UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2023
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-5703
Siebert Financial Corp.
(Exact name of registrant as specified
in its charter)
653 Collins Avenue, Miami Beach, FL 33139
(Address of principal executive offices) (Zip Code)
(310)385-1861
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the
Exchange Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock - $0.01 par value SIEB The Nasdaq Capital Market
Securities
registered pursuant to Section 12(g) of the Exchange Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). YES ☒ NO ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒
The
aggregate market value of the common stock held by non-affiliates of the registrant (based upon the last sale price of the common stock
reported on the Nasdaq Capital Market as of the last business day of the registrant’s most recently completed second fiscal quarter
(June 30, 2023), was approximately $34,620,000.
The
number of shares of the registrant’s outstanding common stock, as of May 1, 2024, were 40,980,936 issued and 39,830,936 shares
outstanding.
Documents
Incorporated by Reference: None
SIEBERT FINANCIAL CORP.
TABLE OF CONTENTS
PART I 2
ITEM 1. BUSINESS 2
ITEM 1A. RISK FACTORS 9
ITEM 1B. UNRESOLVED STAFF COMMENTS 16
ITEM 1C. CYBERSECURITY 16
ITEM 2. PROPERTIES 18
ITEM 3. LEGAL PROCEEDINGS 18
ITEM 4. MINE SAFETY DISCLOSURES 18
ITEM 6. [RESERVED] 19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 30
ITEM 9A. CONTROLS AND PROCEDURES 68
ITEM 9B. OTHER INFORMATION 69
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS 69
PART III 70
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 70
ITEM 11. EXECUTIVE COMPENSATION 76
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 80
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 81
SIGNATURES 83
Forward-Looking Statements
For
purposes of this Annual Report on Form 10-K (“Report”), the terms “Siebert,” “Company,” “we,”
“us” and “our” refer to Siebert Financial Corp., its wholly-owned and majority-owned subsidiaries collectively,
unless the context otherwise requires.
The
statements contained throughout this Report, that are not historical facts, including statements about our beliefs and expectations, are
“forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking
statements may appear throughout this Report, including without limitation, the following sections: Item 1 “Business,” Item
1A “Risk Factors,” and Item 7 “Management’s Discussion and Analysis of Financial Condition and
Results of Operations.” Forward-looking statements include statements preceded by, followed by or that include the words
“may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,”
“plan,” “estimate,” “target,” “project,” “intend” and similar words or expressions.
In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are
forward-looking statements.
These
forward-looking statements, which reflect our beliefs, objectives, and expectations as of the date hereof, are based on the best judgment
of management. All forward-looking statements speak only as of the date on which they are made. Such forward-looking statements are subject
to certain risks, uncertainties and assumptions relating to factors that could cause actual results to differ materially from those anticipated
in such statements, including the following: economic, social and political conditions, global economic downturns resulting from extraordinary
events; securities industry risks; interest rate risks; liquidity risks; credit risk with clients and counterparties; risk of liability
for errors in clearing functions; systemic risk; systems failures, delays and capacity constraints; network security risks; competition;
reliance on external service providers; new laws and regulations affecting our business; net capital requirements; extensive regulation,
regulatory uncertainties and legal matters; failure to maintain relationships with employees, customers, business partners or governmental
entities; the inability to achieve synergies or to implement integration plans; and other consequences associated with risks and uncertainties
detailed in Part I, Item 1A – “Risk Factors” of this Report as well as in our filings with the Securities
and Exchange Commission (“SEC”).
We
caution that the foregoing list of factors is not exclusive, and new factors may emerge, or changes to the foregoing factors may occur,
that could impact our business. The forward-looking statements are based upon management’s
beliefs and assumptions and are made as of the date of this Report. You should not place undue reliance on these forward-looking statements.
We undertake no obligation to publicly update or revise these statements, whether as a result of new information, future events or otherwise,
except to the extent required by the federal securities laws.
