reporting guidance of the AICPA Audit and Accounting Guide—Brokers and Dealers in Securities, the Company has reported securities borrowing and lending rebate interest income and expense related to the operations of Ramius Securities on a net basis in other revenues on the consolidated statements of operations. As of November 2008, Ramius Securities ceased its stock borrowing and lending activities.p.Investments transactions and related income/expensesr. Investments transactions and related income/expenses Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)3. Significant Accounting Policies (Continued)q.Share-based compensations. Share-based compensation FASB accounting standardsUS GAAP and values such awards based on fair value methods at the grant date. In accordance with these standards, unearned compensation associated with share-based awards is amortized over the vesting period of the option or award. The Company estimates forfeiture for equity-based awards that are not expected to vest. See Note 1315 for further information regarding the Company's share-based compensation plans.r.Employee benefit planst. Employee benefit plans 1416 for further information regarding the Company's defined benefit plans.s.Lease and sale-leaseback accountingu. Leases During June 2008, the Company sold its fractional share ownership of a business aircraft for a net gain of $0.5 million. In the same month, October LLC, a wholly owned subsidiary of the Company, also sold an aircraft through a sale-leaseback transaction. The Company is recognizing a net gain of $2.8 million over a period of sixty-seven months, the term of the lease. During the years ended December 31, 2010, 2009 and 2008, the amount of the gain recognized in the consolidated statements of operations was $0.5 million, $0.5 million and $0.3 million, respectively. In connection with this transaction, the Company was required to maintain minimum assets under management at all times of no less than $6.5 billion. In the event that the Company does not maintain this minimum, the Company shall immediately either a) deposit collateral with a perfected security interest to secure the next twelve months' lease payments (approximately $1.8 million) or b) provide a letter of credit in the same amount. As of and during the years ended December 31, 2010 and 2009 the Company was in compliance with this minimum requirement.t.Income taxesv. Income taxes Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)3. Significant Accounting Policies (Continued)has filedfiles income tax returns as well as stand-alonestand‑alone state and local tax returns. The Company has subsidiaries that are resident in foreign countries where tax filings have to be submitted on a stand-alonestand‑alone basis. These subsidiaries are subject to tax in their respective countries and the Company is responsible for and, thus, reports all taxes incurred by these subsidiaries. The countries where the Company owns subsidiaries are the United Kingdom, Germany, Luxembourg, Japan, Hong Kong, and China. Income tax expense expense/(benefit) for the year ended December 31, 2011, 2010 and 2009 includes tax benefits from Luxembourg reinsurance transactions.u.Foreign currency transactionsw. Foreign currency transactions v.Recently adopted accounting pronouncementsx. Recently adopted accounting pronouncements June 2009,December 2011, the FASB issued amended guidance which will enhance disclosures required by US GAAP by requiring improved information about financial instruments and derivative instruments that are either (1) offset or (2) subject to an accounting standard ("ASC 810, Consolidation") which revises the accounting for VIEs by introducing a new consolidation model. This new standard changes the approach to determining the primary beneficiaryenforceable master netting arrangement or similar agreement, irrespective of a VIE and requires companies to more frequently assess whether they must consolidate VIEs. The revised guidance also enhances the disclosure requirements for a reporting entity's involvement with VIEs, including presentation on the consolidated statements of financial condition of assets and liabilities of consolidated VIEs which meet the separate presentation criteria and disclosure of assets and liabilities recognized in the consolidated statements of financial condition and the maximum exposure to loss for those VIEs in which a reporting entity is determined to not be the primary beneficiary but in which it has a variable interest. The new model identifies two primary characteristics of a controlling financial interest: (1) the power to directCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)3. Significant Accounting Policies (Continued)significant activities of the VIE, and (2) the obligation to absorb losses of and/or provide rights to receive benefits from the VIE that are potentially significant to the VIE. In February 2010, the FASB issued an accounting standard ("ASU 2010-10") which defers the effective date of this pronouncement for certain investment entities to allow the FASB to work with the International Accounting Standards Board in developing consistent consolidation guidance. The guidance provides a limited scope deferral for a reporting entity's interest in an entity that meets all of the following conditions: (a) the entity has all the attributesoffset. This information will enable users of an investment company as defined under AICPA Auditentity's financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and Accounting Guide,Investment Companies, or does not have all the attributes of an investment company but is an entity for which it is acceptable based on industry practice to apply measurement principles that are consistent with the AICPA Audit and Accounting Guide,Investment Companies, (b) the reporting entity does not have explicit or implicit obligations to fund any losses of the entity that could potentially be significant to the entity, and (c) the entity is not a securitization entity, asset-backed financing entity or an entity that was formerly considered a qualifying special-purpose entity. The reportingderivative instruments. An entity is required to perform a consolidation analysis for entities that qualify forapply the deferral in accordance with previously issued guidance on variable interest entities. The Company's involvement with its funds is such that all three of the above conditions are met. The deferral is effectiveamendments for annual reporting periods beginning on or after November 15, 2009,January 1, 2013, and for interim periods within that firstthose annual reporting period. Thereforeperiods. An entity should provide the adoptiondisclosures required by those amendments retrospectively for all comparative periods presented. The Company already discloses the derivative transactions and repurchase / resale agreements on a gross basis on the consolidated statements of financial condition and is currently evaluating the impact of the new consolidation standard on January 1, 2010 did not have a material impactother disclosure requirements required under the guidance.Company's financial position, results of operations or cash flows, as substantially all of the entities in which it holds variable interests qualify for the scope deferral under ASU 2010-10. In June 2009, the FASB issued amended guidance on accounting for transfersstatement of financial assets. Thecondition. These amendments were issuedpermit an entity to improvefirst assess qualitative factors to determine whether it is more likely than not that the information thatfair value of a reporting entity provides inunit is less than its financial statements aboutcarrying amount as a transfer of financial assets, the effects of a transfer on its financial statements, and a transferor's continuing involvement, if any, in transferred financial assets. The amendments eliminate the concept of qualifying special purpose entities from US GAAP. These entities will now be evaluated for consolidation in accordance with the applicable consolidation criteria. The amendments are effective for reporting periods beginning on or after November 15, 2009. The adoption of this new standard on January 1, 2010 did not have a material impact on the Company's financial position, results of operations or cash flows. In July 2009, the FASB issued the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles ("ASC 105-10"). ASC 105-10 establishes the FASB Accounting Standards Codification ("Codification") as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. All other nongrandfathered, non-SEC accounting literature not included in the Codification will become nonauthoritative. Following the Codification, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates, which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions ondetermining if it is necessary to perform the changes totwo-step goodwill impairment test required under the Codification. GAAP was not intended to be changed as a result of the FASB's Codification project, but it will change the way the guidancecurrent guidance. The amendment is organized and presented.3. Significant Accounting Policies (Continued)January 2010,June 2011, the FASB issued guidance on improving disclosures about fair value measurements.which eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. The guidance requires additional disclosure on transfers inconsecutive presentation of the consolidated statements of operations and outconsolidated statement of Levels Iother comprehensive income and II fair value measurements in the fair value hierarchy and the reasons for such transfers. In addition, for fair value measurements using significant unobservable inputs (Level III), the reconciliation of beginning and ending balances shall be presented on a gross basis, with separate disclosure of gross purchases, sales, issuances and settlements and transfers in and transfers out of Level III. The new guidance also requires enhanced disclosurespresent reclassification adjustments on the fair value hierarchy to disaggregate disclosures by each classface of assetsthese financial statements. This guidance helps financial statement users better understand the causes of an entity's change in financial position and liabilities. In addition, an entity is required to provide further disclosures on valuation techniques and inputs used to measure fair value for fair value measurements that fall in either Level II or Level III.results of operations. The guidance iswas originally effective retrospectively for interim and annual periods beginning after December 15, 2009, except for2011. In December 2011, the disclosures about purchases, sales, issuances, and settlements inFASB deferred the roll forwardeffective date of activity in Level III fair value measurements, which are effective for fiscal years beginning after December 15, 2010. The Company adopted the guidance excludingrelating to the reconciliationpresentation of Level III activity, withreclassification adjustments for transfers out of the issuance of its March 31, 2010 financial statements.other comprehensive income. As the guidance is limited to enhanced disclosures,presentation, adoption didwill not have a material impact on the Company's consolidated financial statements.March 2010,May 2011, the FASB issued accounting guidance that changes the accountingwording used to describe many of the requirements of US GAAP for credit derivatives embedded in beneficial interests in securitized financial assets. The new guidance eliminatesmeasuring the scope exception for embedded credit derivatives, unless they are created solely by subordination of one financial instrument to another. Bifurcation and separate recognition may be required for certain beneficial interests that are currently not accounted for at fair value through earnings.and for disclosing information about fair value measurements. The adoptionguidance is effective prospectively for interim and annual periods beginning after December 15, 2011. Certain of the amendments could change how the fair value measurement guidance is applied including provisions related to highest and best use and valuation premise for nonfinancial assets, application to financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk, premiums or discounts in fair value measurement, fair value of an instrument classified in a reporting entity's shareholders' equity, and additional disclosure requirements about fair value measurements. The Company is currently assessing the impact of this accounting guidance on July 1, 2010 did not have a material impact on the Company'sits consolidated financial statements.2010,2011, the FASB issued guidance onto improve the accounting for stock awardsRepurchase Agreements and other agreements by modifying the criteria for determining when the transactions would be accounted for as financings (secured borrowings/lending agreements) as opposed to employeessales (purchases) with commitments to repurchase (resell). Specifically, the guidance removes from the assessment of effective control the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in default by the transferee. In accordance with the new guidance, the contractual rights and obligations determine effective control and there does not need to be a foreign operation or employees whose pay is denominated in a currency other thanrequirement to assess the one in which the equity security trades. The guidance clarifies that share-based payment awards with anability to exercise price denominated in the currency of a market in which a substantial portion of the entity's equity securities trade shall not be considered to contain a condition that is not a market, performance, or service condition. Such an award shall not be classified as a liability if it otherwise qualifies for equity classification.those rights. The guidance is effective prospectively for fiscal yearsnew transfers and existing transactions that are modified in the first interim periods endingor annual period beginning on or after December 15, 2010.2011. The Company makes share-based payment awards to employees in foreign operations. Theis currently assessing the impact of this guidance did not have a material impact on the Company'sits consolidated financial statements.Company 'sCompany's reporting units do not currently have zero or negative carrying values, adoption isdid not expected to have a material impact on the Company's consolidated financial statements.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)3. Significant Accounting Policies (Continued)isdid not expected to have a material impact on the Company's consolidated financial statements.w.Future adoptionaccounting pronouncements Asdiscontinued operations under US GAAP because the operations and cash flows of December 31, 2010, nonethese subsidiaries can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the changesCompany. As a result of the subsidiaries not meeting the Company's expectations as to their results of operations and not generating positive cash flows, the Company decided, during the fourth quarter, to exit the business operated by these subsidiaries. The subsidiaries comprised of market making operations for exchange traded funds in the US, Europe and Asia which were included in the broker-dealer segment. The results of operations and cash flows will be eliminated from the Company's ongoing operations and the Company will have no continuing involvement in these operations. Therefore, the Company reported the results of operations related to these subsidiaries in discontinued operations.Codification issued by the FASB thatCompany's discontinued operations are not yet effective are expected to have an impact on the Company's financial position or results of operations.summarized below: For the Period June 28, 2011 through December 31, 2011 (dollars in thousands) Total revenues, net of interest expense $ 2,899 Loss from discontinued operations (24,075 ) Income tax expense/(benefit) (429 ) Loss from discontinued operations, net of taxes (23,646 ) 4.20102011 and 2009,2010, cash collateral pledged in the amount of $8.6$9.8 million and $7.2$8.6 million, respectively, primarily relates to (a) a bond held as collateral on a letter of credit and (b) letters of credit issued to the landlord of the Company's premises in New York City (see Note 18)20). Also included in cash collateral pledged as of December 31, 20102011 and 20092010 is $0.5 million and $0.5 million, respectively, relating to an agreement that the Company has with Société Générale to cover the costs of litigation matters included in the agreement.5.a.Operating Entitiesa. Operating Entities Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)5. Investments of Operating Entities and Consolidated Funds (Continued) and December 31, 2009,, securities owned, at fair value consisted of the following, at fair value: As of December 31, As of December 31, 2010 2009 2011 2010 (dollars in thousands) (dollars in thousands) $ 143,247 $ — $ 182,868 $ 143,247 116,215 11,439 250,380 116,215 5,000 — — 5,000 191,702 38,327 Convertible bonds (b) 18,130 — Corporate bonds (c) 231,864 191,702 14,349 1,312 55,768 14,349 2,334 1,356 2,690 2,334 1,248 1,719 3,214 1,248 $ 744,914 $ 474,095 $ 474,095 $ 54,153 (a) (b) (c) (a)As of December 31, 2010, maturities ranged from November 2019 to February 2026 and interest rates ranged between 3.375% and 8%.(b)As of December 31, 2010, maturities ranged from May 2011 to August 2039 and interest rates ranged between 1.4% and 13%. At December 31, 2009, maturities ranged from January 2010 to January 2013 and interest rates ranged between 0.27% and 10.00%.equitycredit default swap derivative contracts, at fair value, as of December 31, 2011 and 2010 of $0.8 million and $0.4 million, respectively, is included in other assets in the accompanying consolidated statements of financial condition. The Company's short exposure to futures and equity swap derivative contracts, at fair value, as of December 31, 2011 and 2010 of $0.8 million and $0.6 million, respectively, is included in accounts payable, accrued expenses and other liabilities in the accompanying consolidated statements of financial condition.Company may transactrealized and unrealized gains/(losses) related to derivatives trading activities for the twelve months ended a varietyother income in the consolidated statements of derivative instruments primarily for trading purposes with each instruments' primary risk exposure being interest rate, credit, foreign exchange, equity or commodity risk.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)5. Investments of Operating Entities and Consolidated Funds (Continued)20102011 and December 31, 2009,2010, other investments consisted of the following: As of December 31, As of December 31, 2010 2009 2011 2010 (dollars in thousands) (dollars in thousands) $ 29,391 $ 20,683 $ 42,336 $ 29,391 1,882 1,077 2,353 1,882 8,734 6,521 16,687 8,734 313 209 553 313 $ 61,929 $ 40,320 $ 40,320 $ 28,490 (1) Portfolio Funds, at fair value (1)Portfolio Funds, at fair value20102011 and December 31, 2009,2010, included the following: As of December 31, 2010 2009 (dollars in thousands) $ 565 $ 2,669 14,769 17,009 143 — 11,733 — 866 639 — 321 1,315 45 $ 29,391 $ 20,683 As of December 31, 2011 2010 (dollars in thousands) Cowen Healthcare Royalty Partners (a)(*) $ 6,297 $ 14,769 Cowen Healthcare Royalty Partners II (a)(*) 1,521 143 Ramius Global Credit Fund LP (b)(*) 11,790 11,733 Ramius Alternative Replication Ltd (c)(*) 837 866 Tapestry Investment Co PCC Ltd (d) 185 565 Ramius Enhanced Replication Fund LLC (e)(*) 337 — Starboard Value and Opportunity Fund LP (f)(*) 11,123 — Other private investment (g) 7,415 — Vreeland Partners II, L.P. (h) 1,986 — Other affiliated funds (i)(*) 845 1,315 $ 42,336 $ 29,391 * These portfolio funds are affiliates of the Company *These portfolio funds are affiliates of the Company at fair value held by the Company except as noted for Cowen Healthcare Royalty Partners, and Cowen Healthcare Royalty Partners II as notedand Starboard Value and Opportunity Fund LP in Note 17.(a)Tapestry Investment Co PCC Ltd is in the process of liquidating and redemptions will be made periodically by the investment managers' decision based on cash available.19.(a) Cowen Healthcare Royalty Partners and Cowen Healthcare Royalty Partners II are private equity funds and therefore redemptions will be made when the underlying investments are liquidated. (b)Cowen Healthcare Royalty Partners and Cowen Healthcare Royalty Partners II are private equity funds and therefore redemptions will be paid out at the investment manager's discretion.