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Note 3 - Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2020
Notes to Financial Statements |
Significant Accounting Policies [Text Block] | 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ﻿ A. Principles of Consolidation ﻿ The consolidated financial statements reflect the accounts of Cohen & Company Inc. and its subsidiaries that are required to be consolidated under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation (“ASC 810” ). All intercompany accounts and transactions have been eliminated in consolidation. ﻿ The Company consolidates the Operating LLC, which is its main operating subsidiary and through which it carries out nearly all of its activities. With the exception of the junior subordinated notes included as a component of debt and the deferred tax liability, nearly all of the assets and liabilities included in the Company's consolidated balance sheet are owned by the Operating LLC or its consolidated subsidiaries. In addition, with the exception of interest expense related to the junior subordinated notes and corporate tax expense, nearly all revenues, expenses, gains, and losses recognized in the consolidated statement of operations are generated by the Operating LLC or its consolidated subsidiaries. ﻿ As of December 31, 2018, the Company owned 67.60% of the economic and voting interests in the Operating LLC. As a result of the issuance of additional equity interests in the Operating LLC during 2019 and the grant of a proxy from the owners of the additional equity interests, effective December 31, 2020 and 2019 , the Company controlled 51.00% of the voting interest and owned 27.04% and 28.75%, respectively, of the economic interest of the Operating LLC. Although the Company's economic interests declined below 50%, it continues to consolidate the Operating LLC as it controls over 50% of the voting interests. Earnings and loss are allocated to the Company and other members of the Operating LLC based on their economic interest rather than their voting interest. For the years ended December 31, 2020, 2019 and 2018, 72.96%, 71.25% and 32.4%, respectively, of the Operating LLC's income or loss, were treated as a non-controlling interest as the result of the issuance of the additional equity interest in the Operating LLC during 2019. See notes 4, 21, and 31. ﻿ B. Use of Estimates ﻿ The preparation of financial statements in conformity with U.S. GAAP requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ﻿ C. Adoption of New Accounting Standards ﻿ In May 2014, the FASB issued ASU 2014 - 09, Revenue from Contracts with Customers (Topic 606 ). Subsequent to that date, the FASB has issued additional ASUs clarifying certain aspects of ASU 2014 - 09 but has not changed the core principal of ASU 2014 - 09. The new guidance requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the new guidance on January 1, 2018 using the retrospective transition method. This ASU excludes from its scope revenue recognition related to items the Company records as a component of net trading and principal transactions within its consolidated statements of operations and therefore this ASU had no impact on these items. In terms of asset management and other revenue, the main impact of Topic 606 related to the timing of the recognition of incentive management fees in certain cases. Prior to the adoption of Topic 606, the Company would recognize incentive fees when they were fixed and determinable. Under Topic 606, the Company is required to recognize incentive fees when they are probable and there is not a significant chance of reversal in the future. For the asset management contracts in place at the time of adoption, this change in policy did not result in any actual change in revenue that had already been recognized and therefore there was no transition adjustment necessary. ﻿ In February 2016, the FASB issued ASU 2016 - 01, Financial Instruments-Overall (Subtopic 825 - 10 ) . The amendments in ASU 2016 - 01, among other things, require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; require separate presentation of financial assets and liabilities by measurement category and form of financial asset; and eliminate the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The Company's adoption of the provisions of ASU 2016 - 01, effective January 1, 2018 did not have an effect on the Company's consolidated financial statements. ﻿ In February 2016, the FASB issued ASU 2016 - 02, Leases (Topic 842 ) . Under the new guidance (subsequently updated with ASU 2018 - 01, ASU 2018 - 10, ASU 2018 - 11, ASU 2018 - 20, and ASU 2019 - 01 ), lessees will be required to recognize the following for all leases with the exception of short-term leases: (i) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Lessor accounting is largely unchanged. The Company adopted the provisions of the new guidance effective January 1, 2019. The Company recorded the following: (a) a right of use asset of $8,416, (b) a lease commitment liability of $8,860, (c) a reduction in retained earnings from cumulative effect of adoption of $20, (d) an increase in other receivables of $18, and (e) a reduction in other liabilities of $406. See note 15 and 17. In August 2016, the FASB issued ASU 2016 - 15, Statement of Cash Flows (Topic 230 ): Classification of Certain Cash Receipts and Cash Payments. The amendments in this ASU provide cash flow statement classification guidance on eight specific cash flow presentation issues with the objective of reducing existing diversity in practice. The Company's adoption of the provisions of ASU 2016 - 15, effective January 1, 2018 did not have an effect on the Company's consolidated financial statements. ﻿ In June 2016, the FASB issued ASU 2016 - 13, Financial Instruments—Credit Losses (Topic 326 ): Measurement of Credit Losses on Financial Instruments. This ASU requires that financial instruments recorded as assets and at amortized cost as well as certain securities accounted for as available for sale be presented at the net amount expected to be collected. The ASU requires the recording of a valuation allowance that is deducted from amortized cost and is based on expected credit losses. This ASU does not apply to financial assets carried at fair value. Therefore, this ASU does not apply to any financial asset that the Company classifies as investments-trading; other investments, at fair value; trading securities sold, not yet purchased; and other investments sold, not yet purchased. However, reverse repurchase agreements are not carried at fair value and fall within the scope of this ASU. ASC 326 - 20 - 35 - 6 contains simplifying provisions that apply to reverse repurchase agreements. Because the Company requires its reverse repurchase counterparty to provide liquid collateral at all times (which is continually adjusted based on current market values) at an amount greater than the carrying value of the reverse repurchase agreement, the Company is allowed to assume zero credit losses and no valuation allowance is recorded. If, for some reason, the amount of collateral should fall below the carrying value of the reverse repurchase agreement, the total valuation allowance recorded is limited to that difference. In October 2016, the FASB issued ASU 2016 - 16, Income Taxes (Topic 740 ): Intra-Entity Transfers of Assets Other than Inventory . The amendments require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments eliminate the exception of an intra-entity transfer of an asset other than inventory. The Company's adoption of the provisions of ASU 2016 - 16 effective January 1, 2018 did not have an effect on the Company's consolidated financial statements. ﻿ In January 2017, the FASB issued ASU 2017 - 01, Business Combinations (Topic 805 ): Clarifying the Definition of a Business . The amendments in this ASU clarify the definition of a business and affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The Company's adoption of the provisions of ASU 2017 - 01 effective January 1, 2018 did not have an effect on the Company's consolidated financial statements. ﻿ In January 2017, the FASB issued ASU 2017 - 04, Intangibles – Goodwill and Other (Topic 350 ): Simplifying the Test for Goodwill Impairment . The amendments in this ASU eliminate Step 2 from the goodwill impairment test. The annual or interim goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The Company adopted the provisions of ASU 2017 - 04, effective January 1, 2020. The Company recorded an impairment of goodwill for the twelve months ended December 31, 2020. See note 13. This impairment charge was not the result of the adoption