# SECURITIES AMERICA, INC. X-17A-5 (2023-02-28) — Broker-dealer annual report - Company: SECURITIES AMERICA, INC. - Form: X-17A-5 - Filed: 2023-02-28 - Period: 2022-12-31 - Accession: 0000355211-23-000003 - CIK: 355211 - File #: 8-26602 - Type: Broker-dealer - Material weakness: No - Auditor: Deloitte & Touche LLP - Auditor location: Tempe, AZ - Contact: David Schmidt - Phone: 602-262-3301 - Email: david.schmidt@advisorgroup.com - Website: advisorgroup.com - Signed by: David Schmidt (Treasurer and Financial Operations Principal) Original filing: https://www.sec.gov/Archives/edgar/data/355211/000035521123000003/SAI2022Public.pdf --- {0}------------------------------------------------ | | UNITED STATES | | | OMB APPROVAL
OMB Number: 3235-0123 | | |-----------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------|----|-----------------------------------------|----------------------------------------------------|--| | | SECURITIES AND EXCHANGE COMMISSION | | | Expires: Oct. 31, 2023 | | | | Washington, D.C. 20549 | | | Estimated average burden
hours per response: 12 | | | ANNUAL REPORTS | | | SEC FILE NUMBER | | | | | FORM X-17A-5 | | 8-26602 | | | | | PART III | | | | | | Information Required Pursuant to Rules 17a-5, 17a-12, and 18a-7 under the Securities Exchange Act of 1934 | FACING PAGE | | | | | | FILING FOR THE PERIOD BEGINNING 01/01/2022 | | | | | | | | MM/DD/YY | | | MM/DD/YY | | | | A. REGISTRANT IDENTIFICATION | | | | | | NAME OF FIRM: Securities America, Inc. | | | | | | | TYPE OF REGISTRANT (check all applicable boxes):
Broker-dealer
_ Check here if respondent is also an OTC derivatives dealer | | | _ Major security-based swap participant | | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use a P.O. box no.) | | | | | | | 12325 Port Grace Blvd. | | | | | | | | (No. and Street) | | | | | | La Vista | NE | | | 68128 | | | (City) | (State) | | | (Zip Code) | | | PERSON TO CONTACT WITH REGARD TO THIS FILING | | | | | | | David Schmidt | (602) 262-3301 | | | David.Schmidt@advisorgroup.com | | | (Name) | (Area Code - Telephone Number) | | (Email Address) | | | | | B. ACCOUNTANT IDENTIFICATION | | | | | | | | | | | | | | | | | | | | INDEPENDENT PUBLIC ACCOUNTANT whose reports are contained in this filing*
Deloitte & Touche LLP | | | | | | | | (Name - if individual, state last, first, and middle name) | | | | | | 100 South Mill Avenue, Suite 1800 Tempe | | | Arizona | 85281 | | | (Address) | (City) | | (State) | (Zip Code) | | | October 20, 2003 | | 34 | | | | | (Date of Registration with PCAOB)(if applicable) | | | | (PCAOB Registration Number, if applicable) | | | | FOR OFFICIAL USE ONLY | | | | | {1}------------------------------------------------ | David Schmidt | , swear (or affirm) that, to the best of my knowledge and belief, the | |---------------------------------------------------------------------|-----------------------------------------------------------------------| | financial report pertaining to the firm of Securities America, Inc. | as of | | December 31 | , 2 022 | - - - - - - - - - - - - - - - - - - - - - - - - - - - {2}------------------------------------------------ #### STATEMENT OF FINANCIAL CONDITION AND RELATED NOTES Securities America, Inc. (SEC File Number. 8-26602) (An indirect wholly-owned subsidiary of Advisor Group Holdings, Inc.) December 31, 2022 With Report Of Independent Registered Public Accounting Firm {3}------------------------------------------------ # **Securities America, Inc. (An indirect wholly-owned subsidiary of Advisor Group Holdings, Inc.) Table of Contents December 31, 2022** | | Page | |---------------------------------------------------------|------| | Report of Independent Registered Public Accounting Firm | 1 | | Financial Statement | | | Statement of Financial Condition | 2 | | Notes to Financial Statement | 3 | {4}------------------------------------------------ #### GLOSSARY Certain terms and abbreviations used throughout this report are defined below. | Term or abbreviation | Definition | |--------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------| | AGHI | Advisor Group Holdings, Inc. | | AGI | Advisor Group, Inc. | | ASC | Accounting Standards Codification | | ASU | Accounting Standards Update | | FASB | Financial Accounting Standards Board | | FINRA | Financial Industry Regulatory Authority | | GAAP | Generally Accepted Accounting Principles in the United States of America | | Ladenburg | Ladenburg Thalmann Financial Services Inc. | | Net Capital Rule | SEC Uniform Net Capital Rule 15c3-1 under the Securities Exchange Act of
1934, which requires the maintenance of minimum net capital | | SAA | Securities America Advisors, Inc. | | SAFC | Securities America Financial Corporation | | SEC | Securities and Exchange Commission | | Strategic Partnership Sponsors | Third-party investment and insurance companies for which the Company
provides marketing services for their advisory, insurance and brokerage products | | U.S. | United States of America | {5}------------------------------------------------ ![](_page_5_Picture_0.jpeg) **Deloitte & Touche LLP** 100 South Mill Avenue Suite 1800 Tempe, AZ 85281-2804 USA Tel: +1 602 234 5100 www.deloitte.com # **REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM** To the Stockholder and Board of Managers of Securities America, Inc.: # **Opinion on the Financial Statement** We have audited the accompanying statement of financial condition of Securities America, Inc. (the "Company") as of December 31, 2022, and the related notes (collectively referred to as the "financial statement"). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. # **Basis for Opinion** The financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit of the financial statement provides a reasonable basis for our opinion. February 27, 2023 We have served as the Company's auditor since 2020. {6}------------------------------------------------ # **Securities America, Inc. (An indirect wholly-owned subsidiary of Advisor Group Holdings, Inc.) Statement of Financial Condition (In Thousands, Except Share Amounts) December 31, 2022** | ASSETS | | |---------------------------------------------------------------------------------------------------------------------|--------------| | Cash and cash equivalents | \$
