ITEM 1A. RISK FACTORS
Regulatory Risks
Legislation has and may continue to result
in changes to rules and regulations applicable to our business, which may negatively impact our business and financial results.
New laws, rules, regulations
and guidance, or changes in the interpretation and enforcement of existing federal, state, foreign and SRO laws, rules, regulations and
guidance may directly affect our business and the profitability of Siebert or the operation of specific business lines. In addition, new
and changing laws, rules, regulation and guidance could result in limitations on the lines of business we conduct, modifications to our
business practices, more stringent capital and liquidity requirements or other costs and could limit our ability to return capital to
stockholders.
The Dodd-Frank Act, enacted
in 2010, required many federal agencies to adopt new rules and regulations applicable to the financial services industry and called for
many studies regarding various industry practices. In particular, the Dodd-Frank Act gave the SEC discretion to adopt rules regarding
standards of conduct for broker-dealers providing investment advice to retail customers.
The rules and interpretations
adopted by the SEC in June 2019 include Regulation Best Interest and the Form CRS Relationship Summary, which are intended to enhance
the quality and transparency of retail investors’ relationships with broker-dealers and investment advisers. Regulation Best Interest
enhances the broker-dealer standard of conduct beyond existing suitability obligations, requiring compliance with disclosure, care, conflict
of interest and compliance obligations. The regulation requires that a broker-dealer or natural person who is an associated person of
the broker-dealer shall act in the best interest of the retail customer at the time it makes a recommendation of any securities transaction
or investment strategy involving securities, prioritizing the interests of the customer above any interests of the broker-dealer or its
associated persons. Among other things, this requires the broker-dealer to mitigate conflicts of interest arising from financial incentives
in selling securities products.
The new rules and processes
related thereto have and will most likely continue to involve increased costs, including, but not limited to, compliance costs associated
with new or enhanced technology. In addition to the foregoing laws affecting regulation of our industry, Congress is considering various
proposals to increase taxation relating to investments, which may adversely impact the volume of trading and other transactions from which
we derive our revenue.
It is not possible to determine
the extent of the impact of any new laws, regulations or initiatives that may be imposed, or whether any existing proposals will become
law. Conformance with any new laws or regulations could make compliance more difficult and expensive and affect the manner in which we
conduct business.
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We are subject to extensive government regulation
and to third party litigation risk and regulatory risk which could result in significant liabilities and reputational harm which, in turn,
could materially adversely affect our business, results of operations and financial condition.
Our business is subject to
extensive regulation in the U.S., at both the federal and state level. We are also subject to regulation by SROs and other regulatory
bodies in the U.S., such as the SEC, the NYSE, FINRA, MSRB, the CFTC and the NFA. MSCO is registered as a broker-dealer in 50 states,
the District of Columbia, and Puerto Rico, and RISE is registered as a broker-dealer in 7 states and territories. The regulations to which
MSCO and RISE are subject as broker-dealers cover all aspects of the securities business including training of personnel, sales methods,
trading practices, uses and safe keeping of customers’ funds and securities, capital structure, record keeping, fee arrangements,
disclosure and the conduct of directors, officers and employees.
SNXT is registered as an investment
adviser with the SEC under the Advisers Act, and its business is highly regulated. The Advisers Act imposes numerous obligations on RIAs,
including fiduciary, record keeping, operational and disclosure obligations. Moreover, the Advisers Act grants broad administrative powers
to regulatory agencies such as the SEC to regulate investment advisory businesses. If the SEC or other government agencies believe that
SNXT has failed to comply with applicable laws or regulations, these agencies have the power to impose fines, suspensions of a registrant
and individual employees or other sanctions, which could include revocation of SNXT’s registration under the Advisers Act. SNXT
is also subject to the provisions and regulations of ERISA, to the extent that SNXT acts as a “fiduciary” under ERISA with
respect to certain of its clients. ERISA and the applicable provisions of the federal tax laws impose a number of duties on persons who
are fiduciaries under ERISA and prohibit certain transactions involving the assets of each ERISA plan which is a client, as well as certain
transactions by the fiduciaries (and certain other related parties) to such plans. Our subsidiaries, RISE and MSCO, are also regulated
by the NFA and function as a registered introducing broker.
The laws, rules and regulations,
as well as governmental policies and accounting principles, governing our business and the financial services and banking industries generally
have changed significantly over recent years and are expected to continue to do so. We cannot predict which changes in laws, rules, regulations,
governmental policies or accounting principles will be adopted. Any changes in the laws, rules, regulations, governmental policies or
accounting principles relating to our business could materially and adversely affect our business, results of operations and financial
condition.
Additionally,
like other participants in the financial services industry, we and our subsidiaries face the risks of lawsuits from clients and regulatory
proceedings against us. The outcome of regulatory proceedings and client lawsuits is uncertain and difficult to predict. An adverse resolution
of any regulatory proceeding or client lawsuit against us could result in substantial costs or reputational harm to us. Further, any
such proceedings or lawsuits could have an adverse effect on our ability to retain key registered representatives, investment advisers
and wealth managers, and to retain existing clients or attract new clients, any of which could have a material adverse effect on our
business, financial condition, results of operations and prospects. Refer to Item 3 – Legal Proceedings for additional detail.