of ASU 2017 - 04. In February 2017, the FASB issued ASU 2017 - 05 , Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610 - 20 ): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets . The amendments in this ASU clarify that a financial asset within the scope of this topic may include nonfinancial assets transferred within a legal entity to counterparty. The amendments clarify that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to counterparty and derecognize each asset when counterparty obtains control of it. The Company's adoption of the provisions of ASU 2017 - 05 effective January 1, 2018 did not have an effect on the Company's consolidated financial statements. ﻿ In March 2017, the FASB issued ASU 2017 - 08, Receivables – Nonrefundable Fees and Other Costs, Premium Amortization on Purchased Callable Debt Securities (Sub-Topic 310 - 20 ). The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The Company's adoption of the provisions of ASU 2017 - 08, effective January 1, 2019 did not have an effect on the Company's consolidated financial statements. ﻿ In May 2017, the FASB issued ASU 2017 - 09 , Compensation - Stock Compensation (Topic 718 ): Scope of Modification Accounting. The amendments in this ASU provide guidance on determining those changes to the terms and conditions of share-based payment awards that require an entity to apply modification accounting. The Company's adoption of the provisions of ASU 2017 - 09 effective January 1, 2018 did not have an effect on the Company's consolidated financial statements. ﻿ In August 2017, the FASB issued ASU 2017 - 12, Derivative and Hedging – Targeted Improvements to Accounting for Hedging Activities (Topic 815 ). The amendments in this ASU refine and expand hedge accounting for both financial and commodity risks and contain provisions to create more transparency and clarify how economic results are presented. The Company's adoption of the provisions of ASU 2017 - 12, effective January 1, 2019 did not have an effect on the Company's consolidated financial statements. ﻿ In February 2018, the FASB issued ASU 2018 - 02, Income Statement – Reporting Comprehensive Income (Topic 220 ): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income . The amendments in this ASU provide the option to reclassify stranded tax effects within accumulated other comprehensive income (“AOCI”) to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (the “TCJA”) (or portion thereof) is recorded. The Company's adoption of the provisions of ASU 2018 - 02, effective January 1, 2019 did not have an effect on the Company's consolidated financial statements. ﻿ In June 2018, the FASB issued ASU 2018 - 07, Compensation – Stock Compensation (Topic 718 ): Improvements to Nonemployee Share-Based Payment Accounting . The amendments in this ASU expand the scope of Topic 718, which previously only included share-based payments to employees, to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The Company's adoption of the provisions of ASU 2018 - 07, effective January 1, 2019 did not have an effect on the Company's consolidated financial statements. In August 2018, the FASB issued ASU 2018 - 13, Fair Value Measurement (Topic 820 ): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The ASU modifies the disclosure requirements in Topic 820, by removing certain disclosure requirements related to the valuation hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop level 3 fair value measurements. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. The Company's adoption of the provisions of ASU 2018 - 13, effective January 1, 2020 did not have an effect on the Company's consolidated financial statements. In October 2018, the FASB issued ASU 2018 - 17, Consolidation (Topic 810 ): Target Improvements to Related Party Guidance for Variable Interest Entities . The ASU made targeted changes to the related party consolidation guidance. The new guidance changes how entities evaluate decision-making fees under the variable interest entity guidance. To determine whether decision-making fees represent a variable interest, an entity will need to consider indirect interests held through related parties under common control on a proportionate basis under the new guidance, rather than in their entirety, as has been the case under current guidance. The guidance is effective in annual periods beginning after December 15, 2019 and interim periods within those fiscal years. The Company's adoption of the provisions of ASU 2018 - 17, effective January 1, 2020 did not have an effect on the Company's consolidated financial statements. ﻿ In November 2018, the FASB issued ASU 2018 - 18, Collaborative Arrangements (Topic 808 ): Clarifying the Interaction Between Topic 808 and Topic 606 . The ASU provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. It accomplishes this by allowing organizations to only present units of account in collaborative arrangements that are within the scope of the revenue recognition standard together with revenue accounted for under the revenue recognition standard. The Company's adoption of the provisions of ASU 2020 - 04, effective March 12, 2020 did not have an effect on the Company's consolidated financial statements. The parts of the collaborative arrangement that are not in the scope of the revenue recognition standard should be presented separately from revenue accounted for under the revenue standard. The Company's adoption of the provisions of ASU 2018 - 18, effective January 1, 2020 did not have an effect on the Company's consolidated financial statements. In November 2019, the FASB issued ASU 2019 - 08, Compensation – Stock Compensation (Topic ( 718 ) and Revenue from Contracts with Customers (Topic 606 ): Codification Improvements– Share-Based Consideration Payable to a Customer. This ASU requires companies to measure and classify (on the balance sheet) share-based payments to customers by applying the guidance in Topic 718, Compensation—Stock Compensation . As a result, the amount recorded as a reduction in revenue would be measured based on the grant-date fair value of the share-based payment. The Company's adoption of the provisions of ASU 2019 - 08, effective January 1, 2020 did not have an effect on the Company's consolidated financial statements. ﻿ In March 2020, the FASB issued ASU 2020 - 04 , Reference Rate Reform (Topic 848 ): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional guidance to ease the burden in accounting for reference rate reform by providing optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is intended to help stakeholders during the global market-wide reference rate transition period and will be in effect for a limited time through December 31, 2022. In January 2021, the FASB issued ASU 2021 - 01 which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting be applied to derivatives that are affected by the discounting transition. Also, ASU 2021 - 01 amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. The Company's adoption of the provisions of ASU 2020 - 04 and ASU 2021 - 01, effective March 12, 2020 did not have an effect on the Company's consolidated financial statements. D. Cash and Cash Equivalents ﻿ Cash and cash equivalents consist of cash and short-term, highly liquid investments that have original maturities of three months or less. A portion of the Company's cash and cash equivalents are in the form of short-term investments and are not held in federally insured bank accounts. ﻿ E. Financial Instruments ﻿ The Company accounts for its investment securities at fair value under various accounting literature including FASB ASC 320, Investments — Debt and Equity Securities (“ASC 320” ) , pertaining to investments in debt and equity securities and the fair value option of financial instruments in FASB ASC 825, Financial Instruments (“ASC 825” ). The Company also accounts for certain assets at fair value under applicable industry guidance such as: (a) FASB ASC 946 , Financial Services-Investment Companies (“ASC 946” ); and (b) FASB ASC 940 - 320, Proprietary Trading Securities (“ASC 940 - 320 ) . ﻿ Certain of the Company's assets and liabilities are required to be measured at fair value. For those assets and liabilities, the Company determines fair value according to the fair value measurement provisions included in ASC 820, Fair Value Measurements and Disclosures (“ASC 820” ). ASC 820 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value, establishes a valuation hierarchy based on the quality of inputs used to measure fair value, and requires additional disclosures about fair value measurements. The definition of fair value focuses on the price