23,690 | | Restricted cash | 225 | | Receivables from broker-dealers and clearing firms | 50,874 | | Accounts and notes receivable | 42,654 | | Receivables from affiliates | 3,081 | | Loans to financial professionals, net of accumulated amortization and allowance for doubtful
accounts of \$2,395 | 1,563 | | Goodwill | 166,417 | | Intangible assets, net of accumulated amortization of \$35,833 | 73,911 | | Prepaid expenses and other assets | 3,570 | | Total assets | 365,985 | | | | # **LIABILITIES & STOCKHOLDER'S EQUITY** | LIABILITIES: | | |---------------------------------------|--------| | Commissions payable | 25,775 | | Deferred compensation payable | 617 | | Accounts payable and accrued expenses | 3,307 | | Payables to affiliates | 36,168 | | Income tax payable | 2,519 | | Deferred tax liabilities, net | 18,396 | | Other liabilities | 6,956 | | Total liabilities | 93,738 | | | | Commitments and contingencies (Note 8) # STOCKHOLDER'S EQUITY: | Common stock, \$1 par value; 200 shares authorized; 100 shares issued and outstanding | — | |---------------------------------------------------------------------------------------|---------------| | Additional paid-in capital | 336,410 | | Accumulated deficit | (64,163) | | Total stockholder's equity | 272,247 | | Total liabilities and stockholder's equity | \$
365,985 | *See accompanying notes.* {7}------------------------------------------------ ## **NOTE 1 – ORGANIZATION AND DESCRIPTION OF THE COMPANY** Securities America, Inc. (the "Company") is a wholly-owned subsidiary of SAFC, which is a wholly-owned subsidiary of AGHI. AGHI is a wholly-owned subsidiary of AG Parent Corp., which is a wholly-owned subsidiary of Ladenburg. The Company is a broker-dealer registered with FINRA and the SEC pursuant to the Securities Exchange Act of 1934. The Company's primary business is the sale of financial products through its independent registered representatives (financial professionals). The Company executes its customers' transactions on a fully-disclosed basis through unaffiliated clearing broker-dealers which carry the accounts and securities of the Company's customers. Management of the Company has performed an evaluation of subsequent events through February 27, 2023, which is the date the Statement of Financial Condition was available to be issued. # **NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION** #### *Basis of Presentation* The preparation of the financial statement in conformity with U.S. GAAP requires management to make estimates and assumptions necessary for a fair statement of the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the Statement of Financial Condition. Actual results could differ from those estimates and assumptions. #### *Reportable Segment* The Company operates exclusively in the U.S. as one operating segment as it only reports financial information on an aggregate basis to its chief operating decision maker. # *Cash Equivalents* The Company has defined cash equivalents as highly liquid investments with original maturities of less than ninety days that are not held for sale in the ordinary course of business. #### *Restricted Cash* Restricted cash consists of cash held by unaffiliated clearing broker-dealer firms as a deposit for maintaining minimum required cash balances that the Company has no intention of accessing as of the date of this report. # *Financial Instruments* ASC 820, *Fair Value Measurement*, defines 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. A financial instrument's level within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. However, the determination of what constitutes observable requires judgment. Management considers observable data to be 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. {8}------------------------------------------------ The Company's fair value measurements are evaluated within the fair value hierarchy based on the nature of inputs used to determine the fair value at the measurement date as follows: Level 1: Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2: Inputs, other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active. Level 3: Inputs that are unobservable. The Company had no material financial instruments measured at fair value on a recurring basis. ## *Loans to Financial Professionals* Loans to financial professionals represent amounts provided to financial professionals primarily as recruiting and retention incentives. Certain amounts provided as loans are forgiven (generally over a period of 3 to 7 years) or repaid either as a percentage of the financial professional's gross production or on a fixed repayment schedule. For the loans which are forgiven, the Company recognizes amortization expense on a straight-line basis over the stated life of the loan. For repayable loans, the Company has established an allowance for doubtful accounts to offset amounts deemed uncollectible based