We are subject to net capital requirements.
The SEC, FINRA, and various
other securities and commodities exchanges and other regulatory bodies in the U.S. have rules with respect to net capital requirements
which affect us. These rules have the effect of requiring that at least a substantial portion of a broker-dealer’s assets be kept
in cash or highly liquid investments. Our compliance with the net capital requirements could limit operations that require intensive use
of capital, such as underwriting or trading activities. These rules could also restrict our ability to withdraw our capital, even in circumstances
where we have more than the minimum amount of required capital, which, in turn, could limit our ability to implement growth strategies.
In addition, a change in such rules, or the imposition of new rules, affecting the scope, coverage, calculation or amount of such net
capital requirements, or a significant operating loss or any unusually large charge against net capital, could have similar adverse effects.
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Risks Related to Our Technology and Information
Systems
We rely on information processing and communications
systems to process and record our transactions.
Our operations rely heavily
on information processing and communications systems. Our system for processing securities transactions is highly automated. Failure of
our information processing or communications systems for a significant period of time could limit our ability to process a large volume
of transactions accurately and rapidly. This could cause us to be unable to satisfy our obligations to customers and other securities
firms and could result in regulatory violations. External events, such as an earthquake, terrorist attack or power failure, loss of external
information feeds, such as security price information, as well as internal malfunctions such as those that could occur during the implementation
of system modifications, could render part or all of these systems inoperative.
We rely on third-party platforms for information
and communications systems.
We rely heavily on our data
technology platforms and the platforms provided by our clearing agents. These platforms offer interfaces to our clearing service providers’
computing systems where customer account records are kept and are accessible through our data technology platforms. Our systems also utilize
browser-based access and other types of data communications.
Our data technology platforms
offer services used in direct relation to customer activities as well as support for corporate use. Some of these services include email
and messaging, market data systems and third-party trading systems, business productivity tools and customer relationship management systems.
Our data network is designed with redundancies in case a significant business disruption occurs.
We also rely on third parties
that provide data center facilities, infrastructure, back-office systems for clearance, settlement and accounting, customer relationship
management, compliance and risk software and systems, website functionality and access, databases, data center facilities and cloud computing,
all of which are critical to our operations. To ensure reliability and to conform to regulatory requirements related to business continuity,
we maintain backup systems and backup data, leverage cloud-based technology, and have a full-time offsite disaster recovery site to ensure
business continuity during a potential wide-spread disruption. However, despite the preventive and protective measures in place, in the
event of a wide-spread disruption of our systems or those of the third-parties upon whom we rely, our ability to satisfy the obligations
to customers and other securities firms may be significantly hampered or completely disrupted.
Failure to protect client data or prevent
breaches of our information systems could expose us to liability or reputational damage.
We are dependent on information
technology networks and systems to securely process, transmit and store electronic information and to communicate among our branch offices
and with our clients and vendors. As the breadth and complexity of this infrastructure continues to grow, the potential risk of security
breaches and cyber-attacks increases. As a financial services company, we are continuously subject to cyber-attacks by third parties.
Any such security breach could lead to shutdowns or disruptions of our systems and potential unauthorized disclosure of confidential information.
In addition, vulnerabilities of our external service providers and other third parties could pose security risks to client information.
The secure transmission of confidential information over public networks is also a critical element of our operations.
In providing services to clients,
we manage, utilize and store sensitive and confidential client data, including personal data. As a result, we are subject to numerous
laws and regulations designed to protect this information, such as U.S. federal and state laws governing the protection of personally
identifiable information. These laws and regulations are increasing in complexity and number, changing frequently and sometimes conflict.
If any person, including any of our employees, negligently disregards or intentionally breaches our established controls with respect
to client data, or otherwise mismanages or misappropriates that data, we could be subject to significant monetary damages, regulatory
enforcement actions, fines and/or criminal prosecution in one or more jurisdictions. Unauthorized disclosure of sensitive or confidential
client data, whether through systems failure, employee negligence, fraud or misappropriation, could damage our reputation and cause us
to lose clients. Similarly, unauthorized access to or through our information systems, whether by our employees or third parties, including
a cyber-attack by third parties who may deploy viruses, worms or other malicious software programs, could result in negative publicity,
significant remediation costs, legal liability, and damage to our reputation and could have a material adverse effect on our results of
operations.
We have purchased liability
insurance and cybersecurity insurance with a coverage limit of $15 million and a deductible of $250,000 to mitigate the financial impact
of potential cyber-attacks. However, our insurance may not be sufficient in type or amount to fully cover claims arising from security
breaches, cyber-attacks, and other related incidents.
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We may be exposed to damage to our business
or our reputation by cybersecurity breaches.