(b) Ramius Global Credit Fund LP has a quarterly redemption policy with 60 day notice period and a 4% penalty on redemptions of investments of less than a year in duration. (c) Ramius Alternative Replication Ltd has monthly redemption policy with a seven day notice period. (d) Tapestry Investment Company PCC Ltd is in the process of liquidation and redemptions will be made periodically by the investment managers' decision as the underlying investments are liquidated. (e) Ramius Enhanced Replication Fund LLC has monthly redemption policy with a seven day notice period. (f) Starboard Value and Opportunity Fund LP permits quarterly withdrawals upon ninety days notice. (g) Other private investment represents the Company's closed end investment in an investment company, which was formed to make an investment in a wireless broadband communication provider in Italy. (h) Vreeland Partners II, L.P. is a wholly owned externally managed fund that seeks to provide financing to public companies for short term duration. The Company can redeem from this fund as positions are sold on an average of 30 days or less notice. (i) The majority of these funds are real estate fund affiliates of the Company or are managed by the Company and the investors can redeem from these funds as investments are liquidated. (2) Real estate investments, at fair value 5. Investments of Operating Entities and Consolidated Funds (Continued)(c)Ramius Global Credit Fund LP has a quarterly redemption policy with 60 day notice period and one year soft lock (4% penalty).(d)Ramius Alternative Replication Ltd has monthly redemption policies with seven days notice period.(e)RCG Special Opportunities Fund, Ltd is completely invested in other funds managed by the Company. This fund has no formal redemption policy.(f)The majority of these funds are real estate fund affiliates of the Company or are managed by the Company and the investors can redeem from these funds when cash is available.(2)Real estate investments, at fair value and December 31, 2009 are carried at fair value and include real estate equity investments held by RCG RE Manager, LLC ("(“RE Manager"Manager”), a real estate operating subsidiary of the Company, of $1.1$1.6 million and $0.2$1.1 million, respectively, and real estate debt investments held by the Company of $0.8 million and $0.9$0.8 million, respectively.(3)Equity method investments(3) Equity method investments responsibilitiesoperations primarily include the day to day management of a number of real estate funds, including the portfolio management and administrative services related to the acquisition, disposition, and active monitoring of the real estate funds' underlying debt and equity investments. The Company's ownership interests in these equity method investments range from 30% to 55%. The Company holds a majority of the outstanding ownership interest (i.e., more than 50%) in three of these entities: RCG Longview Debt Fund IV Management, LLC, RCG Longview Debt Fund IV Partners, LLC and RCG Longview Partners II, LLC. The operating agreements that govern the management of day-to-day operations and affairs of each of these three entities stipulate that certain decisions require support and approval from other members in addition to the support and approval of the Company. As a result, all operating decisions made in these three entities require the support of both the Company and an affirmative vote of a majority of the other managing members who are not affiliates of the Company that is not protective in nature. As the Company does not possess unilateral control over any of these entities, the presumption of consolidation has been overcome pursuant to current accounting standards and the Company accounts for these investments under the equity methodCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)5. Investments of Operating Entities and Consolidated Funds (Continued)., (b) an investment in the CBOE (Chicago Board Options Exchange) Stock Exchange LLC representing a 9.7% stake in the exchange service provider for which the Company exercises significant influence over through representation on the Board of Directors, and (c) Starboard Value LP (and certain related parties) which serves as an operating company whose operations primarily include the day to day management (including portfolio management) of a deep value small cap hedge fund and related managed accounts. The following table summarizes equity method investments held by the Company: As of December 31, As of December 31, 2010 2009 2011 2010 (dollars in thousands) (dollars in thousands) $ 2,009 $ 1,651 $ 1,980 $ 2,009 1,176 — 513 1,176 8 — 258 8 Chicago Board Options Exchange 2,423 0 Starboard Value LP 3,693 0 2,203 1,565 1,569 2,203 186 400 1,140 186 889 605 1,258 889 359 — 1,096 359 499 1,360 557 499 833 409 1,541 833 259 222 323 259 313 309 336 313 $ 16,687 $ 8,734 $ 8,734 $ 6,521 $(3.3)and ($3.3) million, and $5.5 million, respectively for the years ended December 31, 2011, 2010 2009 and 2008,2009, respectively, and is included in net gains (losses) on securities, derivatives and other investments on the accompanying consolidated statements of operations. In addition, the Company recorded no impairment charges in relation to its equity method investments for the years ended December 31, 2011, 2010 2009 and 2008,2009, respectively.(4)Lehman Claims, at fair value(4) Lehman Claims, at fair value ("LBIE"(“LBIE”), through certain affiliates, was a prime broker to the Company, and the Company held cash and cash equivalent balances with LBIE. On September 15, 2008, LBIE was placed into administration (the "Administration"“Administration”) in the United Kingdom and, as a result, the assets held by the Company in its LBIE accounts were frozen at LBIE. The status and ultimate resolution of the assets under LBIE's Administration proceedings is uncertain. The assets of the Company at LBIE at the time of Administration (the "Total“Total Net Equity Claim"Claim”)Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)5. Investments of Operating Entities and Consolidated Funds (Continued)million.million, which the Company believes will represent an unsecured claim against LBIE. This does not include claims held by the Company against LBIE through its investment in Enterprise Master discussed in Note 6b. There can be no assurance that the Total Net Equity Claim value, as determined by the Company, will be accepted by the Administrators, nor does the Company know the manner and timing in which such claim will be satisfied and the ultimate value that will be received.80%47% discount at as of December 31, 20092011 and a 70% discount at as of December 31, 2010, which represents management's best estimate at the respective dates of the value that ultimately may be recovered with respect to the Total Net Equity Claim (the "Estimated“Estimated Recoverable Lehman Claim"Claim”). The Estimated Recoverable Lehman Claim was recorded at estimated fair value considering a number of factors including the status of the assets under U.K. insolvency laws and the trading levels of LehmanLBIE unsecured debt. In determining the estimated value of the Total Net Equity Claim, the Company was required to use considerable judgment and is based on the facts currently available. As additional information on the LBIE proceeding in the market at prevailing prices. The Company's liability for securities to be delivered is measured at their fair value as of the date of the consolidated financial statements. However, these transactions result in off-balance sheet risk, as the Company's ultimate cost to satisfy the delivery of securities sold, not yet purchased, at fair value may exceed the amount reflected in the consolidated statements of financial condition. Substantially all equity securities and options are pledged to the clearing broker under terms which permit the clearing broker to sell or re-pledge the securities to others subject to certain limitations. As of December 31, 2011 and December 31, 2010 and December 31, 2009, securities sold, not yet purchased, at fair value consisted of the following, at fair value:following: As of December 31, As of December 31, 2010 2009 2011 2010 (dollars in thousands) (dollars in thousands) $ 100,559 $ — $ 165,197 $ 100,559 88,580 14,307 123,877 88,580 2,615 — 1,529 2,615 6,162 505 43,648 6,162 $ 334,251 $ 197,916 $ 197,916 $ 14,812 (a) (b) (a)As of December 31, 2010, maturities ranged from December 2015 to August 2026 and interest rates ranged between 2.125% and 6.75%.(b)As of December 31, 2010, maturities ranged from June 2013 to December 2025 and interest rates ranged between 2.25% and 3.75%.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)5. Investments of Operating Entities and Consolidated Funds (Continued)2010: (dollars in thousands) $ 97,755 48,532 143,633 As of December 31, 2011 (dollars in thousands) Securities purchased under agreements to resell Agreements with Barclays Capital Inc bearing interest of (0.38%) - 0.25% due on January 3, 2012 $ 166,260 Securities sold under agreements to repurchase Agreements with Royal Bank of Canada bearing interest of 1.53% - 1.58% due on January 3, 2012 to June 25, 2012 49,450 Agreements with Barclays Capital Inc bearing interest of 0.03% - 0.08% due on January 3, 2012 179,333 $ 228,783 b.As of December 31, 2010 (dollars in thousands) Securities purchased under agreements to resell Agreements with Barclays Capital Inc bearing interest of 0.07% - 0.14% due on January 3, 2011 $ 97,755 Securities sold under agreements to repurchase Agreements with Royal Bank of Canada bearing interest of 1.42% due on February 22, 2011 to September 1, 2011 48,532 Agreements with Barclays Capital Inc bearing interest of 0.18% - 1.50% due on January 7, 2011 to June 6, 2011 143,633 $ 192,165 b. Consolidated Funds and December 31, 2009 securities owned, at fair value, held by the Consolidated Funds are comprised of: As of December 31, 2010 2009 (dollars in thousands) $ 7,682 $ — 1,040 — $ 8,722 $ — As of December 31, 2011 2010 (dollars in thousands) Government sponsored securities (a) $ 2,006 $ 7,682 Commercial paper (b) 3,927 — Corporate bond (c) 401 1,040 $ 6,334 $ 8,722 (a) (b) Commercial paper was purchased at a discount and matures on January 3, 2012. (c) *As of December 31, 2010, maturities range from January 2011Cowen Group, Inc.December 2012 and interest rates ranging between 0.35% and 4.88%.Consolidated Financial Statements (Continued)**As of December 31, 2010, maturity was January 2011 with an interest rate of 0.42%. and December 31, 2009 other investments, at fair value, held by the Consolidated Funds are comprised of: As of December 31, As of December 31, 2010 2009 2011 2010 (dollars in thousands) (dollars in thousands) $ 327,131 $ 546,526 $ 221,480 $ 327,131 6,243 3,881 7,340 6,243 $ 228,820 $ 333,374 $ 333,374 $ 550,407 (1) Investments in Portfolio Funds, at fair value (1)Investments in Portfolio Funds, at fair valueCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)5. Investments of Operating Entities and Consolidated Funds (Continued) and December 31, 2009,, investments in Portfolio Funds, at fair value, included the following: As of December 31 As of December 31, 2010 2009 2011 2010 (dollars in thousands) (dollars in thousands) $ 257,246 $ 449,160 $ 193,012 $ 257,246 69,885 97,366 Investments of consolidated fund of funds 28,468 69,885 $ 221,480 $ 327,131 $ 327,131 $ 546,526 "master-feeder"“master‑feeder” structure with Enterprise Master, whereby Enterprise Master's shareholders are Enterprise LP and RCG II Intermediate LP.Fund, L.P. The consolidated investments in Portfolio Funds recorded in other investments on the consolidated statements of financial condition includesinclude Enterprise LP's investment of $257$193.0 million and $449.2$257.2 million in Enterprise Master as of December 31, 2011 and December 31, 2010 and December 31, 2009,, respectively. On May 12, 2010, the Company announced its intention to close Enterprise Master. Prior to this announcement, strategies utilized by Enterprise Master included merger arbitrage and activist investing, investments in distressed securities, convertible hedging, capital structure arbitrage, equity market neutral, investments in private placements of convertible securities, proprietary mortgages, structured credit investments, investments in mortgage backed securities and other structured finance products, investments in real estate and real property interests, structured private placements and other relative value strategies. Enterprise Master hashad broad investment powers and maximum flexibility in seeking to achieve its investment objective. Enterprise Master maywas permitted to invest in equity securities, debt instruments, options, futures, swaps, credit default swaps and other derivatives. Enterprise Master has been selling, and will continue to sell, its positions and return capital to its investors. There are no unfunded commitments at Enterprise LP. See Note 17 for unfunded commitments of Enterprise Master.$70$28.5 million and $97.4$69.9 million at as of December 31, 2011 and December 31, 2010 and December 31, 2009,, respectively, include the investments of Levered FOF, Multi-StratMulti‑Strat FOF and Vintage FOF, all of which are investment companies managed by Ramius Alternative Solutions LLC, as well as RTS Global 3x,3X, which is managed by Ramius Trading Strategies LLC. Levered FOF's and Multi-StratMulti‑Strat FOF's investment objectives areis to invest discrete pools of their capital on a leveraged basis among portfolio managers that invest through Portfolio Funds, forming a multi-strategy,multi‑strategy, diversified investment portfolio designed to achieve returns with low to moderate volatility. Levered FOF had a similar strategy, but on a levered basis, prior to the fund winding down. Levered FOF is no longer levered. Vintage FOF's investment objective is to allocate its capital among portfolio managers that invest through investment pools or managed accounts thereby forming concentrated investments in high conviction managers designed to achieve attractive risk adjusted returns with moderate relative volatility. RTS Global 3x's3X's investment objective is to achieve attractive investment returns on a risk-adjusted basis that are non-correlated with the traditional equity and bond markets by investing substantially all of its capital pursuant toin managed futures and global macro-basedmacro‑based investmentCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)5. Investments of Operating Entities and Consolidated Funds (Continued)3x3X seeks to achieve its objective through a multi-advisormulti‑advisor investment approach by allocating its capital among third-partythird‑party trading advisors that are unaffiliated with RTS Global 3x.3X. However, unlike a traditional "fund“fund of funds"funds” that invests with advisors through entities controlled by third-parties,third‑parties, RTS Global 3x3X will allocate its capital among a number of different trading accounts organized and managed by the general partner. and December 31, 2009:: As of December 31, 2010 As of December 31, 2011 Ramius Levered Multi-Strategy FOF LP Ramius Multi-Strategy FOF LP Ramius Vintage Multi-Strategy FOF LP RTS Global 3x Fund LP Total Ramius Levered Multi-Strategy FOF LP Ramius Multi-Strategy FOF LP Ramius Vintage Multi-Strategy FOF LP RTS Global 3X Fund LP Total Strategy Fair Value Fair Value Fair Value Fair Value Fair Value Strategy Fair Value Fair Value Fair Value Fair Value Fair Value (dollars in thousands) (dollars in thousands) Multi-Strategy $ — $ 28,633 $ — $ — $ 28,633 (a) Multi-Strategy $ — $ 8,269 $ — $ — $ 8,269 (a) Multi-Strategy — — 20,722 — 20,722 (a) Multi-Strategy — — 8,883 — 8,883 (a) Credit-Based 687 — — — 687 (b) Credit-Based 438 — — — 438 (b) Futures & Global Macro — — — 15,889 15,889 (c) Futures & Global Macro — — — 8,078 8,078 (c) Credit-Based 522 — — — 522 (b) Credit-Based 260 — — 260 (b) Event Driven 2,800 — — — 2,800 (d) Event Driven 1,992 — — — 1,992 (d) Hedged Equity 39 — — — 39 (e) Hedged Equity 35 — — — 35 (e) Multi-Strategy 535 — — — 535 (f) Multi-Strategy 459 — — — 459 (f) Fixed Income Arbitrage 58 — — — 58 (g) Fixed Income Arbitrage 54 — — — 54 (g) $ 3,238 $ 8,269 $ 8,883 $ 8,078 $ 28,468 $ 4,641 $ 28,633 $ 20,722 $ 15,889 $ 69,885 As of December 31, 2010 As of December 31, 2009 Ramius Levered Multi-Strategy FOF LP Ramius Multi-Strategy FOF LP Ramius Vintage Multi-Strategy FOF LP RTS Global 3X Fund LP Total Strategy Ramius Levered Multi-Strategy FOF LP Ramius Multi-Strategy FOF LP Ramius Vintage Multi-Strategy FOF LP Total Strategy Fair Value Fair Value Fair Value Fair Value Fair Value (dollars in thousands) (dollars in thousands) Multi-Strategy $ — $ 43,939 $ — $ 43,939 (a) Multi-Strategy $ — $ 28,633 $ — $ — $ 28,633 (a) Multi-Strategy — — 47,371 47,371 (a) Multi-Strategy — — 20,722 — 20,722 (a) Credit-Based 783 — — 783 (b) Credit-Based 687 — — — 687 (b) Credit-Based 1,894 — — 1,894 (b) Independently Advised Portfolio Funds* Futures & Global Macro — — — 15,889 15,889 (c) Event Driven 2,787 — — 2,787 (d) Credit-Based 522 — — — 522 (b) Hedged Equity 28 — — 28 (e) Event Driven 2,800 — — — 2,800 (d) Multi-Strategy 497 — — 497 (f) Hedged Equity 39 — — — 39 (e) Fixed Income Arbitrage 56 — — 56 (g) Multi-Strategy 535 — — — 535 (f) Other 11 — — 11 Fixed Income Arbitrage 58 — — — 58 (g) $ 4,641 $ 28,633 $ 20,722 $ 15,889 $ 69,885 $ 6,056 $ 43,939 $ 47,371 $ 97,366 Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)5. Investments of Operating Entities and Consolidated Funds (Continued)(a)Investments held in affiliated master funds can be redeemed on a monthly basis with no advance notice.(b)The Credit-Based(a) Investments held in affiliated master funds can be redeemed on a monthly basis with no advance notice. (b) The Credit‑Based strategy aims to generate returns via positions in the credit sensitive sphere of the fixed income generate returns via positions in the credit sensitive sphere of the fixed income Consolidated Financial Statements (Continued)(c)The futures and global macro strategy is made up of several portfolio accounts, each of which will be advised independently by a professional commodity trading advisor implementing primarily managed futures or global macro-based investment strategies. The trading advisors (through their respective portfolio accounts) will trade independently of each other and, as a group, will employ a wide variety of systematic, relative value and discretionary trading programs in the global currency, fixed income, commodities and equity futures markets. In implementing their trading programs, the trading advisors will trade primarily in the futures and forward markets (as well as in related options). Although certain trading advisors may be permitted to use total return swaps and trade other financial instruments from time to time on an interim basis, the primary focus will be on the futures and forward markets. Redemption frequency of these portfolio accounts are monthly (and intra-monthly for a $10,000 fee) and the notification period for redemptions is 5 business days (or 3 business days for intra-month).(d)The Event Driven strategy is generally implemented through various combinations and permutations of merger arbitrage, restructuring and distressed instruments. Approximately 3% as of December 31, 2010 and 9% as of December 31, 2009 of the investments in this category represent investments in a fund that is in the process of liquidating. Distributions from this fund will be received as underlying investments are liquidated. The remaining amount of the investments in this category is in a side pocket or suspended with undetermined payout dates.(e)The Hedged Equity strategy focuses on equity strategies with some directional market exposure. The strategy attempts to profit from market efficiencies and direction. As of December 31, 2010, the investee fund manager has side-pocketed investments.(f)The Multi-Strategy investment objective is to invest discrete pools of its capital among portfolio managers that invest through investment funds, forming multi-strategy, diversified investment portfolios designed to achieve non-market directional returns with low relative volatility. The investments in this category represent investments in a fund that is in the process of liquidating. Distributions from this fund will be received as underlying investments are liquidated.