on historical collection rates, current conditions and management forecasts. Recoveries, if any, are recognized when received. ## *Fixed Assets* Fixed assets are recorded at cost less accumulated depreciation and amortization. Depreciation is recognized on a straight-line basis over the useful lives of the assets, generally ranging from 3 to 7 years. The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. When assets are considered to be impaired, the impairment to be recognized is measured by the amount which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Fixed assets are included within "Prepaid expenses and other assets" on the Statement of Financial Condition. ## *Goodwill and Intangible Assets* Goodwill is not amortized; however, the remaining acquired intangible assets were deemed to have definite lives and are amortized on a straight-line basis over their useful lives which range from 8 to 10 years. Goodwill and intangible assets are tested annually for impairment on October 1st, or more frequently, as events occur which may indicate that the carrying amounts may not be recoverable. When testing goodwill for impairment, the Company may first assess qualitative factors to determine if it is more likely than not (i.e. a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If, based on the qualitative analysis, the Company determines that it is not more likely than not that a reporting unit's fair value is less than its carrying amount, including goodwill, no further analysis is performed. If the Company determines that it is more likely than not that a reporting unit's fair value is less than its carrying amount based on the qualitative analysis, the Company performs a quantitative analysis. In the first step of the quantitative analysis, the Company compares the fair value of a reporting unit to its carrying amount, including goodwill, to determine a potential impairment. If the fair value is less than the carrying amount, the Company performs the second step of the quantitative analysis which consists of comparing the implied fair value of the reporting unit's goodwill with the carrying amount of the goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of the goodwill, the Company recognizes an impairment loss equal to the difference between the implied fair value and the carrying amount. No impairment of goodwill was recognized for the Company during the year ended December 31, 2022. {9}------------------------------------------------ The Company monitors the operating and cash flow results related to its intangible assets to identify whether events and circumstances indicate the remaining useful lives of those assets should be adjusted or if the carrying value may not be recoverable. When indicators of impairment are present, recoverability is measured by comparing the carrying amount to the estimated undiscounted future cash flows expected to be generated by the respective intangible asset. If the carrying amount exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the intangible asset exceeds the fair value. No impairment of intangible assets was recognized for the Company during the year ended December 31, 2022. #### *Leases* The Company determines if an arrangement is a lease or contains a lease at inception. The Company has operating leases for corporate offices and finance leases for equipment with remaining lease terms of less than 2 years, some of which include options to extend the lease. For leases with renewal options, the lease term is extended to reflect renewal options the Company is reasonably certain to exercise. The right-of-use leases are included within "Prepaid expenses and other assets" and the related lease liabilities are included in "Other liabilities" on the Statement of Financial Condition. Operating lease assets and operating lease liabilities are recognized based on the present value of the future lease payments over the lease term at the commencement date. As the Company's leases do not provide an implicit rate, the Company estimates its incremental borrowing rate based on information available at the commencement date in determining the present value of future payments. #### *Income Taxes* In preparing the financial statement, the Company estimates income tax expense based on various jurisdictions where it conducts business. This requires the Company to estimate current tax obligations and to assess temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The Company then must assess the likelihood that the deferred tax assets will be realized. A valuation allowance is established to the extent that it is morelikely-than-not that such deferred tax assets will not be realized. When the Company establishes a valuation allowance or modifies the existing allowance in a certain reporting period, it generally records a corresponding increase or decrease to tax expense. Management makes significant judgments in determining the provision for income taxes, the deferred tax assets and liabilities and any valuation allowances recorded against the deferred tax assets. Changes in the estimate of these taxes occur periodically due to changes in the tax rates, changes in the business operations, implementation of tax planning strategies, resolution with taxing authorities of issues where the Company had previously taken certain tax positions and newly enacted statutory, judicial and regulatory guidance. These changes could have a material effect on the Company's Statement of Financial Condition in the period or periods in which they occur. The Company recognizes the tax effects of a