that would be received to sell the asset or paid to transfer the liability between market participants at the measurement date (an exit price). An exit price valuation will include margins for risk even if they are not observable. ASC 820 establishes a valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels (level 1, 2, and 3 ). ﻿ In addition, the Company has elected to account for certain of its other financial assets at fair value under the fair value option provisions included in ASC 825. This standard provides companies the option of reporting certain instruments at fair value (with changes in fair value recognized in the statement of operations) that were previously either carried at cost, not recognized on the financial statements, accounted for as an equity method investment, or carried at fair value with changes in fair value recognized as a component of equity rather than in the statement of operations. The election is made on an instrument-by-instrument basis and is irrevocable. See note 9 for the information regarding the effects of applying the fair value option to the Company's financial instruments on the Company's consolidated financial statements. ﻿ For financial instruments held by JVB, the Company accounts for them under ASC 940 - 320. ASC 940 - 320 requires all financial instruments be carried at fair value with unrealized and realized gains included recorded in the consolidated statement of operations. The main difference between ASC 940 - 320 and ASC 320 is that ASC 940 - 320 does not allow for available for sale or held to maturity treatment. ﻿ For financial instruments held outside of JVB, the Company accounts for them under FAS ASC 320. ASC 320 requires that the Company classify its investments as either (i) held to maturity, (ii) available for sale, or (iii) trading. This determination is made at the time a security is purchased. ASC 320 requires that both trading and available for sale securities are to be carried at fair value. However, in the case of trading assets, both unrealized and realized gains and losses are recorded in the statement of operations. For available for sale securities, only realized gains and losses are recognized in the statement of operations while unrealized gains and losses are recognized as a component of other comprehensive income (“OCI”). However, if the reporting entity elects to account for an otherwise available for sale security under the fair value option (ASC 825 ), then the security is accounted for at fair value with both unrealized and realized gains recorded in the statement of operations. ﻿ ﻿ In all the periods presented, all securities accounted for under ASC 320 were either classified as trading or available for sale. No securities were classified as held to maturity. Furthermore, the Company elected the fair value option, in accordance with ASC 825, for all securities that were classified as available for sale. Therefore, for all periods presented, all securities owned by the Company were accounted for at fair value with unrealized and realized gains and losses recorded in the consolidated statement of operations. ﻿ When the Company acquires an investment for the purpose of earning a return rather than to support the Company's trading or matched book repo operations, the Company classifies that investment as either other investments, at fair value or other investments sold, not yet purchased in the consolidated balance sheet and unrealized and realized gains will be included as a component of principal transactions and other income in the in the consolidated statement of operations. Otherwise, the investment is classified as investments-trading or securities sold, not yet purchased in the consolidated balance sheet and unrealized and realized gains will be included as a component of net trading revenue in the in the consolidated statement of operations. ﻿ When the Company acquires an investment that is required to be accounted for under the equity method, the Company will elect the fair value option when the fair value of the investment is either readily determinable or is eligible to be accounted for at NAV under the practical expedient of ASC 946. In those cases, the investment will be included as a component of other investments, at fair value in the consolidated balance sheet and unrealized and realized gains will be included as a component of principal transactions and other income in the in the consolidated statement of operations. If the fair value is not readily determinable, the Company will account for the investment under the equity method. In those cases, the investment will be included as a component of investments in equity method affiliates in the consolidated balance sheet and the Company will recognize its allocable share of the investee's income or loss as a component of income / (loss) from equity method affiliates in the consolidated statement of operations. See note 12. ﻿ The determination of fair value is based on either quoted market prices of an active exchange, independent broker market quotations, market price quotations from third -party pricing services, or, when independent broker quotations or market price quotations from third -party pricing services are unavailable, valuation models prepared by the Company's management. These models include estimates and the valuations derived from them could differ materially from amounts realizable in an open market exchange. ﻿ Also, from time to time, the Company may be deemed to be the primary beneficiary of a VIE and may be required to consolidate it and its investments under the provisions included in ASC 810 . See note 18. In those cases, the Company's classification of the assets as trading, other investments, at fair value, available for sale, or held to maturity will depend on the intended use of the investment by the variable interest entity. ﻿ Investments-Trading ﻿ Unrealized and realized gains and losses on securities classified as investments-trading are recorded in net trading in the consolidated statements of operations. ﻿ Trading Securities Sold, Not Yet Purchased ﻿ Trading securities sold, not yet purchased represent obligations of the Company to deliver the specified security at the contracted price, thereby creating a liability to purchase the security in the market at prevailing prices. The Company is obligated to acquire the securities sold short at prevailing market prices, which may exceed the amount reflected on the consolidated balance sheets. Unrealized and realized gains and losses on trading securities sold, not yet purchased are recorded in net trading in the consolidated statements of operations. Other Investments, at Fair Value ﻿ All gains and losses (unrealized and realized) from securities classified as other investments, at fair value in the consolidated balance sheets are recorded as a component of principal transactions and other income in the consolidated statements of operations. ﻿ Other investments sold, not yet purchased Other investments sold, not yet purchased represent obligations of the Company to deliver the specified security at the contracted price, thereby creating a liability to purchase the security in the market at prevailing prices. These investments differ from investments classified as trading securities sold, not yet purchased as they are either acquired for purposes of earning a return rather than to support the Company's trading or matched book operations or they acquired as an economic hedge to investments classified as other investments, at fair value. The Company is obligated to acquire the securities sold short at prevailing market prices, which may exceed the amount reflected on the statement of financial condition. Unrealized and realized gains and losses on trading securities sold, not yet purchased are recorded in net trading in the statement of operations. F. Derivative Financial Instruments ﻿ FASB ASC 815, Derivatives and Hedging (“ASC 815” ), provides for optional hedge accounting. When a derivative is deemed to be a hedge and certain documentation and effectiveness testing requirements are met, reporting entities can record all or a portion of the change in the fair value of a designated hedge as an adjustment to OCI rather than as a gain or loss in the statements of operations. To date, the Company has not designated any derivatives as hedges under the provisions included in ASC 815. ﻿ All of the derivatives that the Company enters into contain master netting arrangements. If certain requirements are met, the offsetting provisions included in FASB ASC 210, Balance Sheet (“ASC 210” ), allow (but do not require) the reporting entity to net the