Siebert 2023 Form-10K 1
PART I
ITEM 1. BUSINESS
Overview of Company
Siebert
Financial Corp., together with its subsidiaries, is a diversified financial services firm and provides a full range of brokerage and financial
advisory services including securities brokerage, investment advisory and insurance offerings, and corporate stock plan administration
solutions. Our firm is characterized by building solid relationships with our clients through exceptional personal service and proven
performance. We have a strong legacy and continue to evolve in our approach to take advantage of opportunities in the financial services
industry.
We
conduct the following lines of business through our wholly-owned and majority-owned subsidiaries:
For purposes of this Annual
Report, the terms “Siebert,” “Company,” “we,” “us” and “our” refer to Siebert
Financial Corp., MSCO, SNXT, PW, STCH, RISE, and STXD collectively, unless the context otherwise requires.
Our
headquarters is located at 653 Collins Avenue, Miami Beach, FL 33139, with primary operations in New Jersey, Florida and California. Our
phone number is (310) 385-1861 and our Internet address is www.siebert.com. Information included
or available through our website does not constitute a part of this Report. We have 11 branch offices throughout the U.S. and clients
around the world.
As of May 1, 2024, we had
124 full-time employees. Our common stock is registered under Section 12 of the Exchange Act, and we file periodic reports with the SEC,
including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and proxy and information statements
on Schedule 14. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information
regarding companies that file documents electronically with the SEC. Our SEC filings are also available through our website at www.siebert.com,
where investors are able to obtain copies of our public filings free of charge. Our common stock, par value $.01 per share trades on the
Nasdaq Capital Market under the symbol “SIEB.”
Subsidiaries and Business Offerings
Muriel Siebert & Co., LLC.
Overview
MSCO has been providing online
and traditional discount brokerage services to clients for over 55 years. MSCO was founded in 1967 by Muriel F. (“Mickie”)
Siebert, a trailblazer who was the first woman to own a seat on the NYSE and the first to head one of its member firms. On May 1, 1975,
after the federal government banned fixed commissions by brokers, Mickie broke barriers and declared MSCO a discount brokerage firm.
In May 2022, MSCO received
approval to expand its clearing services in the U.S. by acting as a correspondent clearing firm for institutional and online broker-dealers,
registered investment advisors and other asset managers. Achieving this milestone strengthens our core competencies, diversifies our business,
and reinforces our commitment as a strategic partner to our clients.
On
January 1, 2024, MSCO changed its name to Muriel Siebert & Co., LLC and its tax status from a C-Corporation to a Limited Liability
Corporation. Refer to Note 24 – Subsequent Events for further detail. Today, MSCO offers a wide range of products and services and
is the primary subsidiary of Siebert.
Siebert 2023 Form-10K 2
Products and Services
MSCO
offers a wide range of products and services, including the following:
● Self-directed trading
● Market making and fixed income investments
● Stock borrow / stock loan
● Equity compensation plans (Siebert Corporate Services)
● Wealth management / financial advice
Additional Information
Brokerage and Related Services
MSCO offers a wide selection
of quality investment services, including broker assisted trades and free online self-service features such as real time quotes, market
data, and trading tools.
MSCO is a self-clearing broker-dealer
and also clears with National Financial Services Corp. (“NFS”), a wholly-owned subsidiary of FMR, LLC.
Securities Finance and Market Making
We operate our Securities
Finance Group, which is a division that consists primarily of our stock borrow / stock loan and related services. Our management team
brings decades of securities finance experience to this division. We have seen positive results in recent years and are committed to continue
to expand our securities finance operations.
We make markets in multiple
exchanges and in over 500 equity securities and fixed income products. The client service offerings within our Market Making division
have evolved with the capital markets and different trading strategies. Our strengths include trading experience in domestic markets,
enhanced liquidity, and the search for significant price improvement. The ability of our Market Making division to execute large orders
continues to be a strategic advantage in supporting the growth of our Corporate Services division.
Corporate Services
We are dedicated to helping
publicly traded companies and their employees manage their equity compensation plans. Corporate services is a key component of our business,
and we leverage our technology partnerships to create a distinct advantage through FIX connection trading and real-time transaction reporting.