As the world becomes more
interconnected through the use of the internet and users rely more extensively on the internet and the cloud for the transmission and
storage of data, such information becomes more susceptible to incursion by hackers and other parties intent on stealing or destroying
data on which we or our customers rely. We face an evolving landscape of cybersecurity threats in which hackers use a complex array of
means to perpetrate cyber-attacks, including the use of stolen access credentials, malware, ransomware, phishing, structured query language
injection attacks, and distributed denial-of-service attacks, among other means. These cybersecurity incidents have increased in number
and severity, and it is expected that these trends will continue. Should we be affected by such an incident, we may incur substantial
costs and suffer other negative consequences, which may include:
● Loss of reputation.
Increasingly, intruders attempt
to steal significant amounts of data, including personally identifiable data and either hold such data for ransom or release it onto the
internet, exposing our clients to financial or other harm and thereby significantly increasing our liability in such cases. Our regulators
have introduced programs to review our protections against such incidents which, if they determined that our systems do not reasonably
protect our clients’ assets and their data, could result in enforcement activity and sanctions.
We have and continue to introduce
systems and software to prevent any such incidents and review and increase our defenses to such issues through the use of various services,
programs and outside vendors. We contract cybersecurity consultants and also review and revise our cybersecurity policy to ensure that
it remains up to date. It is impossible, however, for us to know when or if such incidents may arise or the business impact of any such
incident.
As a result of such risks,
we have and are likely to incur significant costs in preparing our infrastructure and maintaining it to resist any such attacks.
An increase in volume on our systems or
other events could cause them to malfunction.
Most of our trade orders are
received and processed electronically. This method of trading is heavily dependent on the integrity of the electronic systems supporting
it. While we have never experienced a significant failure of our trading systems, heavy stress placed on our systems during peak trading
times could cause our systems to operate at unacceptably low speeds or fail altogether. Any significant degradation or failure of our
systems or the systems of third parties involved in the trading process (e.g., online and internet service providers, record keeping and
data processing functions performed by third parties, and third party software), even for a short time, could cause customers to suffer
delays in trading. These delays could cause substantial losses for customers and could subject us to claims from these customers for losses.
There can be no assurance that our network structure will operate appropriately in the event of a subsystem, component or software failure.
In addition, we cannot assure that we will be able to prevent an extended systems failure in the event of a power or telecommunications
failure, an earthquake, terrorist attack, fire or any act of God. Any systems failure that causes interruptions in our operations could
have a material adverse effect on our business, financial condition and operating results.
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Rapid market or technological changes may
render our technology obsolete or decrease the attractiveness of our products and services to our clients.
We must continue to enhance
and improve our technology and electronic services and expect to increase investments in our own technology. The electronic financial
services industry is characterized by significant structural changes, increasingly complex systems and infrastructures, changes in clients’
needs and preferences, and new business models. If new industry standards and practices emerge and our competitors release new technology
before us, our existing technology, systems and electronic trading services may become obsolete, or our existing business may be harmed.
Our future success will depend
on our ability to:
● Enhance our existing products and services;
● Continue to attract highly-skilled technology personnel; and
Developing our electronic
services, our implementation and utilization of our robo-advisor and other technology entails significant technical and business risks.
We may use new technologies ineffectively or we may fail to adapt our electronic trading platform, information databases and network infrastructure
to client requirements or emerging industry standards. If we face material delays in introducing new services, products and enhancements,
our clients may forgo the use of our products and use those of our competitors.
Further,
the adoption of new internet, networking or telecommunications technologies may require us to devote substantial resources to modify
and adapt our services. We cannot assure that we will be able to successfully implement new technologies or adapt our proprietary technology
and transaction-processing systems to client requirements or emerging industry standards. We cannot assure that we will be able to respond
in a timely manner to changing market conditions or client requirements.
Risks Related to Our Business Operations
We previously identified material weaknesses
in our internal control over financial reporting and if we fail to maintain an effective system of internal control in the future, this
could result in loss of investor confidence and adversely impact our stock price.
We reported in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2023, a material weakness because we did not design and maintain effective
controls over certain information technology (“IT”) or general computer controls for information systems that are relevant
to the preparation of the consolidated financial statements. Specifically, we did not design and maintain user access controls to ensure
appropriate segregation of duties and adequate restricted user and privileged access to financial applications, data and programs to the
appropriate personnel. During 2024, we also identified material weaknesses relating to (1) our failure to design adequate internal controls
surrounding security market values within our back-office stock record system, including the accuracy and completeness of pricing of firm
and customers’ fully paid and excess margin securities, and (2) our internal controls surrounding the quarterly securities count
lacking sufficient documented review and precision of review to demonstrate the completeness and accuracy of the count performed in accordance
with Rule 17a-13 of the Exchange Act. As of December 31, 2024, we completed the remediation measures related to the material weaknesses
and concluded that our internal control over financial reporting was effective as of December 31, 2024. Completion of remediation does
not provide assurance that our remediation or other controls will continue to operate properly. If we are unable to maintain effective
internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information
accurately, and to prepare financial statements within required time periods could be adversely affected, which could subject us to litigation
or investigations requiring management resources and payment of legal and other expenses, negatively affect investor confidence in our
financial statements and adversely impact our stock price.