(g)The Fixed Income Arbitrage strategy seeks to achieve long term capital appreciation by employing a variety of strategies to generate returns without significant exposure to credit spread, interest rate changes or duration. As of December 31, 2010, the investment manager has gated investments.(c) The Futures and Global Macro strategy is comprised of several portfolio accounts, each of which will be advised independently by a commodity trading advisor implementing primarily managed futures or global macro‑based investment strategies. The trading advisors (through their respective portfolio accounts) will trade independently of each other and, as a group, will employ a wide variety of systematic, relative value and discretionary trading programs in the global currency, fixed income, commodities and equity futures markets. In implementing their trading programs, the trading advisors will trade primarily in the futures and forward markets (as well as in related options). Although certain trading advisors may be permitted to use total return swaps and trade other financial instruments from time to time on an interim basis, the primary focus will be on the futures and forward markets. Redemption frequency of these portfolio accounts are monthly (and intra‑monthly for a $10,000 fee) and the notification period for redemptions is 5 business days (or 3 business days for intra‑month). (d) (e) The Hedged Equity strategy focuses on equity strategies with some directional market exposure. The strategy attempts to profit from market efficiencies and direction. The investee fund manager has side-pocketed investments. (f) The Multi‑Strategy investment objective is to invest discrete pools of its capital among portfolio managers that invest through investment funds, forming multi‑strategy, diversified investment portfolios designed to achieve non-market directional returns with low relative volatility. The investments in this category represent investments in a fund that is in the process of liquidating. Distributions from this fund will be received as underlying investments are liquidated. (g) (2) Lehman Claims, at fair value (2) Lehman Claims, at fair valueadministration,Administration, that were returned to Enterprise Master and its affiliated funds in June 2010. Enterprise Master and its affiliated funds sold the returned assets for an aggregate $10.7 million, and distributed this amount to Enterprise Master's investors in July 2010. As a result,In December 2011, Enterprise Master received an aggregate of approximately $2.4 million relating to securities, interest and dividends earned with respect to securities held by LBIE on behalf of Enterprise Master. Another distribution is expected to occur in February of 2012. Pre-distribution, the remaining Net Equity Claim for Enterprise Master is $14.8$15 million. Enterprise Master is valuing this claim at $7.8$9.2 million as of December 31, 2010.2011. Of this amount, $7.3 million was attributable to Enterprise LP based on its ownership percentage in Enterprise Master at the time of the Administration. As discussed in Note 6a, the Company has an additional $1.0 million claim against LBIE as a result of certain cash and cash equivalent balances held at LBIE. LBIE claims consist of several components, valued as follows: (a) the trust assets that the Company was informed were within the control of LBIE and were expected to be returned in the relatively near term were valued at market less a 1% discount that corresponds to the fee to be charged under the Claim Resolution Agreement (“CRA”), (b) the trust assets that are not within the control of LBIE and are not believed to be held through Lehman Brothers, Inc. (“LBI”) were valued at 55% with respect to US denominated Assets and 53% with respect to foreign denominated Assets, which represented the Company's estimate of potential recovery rates and (c) the remaining unsecured claims against LBIE were valued at 53%, which represented the Company's estimate of potential recovery rates with respect to this exposure using available market quotes. The estimated final recoverable amount by Enterprise Master may differ from the actual recoverable amount of the pending LBIE and LBI claims, and the differences may be material. they held at LBIE frozen in their LBIE prime brokerage account and the degree of uncertainty as to the status of those assets and the process and prospectsCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)5. Investments of Operating Entities and Consolidated Funds (Continued)"SPVs"“SPVs” or "Lehman“Lehman Segregated Funds"Funds”) incorporated under the laws of the Cayman Islands on September 29, 2008, whose shares were distributed to each of their investor funds. Fully redeeming investors of Enterprise LP will not be paid out on the balance invested in the SPV until the claim with LBIE is settled and assets are returned by LBIE.Lehman Brothers, Inc. ("LBI")to Enterprise Master's claims against LBIE, LBI was a prime broker to Enterprise Master and itEnterprise Master holds cash balances of $5.3 million.million at LBI. On September 19, 2008, LBI was placed in a Securities Investor Protection Corporation ("SIPC"(“SIPC”) liquidation proceeding after the filing for bankruptcy of its parent Lehman Brothers Holdings, Inc. The status of the assets under LBI's bankruptcy proceedings has not been determined. The amount that will ultimately be recovered from LBI will depend on the amount of assets available in the fund of customer property to be established by the trustee appointed under the Securities Investor Protection Act (the "SIPA Trustee"“SIPA Trustee”) as approved by the bankruptcy court as well as the total amount of customer claims that seek recovery from the fund of customer property. Based on court filings by the SIPA Trustee, the total amount of customer claims exceeds the assets that are likely to be in the fund of customer property. In addition, while there has been an initial ruling with respect to the court filings also indicate thatclaims asserted by Barclays plc has submitted a substantial claim against LBI relating to an asset purchase agreement entered into by Barclays plc with LBIE near the time of the SIPC liquidation proceeding, there is still uncertainty regarding the ultimate resolution of these claims that could affect the amount of assets that are included in the fund of customer property. As a result of these uncertainties and the timing of any distributions from LBI in respect of the Company's customer claims, management has estimated recovery with respect to the Company's exposure to LBI exposure at 47%55% or $2.5$2.9 million as of December 31, 2010,2011, which represents the present value of the mid point between what management believes are reasonable estimates of the low side and high side potential recovery rates with respect to the Company's LBI exposure. The estimated recoverable amount by the Company may differ from the actual recoverable amount of the pending LBI claim, and the differences may be material.20102011 and December 31, 2009,2010, the Company identifiedassessed whether or not its Consolidated Funds that had interests in an issuer for which the Company's pro-rata share exceeds 5% of the Consolidated Funds' net assets (on an aggregated basis). There were no indirect concentrations that exceed 5% of the Consolidated Funds' net assets held by the Company as of December 31, 2010. The following table presents such interests, as of December 31, 2009, which represent the aggregate of (i) the gross amount of exposure that Consolidated Funds have through their investments held directlyTable of Contents or Cowen Group, Inc.2010Notes to Consolidated Financial Statements (Continued).5. Investments of Operating Entities and Consolidated Funds (Continued)and (ii) the gross amount of exposure held indirectly through their investments in any unconsolidated master funds: As of December 31, 2009 Shares/ Principal
Amount
(in local currency) Fair Value (amounts in thousands) $ 3,415 $ 3,441 C$ 29,202 28,169 358 35,314 $ 181,230 185,220 $ 83,090 (82,034 ) 2009 and 20082009 were as follows: Year Ended December 31, Year Ended December 31, 2010 2009 2008 2011 2010 2009 (dollars in thousands) (dollars in thousands) $ 16,696 $ (8,561 ) $ (9,229 ) $ 4,959 $ 16,696 $ (8,561 ) 16,420 64,469 (207,681 ) (34 ) 16,420 64,469 $ (1,892 ) $ (26,517 ) $ 1,581 $ (651 ) $ (1,892 ) $ (26,517 ) 1,131 (5,233 ) 5,190 68 1,131 (5,233 ) Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)5. Investments of Operating Entities and Consolidated Funds (Continued)is equal torepresents Enterprise LP's proportionalproportionate share of Enterprise Master's net assets; as a result, the investment balances of Enterprise Master reflected below may exceed the net investment which Enterprise LP has recorded. The following tables present summarized investment information for the underlying investments and derivatives held by Enterprise Master as of December 31, 20102011 and 2009:2010:
December 31, 2010 December 31, 2009 December 31, 2011 December 31, 2010 Securities
owned Securities
sold, but not yet
purchased Securities
owned Securities
sold, but not yet
purchased Securities
owned Securities
sold, but not yet
purchased Securities
owned Securities
sold, but not yet
purchased (dollars in thousands) (dollars in thousands) $ — $ — $ 1,646 $ — — — 2,723 — 10,123 — 182,447 (47,151 ) $ 2,173 $ — $ 10,123 $ — — — 123,060 — 1,997 — 181,402 (1,541 ) — — 1,997 — — — — (5,549 ) — — 10,374 (10,660 ) — — 812 — — — 6,052 (84 ) — — 2,335 (3,048 ) — (63 ) 5 (1 ) — — — (63 ) 410 — 4,558 (198 ) 1,027 — 410 — 59 — — — — — 59 — 173 — 107 — 276 — 173 — 3,148 — 6,172 — 47 — 3,148 — 2,115 — 1,950 — 2,173 — 2,115 — 128 — 128 — 128 — 128 — — — 185,118 (82,004 ) 55 — 6,831 — 3 — 55 — $ 5,827 $ — $ 18,208 $ (63 ) $ 18,208 $ (63 ) $ 715,720 $ (150,236 ) Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)5. Investments of Operating Entities and Consolidated Funds (Continued) As of December 31, 2010 2009 (dollars in thousands) $ 5 $ 295 — (574 ) — 432 (36 ) 691 — (1,001 ) — (822 ) — 105 — (127 ) — 40 — 2,123 $ (31 ) $ 1,162 As of December 31, Description 2011 2010 (dollars in thousands) Asset swaps $ — $ 5 Currency forwards 53 (36 ) $ 53 $ (31 ) As of December 31, As of December 31, 2010 2009 2011 2010 Strategy Fair Value Strategy Fair Value (dollars in thousands) (dollars in thousands) Artwork $ 98 $ 2,091 Artwork $ 38 $ 98 Life Settlements — 1,278 Life Settlements 111 779 Life Settlements — 111 Real Estate 10,120 9,036 Real Estate 14,460 10,120 Real Estate 1,835 2,261 Real Estate 1,592 1,835 Real Estate 12,628 6,807 Real Estate 23,594 12,628 Real Estate 383 272 Real Estate 271 383 Real Estate 2,542 3,859 Real Estate 2,748 2,542 Real Estate 3,207 2,961 Real Estate 3,142 3,207 Multi-Strategy 9,463 7,096 Multi-Strategy 870 9,463 Multi-Strategy 24,972 — Multi-Strategy 1,106 24,972 Multi-Strategy — 9,753 Multi-Strategy 97,845 110,279 Multi-Strategy 97,144 97,845 Distressed 300 717 Distressed 121 300 Multi-Strategy 87 149 Multi-Strategy 47 87 Energy 18,850 23,063 Energy 16,560 18,850 Energy 2 3 Energy 2 2 Various 15,189 16,059 Various 16,580 15,189 Real Estate 25,662 21,364 Real Estate 15,795 25,662 $ 194,070 $ 223,294 $ 223,294 $ 217,827 * These Portfolio Funds are affiliates of the Company. *These Portfolio Funds are affiliates of the Company.5. Investments of Operating Entities and Consolidated Funds (Continued) Multi-Stratare equal torepresent their proportionalproportionate share of their master fund's net assets; as a result, the master funds investments in Portfolio Funds of the master funds reflected below may exceed the net investmentinvestments which Multi-StratMulti‑Strat FOF and Vintage FOF have recorded. The following table presents summarized investment information for the underlying Portfolio Funds held by Ramius Multi-StrategyMulti‑Strategy Master FOF LP and Ramius Vintage Multi-StrategyMulti‑Strategy Master FOF LP, at estimated fair value, as of December 31, 20102011 and 2009:2010: December 31, 2010 December 31, 2009 December 31, 2011 December 31, 2010 Strategy Ramius
Multi-Strategy
Master FOF LP Ramius Vintage
Multi-Strategy
Master FOF LP Ramius
Multi-Strategy
Master FOF LP Ramius Vintage
Multi-Strategy
Master FOF LP Strategy Ramius
Multi-Strategy
Master FOF LP Ramius Vintage
Multi-Strategy
Master FOF LP Ramius
Multi-Strategy
Master FOF LP Ramius Vintage
Multi-Strategy
Master FOF LP (dollars in thousands) (dollars in thousands) $ — $ — $ — $ — Hedged Equity — — 6,725 — Multi Strategy 1,354 — 5,394 — Multi Strategy $ 552 $ — $ 1,354 $ — Multi-Strategy — — — — Hedged Equity — 3,544 — 5,642 Hedged Equity — — — 3,544 Credit-Based 1,416 1,512 1,612 1,720 Credit-Based 901 962 1,416 1,512 Credit-Based 6,653 803 4,084 1,158 Credit-Based 40 399 6,653 803 Event Driven 6,491 6,802 9,117 13,912 Event Driven 3,015 5,044 6,491 6,802 Fixed Income Arbitrage 83 — 81 — Fixed Income Arbitrage 79 — 83 — Hedged Equity 4,386 3,055 5,461 5,453 Hedged Equity 1,272 1,753 4,386 3,055 Multi Strategy 7,785 4,292 11,564 14,647 Multi Strategy 1,319 1,442 7,785 4,292 Other — — 47 — Global Macro — — 2,053 679 Global Macro 2,053 679 2,081 5,321 Opportunistic Equity — — — 1,677 Opportunistic Equity — 1,677 — 2,825 Managed Futures — — 2,430 — Managed Futures 2,430 — 2,256 1,278 $ 7,178 $ 9,600 $ 32,651 $ 22,364 $ 32,651 $ 22,364 $ 48,422 $ 51,956 * These Portfolio Funds are affiliates of the Company. *These Portfolio Funds are affiliates of the Company.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)5. Investments of Operating Entities and Consolidated Funds (Continued)3x3X Fund LP's Portfolio Fund investments3x,3X, which commenced operations in March 2010, invests over half of its equity in six externally managed portfolio funds which primarily concentrate on futures and global macro strategies. RTS Global 3X's investments in the portfolio funds represent its proportionate share of the portfolio funds net assets; as a result, the portfolio funds' investments reflected below may exceed the net investment which RTS Global 3X has recorded. The following table presents the summarized investment information, which is primarily receivable/(payable)consists of receivables/(payables) on derivatives, for the underlying Portfolio Funds held by RTS Global 3X, at fair value, as of December 31, 2010:2011 and 2010: As of December 31, 2010 (dollars in thousands) $ (2 ) (5 ) 17,139 191 32 935 (63 ) 1,230 130 (5 ) $ 19,582 Other During the fourth quarter of 2010, the Company acquired four Luxembourg reinsurance companies, two of which were acquired from Enterprise Master. The Company acquired the other Luxembourg reinsurance companies from third parties through a wholly-owned local subsidiary, which, upon acquisition, recorded deferred assets and subsequently deferred tax benefits. The purchase price of these two reinsurance companies totaled $266.4 million. The acquisitions are not accounted for as business combinations and are discussed in more detail in the Income Taxes footnote.6. As of December 31, 2011 2010 (dollars in thousands) Bond futures $ (2 ) $ (2 ) Commodity options 181 (39 ) Currency options 487 347 Commodity forwards 51 32 Commodity futures 756 970 Currency forwards 157 (63 ) Currency futures 418 1,073 Energy futures 2 (2 ) Foreign currency option 358 1 Index options 80 86 Index futures 80 45 Interest rate futures 20 (10 ) Interest rate options (25 ) 5 $ 2,563 $ 2,443 financial instruments recordedassets and liabilities that are measured at fair value on a recurring basis on the consolidated statements of financial condition by caption and by level within the valuation hierarchy as of December 31, 20102011 and December 31, 2009:2010:
Assets at Fair Value as of December 31, 2010 Assets at Fair Value as of December 31, 2011 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total (dollars in thousands) (dollars in thousands) US Government securities $ 182,868 $ — $ — $ 182,868 Common stocks 248,598 713 1,069 250,380 Convertible bonds — 18,130 — 18,130 Corporate bonds — 231,864 — 231,864 Futures 172 — — 172 Equity swaps — 635 — 635 Options 55,530 169 69 55,768 Warrants and rights 1,225 — 1,465 2,690 Mutual funds 3,214 — — 3,214 Other investments Portfolio Funds — 23,431 18,905 42,336 Real estate investments — — 2,353 2,353 Lehman claim — — 553 553 $ 143,247 $ — $ — $ 143,247 $ 491,607 $ 274,942 $ 24,414 $ 790,963 115,875 6 334 116,215 — — 5,000 5,000 — 191,702 — 191,702 442 — — 442 14,234 115 — 14,349 357 — 1,977 2,334 1,248 — — 1,248 566 11,744 17,081 29,391 — — 1,882 1,882 — — 313 313 $ 275,969 $ 203,567 $ 26,587 $ 506,123 Liabilities at Fair Value as of December 31, 2010 Level 1 Level 2 Level 3 Total (dollars in thousands) $ 100,559 $ — $ — $ 100,559 88,580 — — 88,580 — 2,615 — 2,615 — 245 — 245 334 — — 334 6,162 — — 6,162 $ 195,635 $ 2,860 $ — $ 198,495 6. Fair Value Measurements for Operating Entities and Consolidated Funds (Continued) Assets at Fair Value as of December 31, 2009 Level 1 Level 2 Level 3 Total (dollars in thousands) $ — $ — $ — $ — 11,081 24 334 11,439 — 38,327 — 38,327 1,312 — — 1,312 — 1,356 — 1,356 1,719 — — 1,719 2,669 644 17,370 20,683 — — 1,077 1,077 — — 209 209 $ 16,781 $ 40,351 $ 18,990 $ 76,122 Liabilities at Fair Value as of December 31, 2011 Level 1 Level 2 Level 3 Total (dollars in thousands) Securities sold, not yet purchased and derivatives US Government securities $ 165,197 $ — $ — $ 165,197 Common stocks 123,875 2 — 123,877 Corporate bonds — 1,529 — 1,529 Futures 617 — — 617 Equity swaps—short exposure — 140 — 140 Options 43,648 — — 43,648 $ 333,337 $ 1,671 $ — $ 335,008 Assets at Fair Value as of December 31, 2010 Level 1 Level 2 Level 3 Total (dollars in thousands) Securities owned and derivatives US Government securities $ 143,247 $ — $ — $ 143,247 Common stocks 115,875 6 334 116,215 Restricted common stock — — 5,000 5,000 Corporate bonds — 191,702 — 191,702 Futures 442 — — 442 Options 14,234 115 — 14,349 Warrants and rights 357 — 1,977 2,334 Mutual funds 1,248 — — 1,248 Other investments Portfolio Funds 566 11,744 17,081 29,391 Real estate investments — — 1,882 1,882 Lehman claim — — 313 313 $ 275,969 $ 203,567 $ 26,587 $ 506,123 Liabilities at Fair Value as of December 31, 2010 Level 1 Level 2 Level 3 Total (dollars in thousands) Securities sold, not yet purchased and derivatives US Government securities $ 100,559 $ — $ — $ 100,559 Common stocks 88,580 — — 88,580 Corporate bonds — 2,615 — 2,615 Equity swaps—short exposure — 245 — 245 Futures 334 — — 334 Options 6,162 — — 6,162 $ 195,635 $ 2,860 $ — $ 198,495 Liabilities at Fair Value as of December 31, 2009 Level 1 Level 2 Level 3 Total (dollars in thousands) $ 14,307 $ — $ — $ 14,307 505 — — 505 $ 14,812 $ — $ — $ 14,812 Consolidated Funds' investments Assets at Fair Value as of December 31, 2010 Level 1 Level 2 Level 3 Total (dollars in thousands) $ 7,682 $ — $ — $ 7,682 — 1,040 — 1,040 — 15,889 311,242 327,131 — — 6,243 6,243 $ 7,682 $ 16,929 $ 317,485 $ 342,096 6. Fair Value Measurements for Operating Entities and Funds (Continued)Funds' investments Assets at Fair Value as of December 31, 2009 Level 1 Level 2 Level 3 Total (dollars in thousands) $ — $ 449,160 $ 97,366 $ 546,526 — — 3,881 3,881 $ — $ 449,160 $ 101,247 $ 550,407 Assets at Fair Value as of December 31, 2011 Level 1 Level 2 Level 3 Total (dollars in thousands) Securities owned US Government securities $ 2,006 $ — $ — $ 2,006 Commercial paper — 3,927 — 3,927 Corporate bonds — 401 — 401 Other investments Portfolio Funds — 8,078 213,402 221,480 Lehman claims — — 7,340 7,340 $ 2,006 $ 12,406 $ 220,742 $ 235,154 Assets at Fair Value as of December 31, 2010 Level 1 Level 2 Level 3 Total (dollars in thousands) Securities owned US Government securities $ 7,682 $ — $ — $ 7,682 Corporate bonds — 1,040 — 1,040 Other investments Portfolio Funds — 15,889 311,242 327,131 Lehman claims — — 6,243 6,243 $ 7,682 $ 16,929 $ 317,485 $ 342,096 20102011 and 20092010 for financial instruments classified within level 3. The classification of a financial instrument within level 3 is based upon the significance of the unobservable inputs to the overall fair value measurement. Operating Entities Consolidated Funds Common
stocks Restricted
Common
Stock Corporate
Bonds Warrants
and
Rights Portfolio
Funds Real
estate Lehman
claim Portfolio
Funds Lehman
claim (dollars in thousands) $ — $ — $ — $ — $ 1,970 $ 1,605 $ 209 $ 157,513 $ 3,881 — — — — — 132 — 2,181 — — — — — (2,226 ) — — (72,147 ) — 334 — — — 17,121 — — — — — — — — — — — 4,527 — — — — — 505 (660 ) — 5,292 — $ 334 $ — $ — $ — $ 17,370 $ 1,077 $ 209 $ 97,366 $ 3,881 — — — 1,356 (2,011 )(b) — — 372,865 (a) — — 5,000 1,215 36 310,078 800 — 20,685 — — — (1,634 ) (938 ) (310,562 ) (100 ) — (197,035 ) (8,547 ) — — 419 495 1,106 — — 4,224 — — — — 1,028 1,100 105 104 13,137 10,909 $ 334 $ 5,000 $ — $ 1,977 $ 17,081 $ 1,882 $ 313 $ 311,242 $ 6,243 Operating Entities Consolidated Funds Common
