# FOLIO INVESTMENTS, INC. X-17A-5 (2023-02-27) — Broker-dealer annual report

- Company: FOLIO INVESTMENTS, INC.
- Form: X-17A-5
- Filed: 2023-02-27
- Period: 2022-12-31
- Accession: 0001092956-23-000003
- CIK: 1092956
- File #: 8-52009
- Type: Broker-dealer
- Material weakness: Yes
- Auditor: PricewaterhouseCoopers LLC
- Auditor location: New York, NY
- Contact: James C. Fyffe
- Phone: 7032454920
- Email: jim.fyffe@gs.com
- Website: gs.com
- Signed by: James C. Fyffe (Chief Financial Officer)

Original filing: https://www.sec.gov/Archives/edgar/data/1092956/000109295623000003/foliopub1.pdf

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# Folio Investments, Inc. d/b/a Goldman Sachs Custody Solutions

Statement of Financial Condition

December 31, 2022

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### UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

# ANNUAL REPORTS FORM X-17A-5 PART III

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SEC FILE NUMBER 8-52009

FACING PAGE

Information Required Pursuant to Rules 17a-5, 17a-12, and 18a-7 under the Securities Exchange Act of 1934

|                                                                                          | FILING FOR THE PERIOD BEGINNING  1/1/2022<br>MM/DD/YY                                                                                                                          | AND ENDING 12/31/2022        | MM/DD/YY |                                            |
|------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------|----------|--------------------------------------------|
|                                                                                          |                                                                                                                                                                                | A. REGISTRANT IDENTIFICATION |          |                                            |
| NAME OF FIRM:  Goldman Sachs Custody Solutions                                           |                                                                                                                                                                                |                              |          |                                            |
| TYPE OF REGISTRANT (check all applicable boxes):                                         | മ Broker-dealer □ Security-based swap dealer  □ Major security-based swap participant<br>□ Check here if respondent is also an OTC derivatives dealer                          |                              |          |                                            |
|                                                                                          | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use a P.O. box no.)                                                                                                            |                              |          |                                            |
| 8180 Greensboro Drive, 8th Floor                                                         |                                                                                                                                                                                |                              |          |                                            |
| (No. and Street)                                                                         |                                                                                                                                                                                |                              |          |                                            |
| McLean                                                                                   |                                                                                                                                                                                | Virginia                     |          | 22102                                      |
| (City)                                                                                   |                                                                                                                                                                                | (State)                      |          | (Zip Code)                                 |
|                                                                                          | PERSON TO CONTACT WITH REGARD TO THIS FILING                                                                                                                                   |                              |          |                                            |
| James C. Fyffe                                                                           | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |                              |          | jim.fyffe@gs.com                           |
| (Name)                                                                                   | (Area Code - Telephone Number)                                                                                                                                                 |                              |          | (Email Address)                            |
|                                                                                          |                                                                                                                                                                                | B. ACCOUNTANT IDENTIFICATION |          |                                            |
| PricewaterhouseCoopers LLP<br>(Name - if individual, state last, first, and middle name) | INDEPENDENT PUBLIC ACCOUNTANT whose reports are contained in this filing*                                                                                                      |                              |          |                                            |
|                                                                                          |                                                                                                                                                                                |                              |          |                                            |
| 300 Madison Ave<br>(Address)                                                             | New York<br>(City)                                                                                                                                                             | NY<br>(State)                |          | 10017<br>(Zip Code)                        |
| October 20, 2003                                                                         |                                                                                                                                                                                |                              |          | 238                                        |
| (Date of Registration with PCAOB)(if applicable)                                         |                                                                                                                                                                                |                              |          | (PCAOB Registration Number, if applicable) |
|                                                                                          |                                                                                                                                                                                | FOR OFFICIAL<br>USE ONLY     |          |                                            |

\* Claims for exemption from the requirement that the annual reports of an independent public accountant must be supported by a statement of facts and circumstances relied on as the basis of the exemption. See 17 CFR 240.17a-5(e)(1)(ii), if applicable.

Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

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#### INDEX

|          |                                                         | Page No. |
|----------|---------------------------------------------------------|----------|
|          | Report of Independent Registered Public Accounting Firm | 1        |
|          | Financial Statement                                     | 2        |
|          | Statement of Financial Condition                        | 2        |
|          | Notes to Statement of Financial Condition               | 3        |
| Note 1.  | Description of Business                                 | 3        |
| Note 2.  | Basis of Presentation                                   | 3        |
| Note 3.  | Significant Accounting Policies                         | 3        |
| Note 4.  | Fair Value Measurements                                 | 4        |
| Note 5.  | Financial Instruments                                   | 5        |
| Note 6.  | Secured Financings                                      | 5        |
| Note 7.  | Other Assets                                            | 5        |
| Note 8.  | Unsecured Borrowings                                    | 5        |
| Note 9.  | Other Liabilities                                       | 5        |
| Note 10. | Contingencies and Guarantees                            | 5        |
| Note 11. | Transactions with Related Parties                       | 6        |
| Note 12. | Income Taxes                                            | 6        |
| Note 13. | Credit Concentrations                                   | 7        |
| Note 14. | Legal Proceedings                                       | 7        |
|          | Note 15. Employee Incentive Plans                       | 8        |
| Note 16. | Net Capital Requirements                                | 9        |
|          | Note 17. Subsequent Events                              | 9        |

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### **Report of Independent Registered Public Accounting Firm**

To the Board of Directors and the Stockholder of Folio Investments, Inc. d/b/a Goldman Sachs Custody Solutions:

#### *Opinion on the Financial Statement – Statement of Financial Condition*

We have audited the accompanying statement of financial condition of Folio Investments, Inc. d/b/a Goldman Sachs Custody Solutions (the "Company") as of December 31, 2022, including 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 the Company's 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 of this financial statement 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 provides a reasonable basis for our opinion.

New York, New York February 27, 2023

We have served as the Company's auditor since 2020

PricewaterhouseCoopers LLP, PricewaterhouseCoopers Center, 300 Madison Avenue, New York, NY 10017 T: (646) 471 3000, F: (813) 286 6000, www.pwc.com/us

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|                                                                                    |     | As of         |
|------------------------------------------------------------------------------------|-----|---------------|
| \$ in thousands                                                                    |     | December 2022 |
| Assets                                                                             |     |               |
| Cash                                                                               | ತಿ  | 93,960        |
| Receivables:                                                                       |     |               |
| Brokers, dealers and clearing organizations                                        |     | 10,656        |
| Customers and counterparties (net of an allowance for credit losses of \$1,064)    |     | 3,976         |
| Financial instruments (at fair value and includes \$351,154 pledged as collateral) |     | 362,090       |
| Other assets                                                                       |     | 14,067        |
| Total assets                                                                       | ക   | 484,749       |
| Liabilities and stockholder's equity                                               |     |               |
| Payables:                                                                          |     |               |
|                                                                                    | ತಿ  |               |
| Brokers, dealers and clearing organizations                                        |     | 1,720         |
| Customers and counterparties                                                       |     | 7,573         |
| Secured financings (at fair value)                                                 |     | 351,154       |
| Other liabilities                                                                  |     | 19,546        |
| Total liabilities                                                                  |     | 379,993       |
| Contingencies and guarantees                                                       |     |               |
| Stockholder's equity                                                               |     |               |
| Common stock (\$0.0001 par value; 1,000 shares authorized, issued and outstanding) |     |               |
| Additional paid-in capital                                                         |     | 127,354       |
| Accumulated deficit                                                                |     | (22,598)      |
| Total stockholder's equity                                                         |     | 104,756       |
| Total liabilities and stockholder's equity                                         | ക്ക | 484,749       |

The accompanying notes are an integral part of this statement of financial condition.

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{8}------------------------------------------------

### FOLIO INVESTMENTS, INC. D/B/A GOLDMAN SACHS CUSTODY SOLUTIONS Notes to Statement of Financial Condition

Level 2. Inputs to valuation techniques are observable, either directly or indirectly.

Level 3. One or more inputs to valuation techniques are significant and unobservable.