derivative asset and liability on the consolidated balance sheets. It is the Company's policy to present the derivative assets and liabilities on a net basis if the conditions of ASC 210 are met. However, in general the Company does not enter in to offsetting derivatives with the same counterparties. Therefore, in all periods presented, no derivatives are presented on a net basis. ﻿ Derivative financial instruments are recorded at fair value. If the derivative was entered into as part of the Company's broker-dealer operations, it will be included as a component of investments-trading or trading securities sold, not yet purchased. If it is entered into as a hedge for another financial instrument included in other investments, at fair value then the derivative or as a speculative principal investment, it will be included as a component of other investments, at fair value or other investments sold, not yet purchased. ﻿ The Company may, from time to time, enter into derivatives to manage its risk exposures arising from (i) fluctuations in foreign currency rates with respect to the Company's investments in foreign currency denominated investments; (ii) the Company's investments in interest sensitive investments; (iii) the Company's investments in equities; and (iv) the Company's facilitation of mortgage-backed trading. Derivatives entered into by the Company, from time to time, may include (a) foreign currency forward contracts; (b) purchase and sale agreements of TBAs and other forward agency MBS contracts; and (c) other extended settlement trades. ﻿ TBAs are forward contracts to purchase or sell MBS whose collateral remain “to be announced” until just prior to the trade settlement. In addition to TBAs, the Company sometimes enters into forward purchases or sales of agency MBS where the underlying collateral has been identified. These transactions are referred to as other forward agency MBS contracts. TBAs and other forward agency MBS contracts are accounted for as derivatives by the Company under ASC 815. The settlement of these transactions is not expected to have a material effect on the Company's consolidated financial statements. ﻿ In addition to TBAs and other forward agency MBS contracts as part of the Company's broker-dealer operations, the Company may from time to time enter into other securities or loan trades that do not settle within the normal securities settlement period. In those cases, the purchase or sale of the security or loan is not recorded until the settlement date. However, from the trade date until the settlement date, the Company's interest in the security is accounted for as a derivative as either a forward purchase commitment or forward sale commitment. The Company will classify the related derivative either within investments-trading or other investments, at fair value depending on where it intends to classify the investment once the trade settles. ﻿ Derivatives involve varying degrees of off-balance sheet risk, whereby changes in the level or volatility of interest rates or market values of the underlying financial instruments may result in changes in the value of a particular financial instrument in excess of its carrying amount. Depending on the Company's investment strategy, realized and unrealized gains and losses are recognized in principal transactions and other income or in net trading in the Company's consolidated statements of operations on a trade date basis. See note 10. ﻿ G. Receivables from and payables to brokers, dealers, and clearing agencies ﻿ Receivables from brokers, dealers, and clearing agencies may include amounts receivable for deposits placed with clearing agencies, funds in the Company's accounts held with clearing agencies, and amounts receivable from securities or repo transactions that have failed to deliver. Payables to brokers, dealers, and clearing agencies may include amounts payable from securities or repo transactions that have failed to receive as well as amounts borrowed from clearing agencies under margin loan arrangements. In addition, receivables or payables arising from unsettled regular way trades is reflected on a net basis either as a component of receivables from or payables to brokers, dealers, and clearing agencies. These receivables are subject to the requirements of ASU 2016 - 13 which potentially may require the recording of credit losses. The Company's trades and contracts are cleared through a clearing organization and settled daily between the clearing organization and the Company. Because of this daily settlement, the amount of unsettled credit exposures is limited to the amount owed the Company for a very short period of time. The Company continually reviews the credit quality of its counterparties and has not experienced a default. As a result, the Company has not recorded a credit loss allowance on these receivables. See note 6. ﻿ H. Furniture, Equipment, and Leasehold Improvements, Net ﻿ Furniture, equipment, and leasehold improvements are stated at cost, less accumulated depreciation and amortization, and are included as a component of other assets in the consolidated balance sheets. Furniture and equipment are depreciated on a straight-line basis over their estimated useful life of 3 to 5 years. Leasehold improvements are amortized over the lesser of their useful life or lease term, which generally ranges from 5 to 10 years. See note 16. ﻿ I. Goodwill and Intangible Assets with Indefinite Lives ﻿ Goodwill represents the amount of the purchase price in excess of the fair value assigned to the individual assets acquired and liabilities assumed in various acquisitions completed by the Company. See note 13. In accordance with FASB ASC 350, Intangibles — Goodwill and Other (“ASC 350” ), goodwill and intangible assets deemed to have indefinite lives are not amortized to expense but rather are analyzed for impairment. ﻿ The Company measures its goodwill for impairment on an annual basis or when events indicate that goodwill may be impaired. The impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, any loss recognized would not exceed the total amount of goodwill, allocated to the reporting unit. Any impairment loss is included in the consolidated statements of operations as impairment of goodwill and is included as a component of operating expense. ﻿ The Company includes intangible assets comprised primarily of its broker-dealer licenses in other assets on its consolidated balance sheets that it considers to have indefinite useful lives. The Company reviews these assets for impairment on an annual basis. ﻿ J. Variable Interest Entities ﻿ ASC 810 contains the guidance surrounding the definition of a VIE, the definition of variable interests, and the consolidation rules surrounding VIEs. In general, VIEs are entities in which equity investors lack the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. The Company has variable interests in VIEs through its management contracts and investments in various securitization entities including CLOs and CDOs. ﻿ Once it is determined that the Company holds a variable interest in a VIE, ASC 810 requires that the Company perform a qualitative analysis to determine (i) which entity has the power to direct the matters that most significantly impact the VIE's financial performance and (ii) if the Company has the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive the benefits of the VIE that could potentially be significant to the VIE. The entity that has both of these characteristics is deemed to be the primary beneficiary and required to consolidate the VIE. This assessment must be done on an ongoing basis. The Company has included the required disclosures for VIEs in its consolidated financial statements. See note 18 for further details. ﻿ K. Collateralized Securities Transactions ﻿ The Company may enter into transactions involving purchases of securities under agreements to resell (“reverse repurchase agreements” or “receivables under resale agreements”) or sales of securities under agreements to repurchase (“repurchase agreements”). The resulting interest income and expense are included in net trading in the consolidated statements of operations. ﻿ In the case of reverse repurchase agreements, the Company generally takes possession of securities as collateral. Likewise, in the case of repurchase agreements, the Company is required to provide the counterparty with securities as collateral. ﻿ In certain cases, a repurchase agreement and a reverse repurchase agreement may be entered into with the same counterparty. If certain requirements are met, the offsetting provisions included in ASC 210 allow (but do not require) the