position in the financial statement only if it is more-likely-than-not to be sustained based solely on its technical merits; otherwise, no benefits of the position are to be recognized. The more-likelythan-not threshold must continue to be met in each reporting period to support continued recognition of a benefit. Moreover, each tax position meeting the recognition threshold is required to be measured as the largest amount that is greater than 50 percent likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. The Company is included in the consolidated federal income tax return of AGHI. In addition, in those states that have a unitary structure, AGHI also plans to file consolidated returns which include the Company. Federal income taxes and state income taxes under unitary structures are calculated as if the Company filed on a separate return basis, and the amount of current tax or benefit calculated is either remitted to or received from AGHI. The amount of current taxes payable or refundable is recognized as of the date of the Statement of Financial Condition, utilizing currently enacted tax laws and rates. The Company uses the liability method to account for federal and state taxes in accordance with authoritative guidance under U.S. GAAP on income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax benefits and consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using currently enacted tax rates for the years in which the temporary differences are expected to reverse. The Company {10}------------------------------------------------ calculates its current and deferred state income taxes using the actual apportionment and statutory rates for states in which the Company is required to file on a separate basis. ### *Contingent Liabilities* The Company recognizes liabilities for contingencies where there is an exposure that, when fully analyzed, indicates that it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. If a loss is determined to be probable, the estimated range of the loss is based upon currently available information which is subject to significant judgment, a variety of assumptions and uncertainties. When a range of possible loss can be estimated, the Company accrues the most likely amount within that range; if the most likely amount of possible loss within that range is not determinable, the Company accrues at the bottom of the range. No liability is recognized for those matters which, in management's judgment, the determination of a reasonable estimate of loss is not possible. The Company records liabilities related to legal and regulatory proceedings in "Accounts payable and accrued expenses" on the Statement of Financial Condition. The determination of these liability amounts requires significant judgment on the part of management. Management considers many factors including, but not limited to: the amount of the claim; the amount of the loss in the customer's account; the basis and viability of the claim; the possibility of wrongdoing on the part of one of the Company's financial professionals; previous results in similar cases; applicable indemnifications; and legal precedents and case law. The actual costs of resolving legal matters or regulatory proceedings may be substantially higher or lower than the amounts of the liability recorded for such matters. The cost of defense related to legal and regulatory matters is expensed in the period it is incurred. #### *Recently Adopted Accounting Pronouncements* *ASU 2019-12 –* On January 1, 2022, the Company adopted ASU 2019-12, *Simplifying the Accounting for Income Taxes*. The amendments in this standard simplified the accounting for income taxes by removing certain exceptions to the general principles in ASC 740, *Income Taxes*. The amendments also provided improvements related to the consistent application of GAAP as well as simplifying other areas of ASC 740 by clarifying and amending existing guidance. The adoption of this ASU did not have a material impact on the Company's Statement of Financial Condition. *ASU 2021-08* – In October 2021, the FASB issued ASU 2021-08, *Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers*. This ASU requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606 as if it had originated the contracts. This ASU was effective on January 1, 2023, and the adoption of this ASU did not have a material impact on the Company's Statement of Financial Condition. ## **NOTE 3 – ACCOUNTS AND NOTES RECEIVABLE** Accounts and notes receivable as of December 31, 2022 consist of the following (dollars in thousands): | Commission revenue receivable | \$
23,064 | |---------------------------------------------------|--------------| | Clearing credit and cash sweep revenue receivable | 11,084 | | Strategic Partnership Sponsor revenue receivable | 6,720 | | Other | 1,786 | | Total accounts and notes receivable | \$
42,654 | {11}------------------------------------------------ ### **NOTE 4 – INTANGIBLE ASSETS** Intangible assets consist of the following as of December 31, 2022 (dollars in thousands): | | Gross Carrying
Amount | Accumulated
Amortization | Net Carrying
Amount | |-----------------------|--------------------------|-----------------------------|------------------------| | Advisor relationships | \$
109,744 | \$
(35,833) \$ | 73,911 | #### **NOTE 5 – INCOME TAXES** The following table presents the components of deferred tax assets (liabilities) as of December 31, 2022 (dollars in thousands): | Deferred tax assets: | | |----------------------------------|----------------| | Accrued legal fees | \$