stocks Common stocks, sold not yet purchased Restricted
Common
Stock Corporate
Bonds Options Warrants
and
Rights Portfolio
Funds Real
estate Lehman
claim Portfolio
Funds Lehman
claim (dollars in thousands) Balance at December 31, 2009 $ 334 $ — $ — $ — $ — $ — $ 17,370 $ 1,077 $ 209 $ 97,366 $ 3,881 Transfers in — — — — — 1,356 (a) 855 (b) — — 382,004 (a) — Transfers out — — — — — (2,866 ) (c) (9,139 ) (a) — Purchases/(covers) — — 5,000 1,215 10,179 36 310,078 800 — 20,685 — (Sales)/short buys — — — (1,634 ) (10,343 ) (938 ) (310,562 ) (100 ) — (197,035 ) (8,547 ) Realized gains (losses) — — — 419 164 495 1,108 — — 4,224 — Unrealized gains (losses) — — — — — 1,028 1,098 105 104 13,137 10,909 Balance at December 31, 2010 $ 334 $ — $ 5,000 $ — $ — $ 1,977 $ 17,081 $ 1,882 $ 313 $ 311,242 $ 6,243 Transfers in — — — — — 566 (a) — — — — Transfers out — — — — — — — — — — Purchases/(covers) 687 (978 ) — — — 111 52,475 330 — 2 — (Sales)/short buys (568 ) 833 (4,857 ) — — (84 ) (53,435 ) (10 ) — (104,243 ) — Realized gains (losses) 159 145 (143 ) — — 48 157 — — 2,508 — Unrealized gains (losses) 457 — — 69 (587 ) 2,061 151 240 3,893 1,097 Balance at December 31, 2011 $ 1,069 $ — $ — $ — $ 69 $ 1,465 $ 18,905 $ 2,353 $ 553 $ 213,402 $ 7,340 (a) Changes in the observability of inputs used in the valuation of such assets (a)DueCowen Group, Inc.the change in strategy and composition of positions held in Enterprise Master fund, the investment in the Master fund by Enterprise LP has changed during year ended December 31, 2010 from a level 2 to a level 3 asset. RTS 3X designation was changed from level 3 to level 2 given that: (1) RTS 3X invests in underlying funds which primarily trade level 1 exchange traded assets and for which an RTS affiliate is the managing member, (2) NAV is readily available and (3) redemption is available on a monthly or more frequent basis.Consolidated Financial Statements (Continued)(b)Deconsolidation of Replication Fund Ltd and CHRP GP (See Note 3b)(b) Deconsolidation of Ramius Alternative Replication Fund Ltd (See Note 3b) (c) Deconsolidation of CHRP GP (See Note 3b) 7. Receivableforfrom short sales (including commissions and fees related to securities transactions) equal to the fair value of securities sold, not yet purchased, which are restricted until the Company purchases the securities sold short.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)7. Receivables from and Payable to Brokers (Continued)Company's prime brokermaster netting agreements the Company entered into with its brokers, these balances are presented net (assets less liabilities) across balances with the same broker. As of December 31, 20102011 and 2009,2010, receivable from brokers was $95.9$62.0 million and $32.5$95.9 million, respectively. Payable to brokers was $85.7$213.4 million and $3.8$85.7 million as of December 31, 20102011 and 2009,2010, respectively.8. Other Assets The Company's receivables from and Accounts Payable, Accrued Expenses and Other Liabilities Other assets in Operating Entitiespayable to brokers balances are as follows: As of December 31, 2010 2009 (dollars in thousands) $ 1,384 $ 1,399 7,691 7,092 2,033 10,233 442 — 5,237 1,048 2,669 4,427 $ 19,456 $ 24,199 Accounts payable, accrued expenses and other liabilities in Operating Entities are as follows: As of December 31, 2010 2009 (dollars in thousands) $ 8,198 $ 6,712 6,899 17,862 1,536 2,034 903 — 5,576 5,167 1,500 1,500 — 1,045 — 8,365 579 — 15,711 20,340 1,231 2,241 134 333 $ 42,267 $ 65,599
concentrated amongst three reputable financial institutions.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)20102011 and 2009,2010, fixed assets consisted of the following: As of December 31, As of December 31, 2010 2009 2011 2010 (dollars in thousands) (dollars in thousands) $ 8,576 $ 8,730 $ 12,828 $ 8,576 4,831 4,401 5,419 4,831 4,630 6,039 5,997 4,630 25,271 29,822 30,264 25,271 6,337 — 6,337 6,337 4,650 — — 4,650 60 60 49 60 60,894 54,355 54,355 49,052 (17,764 ) (16,449 ) (23,852 ) (17,764 ) $ 37,042 $ 36,591 $ 36,591 $ 32,603 $5.7$7.4 million $4.4, $5.7 million and $3.8$4.4 million for the years ended December 31, 2011, 2010 2009,, and 2008, respectively.2009, respectively and are included in depreciation and amortization expense in the accompanying consolidated statements of operations.atas of December 31, 2010.2011 and 2010. If the assets acquired under capital leases transfer title at the end of the lease term or contain a bargain purchase option, the assets are amortized over their estimated useful lives; otherwise, the assets are amortized over the respective lease term. The amortizationdepreciation of assets capitalizedwithin depreciation expenses. Amortization expense related to capital leasesand amortization expenses and was $0.5 million for the year ended December 31, 2011. For the year ended December 31, 2010 no depreciation was insignificantrecorded because the leasesassets were entered intonot in October and Novemberservice until August 2011. 2010. At December 31, 2010, construction in progress consisted primarily of leasehold improvement costs related to additional space acquired at 599 Lexington Avenue office. The construction of leasehold improvements was completed in January 2011 and the Company began depreciating these costs at that time.1719 to the Company's consolidated financial statements for further discussion. Goodwill was recognized as a result of a 2004 business combination in the fund of funds reporting unit, within the Alternative Investment Management segment. �� recordedrecognized additional goodwill of $7.2 million during the year ended December 31, 2009. This goodwill is attributable to the Cowen and Company reporting unit, the U.S. broker-dealer subsidiary of the Company, which is a part ofrecorded within the broker-dealer segment.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)10. Goodwill and Intangible Assets (Continued) In accordance with FASB accounting standards, the Company tests goodwill for impairment on an annual basis, at December 31st each year, or at an interim period if events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Based on the results of the valuations performed in 2008, the Company recorded a partial impairment of goodwill in the fund of funds reporting unit during the year ended December 31, 2008 in the amount of $10.2 million. The aggregate impairment charge was primarily attributable to a decline in the assets under management at that reporting unit and the resulting decline in the expected management and incentive income. The assets under management declined from December 31, 2007 to December 31, 2008 by approximately $1.3 billion or 33%, primarily as a result of the difficult market environment in the second half of 2008. There were no additions or impairment charges to goodwill during the year ended December 31, 2009. Periodically estimating the fair value of a reporting unit requires significant judgment and often involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge.analyses.10. Goodwill and Intangible Assets (Continued)20102011 and 2009: 2010 2009 2011 2010 Alternative
Investment
Management Broker-
Dealer Total Alternative
Investment
Management Broker-
Dealer Total Alternative
Investment
Management Broker-
Dealer Total Alternative
Investment
Management Broker-
Dealer Total (dollars in thousands) (dollars in thousands) $ 30,228 $ 7,151 $ 37,379 $ 30,228 $ — $ 30,228 (10,200 ) — (10,200 ) (10,200 ) — (10,200 ) 20,028 7,151 27,179 20,028 — 20,028 Goodwill $ 30,228 $ 7,151 $ 37,379 $ 30,228 $ 7,151 $ 37,379 Accumulated impairment charges (10,200 ) — (10,200 ) (10,200 ) — (10,200 ) Net 20,028 7,151 27,179 20,028 7,151 27,179 — — — — 7,151 7,151 — — — — 7,151 7,151 Goodwill impairment charges — (7,151 ) (7,151 ) — — — — (7,151 ) (7,151 ) — — — 30,228 7,151 37,379 30,228 7,151 37,379 (10,200 ) — (10,200 ) (10,200 ) — (10,200 ) $ 20,028 $ 7,151 $ 27,179 $ 20,028 $ 7,151 $ 27,179 Goodwill 30,228 7,151 37,379 30,228 7,151 37,379 Accumulated impairment charges (10,200 ) (7,151 ) (17,351 ) (10,200 ) — (10,200 ) Net $ 20,028 $ — $ 20,028 $ 20,028 $ 7,151 $ 27,179 20102011 and 2009.2010. The trade name, customer relationships, and customer contracts intangible assets were acquired in connection with the Transactions.Transactions in November 2009. See Note 2 for further discussion. December 31, 2010 December 31, 2009 December 31, 2011 December 31, 2010 Amortization
Period Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Amount Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Amount (in years) (in thousands) (in thousands) (in years) (in thousands) (in thousands) 5.0 $ 3,900 $ (3,900 ) $ — $ 3,900 $ (3,900 ) $ — 5 $ 3,900 $ (3,900 ) $ — $ 3,900 $ (3,900 ) $ — 7.5 9,400 (1,463 ) 7,937 9,400 (209 ) 9,191 7.5 9,400 (6,649 ) 2,751 9,400 (1,463 ) 7,937 4.0 6,800 (1,983 ) 4,817 6,800 (283 ) 6,517 4 6,800 (4,916 ) 1,884 6,800 (1,983 ) 4,817 1.2 800 (800 ) — 800 (114 ) 686 1.2 800 (800 ) — 800 (800 ) — Covenants to not compete 1 or 2 1,950 (1,950 ) — — — — Covenants with limiting conditions 10 580 (580 ) — — — — Intellectual property 3 2,550 (1,425 ) 1,125 — — — $ 25,980 $ (20,220 ) $ 5,760 $ 20,900 $ (8,146 ) $ 12,754 $ 20,900 $ (8,146 ) $ 12,754 $ 20,900 $ (4,506 ) $ 16,394 $1.4 million and $0.8$1.4 million for the years ended December 31, 2011, 2010 2009, and 2008, respectively.2009, respectively, which is included in depreciation and amortization expense in the accompanying consolidated statements of operations. All of the Company's intangible assets have finite lives. There were no impairment charges related to intangible assets during the years ended December 31, 2010 2009, and 2008.Cowen Group, Inc..Notes to Consolidated Financial Statements (Continued)10. Goodwill and Intangible Assets (Continued)20102011 is as follows: (dollars in thousands) $ 2,954 (dollars in thousands) 2,954 $ 1,993 2,670 1,822 1,253 741 1,253 516 2016 516 1,670 172 $ 5,760 $ 12,754 As of December 31, 2011 2010 (dollars in thousands) Deposits $ 1,273 $ 1,384 Prepaid expenses 8,139 7,691 Taxes receivable 2,064 2,033 Derivative contracts, at fair value 807 442 Receivable from portfolio companies 4,349 109 Interest receivable 5,800 5,237 Other 4,188 (1) 2,560 $ 26,620 $ 19,456 As of December 31, 2011 2010 (dollars in thousands) Deferred rent obligations (see Note 3k) $ 15,327 $ 16,000 Deferred income on sale-leaseback (see Note 3u) 1,037 1,536 Equity in RCG Longview Partners II, LLC (see Note 6a(3)) 5,775 5,576 Legal and regulatory reserve (Note 19) 10,100 1,500 Liability for future rent payments (see Note 19) 5,912 — Termination of service contracts 1,551 — Derivative contracts, at fair value 757 579 Accrued expenses and accounts payable 18,880 15,845 Accrued tax liabilities 2,123 1,231 $ 61,462 $ 42,267 non-controlling interestsNon-Controlling Interests in consolidated subsidiaries As of December 31, As of December 31, 2010 2009 2011 2010 (dollars in thousands) (dollars in thousands) $ 1,009 $ 1,713 $ 6,472 $ 1,009 143,337 229,112 98,115 143,337 $ 104,587 $ 144,346 $ 144,346 $ 230,825 (a) See Note 3b (a)See Note 3b Year ended December 31, 2010 2009 2008 Year ended December 31, (dollars in thousands) 2011 2010 2009 (dollars in thousands) Income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries $ (1,759 ) $ (602 ) $ 5,485 $ 7,002 $ 1,759 $ 602 (11,968 ) (15,646 ) 108,301 (1,175 ) 11,968 15,646 $ 5,827 $ 13,727 $ 16,248 $ (13,727 ) $ (16,248 ) $ 113,786 Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)11. Redeemable non-controlling interests in consolidated subsidiaries (Continued)$1.7$6 million. See Note 2 for further informationinformation.12.statementstatements of operationoperations for the yearyears ended December 31, 2011 and 2010, are gross insurance premium income of $35 million and $3.1 million which is offset by gross reinsurance premium expense of $35 million and $3.1 million related to the Luxembourg reinsurance companies. Gross rebate income earned by Ramius Securities on securities borrowed transactions for the year ended December 31, 2008 was $17.9 million and rebate interest expense incurred by Ramius Securities on securities loaned transactions was $13.7 million, respectively. The net rebate income for the year ended December 31, 2008 of $4.2 million, was reduced by the income related to affiliates of the Company as that amount was transferred to the applicable affiliates. As a result, net rebate income from the operations of Ramius Securities of $1.6 million was included in other revenues in the consolidated statements of operations for the year ended December 31, 2008. No such transactions occurred during the years ended December 31, 2010 and 2009. As of December 31, 2010, 2009 and 2008 the amount due to JT Partners LLC totaled $0, $0, and $4.5 million respectively, which is included in due to related parties in the consolidated statements of financial condition. Prior to 2009, Ramius Securities acted as a placement agent for certain affiliates and real estate entities. Accordingly Ramius Securities recorded placement fee income as services were provided and revenues were earned. Placement fee income of $3.2 million was recorded in other revenues on the consolidated statements of operations for the year ended December 31, 2008. Related to these activities, Ramius Securities' affiliate, JT Partners LLC, which was dissolved in 2009, incurred compensation and other expense charges. For the years ended December 31, 2010, 2009 and 2008, Ramius Securities reimbursed JT Partners LLC for these expenses of $0, $0.4 million and $3.2 million, respectively, which are included in other expenses on the consolidated statements of operations. 2009,, and 2008, except as noted above,2009, are primarily the general administrative expenses of operating the various operating company subsidiaries or the Consolidated Funds and research expenses.Funds.13. and the 2007 Equity and Incentive Plan and the Cowen Group, Inc. 2010 Equity and Incentive Plan (collectively, the "Equity Plans"“Equity2010,2011, there were approximately 5.80.7 million shares available for future issuance under the Equity Plans. On January 1, 2011, 928,590 additional2012, 8.2 million sharesCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)13. Share-Based Compensation and Employee Ownership Plans (Continued)representing 7.5% of the Company's outstanding shares of stock, less shares available under the 2010 plan were added to the shares available under the 2010 Equity and Incentive Plan."RCG Grants"“RCG Grants”). Substantially all of the assets owned by RCG consist of shares of common stock of the Company. Accordingly, upon withdrawal of capital from RCG, members receive either distributions in kind of shares of common stock of the Company, or the proceeds from the sale of shares of the Company's common stock attributable to their capital accounts. The RCG Grants are subject to a service condition and vest to each employee over a period of approximately three years. Any RCG Grants forfeited are redistributed to the remaining stakeholders in RCG, which includes both employees and non-employees. The RCG Grants represent awards to employees of the Company by a related party, as compensation for services provided to the Company. As such, the expense related to these grants is included in the compensation expense of the Company, with a corresponding credit to stockholders equity.fair valueequity method. In accordance with the expense recognition provisions of those standards, the Company amortizes unearned compensation associated with share based awards on a straight-line basis over the vesting period of the option or award. In relation to awards under the Equity Plans, the Company recognized expense of $22.9 million, $14.1 million and $2.3 million for the years ended December 31, 2011, 2010 and 2009, respectively. The income tax effect recognized for the Equity Plans was a benefit of $6.0$11.5 million, $6 million and $1.0$1 million for the years ended December 31, 2011, 2010 and 2009, respectively.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)13. Share-Based Compensation and Employee Ownership Plans (Continued)20092011 and 2008.2010: Shares
Subject to
Option Weighted
Average
Exercise
Price/Share Weighted
Average
Remaining
Term Aggregate
Intrinsic
Value(1) (in years) (dollars in thousands) Shares Subject
to Option Weighted Average
Exercise Price/Share Weighted Average
Remaining Term Aggregate Intrinsic
Value(1) — $ — — — 892,782 15.06 — — — — — — (in years) (dollars in thousands) 892,782 $ 15.06 3.81 892,782 $ 15.06 3.81 150,003 3.96 (2) 150,003 3.96 (2) — — — — — — — — — — — — (149,353 ) 16.00 (149,353 ) 16.00 Balance outstanding at December 31, 2010 893,432 $ 13.04 3.5 Options granted — — Options acquired — — Options expired (27,004 ) 16 Balance outstanding at December 31, 2011 866,428 $ 12.95 2.53 $ — Options exercisable at December 31, 2010 743,429 $ 14.87 2.87 $ — Options exercisable at December 31, 2011 716,425 $ 14.83 1.89 $ — 893,432 $ 13.04 3.50 $ — 831,449 $ 14.99 3.84 $ — 743,429 $ 14.87 2.87 $ — (1)(1) of $5.92 on December 31, 2009 and $4.69 on December 31, 2010.(2)The weighted average grant date fair value was 1.84. As of $2.59 on December 31, 2011 and $4.69 on December 31, 2010.(2) The weighted average grant date fair value was $1.84. immaterial.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)13. Share-Based Compensation and Employee Ownership Plans (Continued)2010: Nonvested
Restricted Shares
and Restricted
Stock Units Weighted-Average
Grant Date
Fair Value — $ — 2,368,354 6.85 185,828 7.55 — — — — Nonvested
Restricted Shares
and Restricted
Stock Units Weighted-Average
Grant Date
Fair Value 2,554,182 6.90 2,554,182 $ 6.90 6,220,608 4.61 6,220,608 4.61 (1,561,317 ) 5.48 (1,561,317 ) 5.48 (856,438 ) 4.15 (856,438 ) 4.15 (569,014 ) 5.26 (569,014 ) 5.26 5,788,021 $ 5.39 5,788,021 $ 5.39 Granted 6,153,187 4.27 Vested (3,979,730 ) 3.38 Cancelled (7,735 ) 4.31 Forfeited (436,061 ) 4.82 Balance outstanding at December 31, 2011 7,517,682 $ 5.57 2010,2011, there was $19.5$24.6 million of unrecognized compensation expense related to the Company's grant of nonvested restricted shares and restricted stock units to employees. Unrecognized compensation expense related to nonvested restricted shares and restricted stock units granted to employees is expected to be recognized over a weighted-average period of 1.61.28 years.2010:2011: Nonvested
RCG Grants Weighted-Average
Grant Date
Fair ValueBalance outstanding at December 31, 2009 2,859,426 $ 7.30 Granted — — Vested (91,502 ) — Forfeited (129,846 ) * — Balance outstanding at December 31, 2010 2,638,078 $ 7.30 Granted — — Vested (1,297,726 ) 7.30 Forfeited (42,139 ) * 7.30 Balance outstanding at December 31, 2011 1,298,213 $ — Nonvested
RCG Grants Weighted-Average
Grant Date