reporting entity to net the asset and liability on the consolidated balance sheets. ﻿ Effective June 1, 2019, the Company changed its accounting policy regarding the netting of reverse repo and repo transactions. ASC 210 provides the option to present reverse repo and repo on a net basis if certain netting conditions are met. Prior to this date, the Company utilized this option and presented repo and reverse repo on a net basis when these conditions were met. As of June 1, 2019, all repo and reverse repo transactions are presented on a gross basis even if the underlying netting conditions are met. See note 2. ﻿ The Company classifies reverse repurchase agreements as a separate line item within the assets section of the Company's consolidated balance sheets. The Company classifies repurchase agreements as a separate line item within the liabilities section of the Company's consolidated balance sheets. ﻿ In the case of reverse repurchase agreements, if the counterparty is unable or unwilling to fulfill its obligation to repurchase the collateral securities at maturity, the Company can sell the collateral securities to repay the obligation. However, the Company is at risk that it may sell at unfavorable market prices and may sustain significant losses. The Company's policy to control this risk is monitoring the market value of securities pledged or used as collateral on a daily basis and requiring additional collateral in the event the market value of the existing collateral declines. ﻿ In the case of repurchase agreements, if the counterparty makes a margin call and the Company is unable or unwilling to meet the margin call, the counterparty can sell the securities to repay the obligation. The Company is at risk that the counterparty may sell the securities at unfavorable market prices and the Company may sustain significant losses. The Company controls this risk by monitoring its liquidity position to ensure it has sufficient cash or liquid securities to meet margin calls. ﻿ In general, reverse repurchase agreements and repurchase agreements allow each counterparty to re-pledge or resell the collateral securities to other counterparties. See note 11. ﻿ L. Debt ﻿ Debt is recorded at its face amount, less any discount or plus any premium. Debt issuance costs are included as a component of discount on debt. Any discount on debt is amortized as a component of interest expense using the effective interest method. The Company has not elected to account for any of its debt at fair value under ASC 825. See note 20. ﻿ M. Redeemable Financial Instruments ﻿ Redeemable financial instruments are investments made in the Operating LLC or other operating subsidiaries. These investments entitle the holder to an investment return which is variable and is based on the operating results of certain business units of the Company. These investments can be redeemed by the Company under certain circumstances or the holder may require redemption under certain circumstances. However, there are no fixed maturity dates. The Company treats these investments as liabilities and carries these investments at the redemption value plus any accrued and unpaid investment return on its consolidated balance sheets. The redemption value is included in redeemable financial instruments and the accrued and unpaid investment return is included in accounts payable and other liabilities in the consolidated balance sheets. Investment return is recorded on an accrual basis and is included as a component of interest expense in the consolidated statements of operations. See note 19 and 31. ﻿ N. Revenue Recognition ﻿ Net trading ﻿ Net trading includes: (i) all gains, losses, interest income, dividend income, and interest expense from securities classified as investments-trading and trading securities sold, not yet purchased; (ii) interest income and expense from collateralized securities transactions; and (iii) commissions and riskless trading profits. Net trading is reduced by margin interest, which is recorded on an accrual basis. Riskless trades are transacted through the Company's proprietary account with a customer order in hand, resulting in little or no market risk to the Company. Transactions that settle in the regular way are recognized on a trade date basis. Extended settlement transactions are recognized on a settlement date basis (although in cases of extended settlement trades, the unsettled trade is accounted for as a derivative between trade and settlement date). See note 10. The investments classified as trading are carried at fair value. The determination of fair value is based on quoted market prices of an active exchange, independent broker market quotations, market price quotations from third -party pricing services or, when independent broker quotations or market price quotations from third -party pricing services are unavailable, valuation models prepared by the Company's management. The models include estimates, and the valuations derived from them could differ materially from amounts realizable in an open market exchange. See note 9. ﻿ Asset management ﻿ Asset management revenue consists of management fees earned from Investment Vehicles. In the case of CDOs, the fees earned by the Company generally consist of senior, subordinated, and incentive fees. The senior asset management fee is generally senior to all the securities in the CDO capital structure and is recognized on a monthly basis as services are performed. The senior asset management fee is generally paid on a quarterly basis. The subordinated asset management fee is an additional payment for the same services but has a lower priority in the CDO cash flows. If the CDO experiences a certain level of asset defaults and deferrals, these fees may not be paid. There is no recovery by the CDO of previously paid subordinated asset management fees. It is the Company's policy to recognize these fees on a monthly basis as services are performed. The subordinated asset management fee is generally paid on a quarterly basis. However, if the Company determines that the subordinated asset management fee will not be paid (which generally occurs on the quarterly payment date), the Company will stop recognizing additional subordinated asset management fees on that particular CDO and will reverse any subordinated asset management fees that are accrued and unpaid. The Company will begin accruing the subordinated asset management fee again if payment resumes and, in management's estimate, continued payment is reasonably assured. If payment were to resume but the Company was unsure of continued payment, it would recognize the subordinated asset management fee as payments were received and would not accrue such fees on a monthly basis. The incentive management fee is an additional payment, made typically after five to seven years of the life of a CDO, which is based on the clearance of an accumulated cash return on investment (“Hurdle Return”) received by the most junior CDO securities holders. It is an incentive for the Company to perform in its role as asset manager by minimizing defaults and maximizing recoveries. The incentive management fee is not ultimately determined or payable until the achievement of the Hurdle Return by the most junior CDO securities holders. The Company recognizes incentive fee revenue when it is probable and there is not a significant chance of reversal in the future. ﻿ In the case of Investment Vehicles other than CDOs, generally the Company earns a base fee and, in some cases, also earns an incentive fee. Base fees will generally be recognized on a monthly basis as services are performed and will be paid monthly or quarterly. The contractual terms of each arrangement will determine the Company's revenue recognition policy for incentive fees in each case. However, in all cases the Company recognizes the incentive fees when they are probable and there is not a significant chance of reversal in the future. ﻿ New issue and advisory ﻿ New issue and advisory revenue includes: (i) new issue revenue associated with originating, arranging, or placing newly created financial instruments and (ii) revenue from advisory services. New issue and advisory revenue is recognized when all services have been provided and payment is earned. Principal transactions and other income ﻿ Principal transactions include all gains, losses, and income from financial instruments classified as other investments, at fair value and other investments sold, not yet purchased in the consolidated balance sheets. ﻿ Investments classified as other investments, at fair value and other investments sold, not yet purchased are carried at fair value. The