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Potential strategic acquisitions and other
business growth could increase costs and regulatory and integration risks.
Acquisitions involve risks
that could adversely affect our business. We may pursue acquisitions of businesses and technologies. Acquisitions and other transactions
entail numerous risks, including:
● Difficulties in the integration of acquired operations, services and products;
● Failure to achieve expected synergies;
● Diversion of management’s attention from other business concerns;
● Assumption of unknown material liabilities of acquired companies;
● Potential loss of clients or key employees of acquired companies; and
● Dilution to existing stockholders.
As part of our growth strategy,
we regularly consider and from time to time engage in discussions and negotiations regarding transactions such as acquisitions, mergers,
combinations and partnerships within our industry. The purchase price for possible acquisitions could be paid in cash, through the issuance
of our common stock or other securities, borrowings or a combination of these methods.
Our
transactions are typically subject to closing conditions including regulatory approvals and the absence of material adverse changes in
the business, operations or financial condition of the entity or part of an entity being acquired or sold. To the extent we enter into
an agreement to buy or sell an entity or part of an entity, there can be no guarantee that the transaction will close when expected or
at all. If a material transaction does not close our stock price could decline.
We cannot be certain that
we will be able to identify, consummate and successfully integrate acquisitions, and no assurance can be given with respect to the timing,
likelihood or business effect of any possible transaction. For example, we could begin negotiations that we subsequently decide to suspend
or terminate for a variety of reasons. However, opportunities may arise that we will evaluate and any transactions that we consummate
would involve risks and uncertainties to us. These risks could cause the failure of any anticipated benefits of an acquisition to be realized,
which could have a material adverse effect on our business, financial condition, results of operations and prospects.
We depend on our ability to attract and
retain key personnel.
We are dependent upon our
key personnel for our success and the loss of the services of any of these individuals could significantly harm our business, financial
condition and operating results.
We do not own the Muriel Siebert and Siebert
names, but we may use them as part of our corporate name pursuant to a license agreement. Use of the names by other parties or the expiration
or termination of our license agreement may harm our business.
We have entered into a license
agreement with the Muriel Siebert Estate / Foundation under which we have a license to use the “Muriel Siebert” and “Siebert”
name until 2026. In the event that the license agreement is terminated, or if the license agreement is not renewed or extended beyond
2026, we may be required to change our name and cease using the name. Any of these events could disrupt our recognition in the marketplace
and otherwise harm our business.
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Our customers may fail to pay us.
A principal credit risk to
which we are exposed on a regular basis is that our customers may fail to pay for their purchases or fail to maintain the minimum required
collateral for amounts borrowed against securities positions maintained by them. We cannot assure that our practices and/or the policies
and procedures we have established will be adequate to prevent a significant credit loss.
Our advisory services subject us to additional
risks.
We provide investment advisory
services to investors. Through our RIA, SNXT, we offer robo-advisory and investment services. The risks associated with these investment
advisory activities include those arising from possible conflicts of interest, unsuitable investment recommendations, inadequate due diligence,
inadequate disclosure and fraud. Realization of these risks could lead to liability for client losses, regulatory fines, civil penalties
and harm to our reputation and business.
Certain employees, directors and affiliates
of RISE and Siebert own equity in RISE Financial Services, LLC
During the first quarter of
2022, RISE issued, and Siebert sold membership interests in RISE to certain employees, directors, and affiliates of RISE and Siebert ranging
from 1% to 2% individually. This amount represented, as of the date of this Report, an aggregate of 7% of the total issued and outstanding
membership interests in RISE. As of the date of this Report, Gloria E. Gebbia owns approximately 24% of RISE. As a result, the interests
of the employees, directors, and affiliates of RISE and Siebert who own equity in RISE may differ from the interests of shareholders of
Siebert.
Risks Related to Our Common Stock
There may be a limited public market for
our common stock; Volatility.
13,908,556 shares of our common
stock, or approximately 34.4% of our shares of our common stock outstanding, are currently held by non-affiliates as of March 5, 2025.
A stock with a small number of shares held by non-affiliates, known as the “float,” will generally be more volatile than a
stock with a large float. Although our common stock is traded on the Nasdaq Capital Market, there can be no assurance that an active public
market will continue.
Our principal shareholder has significant
influence over us.
Gloria E. Gebbia, who is a
director of Siebert, the managing member of Kennedy Cabot Acquisition, LLC (“KCA”) and the spouse of Siebert’s Chief
Executive Officer, has, along with other family members, the power to nominate six directors to the Board of Directors and owns approximately
42% of our common stock as of December 31, 2024. As a result, they have significant influence on matters submitted to a vote of shareholders.
Future sales of our common stock in the
public market could cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number
of shares of our common stock in the public market by new issuances or through sales by existing shareholders, or the perception in the
market that we or the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock and
make it more difficult for investors to sell common stock at a time and price that investors deem appropriate.