Fair Value — $ — 2,859,426 7.30 — — — — 2,859,426 $ 7.30 — — (91,502 ) — (129,846) (*) — 2,638,078 $ 7.30 (*)Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)13. Share-Based Compensation and Employee Ownership Plans (Continued)20102011 there was $10.8$4.7 million of unrecognized compensation expense related to the Company's RCG Grants. Unrecognized compensation expense related to RCG Grants is expected to be recognized over a weighted-average period of 1.830.83 years.101,259163,554 restricted stock units awarded, which were immediately vested and expensed upon grant, during the year ended December 31, 2010.2011. Vested awards of 31,08173,480 were delivered to non-employee members of the Company's Board of Directors during the year ended December 31, 2010.2011. As of December 31, 20102011 there were 98,054188,128 restricted stock units outstanding for awards to non-employee members of the Company's Board of Directors.and $0.3 million, for the years ended December 31, 2009, and 2008, respectively. The Company did not grant any awards under the REOP Program during the years ended December 31, 2010 and 2009. The Company granted REOP Program awards with a grant date fair value of $3.0 million in the year ended December 31, 2008. 2009,, and 2008,2009, the Company did not capitalize as an asset any compensation expense and had no income tax benefit related to the REOP Program compensation arrangement. There was no compensation payable and no unrecognized compensation expense related to REOP Program awards as of December 31, 2011 and 2010 or December 31, 2009..13. Share-Based Compensation and Employee Ownership Plans (Continued)(dollars in thousands) $ 7,334 $ 7,334 — — (6,987 ) (6,987 ) — — (347 ) (347 ) $ — $ — (formerly known as Ramius Fund of Funds Group LLC), a wholly owned subsidiary of the Company, sponsors an employee Profit Participation Plan ("Rapp Program") for key employees. The Rapp Program provides for the granting of equity interests in related entities with initial grant values based on a certain percentage of profits of Ramius Alternative Solutions LLC. One half of the amount granted represents equity units in one of the consolidated fund-of-funds products managed by Ramius Alternative Solutions LLC chosen by senior management. Prior to the Transactions, the other half of the amount granted represents equity units of RCG. For any future grants under the Rapp Program, the other half of the amount granted will represent equity units of the Company. 2009 and 2008,2009, there werewas no awards granted to Rapp Program participants. For the years ended December 31, 2010, 2009, and 2008, the Company recognized compensation expense of $0, $1.3 million and $0.9 million, respectively, foraward activity in the Rapp Program. Compensation expense related to the Rapp Program was $1.3 million for the year ended December 31, 2009. There was no compensation payable and no unrecognized compensation expense related to Rapp Program awards as of December 31, 20102011 or December 31, 2009.2010.(dollars in thousands) $ 6,241 $ 6,241 — — (5,857 ) (5,857 ) — — (384 ) (384 ) $ — $ — Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)13. Share-Based Compensation and Employee Ownership Plans (Continued) There was no award activity in the Rapp Program during the year ended December 31, 2010.14.benefitsPlan blends the features of a traditional defined benefit plan with the features of a defined contribution plan. In this plan, hypothetical individual accounts periodically receive a contribution credit and an interest credit. The contribution credits are determined based on years of credited service and employees'a flat dollar amount that vary with age. Investment policies and strategies of the Cash Balance Plan will beare set by the plan trustee, as appointedRetirement Plan Committee and approved by the plan administrator.trustees. The plan trustee will oversee the actual investment of plan assets into permitted asset classes to achieve targeted plan returns. There were net assets of $5.8$5.6 million and $5.8 million in the Cash Balance Plan at as of December 31, 20102011 and 2009,2010, respectively. Hypothetical participant balances are vested at all times. The method of payment for Cash Balance Plan pays lump sum payments and will apply settlement accounting in any given year ifis an annuity unless the total lump sum payments are in excessparticipant elects an alternate choice of the total service and interest cost for the year.payment. The Cash Balance Plan is developed to meet the requirements of Section 401(a) and Section 501(a) of the Internal Revenue Code.contributedcontribute into the plan during 2010. The Company contributed $1 million into the plan during 2009. The Company recorded a settlement loss of approximately $28,000 during the year ended December 31, 2009 in connection with terminations and related payouts occurring during the period. The Trustees of the Cash Balance Plan have decided to temporarily suspend plan contributions credits effective from January 1, 2009. The intent is to recommence the contributions once the economic climate improves.and Safe Harbor Advisors, Ltd. also established a defined benefit plansplan (the "Retirement Allowance Plans"Plan") covering theirits employees. There are no plan assets associated with these plansthis plan and the benefits are based on years of credited service and a percentage of the employee'semployees' compensation. The Safe Harbor Advisors, Ltd. plan was closed during 2008.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)14. Defined Benefit Plans (Continued)20102011 and 20092010 and for the years ended December 31, 2011, 2010 2009,, and 2008: As of December 31, As of December 31, 2010 2009 2011 2010 (dollars in thousands) (dollars in thousands) $ 6,596 $ 8,193 54 459 317 340 (47 ) (35 ) — (11 ) (140 ) 110 (480 ) (2,498 ) 11 38 $ 6,311 $ 6,596 Benefit obligation at beginning of year $ 6,311 $ 6,596 Service cost 50 54 Interest cost 264 317 Actuarial loss (gain) (55 ) (47 ) Curtailments — (140 ) Lump sum settlement (991 ) (480 ) Effect of change in currency conversion 12 11 Benefit obligation at end of year $ 5,591 $ 6,311 $ 5,846 $ 5,190 534 831 — 978 (589 ) (1,153 ) $ 5,791 $ 5,846 Fair value of plan assets at beginning of year $ 5,791 $ 5,846 Actual return on plan assets 206 534 Employer contributions 633 — Benefits paid (991 ) (589 ) Fair value of plan assets at the end of year $ 5,639 $ 5,791 $ (520 ) $ (750 ) $ 48 $ (520 ) $ 520 $ 750 Liabilities $ 48 $ (520 ) $ 6,270 $ 6,559 $ 5,533 $ 6,270 14. Defined Benefit Plans (Continued) Year ended December 31, Year ended December 31, 2010 2009 2008 2011 2010 2009 (dollars in thousands) (dollars in thousands) $ 54 $ 72 $ 208 317 339 443 (294 ) (328 ) (397 ) — (4 ) 67 23 24 25 (10 ) 62 24 (7 ) 12 84 $ 83 $ 177 $ 454 Service cost $ 51 $ 54 $ 72 Interest cost 264 317 339 Expected return on plan assets (277 ) (294 ) (328 ) Amortization of (loss) / gain — — (4 ) Amortization of prior service cost 23 23 24 Effect of curtailment — (10 ) 62 Effect of settlement (31 ) (7 ) 12 Net periodic benefit cost $ 30 $ 83 $ 177 $ (234 ) $ (542 ) $ 1,073 10 (62 ) (24 ) 6 (12 ) (84 ) — 4 (67 ) (23 ) (24 ) (25 ) $ (241 ) $ (636 ) $ 873 Net loss $ 17 $ (234 ) $ (542 ) Effect of curtailment — 10 (62 ) Effect of settlement 31 6 (12 ) Amortization of loss / (gain) — — 4 Amortization of prior service cost (23 ) (23 ) (24 ) Total recognized in other comprehensive loss $ 25 $ (241 ) $ (636 ) $ (158 ) $ (459 ) $ 1,327 $ 55 $ (158 ) $ (459 ) $ 127 $ (154 ) $ (641 ) (463 ) (449 ) (535 ) — 26 13 $ (336 ) $ (577 ) $ (1,163 ) Net gain (loss) $ 80 $ 127 $ (154 ) Prior service cost (441 ) (463 ) (449 ) Effect of change in currency conversion — — 26 Total recognized in accumulated other comprehensive loss $ (361 ) $ (336 ) $ (577 ) $ 3 $ 19 $ 24 $ — $ — $ (5 ) Prior service cost $ 19 $ 3 $ 19 Net gain (loss) $ — $ — $ — 2009,, and 20082009 used to measure the year-end benefit obligations and the earnings effects for the subsequent year were as follows: Cash Balance Plan GmbH Plan Retirement Allowance Plan Cash Balance Plan GmbH Plan Retirement Allowance Plan 2010 2009 2008 2010 2009 2008 2010 2009 2008 2011 2010 2009 2011 2010 2009 2011 2010 2009 6.00 % 6.00 % 5.50 % N/A N/A 6.00 % 2.25 % 2.50 % 2.50 % 6 % 6 % 6 % — % N/A N/A — % 2.25 % 2.50 % N/A N/A N/A N/A N/A 5.00 % 2.40 % 2.50 % 2.50 % N/A N/A N/A — % N/A N/A — % 2.40 % 2.50 % Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)14. Defined Benefit Plans (Continued) 6% as of December 31, 2009 and 7% as of December 31, 2008.2009. The Company's approach in determining the long-term rate of return for plan assets is based upon historical financial market relationships that have existed over time with the presumption that this trend will generally remain constant in the future. As of December 31, As of December 31, 2010 2009 2011 2010 (dollars in thousands) (dollars in thousands) $ 812 $ 1,386 $ 506 $ 812 725 — 1,040 725 2,699 2,493 1,785 2,699 362 887 1,079 362 1,193 1,080 1,229 1,193 $ 5,639 $ 5,791 $ 5,791 $ 5,846 Levellevel 2 of the fair value hierarchy. Investment risk is measured and monitored on an ongoing basis through semi-annual retirement committee meetings and annual liability measurements.(a)Ramius Multi-Strategy Fund Ltd invests substantially all of its capital through a "master feeder" structure in Ramius Intermediate Fund, L.P. which invests in funds that employ a variety of diversified, non-directional investment strategies that seek to achieve, over the long term, a target return with low volatility.(b)Ramius Global Credit Fund Ltd invests substantially all of its capital through a "master-feeder" structure in Ramius Global Credit Intermediate Fund, LP which invests in a fund whose objective is to seek to achieve superior returns.(c)External Mutual Fund—Total Return's main objective is to achieve maximum total return by investing assets in a diversified portfolio of fixed income instruments of varying maturities which may be represented by derivatives.(d)External Mutual Fund—Real Return's main objective is to seek to achieve maximum total return after inflation consistent with preservation of real capital and prudent investment management.(e)External Mutual Fund—Conservative's main objective is to seek to achieve a high level of current income with some consideration given to the growth of capital by investing in fixed-income securities.(a) Ramius Multi-Strategy Fund Ltd invests substantially all of its capital through a "master feeder" structure in Ramius Intermediate Fund, L.P. which invests in funds that employ a variety of diversified, non-directional investment strategies that seek to achieve, over the long term, a target return with low volatility. (b) Ramius Global Credit Fund Ltd invests substantially all of its capital through a "master-feeder" structure in Ramius Global Credit Intermediate Fund, LP which invests in a fund whose objective is to seek to achieve superior returns. (c) External Mutual Funds—Total Return's main objective is to achieve maximum total return by investing assets in a diversified portfolio of fixed income instruments of varying maturities which may be represented by derivatives. (d) External Mutual Funds—Real Return's main objective is to seek to achieve maximum total return after inflation consistent with preservation of real capital and prudent investment management. (e) External Mutual Funds—Conservative's main objective is to seek to achieve a high level of current income with some consideration given to the growth of capital by investing in fixed-income securities. Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)14. Defined Benefit Plans (Continued) (dollars in thousands) $ 2,659 1,637 (dollars in thousands) 2,195 $ 3,653 308 261 2,047 1,641 4,453 2015 261 2016 1,477 2017 - 2021 3,198 $ 10,491 $ 13,299 expectsdoes not plan to contribute approximately $0.6 millionany additional amounts to the pension plan during calendar year 2011.2012.15. 2009,, and 2008,2009, the Company's contributions to the Plans (and related cost recognized) were $1.5 million, $1.6 million and $0.7 million, and $1.1 million, respectively.yearsyear ended December 31, 2010, 2009, and 2008, GmbH's contribution to defined contribution plans and related cost recognized was $0, $0.05 million and $0.1 million, respectively.million. The Company has incurred no additional costs since 2009.16.stand-alonestand‑alone state and local tax returns. The Company has subsidiaries that are resident in foreign countries where tax filings have to be submitted on a stand-alonestand‑alone basis. These subsidiaries are subject to tax in their respective countries and the Company is responsible for and, thus, reports all taxes incurred by these subsidiaries. The countries where the Company owns subsidiaries are the United Kingdom, Germany, Luxembourg, Japan, Hong Kong, and China.16. Income Taxes (Continued) 2009,, and 20082009 are as follows: Year ended December 31, 2010 2009 2008 (dollars in thousands) $ 121 $ (4,227 ) $ — (149 ) (556 ) (1,742 ) 963 315 441 Year ended December 31, 2011 2010 2009 935 (4,468 ) (1,301 ) (dollars in thousands) Continued Operations Current tax expense/(benefit) Federal $ — $ 121 $ (4,227 ) State and local 560 (149 ) (556 ) Foreign 897 963 315 Total 1,457 935 (4,468 ) $ (35 ) $ 2,256 $ — (13 ) — — (22,287 ) (5,993 ) — (22,335 ) (3,737 ) — $ (21,400 ) $ (8,205 ) $ (1,301 ) Federal $ 2 $ (35 ) $ 2,256 State and local (6 ) (13 ) — Foreign (21,526 ) (22,287 ) (5,993 ) Total (21,530 ) (22,335 ) (3,737 ) Total Tax expense/(benefit) $ (20,073 ) $ (21,400 ) $ (8,205 ) Discontinued Operations Current tax expense/(benefit) Federal $ — $ — $ — State and local (5 ) — — Foreign (424 ) — — Total (429 ) — — Deferred tax expense/(benefit) Federal $ — $ — $ — State and local — — — Foreign — — — Total — — — Total Tax expense/(benefit) $ (429 ) $ — $ — Total Current tax expense/(benefit) Federal $ — $ 121 $ (4,227 ) State and local 555 (149 ) (556 ) Foreign 473 963 315 Total 1,028 935 (4,468 ) Deferred tax expense/(benefit) Federal $ 2 $ (35 ) $ 2,256 State and local (6 ) (13 ) — Foreign (21,526 ) (22,287 ) (5,993 ) Total (21,530 ) (22,335 ) (3,737 ) Total Tax expense/(benefit) $ (20,502 ) $ (21,400 ) $ (8,205 ) $(50.0)$(122.2) million in 2011, $(50) million in 2010, and $(42.8) million in 2009 and $(252.1) million in 2008. . The corresponding amounts for non-U.S.-based income/(loss) were $(0.5) million in 2011, $(3.1) million in 2010, and $(4.4) million in 2009 and $(4.8) million in 2008.. 2009,, and 20082009 are as follows: 2010 2009 2008 2011 2010 2009 35.0 % 35.0 % 35.0 % 35.0 % 35.0 % 35.0 % 0.0 (17.5 ) (35.0 ) — — (17.5 ) (29.9 ) (13.0 ) 0.0 (33.3 ) (29.9 ) (13.0 ) 27.2 12.5 0.0 11.5 27.2 12.5 Bargain purchase price 6.3 — — 9.0 0.0 0.0 1.7 9.0 — (1.0 ) 0.4 0.5 (4.5 ) (1.0 ) 0.4 40.3 % 17.4 % 0.5 % 16.7 % 40.3 % 17.4 % 2010,2011, the Company has income taxes receivable of approximately $2.0$2.1 million which is included in other assets on the consolidated statements of financial condition. This receivable mainly represents refund claims for federal and foreign taxes resulting from carrying back net operating losses to the Company's 2006 and 2009 tax returns.returns, respectively.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)16. Income Taxes (Continued)20102011 and December 31, 20092010 are as follows: 2010 2009 2011 2010 (dollars in thousands) (dollars in thousands) $ 38,396 $ 9,073 22,844 24,683 13,288 15,046 3,355 7,472 2,987 3,983 1,786 1,744 1,986 2,979 84,642 64,980 (67,959 ) (52,973 ) 16,683 12,007 Net operating loss $ 109,893 $ 22,844 Deferred compensation 38,191 38,396 Unrealized losses on investments 13,432 2,987 Goodwill 11,760 13,288 Legal reserves 3,592 — Foreign tax credits 1,837 1,786 Acquired lease liability 1,456 3,355 Other 1,416 1,986 Total deferred tax assets 181,577 84,642 Valuation allowance (157,007 ) (67,959 ) Deferred tax assets, net of valuation allowance 24,570 16,683 (7,772 ) — (5,219 ) (7,192 ) (3,482 ) (4,640 ) (50 ) (48 ) (16,523 ) (11,880 ) $ 160 $ 127 Basis difference on investments (15,351 ) (7,772 ) Fixed assets (5,207 ) (3,482 ) Intangible assets (2,975 ) (5,219 ) Other (1,028 ) (50 ) Total deferred tax liabilities (24,561 ) (16,523 ) Deferred tax assets, net $ 9 $ 160 net operating losslosses in Luxembourg, which are discussed below.$68$157.0 million against its deferred tax assets as of December 31, 20102011 and approximately $53$68.0 million as of December 31, 20092010 as management believes it is more likely than not that the deferred tax assets will not be realized. Separately, the Company has deferred tax liabilities of $17$24.6 million as of December 31, 2010,2011, and $12$16.5 million as of December 31, 2009.2010,2011, the Company recorded a deferred tax benefit of $22.2$21.7 million, representing the deferred tax benefits generated by a local subsidiary upon acquisition in the fourth quarter of 2010, of reinsurance companies in Luxembourg. In the fourth quarter of 2010, theThe Company acquired fourtwo reinsurance companies in Luxembourg including two from Enterprise Master,third parties offering a service program that provides reinsurance coverage to the Company against certain risks. TheThese reinsurance companies had deferred tax liabilities and upon their purchase,these purchases, pursuant to an AdvanceCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)16. Income Taxes (Continued)benefits. Thebenefit. In 2010, the Company recorded a deferred tax benefit of $22.2 million from similar acquisitions. In 2011 and 2010, the Company incurred $0 and $4.1 million, respectively, of transaction related financing costs in the fourth quarter of 2010 in connection with the acquisitionacquisitions of a Luxembourg reinsurance company,companies, which is includedreflected in interest and dividenddividends expense in the consolidated statementsStatements of operations for the year ended December 31, 2010.2010: Federal New York Hong Kong Federal New York Hong Kong $ 53.7 $ 44.0 $ 7.9 $ 262 $ 362 $ 9 2029 2029 Indefinite 2029 2029 Indefinite $55.6$85.8 million, net of deferred tax liabilities of $95.6$173.9 million in connection with future taxable income, and an offsetting valuation allowance of $55.6$85.8 million against its Luxembourg net operating loss carryforwards that are in excess of such taxable income. At 2010,2011, the Company has capital loss and foreign tax credit carryovers of $0 and $1.7$1.8 million, respectively. The foreign tax credit carryforwards will fully expire by 2019. The Company underwent a change of control under Section 382 of the Internal Revenue Code on November 2, 2009. Accordingly, a portion of the Company's deferred tax assets, in particular a portion of its net operating loss and foreign tax credit carryovers, will be subject to an annual limitation. The deduction limitation is approximately $2.4 million annually and applies to approximately $32.2$13.7 millions of pre-transaction losses. The Company will not lose any deferred tax assets as a result of this limitation.2010.2011. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Year ended December 31, Year ended December 31, 2010 2009 2008 2011 2010 2009 (dollars in thousands) (dollars in thousands) $ — $ 504 $ 1,775 $ — $ — $ 504 — — — — — — Current year tax positions — — — Prior year tax positions — — — — (504 ) (1,271 ) Expired statue of limitations — — (504 ) $ — $ — $ 504 $ — $ — $ — is currently undergoing an audit byconcluded the IRS audit for the tax years 2006 through 2009. Management does not believe this audit will yield any significant adjustments. Also, the Company's subsidiary that operates in China concluded its audits for tax years 2005-2008, which resulted in immaterial tax assessments that the Company fully paid2009 with no proposed changes by the end of the third quarter of 2010.IRS.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)16. Income Taxes (Continued)$5.0$3.5 million at December 31, 2010.2011. Determining the tax liability that would arise if these earnings were remitted is not practicable.17.$9.7 million, and $9.9$9.7 million, for the year ended December 31, 2011, 2010 2009,, and 2008,2009, respectively.has surrendered a portion of the space. As of December 31, 2011, the Company vacated the remaining portion of the leased premises located at 1221 Avenue of Americas. As a result, the Company recognized a liability in the amount of $5.7 million relating to future rent payments and other monthly amounts associated with the lease through its expiration in September 2013. Additionally, the Company reversed a previously recorded unfavorable lease liability in the amount of $2.1 million related to this lease. The net impact of $3.6 million has been included within occupancy and equipment expense in the accompanying consolidated statements of operations.2010,2011, future minimum annual lease and service payments for the Company were as follows: Equipment Leases(a) Service Payments Facility Leases(b) (dollars in thousands) Equipment Leases(a) Service Payments (b) Facility Leases (c) $ 3,152 $ 13,725 $ 17,824 (dollars in thousands) 3,301 9,505 17,730 $ 3,301 $ 11,582 $ 16,779 3,301 5,713 16,527 3,301 9,151 16,052 1,518 5,559 12,273 1,548 8,109 14,174 1,051 2,577 9,831 1,051 3,032 11,582 2016 194 193 10,775 77 — 61,254 — — 52,495 $ 9,395 $ 32,067 $ 121,857 $ 12,400 $ 37,079 $ 135,439 (a) Equipment Leases include the Company's commitments relating to operating and capital leases. See Note 20 for further information on capital lease minimum payments. (b) The Company is contractually committed to future cash payments for various service agreements but the Company has accelerated $0.8 million of expense during the fourth quarter of 2011 since these services were discontinued prior to December 31, 2011. (c)