697 | | Accrued bonus | 811 | | Allowance for doubtful accounts | 214 | | Deferred compensation | 197 | | Lease liability | 147 | | State taxes | 936 | | Unrealized losses | 130 | | Total deferred tax assets | 3,132 | | Deferred tax liabilities: | | | Intangible assets | (18,693) | | Loans to financial professionals | (2,080) | | Prepaid expenses | (718) | | Right-of-use asset | (37) | | Total deferred tax liabilities | (21,528) | | Deferred tax liabilities, net | \$
(18,396) | The Company recognizes and measures its unrecognized tax benefits in accordance with authoritative guidance. Under that guidance, the Company assesses the likelihood, based on their technical merit, that tax positions will be sustained upon examination based on the facts, circumstances and information available at the end of each period. The measurement of unrecognized tax benefits is adjusted when new information is available or when an event occurs that requires a change. The Company accrues interest and penalties related to uncertain tax positions in its provision for income taxes within the Statement of Financial Condition. As of December 31, 2022, the Company had no liability for uncertain tax positions. The Company files income tax returns in the federal jurisdiction, as well as most state jurisdictions, and is subject to routine examinations by the respective taxing authorities. In the federal jurisdiction, the tax years of 2019 to 2022 remain open to examination and in the state jurisdictions, the tax years of 2018 to 2022 remain open to examination as of December 31, 2022. The Company does not have any tax positions at the end of the year for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within twelve months of the reporting date. {12}------------------------------------------------ #### **NOTE 6 – RELATED PARTY TRANSACTIONS** "Receivables from affiliates" and "Payables to affiliates," as shown on the Statement of Financial Condition, are generally settled in cash on a monthly basis. #### *Loans to Financial Professionals* All new loans to financial professionals are recorded at AGI and are either forgiven over a specified period or repaid based on agreed upon terms. As the loans are forgiven, amortization expense is charged to the Company by AGI through the Company's direct parent, SAFC. The loans are funded by AGI, which is also the counterparty on the executed loan agreements. If a financial professional separates from the Company, the loan converts to a repayable loan, and payments are made to AGI. Bad debt from uncollectible balances or subsequent recoveries are charged to the Company by AGI through SAFC. For the year ended December 31, 2022, new loans to the Company's financial professionals of \$14.1 million were recorded by AGI. *Dividends* The payment, timing and amount of dividends are subject to approval by the Board of Directors as well as net capital rules which require that the broker-dealer's capital may not be withdrawn if resulting net capital would be less than minimum requirements. Additionally, certain withdrawals require the approval of the SEC and FINRA to the extent they exceed defined levels, even though such withdrawals would not cause net capital to be less than minimum requirements. For additional information on net capital requirements, see "Note 7 – Net Capital Requirements and Exemptions." During the year ended December 31, 2022, the Company paid \$26.4 million in dividends to AGHI through its direct parent, SAFC. ## **NOTE 7 – NET CAPITAL REQUIREMENTS AND EXEMPTIONS** The Company is subject to the SEC's Net Capital Rule, which requires the maintenance of minimum net capital. The Company elected to compute net capital under the alternative method as permitted by SEC Rule 15c3-1, which requires the Company to maintain minimum net capital of the greater of \$250,000 or 2% of aggregate debit balances arising from client transactions. Net capital can fluctuate on a daily basis. The net capital and net capital requirements for the Company as of December 31, 2022 are summarized in the following table (dollars in thousands): | Net Capital | | Required Minimum Net Capital | | | Excess Net Capital | | | | |-------------|--------|------------------------------|--|----|--------------------|--------|--|--| | \$ | 19,600 | \$
250 | | \$ | | 19,350 | | | The Company is exempt from the computation of reserve requirements and possession or control requirements under SEC Rule 15c3-3(k)(2)(i) and (k)(2)(ii) and because the Company's other business activities met the requirements specified in Footnote 74 of the SEC Release No. 34-70073 adopting amendments to 17 C.F.R. § 240.17a-5. ## **NOTE 8 – COMMITMENTS AND CONTINGENCIES** In the normal course of business, the Company enters into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Company's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Company that have not yet occurred. However, based on experience, the Company expects any risk of loss to be remote. {13}------------------------------------------------ #### *Litigation and Regulatory Matters* The Company is subject to claims and lawsuits arising in the normal course of business. The Company maintains Errors and Omissions insurance for certain claims and lawsuits. Amounts not covered by indemnification or insurance, including amounts less than the insurance deductible, will be paid directly by the Company. In addition, in the normal course of business, the Company discusses matters with its regulators raised during regulatory examinations or other inquiries. These matters could result in censures, fines, penalties or other sanctions. ASC 