The fair values for all of the Company's financial instruments and secured financings are based on unadjusted quoted prices in active markets and are classified in level 1 of the fair value hierarchy.

### Note 5.

### Financial Instruments

As of December 2022, the Company's financial instruments consisted of \$362.1 million of equity securities, all of which were classified as level 1 within the fair value hierarchy. The Company's equity securities, which are held to facilitate client activity, include public equities and exchange-traded funds.

# Note 6.

### Secured Financings

As of December 2022, the Company had \$351.2 million of fractional interests in equity securities pursuant to its fractional share program which were accounted for as financings rather than as sales and initially recorded as the amount received from the customer for the fractional interest transaction. The Company made an election at transaction date to record the financings at fair value. The shares are included in financial instruments at fair value and pledged as collateral for these financings.

The Company has elected to apply the fair value option to its secured financings because the use of fair value eliminates noneconomic volatility in earnings that would arise from using different measurement attributes. Secured financings were classified in level 1 within the fair value hierarchy as of December 2022.

# Note 7. Other Assets

The table below presents other assets by type.

|                                     |               | As of  |
|-------------------------------------|---------------|--------|
| \$ in thousands                     | December 2022 |        |
| Receivables from affiliates         | \$            | 6.345  |
| Income tax-related assets           |               | 6.237  |
| Miscellaneous receivables and other |               | 1,485  |
| Total                               | S             | 14,067 |

Income tax-related assets consist of current income tax receivables of \$5,4 million and deferred tax assets of \$0,8 million. See Note 12 for further information about income taxes.

### Note 8.

### Unsecured Borrowings

The Company maintains a credit facility with Group Inc. As of December 2022, there were no outstanding borrowings under this facility.

# Note 9.

### Other Liabilities

The table below presents other liabilities by type.

|                            |               | As of  |  |
|----------------------------|---------------|--------|--|
| \$ in thousands            | December 2022 |        |  |
| Payables to affiliates     | S             | 5,419  |  |
| Deferred revenue           |               | 4,363  |  |
| Accrued expenses and other |               | 9,764  |  |
| Total                      | S             | 19,546 |  |

Deferred revenue represents unearned fees from the Company's partnership with a third-party investor communications firm relating to proxy services.

Accrued expenses and other include a payable of \$6.0 million to a third-party institution participating in the Company's cash sweep program whereby the Company has satisfied certain customer deposits and disbursements and is awaiting next day settlement of such transactions.

### Note 10.

### Contingencies and Guarantees

### Contingencies - Legal Proceedings

See Note 14 for information about legal proceedings.

### Guarantees

Indemnities and Guarantees of Service Providers. The Company provides guarantees to securities clearinghouses under standard membership agreements, which require members to guarantee the performance of other members. Under the agreement, if another member becomes unable to satisfy its obligations to the clearing house, other members would be required to meet shortfalls. The Company's liability under these agreements is not quantifiable and may exceed the cash and securities it has posted as collateral.

{9}------------------------------------------------

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{10}------------------------------------------------

### FOLIO INVESTMENTS INC. D/B/A GOLDMAN SACHS CUSTODY SQI UTIQNS Notes to Statement of Financial Condition

The table below presents information about deferred tax assets.

|                            |               | As of |  |
|----------------------------|---------------|-------|--|
| \$ in thousands            | December 2022 |       |  |
| Deferred tax assets        |               |       |  |
| Compensation and benefits  | S             | 454   |  |
| Reserves                   |               | 267   |  |
| State net operating losses |               | 61    |  |
| Total deferred tax assets  | S             | 782   |  |

### Unrecognized Tax Benefits

The Company recognizes tax positions in the statement of financial condition only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the statement of financial condition. As of December 2022, the Company had no liability related to uncertainty in income taxes.

### Regulatory Tax Examinations

The Company is subject to examination by the U.S. Internal Revenue Service (IRS) and other taxing authorities in jurisdictions where the Company has significant business operations, such as Virginia. All tax years ending prior to September 18, 2020, including and subsequent to 2019 for U.S. federal and 2018 for state and local, remain open to examination by the taxing authorities.