Clawback Obligations(a)Equipment Leases include the Company's commitments relating to operating and capital leases. See note 18 for further information on capital lease minimum payments.(b)Though not reflected on this schedule, as of January 1, 2011, the minimum lease payments for the facility lease for the office space at 1221 Avenue of Americas will decrease by approximately $8.9 million as long as all the terms and conditions relating to the surrender of space as described above are met. The Company has entered into agreements to sublease certain of its premises. These subleases expired in May 2010. The Company recorded sublease income related to these leases of $0.8 million and $1.9 million during the year ended December 31, 2010 and 2009, respectively.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)17. Commitments and Contingencies (Continued)fund'sfunds with a potential clawback obligation, including available contemplated extensions, are currently anticipated to expire at the end of 2013. Further extensions of such terms may be implemented under certain circumstances. As of 2010,2011, the clawback obligations were $6.2 million. (See Note 23 "Related Party Transactions")25).2010, 2011, the Company had unfunded commitments of $8.3$6.4 million pertaining to capital commitments in three real estate investments held by the Company, all of which pertain to related party investments. Such commitments can be called at any time, subject to advance notice. In addition, theThe Company also has committed to invest $40.7$42.2 million toin the funds managed by Cowen Healthcare Royalty Partners (the "CHRP Funds"“CHRP Funds”) as a limited partner of the CHRP Funds and also as a member of CHRP GP, the general partner of the CHRP Funds. This commitment is expected to be called over a two to five year period. The Company will make its pro-rata investment in the CHRP Funds along with the other limited partners. ThroughDecember 31, 2010, 2011, the Company has funded $18.9$23.9 milliontowards these commitments. We face significantare named as defendants in, or as parties to, various legal risksactions and proceedings. Certain of these actions and proceedings assert claims or seek relief in our businessesconnection with alleged violations of securities, banking, anti-fraud, anti-money laundering, employment and other statutory and common laws. Certain of these actual or threatened legal actions and proceedings include claims for substantial or indeterminate compensatory or punitive damages, or for injunctive relief.recent years,those capacities, are subject to regulation by various U.S., state and foreign securities, commodity futures and other regulators. In connection with formal and informal inquiries by these regulators, the volumeCompany and such affiliates and subsidiaries receive requests, and orders seeking documents and other information in connection with various aspects of claimstheir regulated activities.litigationeach pending matter.regulatory proceedings against financial institutionsthe amount of loss can be reasonably estimated. The Company discloses a contingency if there is at lease a reasonable possibility that a loss may have been increasing. These risks include potential liability under federal securitiesincurred and other laws in connection with securities offerings and other transactions, as well as advice and opinions we provide concerning strategic transactions. In addition, like most financial institutions, wethere is no reserve for the loss because the conditions above are oftennot met. The Company's disclosure includes an estimate of the subjectreasonably possible loss or range of claims made by current and former employees arising out of their employment or termination of employment with us. Weloss for those matters, for which an estimate can be made. Neither reserve nor disclosure is required for losses that are involved in a number of judicial, regulatory and arbitration matters arising in connection with our business including those described below. Pursuant to ASC Topic 450, we review the need for any loss contingencydeemed remote. and we have established reserves, as described below, for certain of these matters that we believe are adequate where, in the opinion of management, the likelihood of liability is probable and the extent of such liability is reasonably estimable. As of December 31, 2010 and December 31, 2009, the total amounts reserved were $1.5 million and $1.5 million respectively. TheseSuch amounts are included within accounts payable, accrued expenses and other liabilities in the consolidated statements of financial condition. There are no other matters which are probable and reasonably estimable. In connection with Cowen Holdings's previous IPO and separation from Société Générale ("SG") in 2006, Cowen Holdings entered into an indemnification agreement with SG under which (1) SG will indemnify, and will defend and hold harmless Cowen Holdings and each of the Cowen Holdings's subsidiaries from and against certain liabilities assumed or retained by SG; and (2) SG will indemnify Cowen Holdings for known, pending and threatened litigation (including the costs of such litigation) and certain known regulatory matters, in each case, that existed prior to the date of the Cowen Holdings's IPO to the extent the cost of such litigation results in payments in excess of the amount placed in escrow to fund such matters (the "Indemnification Agreement"). The Company is involved in a number of legal and regulatory matters that arise from time to time in connection with the conductCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)17. Commitments and Contingencies (Continued)of its businesses. The Company estimates potential losses that may arise out of these matters and records a reserve and takes a charge to income when losses with respect to such matters are deemed probable and can be reasonably estimated, in accordance with FASB accounting standards. To the extent that the Company is indemnified by SG, indemnified legal expenses and liabilities will be paid out of escrow pursuant to an escrow agreement with SG. As of December 31, 2010 and December 31, 2009, the total amounts reserved in relation to the Indemnification Agreement were $0.5 million and $0.5 million respectively. The Company is involved in regulatory inquiries and investigations by FINRA as part of an industry-wide sweep relating to gifts, gratuities, entertainment, error accounts and policies, practices and procedures. Although there can be no assurances as to the ultimate outcome, the Company has established reserves for litigation and regulatory matters that it believes are adequate as of December 31, 2010. Estimates, by their nature, are based on judgment and currently available information and involve a variety of factors, including, but not limited to, the type and nature of the litigation, claim or proceeding, the progress of the matter, the advice of legal counsel, the Company's defenses and its experience in similar cases or proceedings as well as its assessment of matters, including settlements, involving other defendants in similar or related cases or proceedings. The Company may increase or decrease its legal reserves in the future, on a matter-by-matter basis, to account for developments in such matters.eventualpossible outcome, the timing of ultimate resolution or estimate a range of eventualpossible loss, or impact related to each currently pending matter.18.other debt As of December 31, As of December 31, 2010 2009 2011 2010 (in thousands) (in thousands) $ 24,000 $ 43,000 $ — $ 24,000 — 6,746 1,396 — 370 1,396 6,337 — 5,280 6,337 $ 5,650 $ 31,733 $ 31,733 $ 49,746 available, with a $7.0 million letter of credit sub-limit.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)18. Short-Term Borrowings and other debt (Continued)20102011 and December 31, 2009,2010, the Company had borrowings of $24.0nil and $24 million, and $43.0 million, respectively, under the line of credit portion. The Company had a letter of credit of $6.7 million at December 31, 2009 with HVB AG as well.respectively. At the Company's election and discretion, borrowings under this collateralized revolving credit agreement bear interest per annum (based on a 360 day year) equal to either: (a) 0.5% plus the greater of (1) the lender's prime rate, (2) the overnight federal funds rate plus 0.5% and (3) the LIBOR rate plus 1.0% or (b) the LIBOR rate plus 2.75%. Due to the variable interest rate on these borrowings, their carrying values approximate fair value. The Company is required to pay a quarterly commitment fee on the undrawn portion of the revolving credit facility equal to 1.0% per annum of the undrawn amount. For letters of credit, the Company will pay a fee on the stated amount of the letter of credit at a rate equal to 2.75%. The 2009 collateralized revolving credit agreement was to mature on November 2, 2009 but was extended; $25.0 million was extended through January 4, 2010 and $25 million was extended through September 29, 2011. All terms of the extended collateralized revolving credit agreement remain the same except the following: at the Company's election and discretion, borrowings under the extended 2009 collateralized revolving credit agreement bearbore interest per annum (based on a 360 day year) equal to either: (1) the lender's prime rate plus 1.5% or (2) the 1, 2 or 3 month LIBOR rate plus 3.5%. For letters of credit,Due to the variable interest rate on these borrowings, their carrying values approximate fair value. The Company willwas required to pay a quarterly commitment fee on the stated amountundrawn portion of the letter ofrevolving credit at a ratefacility equal to 3.5%.1.0% per annum of the undrawn amount. The 2009 collateralized revolving credit agreement was to mature on September 29, 2011. However, during 2011, the Company agreed to repay in full its obligations pursuant to the credit agreement and HVB AG agreed to terminate the credit agreement. On June 27, 2011, the Company fully repaid the then borrowing amount outstanding of $23 million and the credit agreement was terminated as of that date. The 2009 collateralized revolving credit agreement contained financial and other restrictive covenants that limited the Company's ability to incur additional debt and engage in other activities. As of December 31, 2010 and duringDuring the period from June 3, 2009 to December 31, 2010,through June 27, 2011 the Company was in compliance with these covenants. During 2010, The Company's investment in Enterprise Master through the Enterprise Fund had been pledged as collateral under the line of credit. Upon termination of the credit agreement on June 27, 2011, the Company's collateral pledge to HVB AG had notified us that they will not be renewingwas released and the $6.7 million letter ofCompany is no longer subject to the restrictive covenants contained in the credit which supports the lease of office space in New York. agreement.hashad replaced thatthe HVB AG letter of credit with a new letter of credit by another financial institution which expiresexpired December 12, 2011 Interest 2009 and 2008 2009was $1$0.4 million, $1.5$1 million and $1.5 million, respectively. Cash collateral pledged at December 31, 2009, on the consolidated statements of financial condition, represents collateral that was required to be posted for obligations or potential obligations under the letter of credit discussed above pursuant to the lease agreement for the Company's premises in New York City. This collateral was released with the terms of the extended collateralized revolving credit agreement. The Company's investment in Enterprise Master through Enterprise LP has been pledged as collateral under the line of credit portion of the revolving credit agreement discussed above.TheseAs ofDecember 31, 2011, these notes bearpayable were paid in full. The interest atrate on these notes were 5.05% and 4.95%, respectively and are due in October of 2011. As of December 31, 2010, the outstanding balance on these combined notes payable was $1.4 million.respectively. Interest expense for the year endedDecember 31, 2011and2010was not significant. In addition, during the fourth quarter of 2010, the Company incurred $4.1 million of financing costs relating to short-termshort‑term borrowings from affiliated funds to finance the acquisition of one of the Luxembourg reinsurance captives.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)18. Short-Term Borrowings and other debt (Continued)0%0.60% to 6.36%6.14%. NoAs of December 31, 2011havehad been made on these leases during 2010.2010 2011, the Company also has four additionalsix irrevocable letters of credit, for which there is cash or bond collateral pledged, including (i) $50,000, which expires on July 12, 2011,2012, supporting workers' compensation insurance with Safety National Casualty Corporation, (ii) $57,000, which expires on May 12, 2011,2012, supporting Cowen Healthcare Royalty Management, LLC's Stamford office lease, and (iii) $82,000, which expires on May 12, 2011,2012, supporting the Company's San Francisco office, and (iv) $1.2 million which expires on August 31, 2011,2012, supporting the Company's lease of additional office space in New York, (v) $6.7 million, which expires December 12, 2012, supporting the lease of office space in New York which the Company pays a fee on the stated amount of the letter of credit at a rate equal to 0.5% and (vi) $0.9 million which expires To20102011 and December 31, 2009, there2010, there were no amounts due related to these letters of credit. Levered FOF had a $100.0 million line of credit with a major financial institution with a minimum borrowing amount of $20.0 million. Levered FOF could borrow on this line of credit up to 72% of the amount of collateral pledged. In accordance with the loan agreement, interest accrued on the loan as well as custodian and other fees incurred by Levered FOF in connection with the loan was capitalized and added to the total outstanding balance of the loan. During 2008, due to Levered FOF going into liquidation, the minimum borrowing amount was waived. As of December 31, 2008, the outstanding balance on this line of credit was $10.0 million. This loan bears interest at LIBOR plus 1.35% per annum. Due to the floating rate of interest, its carrying value approximates fair value. At December 31, 2008, all investments owned by Levered FOF were pledged as collateral in connection with this line of credit. Interest incurred on Levered FOF's line of credit during the years ended December 31, 2009 and 2008 was $0 and $1.6 million, respectively. Levered FOF's line of credit was repaid in full as of February 5, 2009 and was discontinued on that date.borrowingborrowings and other debt during each year ending outstanding as of December 31, 2010,2011, are as follows: Capital Lease
Obligation Short
Term
Borrowings (in thousands) Capital Lease
Obligation Short
Term
Borrowings $ 1,393 $ 25,396 (in thousands) 1,541 — $ 1,541 $ 171 1,541 — 1,541 164 1,371 — 1,402 42 1,051 — 1,051 — 2016 194 — 77 — — — 6,974 25,396 5,729 377 (637 ) — (449 ) (7 ) $ 6,337 $ 25,396 $ 5,280 $ 370 (a)Amount necessary to reduce net minimum lease payments to present value calculated at the Company's implicit rate at lease inception.(a) Amount necessary to reduce net minimum lease payments to present value calculated at the Company's implicit rate at lease inception. Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)19.21. Stockholders' EquityCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)19. Stockholders' Equity (Continued)2009,2010, RCG holds 37,252,17133,576,099 shares of the Company's Class A common stock. During 2010, 3,676,072 shares were transferred to member's ownership resulting in 33,576,099 shares in the Company's Class A common stock being held by RCG Holdings at as of December 31, 2010. Treasury stock
shares Cost
(in thousands) Average cost
per shareBalance outstanding at December 31, 2010 — $ — $ — Treasury stock purchased in connection with acquisition (see Note 2) 499,001 1,906 3.82 Shares purchased for minimum tax withholding under the Equity Plan 794,518 2,508 3.16 Shares purchased for minimum tax withholding under the RCG Grants plan 408,164 1,123 2.75 Purchase of treasury stock 3,644,320 11,365 3.12 Balance outstanding at December 31, 2011 5,346,003 $ 16,902 3.16 20.FASB accounting standards.US GAAP. Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. As of December 31, 2010,2011, there were 75,490,209114,047,637 shares outstanding, of which 1,554,124576,892 are restricted. To the extent that outstanding restricted shares are unvested, they are excluded from the calculation of basic earnings per share. The Company has included 98,054188,128 fully vested, unissued restricted stock units in its calculation of basic earnings per share.isare calculated by adjusting the weighted average outstanding shares to assume conversion of all potentially dilutive nonvested restricted stock and stock options. The Company uses the treasury stock method to reflect the potential dilutive effect of the unvested restricted shares, restricted stock units and unexercised stock options. In calculating the number of dilutive shares outstanding, the shares of common stock underlying unvested restricted shares and restricted stock units are assumed to have been delivered, and options are assumed to have been exercised, on the grant date. The assumed proceeds from the assumed vesting, delivery and exercisingCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)20. Earnings Per Share (Continued)and restricted stock units were not included in the computation of diluted net loss per common share for the year ended In calculating earnings per share for the periods prior to the November 2, 2009 transaction date, the net earnings (loss) amounts represent the results for the former Ramius, and the shares outstanding represents the number of shares received by the former Ramius in the Transactions. For the Year Ended December 31, 2010 2009 2008 (dollars in thousands,
except per share data) $ (45,417 ) $ (55,287 ) $ (141,764 ) 73,149 41,001 37,537 — — — — — — For the Year Ended December 31, 2011 2010 2009 73,149 41,001 37,537 (dollars in thousands, except per share data) Net income (loss) from continuing operations $ (78,537 ) $ (31,690 ) $ (39,039 ) Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries 5,827 13,727 16,248 Net income (loss) from continuing operations less Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries (84,364 ) (45,417 ) (55,287 ) Net income (loss) from discontinued operations, net of tax $ (23,646 ) $ — $ — Shares for basic and diluted calculations: Weighted average shares used in basic computation 95,532 73,149 41,001 Stock options — — — Restricted stock — — — Weighted average shares used in diluted computation 95,532 73,149 41,001 $ (0.62 ) $ (1.35 ) $ (3.78 ) $ (0.62 ) $ (1.35 ) $ (3.78 ) Basic Income (loss) from continuing operations $ (0.88 ) $ (0.62 ) $ (1.35 ) Income (loss) from discontinued operations (0.25 ) — — Diluted Income (loss) from continuing operations $ (0.88 ) $ (0.62 ) $ (1.35 ) Income (loss) from discontinued operations (0.25 ) — — 21.broker-dealerbroker‑dealer segment (subsequent to the Transactions)November 2009 Ramius/Cowen transaction). These activities are conducted primarily in the United States and substantially all of its revenues are generated domestically. The performance measure for these segments is Economic Income (Loss), which management uses to evaluate the financial performance of and make operating decisions for the segmentsegments including determining appropriate compensation levels. The chief operating decision maker uses Economic Income to assess the performance of the segments and make operating decisions for the segments. (loss)(Loss) is a pre-tax measure that (i) presents the Company's results of operations withouteliminates the impact resultingof consolidation for consolidated funds, (ii) excludes equity award expense related to the November 2009 Ramius/Cowen transaction, (iii) excludes certain other acquisition-related and/or reorganization expenses (including the discontinued operations of LaBranche), (iv) excludesconsolidation of any of the Company's funds (in both periods presented), (ii) excludes goodwill impairment (there were no goodwill impairment charges in either period presented), (iii) excludes allocations to the managing member, as there will be no such allocations in the future (there were no allocations made to the managing member in either period presented), and (iv) excludes the reorganization expenses for the Transactions (in the 2009 period only) and one-time equity awards made in connection with the Transactions (in the 2010 period only)LaBranche acquisition (See Note 2) . In addition, Economic Income (Loss) revenues include investment income that represents the income the Company has earned in investing its own capital, including realized and unrealized gains and losses, interest and dividends, net ofCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)21. Segment Reporting (Continued)Alternative Investment Managementalternative investment management segment, as ultimately, this income or loss is not income or loss for the Alternative Investment Managementalternative investment management segment itself. Included in Economic Income (Loss) is the actual pro rata share of the income or loss attributable to the Company as an investor in such entities, which is relevant in management making operating decisions and evaluating financial performance.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)21. Segment Reporting (Continued)broker-dealerbroker‑dealer segments and related adjustments necessary to reconcile the Company's Economic Income (Loss) measure to arrive at the Company's consolidated US GAAP net income (loss): Year Ended December 31, 2010 Adjustments Alternative