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On April 27, 2023, Siebert
entered into a Stock Purchase Agreement (the “First Tranche Stock Purchase Agreement”) with Kakaopay Corporation (“Kakaopay”),
a company established under the Laws of the Republic of Korea, pursuant to which Siebert issued to Kakaopay 8,075,607 shares of Siebert’s
common stock, which represented at the time of issuance 19.9% of the outstanding equity securities of Siebert on a fully diluted basis.
The First Tranche closed on May 18, 2023 and, in connection therewith, we entered into a Registration Rights and Lock-Up Agreement, dated
as of May 19, 2023 (the “Registration Rights Agreement”), with Kakaopay. In accordance with the Registration Rights Agreement
and the Settlement Agreement (as defined below), we filed a registration statement with the SEC registering these shares for resale. The
number of shares of common stock could be significant in relation to our currently outstanding common stock and the historical trading
volume of our common stock. The sale by Kakaopay of all or a significant portion of the shares of common stock could have a material adverse
effect on the market price of our common stock. In addition, the perception in the public markets that Kakaopay might sell all or a portion
of the shares of common stock could also, in and of itself, have a material adverse effect on the market price of our common stock.
The price of our common stock in the public
markets has experienced, and may in the future experience, extreme volatility due to a variety of factors, many of which are beyond our
control.
Since our common stock started
trading on the Nasdaq Capital Market, our common stock has been relatively thinly traded and at times been subject to price volatility.
The average daily trading volume from January 1, 2024 to December 31, 2024 was approximately 24,327 shares.
We believe that the trading
price of our common stock has at times been influenced by trading factors other than industry or Company-specific fundamentals, including,
without limitation, the sentiment of retail investors (including as may be expressed on financial trading and other social media sites),
speculation in the press, in the investment community, or on the internet, including on online forums and social media, about Siebert,
our industry or our security’s access to margin debt, trading in options and other derivatives on our common stock, and the amount
and status of short interest in our securities (including a “short squeeze”). A “short squeeze” is a technical
market condition that occurs when the price of a stock increases substantially, forcing market participants who had taken a position that
its price would fall (i.e., who had sold the stock “short”), to buy it, which in turn may create significant, short-term demand
for the stock not for fundamental reasons, but rather due to the need for such market participants to acquire the stock in order to forestall
the risk of even greater losses. A “short squeeze” condition in the market for a stock can lead to short-term conditions involving
very high volatility and trading that may or may not track fundamental valuation models.
As a result of the foregoing,
investors in our common stock may be subject to the risk of significant, short-term price volatility of our common stock and the trading
price of our common stock could decline for reasons unrelated to our business, financial condition, or results of operations. Further,
in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities
class action litigation has often been instituted against these companies. If any of the foregoing occurs, it could cause our stock price
to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.
Our future ability to pay dividends to holders
of our common stock is subject to the discretion of our Board of Directors and will be limited by our ability to generate sufficient earnings
and cash flows.
We did not pay any dividends
in 2024 or 2023. Payment of future cash dividends on our common stock will depend on our ability to generate earnings and cash flows.
However, sufficient cash may not be available to pay such dividends. Payment of future dividends, if any, will be at the discretion of
our Board of Directors and will depend upon a number of factors that the Board of Directors deems relevant, including future earnings,
the success of our business activities, capital requirements, the general financial condition and future prospects of our business and
general business conditions. If we are unable to generate sufficient earnings and cash flows from our business, we may not be able to
pay dividends on our common stock.
Our ability to pay cash dividends
on our common stock is also dependent on the ability of our subsidiaries to pay dividends or capital distributions to Siebert. MSCO and
RISE are subject to various regulatory requirements relating to liquidity, capital standards and the use of client funds and securities,
which may limit funds available for payments to Siebert. The ability of our subsidiaries to pay dividends or capital distributions to
Siebert may also be subject to regulatory approval.
Risks Related to Our Industry and Market
Securities market volatility and other securities
industry risk could adversely affect our business.
Most of our revenues are derived
from our securities brokerage business. Like other businesses operating in the securities industry, our business is directly affected
by volatile trading markets, fluctuations in the volume of market activity, economic and political conditions, upward and downward trends
in business and finance at large, legislation and regulation affecting the national and international business and financial communities,
currency values, inflation, market conditions, the availability and cost of short-term or long-term funding and capital, the credit capacity
or perceived credit-worthiness of the securities industry in the marketplace and the level and volatility of interest rates. We also face
risks relating to losses resulting from the ownership of securities, counterparty failure to meet commitments, customer fraud, employee
fraud, issuer fraud, errors and misconduct, failures in connection with the processing of securities transactions and litigation. A reduction
in our revenues or a loss resulting from our ownership of securities or sales or trading of securities could have a material adverse effect
on our business, results of operations and financial condition. In addition, as a result of these risks, our revenues and operating results
may be subject to significant fluctuations from quarter to quarter and from year to year.
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Interest rate changes could affect our
profitability.