determination of fair value is based on quoted market prices of an active exchange, independent broker market quotations, market price quotations or models from third -party pricing services, or, when independent broker quotations or market price quotations or models from third -party pricing services are unavailable, valuation models prepared by the Company's management. These models include estimates, and the valuations derived from them could differ materially from amounts realizable in an open market exchange. Dividend income is recognized on the ex-dividend date. Other income /(loss) includes foreign currency gains and losses, interest earned on cash and cash equivalents, interest earned and losses incurred on notes receivable, and other miscellaneous income including revenue from revenue sharing arrangements. ﻿ O. Interest Expense, net ﻿ Interest expense incurred, other than interest income and expense included as a component of net trading is recorded on an accrual basis and presented in the consolidated statements of operations as a separate non-operating expense. See notes 19 and 20. ﻿ P. Leases ﻿ The Company leases office space, certain computer and related equipment and a vehicle under a noncancelable operating lease. From time to time, the Company sub-leases office space to other tenants. Under the requirements of ASC 842, the company determines if an arrangement is a lease at the inception date of the contract. The Company measures operating lease liabilities using an estimated incremental borrowing rate as there is no rate implicit in the Company's operating lease arrangements. An incremental borrowing rate was calculated for each operating lease based on the term of the lease, the U.S. Treasury term interest rate, and an estimated spread to borrow on a secured basis. ﻿ The Company adopted the provisions of the new guidance effective January 1, 2019. The Company recorded the following: (a) a right of use asset of $8,416, (b) a lease commitment liability of $8,860, (c) a reduction in retained earnings from cumulative effect of adoption of $20, (d) an increase in other receivables of $18, and (e) a reduction in other liabilities of $406. Subsequent to the adoption of ASU 842, all leases to which the Company was a party remained classified as operating leases and rent expense was recognized on a straight-line basis and included as a component of business development, occupancy, and equipment in the consolidated statements of operations. ﻿ ﻿ Prior to the adoption of ASC 842, the Company classified all the leases to which it was a party as operating leases. The Company recognized rent expense on a straight-line basis as a component of business development, occupancy, and equipment in the consolidated statements of operations. Any difference between cash payments and straight-line rent expense was included as a component of other liabilities in the consolidated balance sheets. ﻿ Q. Non-Controlling Interest ﻿ The equity interests of any consolidated subsidiary that are not owned by the Company are treated as non-controlling interests. See note 21. ﻿ ﻿ R. Equity-Based Compensation ﻿ The Company accounts for equity-based compensation issued to its employees using the fair value-based methodology prescribed by the provisions related to share-based payments included in FASB ASC 718, Compensation-Stock Compensation (“ASC 718” ). In the periods presented herein, the Company has had three different types of grants that fall under ASC 718. First, the Company sometimes grant to employees and directors restricted common stock in Cohen & Company Inc. These grants vest over a period of time and only have service based vesting criteria. In these cases, the Company determines the fair value of the grants by taking the closing stock price of Cohen & Company, Inc. on the grant date and multiplying it by the number of restricted shares granted. The recipient is entitled to dividends during the vesting period but they are paid only if (and to the extent) the restricted share grant ultimately vests. The Company recognizes the expense over the service period on a straight line basis. The Company assumes no forfeitures up front and records forfeitures as they occur by reducing expense. Second, the Company sometimes grants to employees operating units of the Operating LLC. These grants also vest over a period of time and only have service based vesting criteria. Because there is a fixed exchange ratio between units of the Operating LLC and shares of Cohen & Company Inc., the fair value of the grant is calculated by taking the closing stock price of Cohen & Company, Inc. on the grant date, adjusting for the exchange ratio, and then multiplying by the number of units of the Operating LLC granted. The recipient is entitled to distributions during the vesting period but they are paid only if (and to the extent) the unit grant ultimately vests. The Company recognizes the expense over the service period on a straight line basis. The Company assumes no forfeitures up front and record forfeitures as they occur by reducing expense. Third, employees sometimes invest in the membership interests of consolidated SPAC sponsor entities. Because these entities are consolidated and the employees are investing in the consolidated company's non-controlling interest, these equity interests fall under ASC 718. Generally, the employee invests a de-minimus amount and receives an allocation of the founders shares held by the sponsor entity. The investment generally does not have any explicit vesting criteria associated with it. Generally, the employee's investment will be worthless if the SPAC in which the sponsor entity has invested is liquidated and it will become worth something if the SPAC completes its business combination. Therefore, the Company treats these grants as having a performance condition (i.e. the completion of the SPAC business combination). Further, at the time of the investments, the Company treats this performance condition as being non-probable. The effect of this is that the Company records no expense related to these investments until (and only if) the business combination is completed. Upon completion of the business combination, the Company records compensation expense in an amount equal to the fair value of the grant. The fair value of the grant is equal to the public trading price of the SPAC on the date of the grant adjusted for certain sale restrictions imposed on the shares the employee receives (generally, the shares are restricted for sale for some time period and subject to certain hurdle prices before they become freely tradeable). The Company uses a Monte Carlo simulation model to determine the appropriate discount to place on shares that are subject to hurdle prices. The compensation amount is recorded with an offsetting credit to non-controlling interest. From that point forward, the shares received by the employee are treated as part of the non-controlling interest and allocated income, expense, gains, and losses accordingly until the applicable sponsor entity is liquidated or otherwise de-consolidated. S. Accounting for Income Taxes ﻿ Cohen & Company Inc. is treated as a C corporation for United States federal and state income tax purposes. ﻿ The Company's voting-controlled subsidiary, the Operating LLC, is treated as a pass-through entity for U.S. federal income tax purposes and in most of the states in which it does business. However, in the periods presented, the Operating LLC or its subsidiaries have been subject to entity level income taxes in the United Kingdom, Spain, France, New York City, and Philadelphia. ﻿ The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the U.S. GAAP and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. ﻿ The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such a determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial operations. As shown in note 23 to the consolidated financial statements contained herein, the Company currently has significant recognized as well as unrecognized deferred tax assets. Deferred tax assets should only be recognized to the extent that we determine we can benefit in the future from the asset. Generally, this determination is based on the Company's estimates of our ability to generate future taxable income. This determination is complex and subject to judgment. The determination is ongoing and subject to change. If the Company were to change this determination in the future, a significant deferred tax benefit or deferred tax expense would be recognized as a component of earnings. ﻿ The Company's policy is to record penalties and interest as a component of income tax