Investment
Management Broker-Dealer Total
Income Funds
Consolidation Other
Adjustments GAAP (dollars in thousands) $ — $ 38,965 $ 38,965 $ — $ — $ 38,965 — 112,217 112,217 — — 112,217 51,440 — 51,440 (2,877 ) (9,716 )(a) 38,847 9,615 — 9,615 — 1,748 (a) 11,363 59,638 (221 ) 59,417 — (59,417 )(c) — — — — — 11,547 (c) 11,547 — — — (499 ) 7,315 (b) 6,816 932 7 939 — 997 (c) 1,936 — — — 12,119 — 12,119 121,625 150,968 272,593 8,743 (47,526 ) 233,810 58,831 127,062 185,893 — 9,026 194,919 265 761 1,026 — 7,945 (c) 8,971 29,629 63,494 93,123 — (93,123 )(c)(d) — 6,672 27,022 33,694 — (33,694 )(c)(d) — — — — — 127,931 (c)(d) 127,931 (7,315 ) — (7,315 ) — 7,315 (b) — — — — 8,121 8,121 88,082 218,339 306,421 8,121 25,400 339,942 — — — — 21,980 (c) 21,980 — — — 11,346 19,716 31,062 — — — 11,346 41,696 53,042 33,543 (67,371 ) (33,828 ) 11,968 (31,230 ) (53,090 ) — — — (21,400 )(b)(c) (21,400 ) 33,543 (67,371 ) (33,828 ) 11,968 (9,830 ) (31,690 ) (1,759 ) — (1,759 ) (11,968 ) — (13,727 ) $ 31,784 $ (67,371 ) $ (35,587 ) $ — $ (9,830 ) $ (45,417 ) 21. Segment Reporting (Continued) Year Ended December 31, 2009 Year Ended December 31, 2011 Adjustments Adjustments Alternative
Investment
Management Broker-Dealer Total
Income Funds
Consolidation Other
Adjustments GAAP Alternative
Investment
Management Broker-Dealer Total
Economic Income/(Loss) Funds
Consolidation Other
Adjustments GAAP (dollars in thousands) (dollars in thousands) $ — $ 10,557 $ 10,557 $ — $ — $ 10,557 — 17,812 17,812 — — 17,812 53,940 — 53,940 (4,024 ) (8,222 )(a) 41,694 (6,996 ) — (6,996 ) — 8,907 (a) 1,911 21,958 — 21,958 (21,958 )(c) — — — — — 477 (c) 477 — — — (718 ) 11,044 (b) 10,326 3,536 — 3,536 — 1,196 (c) 4,732 — — — 36,392 — 36,392 72,438 28,369 100,807 31,650 (8,556 ) 123,901 Investment banking $ — $ 50,976 $ 50,976 $ — $ — $ 50,976 Brokerage — 99,611 99,611 — — 99,611 Management fees 67,309 — 67,309 (1,809 ) (13,034 ) (a) 52,466 Incentive income 10,366 — 10,366 — (7,101 ) (a) 3,265 Investment Income 39,149 2,198 41,347 — (41,347 ) (c) — Interest and dividends — — — — 22,306 (c) 22,306 Reimbursement from affiliates — — — (280 ) 4,602 (b) 4,322 Other revenue 622 (7 ) 615 — 968 (c) 1,583 Consolidated Funds revenues — — — 749 — 749 Total revenues 117,446 152,778 270,224 (1,340 ) (33,606 ) 235,278 63,207 30,032 93,239 — 3,353 96,592 1,549 — 1,549 — 52 (c) 1,601 40,340 10,946 51,286 — (51,286 )(c)(d) — 3,467 3,674 7,141 — (7,141 )(c)(d) — — — — — 68,217 (c)(d) 68,217 — — — — — (b ) — (11,044 ) — (11,044 ) — 11,044 (b) — — — — 23,581 — 23,581 97,519 44,652 142,171 23,581 24,239 189,991 Employee compensation and benefits 50,838 143,970 194,808 — 8,959 203,767 Interest and dividends 184 551 735 — 8,104 (c) 8,839 Non-compensation expenses—Fixed 33,954 69,227 103,181 — (103,181 ) (c)(d) — Non-compensation expenses—Variable 17,085 24,412 41,497 — (41,497 ) (c)(d) — Non-compensation expenses — — — — 153,116 (c)(d) 153,116 Goodwill impairment — — — — 7,151 (f) 7,151 Reimbursement from affiliates (4,602 ) — (4,602 ) — 4,602 (b) — Consolidated Funds expenses — — — 2,782 — 2,782 Total expenses 97,459 238,160 335,619 2,782 37,254 375,655 — — — — (2,154 )(c) (2,154 ) — — — 1,588 19,411 20,999 — — — 1,588 17,257 18,845 (25,081 ) (16,283 ) (41,364 ) 9,657 (15,538 ) (47,245 ) — — — (5,989 ) (2,217 )(b) (8,206 ) (25,081 ) (16,283 ) (41,364 ) 15,646 (13,321 ) (39,039 ) (602 ) — (602 ) (15,646 ) — (16,248 ) $ (25,683 ) $ (16,283 ) $ (41,966 ) $ — $ (13,321 ) $ (55,287 ) Net gain (loss) on securities, derivatives and other investments — — — — 15,128 (c) 15,128 Bargain purchase gain — — — — 22,244 (e) 22,244 Consolidated Funds net gains (losses) — — — 2,947 1,448 4,395 Total other income (loss) — — — 2,947 38,820 41,767 Income (loss) before income taxes and non-controlling interests 19,987 (85,382 ) (65,395 ) (1,175 ) (32,040 ) (98,610 ) Income taxes expense / (benefit) — — — — (20,073 ) (b) (20,073 ) Economic Income (Loss) / Net income (loss) before non-controlling interests 19,987 (85,382 ) (65,395 ) (1,175 ) (11,967 ) (78,537 ) Net income (loss) from discontinued operations, net of tax — — — — (23,646 ) (g) (23,646 ) (Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries (6,042 ) — (6,042 ) 1,175 (960 ) (5,827 ) Economic Income (Loss) / Net Income (loss) attributable to Cowen Group, Inc. stockholders $ 13,945 $ (85,382 ) $ (71,437 ) $ — $ (36,573 ) $ (108,010 ) 21. Segment Reporting (Continued) Year Ended December 31, 2008 Year Ended December 31, 2010 Adjustments Adjustments Alternative
Investment
Management Funds
Consolidation Other
Adjustments GAAP Alternative
Investment
Management Broker-Dealer Total
Economic Income/(Loss) Funds
Consolidation Other
Adjustments GAAP (dollars in thousands) (dollars in thousands) $ — $ — $ — $ — — — — — 84,621 (5,210 ) (8,593 )(a) 70,818 (2,586 ) — 2,586 (a) — (104,939 ) — 104,939 (c) — — — 1,993 (c) 1,993 — (1,064 ) 17,394 (b) 16,330 4,004 — 2,849 (c) 6,853 — 31,739 — 31,739 (18,900 ) 25,465 121,168 127,733 Investment banking $ — $ 38,965 $ 38,965 $ — $ — $ 38,965 Brokerage — 112,217 112,217 — — 112,217 Management fees 51,440 — 51,440 (2,877 ) (9,716 ) (a) 38,847 Incentive income 9,615 — 9,615 — 1,748 (a) 11,363 Investment Income 59,638 (221 ) 59,417 — (59,417 ) (c) — Interest and dividends — — — — 11,547 (c) 11,547 Reimbursement from affiliates — — — (499 ) 7,315 (b) 6,816 Other revenue 932 7 939 — 997 (c) 1,936 Consolidated Funds revenues — — — 12,119 — 12,119 Total revenues 121,625 150,968 272,593 8,743 (47,526 ) 233,810 84,769 — — 84,769 1,500 — 320 (c) 1,820 46,561 — (46,561 )(c)(d) — 4,030 — (4,030 )(c)(d) — — — 53,036 (c)(d) 53,036 — — 10,200 (b) 10,200 (17,394 ) — 17,394 (b) — — 34,268 — 34,268 119,466 34,268 30,359 184,093 Employee compensation and benefits 58,831 127,062 185,893 — 9,026 194,919 Interest and dividends 265 761 1,026 — 7,945 (c) 8,971 Non-compensation expenses—Fixed 28,963 63,494 92,457 — (92,457 ) (c)(d) — Non-compensation expenses—Variable 7,338 27,022 34,360 — (34,360 ) (c)(d) — Non-compensation expenses — — — — 127,931 (c)(d) 127,931 Reimbursement from affiliates (7,315 ) — (7,315 ) — 7,315 (b) — Consolidated Funds expenses — — — 8,121 8,121 Total expenses 88,082 218,339 306,421 8,121 25,400 339,942 — — (2,006 )(c) (2,006 ) — (99,482 ) (99,003 ) (198,485 ) — (99,482 ) (101,009 ) (200,491 ) (138,366 ) (108,285 ) (10,200 ) (256,851 )
—
—
(1,301
)(b)
(1,301
) (138,366 ) (108,285 ) (8,899 ) (255,550 )
5,501
108,285
—
113,786 $ (132,865 ) $ — $ (8,899 ) $ (141,764 ) Net gain (loss) on securities, derivatives and other investments — — — — 21,980 (c) 21,980 Consolidated Funds net gains (losses) — — — 11,346 19,716 31,062 Total other income (loss) — — — 11,346 41,696 53,042 Income (loss) before income taxes and non-controlling interests 33,543 (67,371 ) (33,828 ) 11,968 (31,230 ) (53,090 ) Income taxes expense / (benefit) — — — (21,400 ) (b) (21,400 ) Economic Income (Loss) / Net income (loss) before non-controlling interests 33,543 (67,371 ) (33,828 ) 11,968 (9,830 ) (31,690 ) (Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries (1,759 ) — (1,759 ) (11,968 ) — (13,727 ) Economic Income (Loss) / Net Income (loss) attributable to Cowen Group, Inc. stockholders $ 31,784 $ (67,371 ) $ (35,587 ) $ — $ (9,830 ) $ (45,417 ) 21. Segment Reporting (Continued) Year Ended December 31, 2009 Adjustments Alternative
Investment
Management Broker-Dealer Total
Economic Income/(Loss) Funds
Consolidation Other
Adjustments GAAP (dollars in thousands) Revenues Investment banking $ — $ 10,557 $ 10,557 $ — $ — $ 10,557 Brokerage — 17,812 17,812 — — 17,812 Management fees 53,940 — 53,940 (4,024 ) (8,222 ) (a) 41,694 Incentive income (6,996 ) — (6,996 ) — 8,907 (a) 1,911 Investment Income 21,958 — 21,958 (21,958 ) (c) — Interest and dividends — — — — 477 (c) 477 Reimbursement from affiliates — — — (718 ) 11,044 (b) 10,326 Other revenue 3,536 — 3,536 — 1,196 (c) 4,732 Consolidated Funds revenues — — — 36,392 — 36,392 Total revenues 72,438 28,369 100,807 31,650 (8,556 ) 123,901 Expenses Employee compensation and benefits 63,207 30,032 93,239 — 3,353 96,592 Interest and dividends 1,549 — 1,549 — 52 (c) 1,601 Non-compensation expenses—Fixed 40,340 10,946 51,286 — (51,286 ) (c)(d) — Non-compensation expenses—Variable 3,467 3,674 7,141 — (7,141 ) (c)(d) — Non-compensation expenses — — — — 68,217 (c)(d) 68,217 Reimbursement from affiliates (11,044 ) — (11,044 ) — 11,044 (b) — Consolidated Funds expenses — — — 23,581 — 23,581 Total expenses 97,519 44,652 142,171 23,581 24,239 189,991 Other income (loss) Net gain (loss) on securities, derivatives and other investments — — — — (2,154 ) (c) (2,154 ) Consolidated Funds net gains (losses) — — — 1,588 19,411 20,999 Total other income (loss) — — — 1,588 17,257 18,845 Income (loss) before income taxes and non-controlling interests (25,081 ) (16,283 ) (41,364 ) 9,657 (15,538 ) (47,245 ) Income taxes expense/(benefit) — — — (5,989 ) (2,217 ) (b) (8,206 ) Economic Income (Loss)/Net income (loss) before non-controlling interests (25,081 ) (16,283 ) (41,364 ) 15,646 (13,321 ) (39,039 ) (Income) loss attributable to redeemable non-controlling interests in consolidated subsidiaries (602 ) — (602 ) (15,646 ) — (16,248 ) Economic Income (Loss)/Net Income (loss) attributable to Cowen Group, Inc. stockholders $ (25,683 ) $ (16,283 ) $ (41,966 ) $ — $ (13,321 ) $ (55,287 ) Income.Income (Loss). Adjustments to reconcile to US GAAP net income include elimination of incentive income and management fees earned from the Consolidated Funds and addition of fund expenses excluding management fees paid, fund revenues and investment income (loss).(a)Economic Income recognizes revenues (i) netagents and (ii) our proportionate share of management and incentive fees of certain real estate operating entities for which the investments are recorded under the equity method of accounting for investments.Consolidated Financial Statements (Continued)(b)Economic Income excludes goodwill impairment and income taxes as management does not consider this item when evaluating the performance of the segment. Also, reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP.(c)Economic Income recognizes our income from proprietary trading, including tax benefits from the Luxembourg reinsurance business, net of financing costs and other related expenses.(d)Economic Income recognizes our proportionate share of expenses for certain real estate operating entities for which the investments are recorded under the equity method of accounting for investments.(a) Economic Income (Loss) recognizes revenues (i) net of distribution fees paid to agents and (ii) our proportionate share of management and incentive fees of certain real estate operating entities and the activist business. (b) Economic Income (Loss) excludes income taxes as management does not consider this item when evaluating the performance of the segment. Also, reimbursement from affiliates is shown as a reduction of Economic Income expenses, but is included as a part of revenues under US GAAP. (c) Economic Income (Loss) recognizes Company income from proprietary trading net of related expenses. (d) Economic Income (Loss) recognizes the Company's proportionate share of expenses for certain real estate and other operating entities for which the investments are recorded under the equity method of accounting for investments. (e) Economic Income (Loss) excludes the bargain purchase gain which resulted from the LaBranche acquisition. (f) Economic Income (Loss) excludes goodwill impairment. (g) Economic Income (Loss) excludes discontinued operations. 2009,, and 2008,2009, there was no one fund or other customer which represented more than 10% of the Company's total revenues. Primarily all of the revenues earned by the alternative investment management segment were from related parties for the years ended December 31, 2011, 2010, and 2009. There were no revenues earned from related parties by the broker dealer segment in the years ended December 31, 2011, 2010, and 2009.22.a registered broker-dealer,broker‑dealers, Cowen and Company isand Cowen Capital LLC (formerly known as LaBranche Capital, LLC) are subject to the SEC's Uniform Net Capital Rule 15c3-1 (the "Rule"“Rule”), which requires the maintenance of minimum net capital. Under the alternative method permitted by the Rule, Cowen and Company's minimum net capital requirement, as defined, is $1.0 million. Cowen and CompanyCapital LLC is required to maintain minimum net capital, as defined, at an equivalent to the greater of $1.0 million or 2% of aggregate indebtedness, as defined. The broker-dealers are not permitted to withdraw equity if certain minimum net capital requirements are not met. As of December 31, 2010, 2011, Cowen and Company had total net capital of approximately $27.7$64.9 million, which was approximately $26.7$63.9 million in excess of its minimum net capital requirement of $1.0$1 million.("PAIB"(“PAIB”) held at the clearing broker are considered allowable assets for net capital purposes, pursuant to agreements between Cowen and Company and the clearing broker, which require, among other things, that the clearing broker performs computations for PAIB and segregates certain balances on behalf of Cowen and Company, if applicable.Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)22. Regulatory Requirements (Continued)("(“Ramius UK"UK”) and Cowen International Limited ("CIL"(“CIL”) are subject to the capital requirements of the Financial Services Authority ("FSA"(“FSA”) of the UK. Financial Resources, as defined, must exceed the total Financial Resources requirement of the FSA. As of December 31, 2010,2011, Ramius UK's Financial Resources of $3.8$0.6 million exceeded its minimum requirement of $0.4$0.5 million by $3.4$0.1 million. As of2010, 2011, CIL's Financial Resources of $5.1$5.4 million exceeded its minimum requirement of $2.7$2.3 million by $2.4$3.1 million.Limited ("CLAL")Limited) is subject to the financial resources requirements of the Securities and Futures Commission ("SFC"(“SFC”) of Hong Kong. Financial Resources, as defined, must exceed the Total Financial Resources requirement of the SFC. As ofDecember 31, 2010, CLAL's2011, CCAL's Financial Resources of $0.8$1.4 million exceeded the minimum requirement of $0.1$0.4 million by $0.7$1.0 million.23.("(“CHRP Management"Management”), and the CHRP Funds, and certain managed accounts. Management fees and incentive income are primarily earned from affiliated entities. Fees receivable primarily represents the management fees and incentive income owed to the Company from these related funds and certain affiliated managed accounts. As of December 31, 2011 and 2010 approximately, $14.9 million and $9.9 million, respectively, included in fees receivable are earned from external parties and the associated revenues are recorded in investment banking revenues in the consolidated statements of operations. 2009, and 2008,2009, the Company reimbursed the funds that it manages $1.6 million, $2.4 million $5 million and $24.6$5 million, respectively, which were recorded net in management fees and incentive income in the consolidated statements of operations. At As of December 31, 20102011 and 2009,2010, related amounts still payable were $2.3$3.4 million and $2.7$2.3 million, respectively, and were reflected in fees payable in the consolidated statements of financial condition.December 31, 2010. Pursuant to the operating agreement for its subsidiary Ramius Alternative Solutions LLC, the Company is required to pay certain distribution fees on assets raised by third party distributors. Such distribution fees are reported as client services and business development in the consolidated statements of operations. These amounts equaled $1 million, $1.7 million, and $3.6 million for the years ended 2009, and 2008, respectively. At December 31, 2010 and December 31, 2009, related amounts still payable were $0.2 million and $0.5 million, respectively, and were reflected in accounts payable, accrued expenses and other liabilities in the consolidated statements of financial condition..Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued)23. Related Party Transactions (Continued)$1.7$1.0 million and $2.6$1.7 million as of 20102011 and December 31, 2009,2010, respectively. Of such amounts outstanding at December 31, 2010,2011, $0.7 million will be paid in 2011.receivabledue from affiliatesrelated parties in the consolidated statements of financial condition. As of December 31, 20102011 and December 31, 2009,2010, loans to employees of $4.7$5.3 million and $1.9$4.7 million, respectively, were included in due from related parties on the consolidated statements of financial condition. For the year ended December 31, 2010, 2009,2011 and 2008,2010 the interest income was insignificant and for the year ended December 31, 2009, interest of $0.5 million, $0.1 million and $0.3 million was charged for these loans and advances, respectively.advances. The remaining balance included in due from related parties primarily relates to amounts due to the Company from affiliated funds and real estate entities due to expenses paid on their behalf.and $5.0 million at as of December 31, 20102011 and 2009,2010, respectively, related to a subordination agreement with an investor in certain real estate funds. This total is based on a hypothetical liquidation of the real estate funds as of the balance sheet date.24. FASB accounting standards require and Off-Balance Sheet ArrangementsCowen Group, Inc.Notes to Consolidated Financial Statements (Continued)24. Guarantees (Continued)25. Subsequent eventsLaBranche & Co Inc. announcedaccordingly, if another member becomes unable to satisfy its obligations to the exchange, all other members would be required to meet the shortfall. The Company's liability under these arrangements is not quantifiable and could exceed the cash and securities it has posted as collateral. However, management believes that the potential for the Company to be required to make payments under these arrangements is remote. Accordingly, no contingent liability is carried in the accompanying consolidated statements of financial condition for these arrangements.merger agreement underto acquire Algorithmic Trading Management, LLC (“ATM”), a provider of global, multi-asset class algorithmic execution trading models. The transaction, which the Company will acquire LaBranche, a market-maker in options, exchange traded funds and futures on various exchanges domestically and internationally. Under the terms of the merger agreement andis subject to the satisfaction or waiver of certain regulatory approvals and customary closing conditions, is expected to close in the second quarter of 2012.will acquire LaBranche in a stock-for-stock merger transaction valued at approximately $193 million. LaBranche shareholders will receive upon closing a fixed ratiohas evaluated events through March 9, 2012 which is the date the consolidated financial statements wereLaBranche shareholders will represent approximately 35.1 percentthe consolidated financial statements.spin-off its Value and Opportunity business, which focuses on investing in deep value situations and using shareholder activism to generate superior returns, into stand-alone and independent business that will be managed by Starboard Value LP ("Starboard"). Upon completion of the spin-off, the Company will maintain a significant minority interest in Starboard. The Company expects to complete the separation by March 31, 2011.20102011 and 2009.2010. These quarterly results reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results. Revenues and net income (loss) can vary significantly from quarter to quarter due to the nature of the Company's business activities.