The
direction and level of interest rates are important factors in our earnings. Our earnings are affected by the difference between the interest
rates earned on interest-earning assets such as loans and investment securities and interest rates paid on interest-bearing liabilities
such as deposits and borrowings. Decreases in interest rates negatively impact our revenue by reducing the margin and other interest income,
as well as distribution fees received from money market securities. Lower rates can compress net interest margins, impacting the profitability
of our interest-earning assets and affecting overall revenue.
As
the U.S. economy navigates a period of stabilization, inflation remains elevated, and the Federal Reserve may raise, maintain or lower
rates in the future in response to evolving economic conditions. While we believe the current interest rate environment may present challenges,
a decrease in rates could reduce our interest revenue if yields on interest-earning assets decline without a corresponding decrease in
our funding costs, compress net interest margins if competitive pressures prevent us from lowering deposit rates, and impact market conditions
by reducing trading volumes, spreads, and demand for certain brokerage products.
A prolonged economic slowdown, volatility
in the markets, a recession, and uncertainty in the markets could impair our business and harm our operating results.
Our businesses are, and will
continue to be, susceptible to economic slowdowns, recessions and volatility in the markets, which may lead to financial losses for our
customers, and a decrease in revenues and operating results. In addition, global macroeconomic conditions and U.S. financial markets remain
vulnerable to the potential risks posed by exogenous shocks, which could include, among other things, political and financial uncertainty
in the U.S. and the European Union, renewed concern about China’s economy, geopolitical conflicts, complications involving terrorism
and armed conflicts around the world, or other challenges to global trade or travel. More generally, because our business is closely correlated
to the macroeconomic outlook, a significant deterioration in that outlook or an exogenous shock would likely have an immediate negative
impact on our overall results of operations.
There is intense competition in the brokerage
industry.
We encounter significant competition
from full-commission, no commission, online and other discount brokerage firms, as well as from financial institutions, mutual fund sponsors,
venture-backed technology and cryptocurrency firms, and other organizations. Over the past several years, price wars and lower or no commission
rates in the discount brokerage business in general have strengthened our competitors. In addition, while the decline of commissions has
been ongoing for decades, some of our competitors charging zero commissions on trades could potentially have an adverse effect on our
commission revenue.
The securities brokerage industry
has experienced significant consolidation, which may continue in the future, likely increasing competitive pressures in the industry.
Consolidation could enable other firms to offer a broader range of products and services than we do, or offer them on better terms, such
as higher interest rates paid on cash held in client accounts. We believe that such changes in the industry will continue to strengthen
existing competitors and attract additional competitors such as banks, insurance companies, providers of online financial and information
services, and others. Many of these competitors are larger, more diversified, have greater capital resources, and offer a wider range
of services and financial products than we do. We compete with a wide variety of vendors of financial services for the same customers.
Many of these competitors conduct extensive marketing campaigns and may have or achieve exceptional market name recognition. We may not
be able to compete effectively with current or future competitors with stronger capital positions, greater name recognition or who partner
or combine with other larger firms.
Some competitors in the discount
brokerage business offer services which we may not offer. In addition, some competitors have continued to offer flat rate execution fees
that are lower than some of our published rates. Industry-wide changes in trading practices are expected to cause continuing pressure
on fees earned by discount brokers for the sale of order flow. Continued or increased competition from ultra-low costs, flat-fee brokers
and broader service offerings from other discount brokers could limit our growth or lead to a decline in our customer base which would
adversely affect our business, results of operations and financial condition. Further, if we are not able to update or adapt our products
and services to take advantage of the latest technologies and standards, or are otherwise unable to offer services to mobile and desktop
computing platforms to a growing self-directed investor market, it could have a material adverse effect on our ability to compete.
18
Lower price levels in the securities markets
may reduce our profitability.
Lower price levels of securities
may result in (i) reduced volumes of securities, options and futures transactions, with a consequent reduction in our commission revenues,
and (ii) losses from declines in the market value of securities we hold in investment. In periods of low volume, our levels of profitability
are further adversely affected because certain of our expenses remain relatively fixed. Sudden sharp declines in market values of securities
and the failure of issuers and counterparties to perform their obligations can result in illiquid markets which, in turn, may result in
us having difficulty selling securities. Such negative market conditions, if prolonged, may lower our revenues. A reduction in our revenues
could have a material adverse effect on our business, results of operations and financial condition.
The soundness of other financial institutions
and intermediaries affects us.
We face the risk of operational
failure, termination or capacity constraints of any of the clearing agents, exchanges, clearing houses or other financial intermediaries
that we use to facilitate our securities transactions. As a result of the consolidation over the years of clearing agents, exchanges and
clearing houses, our exposure to certain financial intermediaries has increased and could affect our ability to find adequate and cost-effective
alternatives should the need arise. Any failure, termination or constraint of these intermediaries could adversely affect our ability
to execute transactions, service our clients and manage our exposure to risk.
Our ability to engage in routine
trading and funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.
Financial services institutions are interrelated as a result of trading, clearing, funding, and counterparties or other relationships.
We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial
industry, including brokers and dealers, commercial banks, investment banks, mortgage originators and other institutional clients. As
a result, defaults by, or even rumors or questions about the financial condition of, one or more financial services institutions, or the
financial services industry generally, have historically led to market-wide liquidity problems and could lead to losses or defaults by
us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client.