expense (benefit) in the consolidated statements of operations. ﻿ T. Other Comprehensive Income / (Loss) ﻿ The Company reports the components of comprehensive income / (loss) within the consolidated statements of operations and comprehensive income / (loss). Comprehensive income / (loss) includes net income / (loss) from foreign translation adjustment. ﻿ U. Earnings / (Loss) Per Common Share ﻿ In accordance with FASB ASC 260, Earnings Per Share (“ASC 260” ), the Company presents both basic and diluted earnings / (loss) per common share in its consolidated financial statements and footnotes. Basic earnings / (loss) per common share (“Basic EPS”) excludes dilution and is computed by dividing net income or loss allocable to common stockholders or members by the weighted average number of common shares and restricted stock entitled to non-forfeitable dividends outstanding for the period. Diluted earnings per common share (“Diluted EPS”) reflects the potential dilution of common stock equivalents (such as restricted stock and restricted units entitled to forfeitable dividends, in-the-money stock options, and convertible debt, if they are not anti-dilutive). See note 26 for the computation of earnings/(loss) per common share. ﻿ V. Business Concentration ﻿ A substantial portion of the Company's asset management revenues in a year may be derived from a small number of transactions. For the year ended December 31, 2020 , the Company earned asset management revenue of $3,407 from CDOs and $5,352 from other investment funds. Other than revenue earned in its matched book repo operations, the Company's trading revenue is generated from transactions with a diverse set of institutional customers. The Company does not consider its trading revenue, other than revenue earned in its matched book repo operations, to be concentrated from a customer or counterparty perspective. See note 11 for discussion of concentrations within its matched book repo operations. ﻿ W. Fair Value of Financial Instruments ﻿ The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments. These determinations were based on available market information and appropriate valuation methodologies. Considerable judgment is required to interpret market data to develop the estimates and, therefore, these estimates may not necessarily be indicative of the amount the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Refer to note 9 for a discussion of the valuation hierarchy with respect to investments-trading; other investments, at fair value; and the derivatives held by the Company. ﻿ Cash equivalents : Cash is carried at historical cost, which is assumed to approximate fair value. The estimated fair value measurement of cash and cash equivalents is classified within level 1 of the valuation hierarchy. ﻿ Investments-trading : These amounts are carried at fair value. The fair value is based on either quoted market prices of an active exchange, independent broker market quotations, market price quotations from third -party pricing services, or valuation models when quotations are not available. ﻿ Other investments, at fair value : These amounts are carried at fair value. The fair value is based on quoted market prices of an active exchange, independent broker market quotations, or valuation models when quotations are not available. In the case of investments in alternative investment funds, fair value is generally based on the reported net asset value of the underlying fund. ﻿ Receivables under resale agreements : Receivables under resale agreements are carried at their contracted resale price, have short-term maturities, and are repriced frequently or bear market interest rates and, accordingly, these contracts are at amounts that approximate fair value. The estimated fair value measurements of receivables under resale agreements are based on observations of actual market activity and are generally classified within level 2 of the valuation hierarchy. ﻿ Trading securities sold, not yet purchased : These amounts are carried at fair value. The fair value is based on quoted market prices of an active exchange, independent market quotations, market price quotations from third -party pricing services, or valuation models when quotations are not available. ﻿ Other investments, sold not purchased : These amounts are carried at fair value. The fair value is based on quoted market prices of an active exchange, independent broker market quotations, or valuation models when quotations are not available. Securities sold under agreement to repurchase : The liabilities for securities sold under agreement to repurchase are carried at their contracted repurchase price, have short-term maturities, and are repriced frequently with amounts normally due in one month or less and, accordingly, these contracts are at amounts that approximate fair value. The estimated fair value measurements of securities sold under agreement to repurchase are based on observations of actual market activity and are generally classified within level 2 of the valuation hierarchy. Redeemable financial instruments : The liabilities for redeemable financial instruments are carried at their redemption value which approximates fair value. The estimated fair value measurement of the redeemable financial instruments is classified within level 3 of the valuation hierarchy. Debt : These amounts are carried at outstanding principal less unamortized discount. However, a substantial portion of the debt was assumed in the AFN Merger and recorded at fair value as of that date. As of December 31, 2020 , and 2019 , the fair value of the Company's debt was estimated to be $62,496 and $58,635, respectively. The estimated fair value measurements of the debt are generally based on discounted cash flow models prepared by the Company's management primarily using discount rates for similar instruments issued to companies with similar credit risks to the Company and are generally classified within level 3 of the valuation hierarchy. ﻿ Derivatives : These amounts are carried at fair value. Derivatives may be included as a component of investments-trading; trading securities sold, not yet purchased; and other investments, at fair value. See notes 10 and 11. The fair value is generally based on quoted market prices on an exchange that is deemed to be active for derivative instruments such as foreign currency forward contracts and Eurodollar futures. For derivative instruments, such as TBAs and other extended settlement trades, the fair value is generally based on market price quotations from third -party pricing services. X. Investments in Special Purpose Acquisition Companies ("SPACs") Sponsor Entities The Company invests in the sponsor entities of SPACs. The sponsor entities are limited liability companies (each an "LLC") that pool their members' interests and invest in the private placement of a SPAC. The SPAC will also raise funds in a public offering and seek to complete a business combination within an agreed upon time frame. The SPAC will use the proceeds raised from the private placement to pay transaction and operating expenses during the period it is seeking a business combination. The proceeds of the public offering are placed in an interest bearing trust and can only be used to complete the business combination. Generally, the public investors must approve any business combination prior to its effectiveness. If a business combination is not completed within the agreed upon time frame, the SPAC will liquidate and return the public investors' investment to them. If there are funds remaining after liquidation, the sponsor entities may receive some portion of their investment back, but likely they will suffer a total loss of their investment. If the business combination is completed, the sponsor entities private placement in the SPAC will entitle them to a combination of unrestricted common, restricted common, and (in some cases) warrants of the post-business combination SPAC (which is a publicly traded company). The following summarizes the Company's accounting policies related to its investments in these entities:
• | The sponsor entities are LLCs that give all important decision making rights to their respective managing member. Furthermore, the other members of the LLC cannot replace the managing member. Accordingly, the Company has concluded that the sponsor entities are VIEs and the managing member has the power to direct its most important economic activities. In all cases where the Company is the managing member of a sponsor entity, it has also had a significant economic interest in such sponsor entity and therefore consolidates such sponsor entity.