GS Group has been accepted into the Compliance Assurance Process program by the IRS for each of the tax years from 2013 through 2023. This program allows GS Group to work with the IRS to identify and resolve potential U.S. federal tax issues before the filing of tax returns. All issues for the 2011 and 2012 tax years have been resolved and completion is pending final review by the Joint Committee on Taxation (JCT). During 2022, GS Group reached an agreement with IRS Appeals on the remaining issues for tax years 2012 through 2019. Subject to final review by JCT, this agreement will not have a material impact on the effective tax rate. During 2022, the fieldwork for the 2020 tax year was completed and the final resolution is not expected to have a material impact on the effective tax rate. The 2021 tax year remains subject to post-filing review.

The Company believes that no liability for unrecognized tax benefits is required in relation to the potential for additional assessments.

# Note 13. Credit Concentrations

The Company's concentrations of credit risk arise from margin lending, clearing corporation deposit requirements, unsettled securities transactions, and fees owed from clients. These activities expose the Company to different industries and counterparties and may also subject the Company to a concentration of credit risk to a particular counterparty or clearing corporation. The Company seeks to mitigate credit risk by monitoring exposures, obtaining collateral from counterparties for margin loans, and ensuring that customers have sufficient cash in their accounts before trades are executed.

The Company measures and monitors its credit exposure based on amounts owed to the Company after taking into account risk mitigants that management considers when determining credit risk.

As of December 2022, the Company had \$54.3 million of cash deposits held at BMO Harris Bank, \$31.6 million of cash deposits held at U.S. Bank, \$7.1 million of cash deposits held at JPMorgan Chase Bank and \$0.8 million of cash deposits held at Union Bank, of which, \$0.3 million is insured at each institution by the Federal Deposit Insurance Corporation. These cash deposits are included in cash.

The Company did not have credit exposure to any other external counterparty that exceeded 2% of total assets.

The Company provides platform trading services to registered investment advisory firms. The Company's current customer base is concentrated in a way such that the loss of certain of these customers could have a negative impact on the operating results of the Company.

### Note 14.

# Legal Proceedings

The Company is involved in arbitration proceedings concerning matters arising in connection with the conduct of the Company's businesses. These proceedings are in early stages and seek an indeterminate amount of damages.

{11}------------------------------------------------

### FOLIO INVESTMENTS, INC. D/B/A GOLDMAN SACHS CUSTODY SOLUTIONS Notes to Statement of Financial Condition

Management is generally unable to estimate a range of reasonably possible loss for matters, including where (i) actual or potential plaintiffs have not claimed an amount of money damages, except in those instances where management can otherwise determine an appropriate amount, (ii) matters are in early stages, (iii) matters relate to regulatory investigations or reviews, except in those instances where management can otherwise determine an appropriate amount, (iv) there is uncertainty as to the likelihood of a class being certified or the ultimate size of the class, (v) there is uncertainty as to the outcome of pending appeals or motions, (vi) there are significant factual issues to be resolved, and/or (vii) there are novel legal issues presented.

Management does not believe, based on currently available information, that the outcomes of such other matters will have a material adverse effect on the Company's financial condition, though the outcomes could be material to the Company's operating results for any particular period, depending, in part, upon the operating results for such period.

# Note 15. Employee Incentive Plans

The cost of employee services received in exchange for a sharebased award is generally measured based on the grant-date fair value of the award. Share-based awards that do not require future service (i.e., vested awards, including awards granted to retirement-eligible employees) are expensed immediately. Share-based awards that require future service are amortized over the relevant service period. Forfeitures are recorded when they occur. Cash dividend equivalents are paid on outstanding restricted stock units (RSUs).

### Stock Incentive Plan

Group Inc. sponsors a stock incentive plan, The Goldman Sachs Amended and Restated Stock Incentive Plan (2021) (2021 SIP), which provides for grants of RSUs, restricted stock, dividend equivalent rights, incentive stock options, nonqualified stock options, stock appreciation rights, and other share-based awards, each of which may be subject to terms and conditions, including performance or market conditions. On April 29, 2021, Group Inc.'s shareholders approved the 2021 SIP. The 2021 SIP is a successor to several predecessor stock incentive plans, the first of which was adopted on April 30, 1999, and each of which was approved by Group Inc.'s shareholders. The 2021 SIP is scheduled to terminate on the date of Group Inc.'s annual meeting of shareholders that occurs in 2025.