In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices insufficient
to recover the full amount of the loan or derivative exposure due us. Although we have not suffered any material or significant losses
as a result of the failure of any financial counterparty, any such losses in the future may materially adversely affect our results of
operations.
ITEM 1B. UNRESOLVED STAFF
COMMENTS
None.
ITEM 1C. CYBERSECURITY
Cybersecurity presents significant
challenges to the business community in general, as well as to the financial services industry. Increasingly, bad actors, both domestically
and internationally, attempt to steal personal data and/or interrupt the normal functioning of businesses through accessing individuals’
and companies’ files and equipment connected to the internet. Recently, intruders have become increasingly sophisticated and use
deceptive methods to steal funds and personally identifiable information which they either take for their own purposes, release to the
internet, or hold for ransom. Regulators are increasingly requiring companies to provide more advanced levels of cybersecurity measures.
Our cybersecurity program
aims to identify, manage, and mitigate cybersecurity risks – both internal and client-facing. We continue to maintain systems and
ongoing planning measures to minimize the disruption of our services to clients as well as to prevent the loss of data concerning our
clients, their financial affairs, and company-privileged information from cybersecurity incidents.
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Cybersecurity Risk Management & Strategy
We utilize the widely recognized
National Institute of Standards and Technology (“NIST”) Cybersecurity Framework (“CSF”) as the foundation of our
cybersecurity program, with strategic direction aligned to the following core functions:
We also incorporate industry-relevant
context and emphasize security considerations beyond the core NIST CSF functions:
This does not mean that we
meet any particular technical standards, specifications, or requirements, but only that we use the NIST CSF as a guide to help us identify,
assess, and manage cybersecurity risks relevant to our business.
Our cybersecurity program
is integrated into our overall risk management process by providing periodic updates to certain members of the management team which in
turn regularly provide updates to our Board of Directors.
As of the filing of this Report,
we are not aware of any cybersecurity incidents that occurred during the fiscal year ended December 31, 2024 that have materially affected,
or are reasonably likely to materially affect us, including with respect to our business strategy, results of operations or financial
condition. We acknowledge that we cannot eliminate all cybersecurity risks within our organization, and we cannot guarantee that any undetected
cybersecurity incidents have occurred. For additional information about these risks, see Part I, Item 1A, - Risk Factors of this Report.
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Cybersecurity Governance
The management and assessment
of cybersecurity risks and related risk management processes are handled primarily by our Chief Information Security Officer (“CISO”),
whose experience includes approximately 25 years of cybersecurity experience leading and building cybersecurity programs for global Fortune
500 companies. Our CISO’s extensive cybersecurity background is supplemented with industry-leading certifications and credentials
such as Cisco’s CCIE Security, Palo Alto Networks (PNCSE, PCDRA, PSE), Juniper Networks (JNCIS), and Checkpoint (CCSE) specializations
on Endpoint Detection and Security Architecture. Our Chief Technology Officer (“CTO”), whose experience includes approximately
25 years of managing technology strategy and programs at public financial services organizations. The CTO also has key responsibilities
and provides input into the management of our cybersecurity risks from a technology perspective. In order to monitor the prevention, detection,
mitigation and remediation of cybersecurity incidents, our CISO, CTO, and respective technology and operations teams monitor the cybersecurity
threat landscape, plan and implement security controls, and detect and respond to cybersecurity threats and incidents using a combination
of security tooling, automated systems, and manual processes.
Our Board of Directors, through
its Audit Committee, oversees the cybersecurity risk management program. The Board of Directors and the Audit Committee are informed about
risks from cybersecurity threats through periodic updates and reports provided by management. The periodic updates include briefing materials
on our security posture, emerging cybersecurity threats and risks, cybersecurity incident response planning, significant cybersecurity
incidents and breaches, and cybersecurity-related matters involving third parties or vendors.
ITEM 2. PROPERTIES
We currently maintain our
headquarters and 10 branch offices that customers can visit to obtain market information, place orders, open accounts, deliver and receive
checks and securities, and obtain related customer services in person. Nevertheless, most of our activities are conducted on the internet
or by telephone and mail. We operate our business out of the following offices:
Approximate Square Feet
Corporate Headquarters
Miami Beach, FL – 653 Collins Avenue 12,000
Branch Offices
Beverly Hills, CA – 190 N Canon 900
Seal Beach, CA 800
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business,
we may be subject to various proceedings and claims arising from our business activities, including lawsuits, arbitration claims and regulatory
matters. We are also involved in other reviews, investigations and proceedings by governmental and self-regulatory organizations regarding
the business, which may result in adverse judgments, settlements, fines, penalties, injunctions and other relief. In many cases, however,
it is inherently difficult to determine whether any loss is probable or reasonably possible or to estimate the amount or range of any
potential loss, particularly where proceedings may be in relatively early stages. In our opinion, based on currently available information,
the ultimate resolution of current matters will not have a material adverse impact on our financial position and results of operations.