• | In all cases where the Company has consolidated a sponsor entity, it has determined that the sponsor entity's private placement investment in the SPAC which it sponsors should be treated as an equity method investment during the SPAC's pre-business combination period. Furthermore, because of the difficulty of determining the fair value of such an investment in the SPAC's pre-business combination period, the Company has chosen to not elect fair value option.
• | If a SPAC completes its business combination, the sponsor entity's investment in the SPAC will be converted to a combination of unrestricted and restricted shares in the post-business combination SPAC. At this point (assuming the Company consolidates the sponsor entity), the Company will account for the shares received at fair value. It will reclassify any remaining equity method investment to other investments, at fair value and record principal transactions income for the difference. The Company will record non-controlling interest expense for the SPAC shares that are distributable to the non-controlling interest holders of the sponsor entity. The fair value of the unrestricted shares received is equal to the public trading price of the SPAC on the date of the business combination. The fair value of the restricted shares received is adjusted downwards from the public trading price for certain sale restrictions imposed (generally, they are restricted for sale for some time period and subject to certain hurdle prices before they become freely tradeable). The Company uses a Monte Carlo simulation model to determine the appropriate discount to place on shares that are subject to hurdle prices. In the case of a SPAC business combination where the Company consolidates the sponsor entity, generally there is also an equity-based compensation entry to be recorded at the date of the business combination. See equity-based compensation section above. The Company will continue to mark the sponsor entity's investment in the SPAC to market and record principal transactions income or loss and offsetting non-controlling interest income or expense until the sponsor entity itself distributes all of the SPAC shares it owns to its members and liquidates. At that point, the Company will hold the SPAC shares directly (rather than through a consolidated subsidiary) and will record principal transaction income and loss until the SPAC shares themselves are liquidated.
• | The Company will also invest in sponsor entities that it does not consolidate because it is not the managing member of such sponsor entity or otherwise does not have the power to direct the sponsor entity's most important activities. In these cases, the Company treats its investment in the sponsor entity as an equity method investment. Furthermore, because of the difficulty of determining the fair value of such an investment in the applicable SPAC's pre-business combination period, the Company has chosen to not elect fair value option.
• | If a SPAC completes a business combination and the Company has an equity method investment in the associated sponsor entity, the sponsor entity will record income equal to the difference between the fair value of the restricted and unrestricted shares it receives and the carrying value of its equity method investment in the SPAC. The Company will recognize its share of this gain as income from equity method affiliates. The sponsor entity will continue to mark its investment in the SPAC to market after the business combination and the Company will recognize its share of the change in fair value as income or loss from equity method affiliates. Once the sponsor entity distributes the Company's share of the SPAC shares it owns, the Company will reclassify its investment from investment in equity method affiliate to other investments, at fair value as the Company will hold the SPAC shares directly (rather than through an equity method investee). The Company will then record principal transactions income and loss until the SPAC shares themselves are liquidated.
• | If a SPAC liquidates and the Company has an investment in it (either directly in the case of consolidated sponsor entities or indirectly in the case of equity method sponsor entities), the Company will write off its remaining equity method balance and record loss on equity method investment. In the case of consolidated sponsor entities, the Company will also record an offsetting entry to non-controlling interest.
﻿ Y. Recent Accounting Developments In December 2019, the FASB issued ASU 2019 - 12, Income Taxes (Topic 740 ): Simplifying the Accounting for Income Taxes. This ASU is intended to simplify accounting for income taxes. It removes specific exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020 and interim period with those fiscal years. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements. In January 2020, the FASB issued ASU 2020 - 01, Investments—Equity Securities (Topic 321 ), Investments—Equity Method and Joint Ventures (Topic 323 ), and Derivatives and Hedging (Topic 815 )—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 . This ASU clarifies certain accounting certain topics impacted by Topic 321 Investments-Equity Securities. These topics include measuring equity securities using the measurement alternative, how the measurement alternative should be applied to equity method accounting, and certain forward contracts and purchased options which would be accounted for under the equity method of accounting upon settlement or exercise. This ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements. In August 2020, the FASB issued ASU 2020 - 06, Debt—Debt with Conversion and Other Options (Subtopic 470 - 20 ) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815 - 40 ): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. This ASU simplifies accounting for convertible instruments by removing major separation models currently required. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. This ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements. In October 2020, the FASB issued ASU 2020 - 08, Codification Improvements to Subtopic 310 - 20, Receivables—Nonrefundable Fees and Other Costs. The ASU clarifies that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310 - 20 - 35 - 33 for cash reporting period. This ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements. ﻿ In October 2020, the FASB issued 2020 - 10 Codification Improvements. The ASU affects a wide variety of Topics in the Codification. The ASU, among other things, contains amendments that improve consistency of the Codification by including all disclosure guidance in the appropriate Disclosure Section. Many of the amendments arose because the FASB provided an option to give certain information either on the face of the financial statements or in the notes to financial statements and that option only was included in the Other Presentation Matters Section of the Codification. The option to disclose information in the notes to financial statements should have been codified in the Disclosure Section as well as the Other Presentation Matters Section (or other Section of the Codification in which the option to disclose in the notes to financial statements appears). The amendments are effective for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements. ﻿

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