450, *Contingencies*, governs the recognition and disclosure of loss contingencies, including potential losses from legal and regulatory matters. ASC 450 categorizes loss contingencies using three terms based on the likelihood of occurrence of events that result in a loss: "probable" means that "the future event or events are likely to occur;" "remote" means that "the chance of the future event or events occurring is slight;" "reasonably possible" means that "the chance of the future event or events occurring is more than remote but less than likely." Under ASC 450, the Company accrues for losses that are considered both probable and reasonably estimable. As of December 31, 2022, the Company accrued approximately \$2.7 million for legal and regulatory matters. These liabilities are included in "Accounts payable and accrued expenses" in the Statement of Financial Condition. The Company may incur losses in addition to amounts accrued where the losses are greater than estimated by management, or for matters for which an unfavorable outcome is considered reasonably possible, but not probable. The Company estimates that the aggregate range of reasonably possible losses in excess of amounts accrued is from \$0 to \$0.2 million as of December 31, 2022. The estimated aggregate range of reasonably possible losses is based upon currently available information for those legal and regulatory matters in which the Company is involved, taking into account the Company's best estimate of reasonably possible losses for those matters as to which an estimate can be made. For certain matters, the Company does not believe an estimate can currently be made as some matters are in preliminary stages and some matters have no specific amounts claimed. The Company's estimate involves significant judgment given the varying stages of the proceedings and the inherent uncertainty of predicting outcomes. The estimated range will change from time to time as the underlying matters, stages of proceedings and available information change. Actual losses may vary significantly from the current estimated range. The Company believes, based on its current knowledge and after consultation with counsel, that the ultimate disposition of these legal and regulatory matters, individually or in the aggregate, is not likely to have a material adverse effect on the Company's Statement of Financial Condition. However, in light of the uncertainties involved in such matters, the Company is unable to predict the outcome or timing of the ultimate resolution of these matters, or the potential losses, fines, penalties or equitable relief, if any, that may result. #### *Indemnifications* In the normal course of business, the Company indemnifies and guarantees certain service providers, such as clearing and custody agents, trustees and administrators, against specified potential losses in connection with their acting as an agent of, or providing services to, the Company or its affiliates. The Company also indemnifies some clients against potential losses incurred in the event specified third-party service providers, including sub-custodians and third-party brokers, improperly execute transactions. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. However, the Company believes that it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the Statement of Financial Condition for these indemnifications. The Company provides representations and warranties to counterparties in connection with a variety of commercial transactions and occasionally agrees to indemnify them against potential losses caused by the breach of those representations and warranties. The Company may also provide standard indemnifications to some counterparties to protect them in the event additional taxes are owed, or payments are withheld, due either to a change in or adverse application of certain tax laws. These indemnifications generally are standard contractual terms and are entered into in the normal course of business. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. However, the Company believes that it is unlikely it will have to make material payments under these {14}------------------------------------------------ arrangements and has not recorded any contingent liability in the Statement of Financial Condition for these indemnifications. ### *Clearing Broker-Dealers* In the normal course of business, the Company's customer activities involve the execution, settlement and financing of various customer securities transactions. The Company uses unaffiliated clearing broker-dealers to execute certain customer transactions. Such transactions may expose the Company and the clearing broker-dealers to significant off-balance-sheet risk in the event margin requirements are not sufficient to fully cover losses which customers may incur. In the event customers fail to satisfy their obligations, the Company may be required to purchase or sell financial instruments at prevailing market prices in order to fulfill the customers' obligations. The Company does not expect nonperformance by customers. There is no maximum risk of loss under such arrangement. Based on experience, the Company does not believe any potential losses will be material. ### *Concentration of Risk* The Company has receivables from unaffiliated clearing broker-dealers, which represent a concentration of credit risk should these clearing broker-dealers be unable to fulfill their obligations. The Company maintains cash in bank deposit accounts, which, at times, may exceed federally-insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.