However, resolution of one or more of these matters may have a material effect on the results of operations in any future period, depending
upon the ultimate resolution of those matters and depending upon the level of income for such period.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock trades on
the Nasdaq Capital Market, under the symbol “SIEB.” The number of common stockholders of record as of March 11, 2025, was
79. The closing market price per share on that date was $2.22. Based on information available to us, we believe there are approximately
3,328 beneficial holders of our common stock as of March 13, 2025.
Dividend Policy
No dividends were paid to
shareholders during 2024 and 2023. Our Board of Directors periodically considers whether to declare dividends, and any future decision
to pay dividends is at the discretion of the Board of Directors. In considering whether to pay such dividends, our Board of Directors
will review our earnings, capital requirements, economic forecasts and such other factors as are deemed relevant.
For information on securities
authorized for issuance under our equity compensation plans, see “Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.”
Unregistered Sales of Equity Securities and
Use of Proceeds
On February 22, 2024, the Company granted 150,000 shares
of restricted common stock, subject to vesting over the vesting period, as compensation to consultants of the Company. The common stock
was issued pursuant to Section 4(a)(2) of the Securities Act of 1933 (the “Securities Act”). Refer to Note 23 – Employee
Benefit Plans for more detail.
On May 28, 2024, the Company granted 70,000 shares
of restricted common stock that were fully vested upon grant date as compensation to a consultant of the Company. The common stock was
issued pursuant to Section 4(a)(2) of the Securities Act. Refer to Note 23 – Employee Benefit Plans for more detail.
ITEM 6.
[RESERVED]
None.
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ITEM 7. MANAGEMENT’S DISCUSSIONS AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial
statements and the related notes included in Part II, Item 8 - Financial Statements and Supplementary Data of this Report. In addition
to our historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans,
estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to these differences include those discussed below and elsewhere in this Report, particularly in Part I, Item
1A - Risk Factors.
Overview
We
are a financial services company and provide a wide variety of financial services to our clients. We operate in business lines such as
retail brokerage, investment advisory, insurance, and technology development through our wholly-owned and majority-owned subsidiaries.
Results
in the businesses in which we operate are highly correlated to general economic conditions and, more specifically, to the direction of
the U.S. equity and fixed-income markets. Market volatility, overall market conditions, interest rates, economic, political, and regulatory
trends, and industry competition are among the factors which could affect us, and which are unpredictable and beyond our control. These
factors affect the financial decisions made by market participants who include investors and competitors, impacting their level of participation
in the financial markets. In addition, in periods of reduced financial market activity, profitability is likely to be adversely affected
because certain expenses remain relatively fixed, including salaries and related costs, as well as portions of communications costs and
occupancy expenses. Accordingly, earnings for any period should not be considered representative of earnings to be expected for any other
period.
Financial Overview
In
2024, earnings per share were $0.33, compared to earnings per share of $0.21 in 2023. In 2024, our net revenues were $83.9 million and
net income was $13.3 million, compared to net revenues of $71.5 million and net income of $7.8 million in 2023.
Financial
highlights as of December 31, 2024:
● Retail customer net worth increased by 13% to $18.0 billion compared to 2023
Trends and Key Factors
Affecting our Operations
Market Risk
Market
risk is our risk of loss resulting from the impact of changes in market prices on our trading inventory and investment positions. We have
exposure to market risk primarily through our broker-dealer trading operations. Through our broker-dealer subsidiary, we trade debt obligations
and equity securities and maintain trading inventories to ensure availability of securities to facilitate client transactions. Inventory
levels may fluctuate daily as a result of client demand. Our primary market risks relate to interest rates and equity prices. Equity risk
results from changes in prices of equity securities, affecting the value of the equity securities and other instruments that derive their
value from a particular stock.
We
may enter into underwriting commitments and, as a result, we may be subject to market risk on any unsold securities issued in the offerings
to which we are committed. Risk exposure is controlled by limiting our participation, the transaction size, or through the syndication
process.
Interest Rates
We are exposed to market risk
from changes in interest rates. Such changes in interest rates primarily impact revenue from interest, marketing, and distribution fees.
We primarily earn interest, marketing and distribution fees from margin interest charged on clients’ margin balances, interest on
cash and securities segregated for regulatory purposes, and distribution fees from money market mutual funds in clients’ accounts.
Securities segregated for regulatory purposes consist solely of U.S. government securities. If prices of U.S. government securities within
our portfolio decline, we anticipate the impact to be temporary as we intend to hold these securities to maturity. We seek to mitigate
this risk by managing the average maturities of our U.S. government securities portfolio and setting risk parameters for securities owned,
at fair value.
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The following table presents
simulated changes to net interest revenue over the next 12 months beginning December 31, 2024 and 2023 of a gradual increase or decrease
in market interest rates relative to prevailing market rates at the end of each reporting period:
As of December 31,
Increase of 200 basis points 32 % 36 %
Increase of 100 basis points 18 % 20 %
Increase of 50 basis points 11 % 5 %
Decrease of 50 basis points (4 )% (3 )%