Cowen Group, Inc.Notes to Consolidated Financial Statements (Continued) Cowen Group, Inc. Quarter Ended Quarter Ended March 31,
2010 June 30,
2010 Sept. 30,
2010 Dec. 31,
2010 March 31,
2011 June 30,
2011 Sept. 30,
2011 December 31,
2011 (in thousands) (in thousands) $ 56,258 $ 55,000 $ 52,202 $ 70,350 $ 64,245 $ 58,679 $ 62,828 $ 49,526 (5,186 ) (23,150 ) (13,027 ) (11,727 ) 1,043 4,541 (48,944 ) (55,250 ) (266 ) 599 299 (22,032 ) (4,920 ) (23,749 ) (13,326 ) 10,305 8,056 (2,552 ) 2,029 6,194 Income tax expense (benefit) 163 (17,954 ) 71 (2,353 ) Net income (loss) from continuing operations 880 22,495 (49,015 ) (52,897 ) Net income (loss) from discontinued operations, net of tax — — — (23,646 ) Net Income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries 798 2,458 (783 ) 3,354 $ (12,976 ) $ (21,197 ) $ (15,355 ) 4,111 $ 82 $ 20,037 $ (48,232 ) $ (79,897 ) $ (0.18 ) $ (0.29 ) $ (0.21 ) $ 0.06 Basic Income (loss) from continuing operations $ 0.00 $ 0.26 $ (0.42 ) $ (0.49 ) Income (loss) from discontinued operations — — — (0.21 ) Diluted Income (loss) from continuing operations $ 0.00 $ 0.26 $ (0.42 ) $ (0.49 ) Income (loss) from discontinued operations — — — (0.21 ) 72,509 72,693 73,385 73,149 Basic 74,160 76,330 115,664 114,686 Diluted 76,083 77,898 115,664 114,686 Quarter Ended Quarter Ended March 31,
2009 June 30,
2009 Sept. 30,
2009 Dec. 31,
2009 March 31,
2010 June 30,
2010 Sept. 30,
2010 December 31,
2010 (in thousands) (in thousands) $ 20,725 $ 17,032 $ 16,462 $ 69,682 $ 56,258 $ 55,000 $ 52,202 $ 70,350 (11,269 ) (10,801 ) (1,915 ) (23,260 ) (5,186 ) (23,150 ) (13,027 ) (11,727 ) (66 ) 17 (5,929 ) (2,228 ) Income tax expense (benefit) (266 ) 599 299 (22,032 ) (11,203 ) (10,818 ) 4,014 (21,032 ) (4,920 ) (23,749 ) (13,326 ) 10,305 (2,404 ) 6,393 9,899 2,360 Net Income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries 8,056 (2,552 ) 2,029 6,194 $ (8,799 ) $ (17,211 ) $ (5,885 ) (23,392 ) $ (12,976 ) $ (21,197 ) $ (15,355 ) 4,111 $ (0.23 ) $ (0.46 ) $ (0.16 ) $ (0.46 ) Basic $ (0.18 ) $ (0.29 ) $ (0.21 ) $ 0.06 Diluted (0.18 ) (0.29 ) (0.21 ) 0.05 37,537 37,537 37,537 51,279 Basic 72,509 72,693 73,385 73,991 Diluted 72,509 72,693 73,385 75,901 COWEN GROUP, INC.
By:
By: /s/ PETER A. COHEN Name: Peter A. Cohen Date: March 11, 20119, 2012 Title: SignatureTitleDate
Signature Title Date /s/ PETER A. COHEN Peter A. Cohen Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer) March 11, 2011
Peter A. CohenMarch 9, 2012 /s/ STEPHEN A. LASOTA Stephen A. Lasota
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
March 11, 2011Stephen A. Lasota March 9, 2012 /s/ KATHERINE E. DIETZE Director March 9, 2012 /s/ STEVEN KOTLER Steven Kotler
Director
March 11, 2011
Steven KotlerDirector March 9, 2012 /s/ JEROME S. MARKOWITZ Jerome S. Markowitz
Director
March 11, 20119, 2012/s/ JACK H. NUSBAUM Jack H. Nusbaum
Director
March 11, 20119, 2012/s/ EDOARDO SPEZZOTTIEdoardo Spezzotti
Director
March 11, 2011
/s/ JEFFREY M. SOLOMONJeffrey M. Solomon Director March 9, 2012 /s/ THOMAS W. STRAUSS Thomas W. Strauss Director March 9, 2012 /s/ JOHN E. TOFFOLON, JR. John E. Toffolon, Jr.
Director
March 11, 20119, 2012/s/ JOSEPH R. WRIGHT Joseph R. Wright
Director
March 11, 20119, 2012Exhibit No. Description Description 2.1 Transaction Agreement and Agreement and Plan of Merger, dated as of June 3, 2009, by and among Cowen Group, Inc., Lexington Park Parent Corp., Lexington Merger Corp., Park Exchange LLC and Ramius LLC (included as Appendix A to the proxy statement/prospectus forming a part of the Registration Statement on Form S-4 filed on July 10, 2009).
2.22.2
Agreement and Plan of Merger, dated as of February 16, 2011, by and among the Company, Louisiana Merger Sub, Inc. and LaBranche (previously filed as Exhibit 2.1 to Form 8-K filed on February 17, 2011).
3.13.1
Amended and Restated Certificate of Incorporation of Cowen Group, Inc. (previously filed as Exhibit 3.1 to the Form 10-Q filed November 25, 2009).
3.23.2
Amended and Restated By-Laws of Cowen Group, Inc. (previously filed as Exhibit 3.1 to the Form 10-Q filed November 25, 2009).
3.33.3
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Cowen Group, Inc. (previously filed as Exhibit 3.1 to the Form 10-Q filed November 25, 2009).
4.14.1
Form of Class A Common Stock Certificate (previously filed as Exhibit 4.1 to Amendment No. 2 to Form S-1 filed on December 14, 2009).
4.24.2
Voting Agreement, dated as of February 16, 2011, by and among, the Company and the individuals listed on Schedule A thereto (previously filed as Exhibit 4.1 to Form 8-K filed on February 17, 2011).
10.110.1
Registration Rights Agreement, dated as of November 2, 2009, by and among the Company, RCG Holdings LLC, BA Alpine Holdings, Inc., Bayerische Hypo-und Vereinsbank AG, and HVB Alternative Advisors Inc. (previously filed as Exhibit 10.1 to the Form 8-K filed November 5, 2009).10.2Secured Revolving Credit Agreement, dated as of November 2, 2009, by and among the Company, as Borrower, the various Lenders party thereto from time to time and Bayerische Hypo- und Vereinsbank AG, New York Branch, as Administrative Agent, Issuer of the Letter of Credit, Fronting Bank and a Lender (previously filed as Exhibit 10.2 to the Form 8-K filed November 5, 2009).10.3Asset Exchange Agreement, dated as of June 3, 2009, by and among RCG Holdings LLC, HVB Alternative Advisors LLC, Bayerische Hypo- und Vereinsbank AG, Cowen Group, Inc., Cowen Group, Inc. and Lexington Merger Corp., as amended by the First Amendment to Asset Exchange Agreement, dated as of July 9, 2009 (included as Appendix B to the proxy statement/prospectus forming a part of the Registration Statement on Form S-4 filed July 10, 2009).10.4
Employment Agreement of Peter A. Cohen, dated as of June 3, 2009, by and among Peter A. Cohen, Ramius LLC, Cowen Group, Inc. and RCG Holdings LLC (previously filed as Exhibit 10.3 to the First Amendment to the Registration Statement on Form S-4 filed August 17, 2009).*Exhibit No.Description10.2 10.5 Employment Agreement of Morgan Stark, dated as of June 3, 2009, by and among Morgan Stark, Ramius LLC, Cowen Group, Inc. and RCG Holdings LLC (previously filed as Exhibit 10.4 to the First Amendment to the Registration Statement on Form S-4 filed August 17, 2009).*10.6Appendix A to Employment Agreement of Morgan Stark, dated as of June 3, 2009, by and between Morgan Stark, Ramius LLC and RCG Holdings LLC (previously filed as Exhibit 10.5 to the First Amendment to the Registration Statement on Form S-4 filed August 17, 2009).*10.7
Employment Agreement of Thomas Strauss, dated as of June 3, 2009, by and among Thomas Strauss, Ramius LLC, Cowen Group, Inc. and RCG Holdings LLC (previously filed as Exhibit 10.6 to the First Amendment to the Registration Statement on Form S-4 filed August 17, 2009).*
10.310.8
Employment Agreement of David M. Malcolm, dated as of June 3, 2009, by and among David M. Malcolm, Cowen Group, Inc., RCG Holdings LLC and Cowen Holdings, Inc. (previously filed as Exhibit 10.8 to Amendment No. 2 to Form S-1 filed on December 14, 2009).10.9Appendix A to Employment Agreement of David M. Malcolm, dated as of June 3, 2009, by and between David M. Malcolm and Cowen Group, Inc. (previously filed as Exhibit 10.9 to Amendment No. 2 to Form S-1 filed on December 14, 2009).*10.10Employment Agreement of Christopher A. White, dated as of July 10, 2009, by and among Christopher A. White, Cowen Group, Inc., and Cowen Holdings, Inc. (previously filed as Exhibit 10.10 to Amendment No. 2 to Form S-1 filed on December 14, 2009).*10.11
Employment Agreement of Jeffrey Solomon, dated as of June 3, 2009, by and among Jeffrey Solomon, Ramius LLC (f/k/a Park Exchange LLC), Cowen Group, Inc. (f/k/a LexingtonPark Parent Corp.) and RCG Holdings LLC (f/k/a Ramius LLC) (previously filed as Exhibit 10.5 to the Form 8-K filed November 5, 2009).*
10.410.12
Amendment to the Investment Management Agreement, dated as of June 3, 2009, by and between Ramius LLC (f/k/a Ramius Capital Group, L.L.C. and successor by assignment from Ramius Securities, L.L.C.) and Alpine Cayman Islands Limited (f/k/a Bank Austria Cayman Islands Limited) (previously filed as Exhibit 99.14 to the First Amendment to the Registration Statement on Form S-4 filed August 17, 2009).^10.13Second Amendment to the Investment Reporting Agreement, dated as of June 3, 2009, by and between Ramius Fund of Funds Group LLC (f/k/a Ramius HVB Partners LLC, New York) and Bayerische Hypo- und Vereinsbank AG, Munich) (previously filed as Exhibit 99.15 to the First Amendment to the Registration Statement on Form S-4 filed August 17, 2009.).^10.14
Lease, dated as of June 22, 2007 by and between 599 Lexington Avenue LLC and Ramius LLC (as successor in interest to RCG Holdings LLC (f/k/a Ramius Capital Group, LLC)), as amended by the First Amendment to Lease, dated as of June 9, 2008, by and between BP 599 Lexington Avenue LLC and Ramius LLC (as successor in interest to RCG Holdings LLC (f/k/a Ramius LLC)) (previously filed as Exhibit 10.14 to Amendment No. 2 to Form S-1 filed on December 14, 2009).
10.510.15
Sublease, dated as of December 19, 2005, by and between Société Générale and SG Cowen & Co., LLC. (previously filed as Exhibit 10.15 to Amendment No. 2 to Form S-1 filed on December 14, 2009).Exhibit No.Description10.6 10.16 Lease, dated as of October 29, 1993 by and between Rock-McGraw, Inc. and Société Générale (previously filed as Exhibit 10.16 to Amendment No. 2 to Form S-1 filed on December 14, 2009).
10.710.17
Supplemental Indenture, dated as of May 5, 1998, by and between Rock-McGraw, Inc. and Société Générale (previously filed as Exhibit 10.17 to Amendment No. 2 to Form S-1 filed on December 14, 2009).
10.810.18
Indemnification Agreement, dated as of July 11, 2006, by and among Société Générale, SG Americas Securities Holdings, Cowen and Company, LLC and Cowen Holdings, Inc. (f/k/a Cowen Group, Inc.) (previously filed as Exhibit 10.18 to Amendment No. 2 to Form S-1 filed on December 14, 2009).
10.910.19
Escrow Agreement, dated as of July 12, 2006, by and among SG Americas Securities Holdings, Inc., Cowen and Company, LLC, Cowen Holdings, Inc. (f/k/a Cowen Group, Inc.) and the escrow agent (previously filed as Exhibit 10.19 to Amendment No. 2 to Form S-1 filed on December 14, 2009).
10.110.20
Cowen Group, Inc. 2006 Equity and Incentive Plan (previously filed as Exhibit 10.20 to Amendment No. 2 to Form S-1 filed on December 14, 2009).*
10.1110.21
Cowen Group, Inc. 2007 Equity and Incentive plan (previously filed as Exhibit 10.21 to Amendment No. 2 to Form S-1 filed on December 14, 2009).*
10.1210.22
Equity Award Agreement of Christopher A. White (previously filed as Exhibit 10.1 to the Form 8-K filed on December 7, 2009).*10.23
Form of RSU Award Agreement. (previously filed as Exhibit 10.23 to the Form 10-K filed on March 25, 2010).*
10.1310.24
Cowen Group, Inc. 2010 Equity and Incentive Plan (incorporated by reference to Appendix A to the Definitive Proxy Statement of Cowen Group, Inc., on Schedule 14A for the year ended December 31, 2009, as filed on April 30, 2010).*
10.1410.25
Form of Equity Award Agreement (previously filed as Exhibit 10.2 to the Form 8-K filed on June 10, 2010).*
10.1510.26
Modification Agreement, dated as of May 11, 2010, among the Registrant, RCG Holdings LLC, C4S & Co. L.L.C., Ramius LLC, Ramius Alternative Solutions LLC, BA Alpine Holdings, Inc., Alpine Cayman Islands Limited, UniCredit Bank AG (formerly known as Bayerische Hypo- und Vereinsbank G, Munich), HVB Alternative Advisors LLC and CEAKSCH Verwaltungs G.m.b.H. (previously filed as Exhibit 10.1 to the Form `0-Q filed May 14, 2010).10.27Amendment to the Employment Agreement with David M. Malcolm, dated July 19, 2010, by and between David M. Malcolm and Cowen Group, Inc. (previously filed as Exhibit 10.1 to the Form 8-K filed July 22, 2010.*10.28Amendment to the Employment Agreement with Christopher A. White, dated July 21, 2010, by and between Christopher A. White and Cowen Group, Inc. (previously filed as Exhibit 10.2 to the Form 8-K filed July 22, 2010.*10.29
First Amendment to Sublease dated August 20, 2010 between Société Générale and the Company, amending that certain Sublease, dated as of December 19, 2005, between Société Générale and Cowen and Company, LLC (f/k/a SG Cowen & Co, LLC) (previously filed as Exhibit 10.1 to the Form 8-K filed August 24, 2010.2010).Exhibit No. Description 10.30Description10.16 Second Amendment to Lease dated August 20, 2010 between BP 599 Lexington Avenue and the Company, amending that certain Lease dated as of June 22, 2007 by and between 599 Lexington Avenue LLC and Ramius LLC (as successor in interest to RCG Holdings LLC (f/k/a Ramius Capital Group, LLC)), as amended by the First Amendment to Lease, dated as of June 9, 2008, by and between BP 599 Lexington Avenue LLC and Ramius LLC (previously filed as Exhibit 10.2 to Form 8-K filed August 24, 2010).
10.1710.31
Letter Agreement with David M. Malcolm,George M.L. LaBranche, IV dated December 15, 2010, by and between David M. Malcolm and Cowen Group, Inc. (previously filed as Exhibit 10.1 to the Form 8-K filed December 16, 2010)October 31, 2011 (filed herewith).*
10.1810.32
LetterForm of Restricted Stock Unit and Deferred Cash Award Agreement with Christopher A. White, dated February 8, 2011, by and between Christopher A. White and Cowen Group, Inc. (previously filed as Exhibit 10.1 to the Form 8-K filed February 11, 2011)(filed herewith).*
21.121.1
Subsidiaries of Cowen Group, Inc. (filed herewith).
23.123.1
Consent of Independent Registered Public Accounting Firm (filed herewith).
31.131.1
Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith).
31.231.2
Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith).
3232
Certification of CEO and CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (furnished herewith).* Signifies management contract or compensatory plan or arrangement. *Signifies management contract or compensatory plan or arrangement.^Confidential treatment has been granted for certain portions of this exhibit, which portions have been omitted and filed separately with the Securities and Exchange Commission.