#### Restricted Stock Units

Group Inc. grants RSUs to employees, which are generally valued based on the closing price of the underlying shares on the date of grant after taking into account a liquidity discount for any applicable post-vesting and delivery transfer restrictions. The value of equity awards also considers the impact of material non-public information, if any, that Group Inc. expects to make available shortly following grant. RSUs generally vest and underlying shares of common stock deliver (net of required withholding tax) as outlined in the applicable award agreements. Award agreements generally provide that vesting is accelerated in certain circumstances, such as on retirement, death, disability and, in certain cases, conflicted employment. Delivery of the underlying shares of common stock is conditioned on the grantees satisfying certain vesting and other requirements outlined in the award agreements. RSUs generally vest and deliver over a three-year period. The subsequent amortization of the cost of these RSUs is allocated to the Company by Group Inc.

The table below presents the 2022 activity related to stock settled RSUs.

|                   | Restricted Stock<br>Units Outstanding |           |    | Weighted Average<br>Grant-Date Fair Value of<br>Restricted Stock<br>Units Outstanding |      |           |
|-------------------|---------------------------------------|-----------|----|---------------------------------------------------------------------------------------|------|-----------|
|                   | Future                                | No Future |    | Future                                                                                |      | No Future |
|                   | Service                               | Service   |    | Service                                                                               |      | Service   |
|                   | Required                              | Required  |    | Required                                                                              |      | Required  |
| Beginning balance | 1.175                                 | 1,543     | ക  | 290.75                                                                                | ಲ್ಲಿ | 282.90    |
| Granted           | 1.649                                 | 1,928     | S  | 339.15                                                                                | S    | 382.88    |
| Forfeited         | (694)                                 |           | \$ | 302.78                                                                                | S    |           |
| Delivered         |                                       | (1,543)   | \$ |                                                                                       | S    | 282.90    |
| Vested            | (898)                                 | 898       | \$ | 318.99                                                                                | S    | 318.99    |
| Ending balance    | 1,232                                 | 2,826     | \$ | 328.16                                                                                | S    | 362.58    |

In the table above:

- · The weighted average grant-date fair value of RSUs granted was \$362.72 during 2022. The fair value of the RSUs granted included a liquidity discount of 1.0% during 2022 to reflect post-vesting and delivery transfer restrictions, generally of 1 year.
- · The aggregate fair value of awards that vested was \$1.0 million during 2022.

In relation to 2022 year-end, during the first quarter of 2023, Group Inc. granted to the Company's employees 872 RSUs, (of which 712 require future service as a condition of delivery for the related shares of common stock). These awards are subject to additional conditions as outlined in the award agreements. Generally, shares underlying these RSUs, net of required withholding tax, deliver over a three-year period, but are subject to a one-year post-vesting and delivery transfer restriction. These awards are not included in the table above.

{12}------------------------------------------------

#### FOLIO INVESTMENTS, INC. D/B/A GOLDMAN SACHS CUSTODY SOLUTIONS Notes to Statement of Financial Condition

### Note 16.

# Net Capital Requirements

The Company is a registered U.S. broker-dealer and is subject to regulatory capital requirements, including those imposed by the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority, Inc. Rule 15c3-1 of the SEC specifies uniform minimum net capital requirements, as defined, for its registrants, and also effectively requires that a significant part of the registrants' assets be kept in relatively liquid form. The Company has elected the alternative method of compliance under Rule 15c3-1, whereby "required net capital," as defined, is the greater of 2% of "aggregate debit items," as defined, arising from customer transactions or \$0.3 million.

As of December 2022, the Company had regulatory net capital, as defined by Rule 15c3-1, of \$87.7 million, which exceeded the amount required by \$87.4 million.

# Note 17. Subsequent Events

The Company has evaluated events through February 27, 2023, the date on which the statement of financial condition was issued, and determined that there were no material events or transactions that would require recognition or additional disclosure in this statement of financial condition.


Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.