Siebert Corporate Services primarily supports small and mid-cap public companies. Below are some key points of our strategic outlook and
initiatives within Siebert Corporate Services.
Independent Retail Execution Services
MSCO and its clearing
firms monitor order flow in efforts to ensure that customers are getting the best possible trade executions. All equity orders are
routed in a manner intended to afford MSCO’s customers the most favorable terms on all orders. MSCO also offers customers
execution services through various market centers for an additional fee, providing customers access to numerous market centers
before and after regular market hours. Customers may buy or sell fixed income securities, municipal bonds, corporate bonds,
mortgage-backed securities, government sponsored enterprises, unit investment trusts, mutual funds, certificates of deposit, and
other securities. These transactions are serviced by MSCO’s registered representatives.
Siebert 2023 Form-10K 3
Retail Customer Service
MSCO believes that its superior
customer service enhances its ability to compete with larger brokerage firms and provides retail customers with personal service via access
to dedicated customer service personnel for all of its products and services. Customer service personnel, located in MSCO’s branch
offices, are cross trained to assist with all clients’ needs for a reliable experience. MSCO uses a variety of customer relationship
management systems that enable representatives in any location to review and respond to customers’ requests in a timely manner.
Retirement Accounts
MSCO offers customers a variety
of self-directed retirement accounts. Each IRA, SEP IRA, ROTH IRA, and KEOGH account can be invested in a variety of qualified investments
in a consolidated account. MSCO acts as its own custodian for retirement accounts and also utilizes NFS for IRA custody. MSCO offers self-directed
retirement accounts and also has registered representatives dedicated to assisting clients in meeting their retirement goals.
Customer Financing
Customer margin accounts are
carried whereby money is lent to customers for a portion of the market value of marginable securities held in the customer’s account.
Margin loans are collateralized by these securities. Customers also may sell securities short in a margin account, subject to minimum
equity and applicable margin requirements, and the availability of such securities to be borrowed. In permitting customers to engage in
margin financing, short sale or any other transaction, MSCO assumes the risk of its customers’ failure to meet their obligations
in the event adverse changes in the market affect the value of the margined securities positions. MSCO and NFS reserve the right to set
margin requirements higher than those established by the Federal Reserve System.
MSCO has established policies
with respect to maximum purchase commitments for new customers or customers with inadequate collateral to support a requested purchase.
When transactions occur outside normal guidelines, MSCO monitors accounts closely until their payment obligations are completed. If the
customer does not meet the required commitments, MSCO takes steps to close out the position and minimize any loss. In the last five years,
MSCO has not had any significant losses as a result of customers failing to meet commitments.
Information and Communications
Systems
MSCO
relies heavily on its data technology platform and the platform provided by its clearing agents. These platforms offer interfaces to MSCO’s
clearing service providers’ computing systems where all customer account records are kept and are accessible through MSCO’s
data technology platform. MSCO’s systems also utilize browser-based access and other types of data communications. MSCO’s
representatives use NFS systems, by way of MSCO’s data technology platform, to perform daily operational functions which include
trade entry, trade reporting, clearing-related activities, risk management and account maintenance.
MSCO’s
data technology platform offers 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. MSCO’s data network is designed with redundancies in case a significant business disruption occurs.
To
ensure reliability and to conform to regulatory requirements related to business continuity, MSCO maintains backup systems and backup
data, leverages cloud-based technology, and has 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, MSCO’s
ability to satisfy the obligations to customers and other securities firms may be significantly hampered or completely disrupted. For
more information regarding our business continuity plan, refer to the Business Continuity Statement on our website.
We
are consistently enhancing technology for both our customers as well as our internal operations. We are currently in the process of developing
a new retail platform (“Retail Platform”) for our customers and integrating the trading platform into our operations.
Siebert 2023 Form-10K 4
Siebert AdvisorNXT, Inc.
Overview
SNXT offers customers our
proprietary robo-advisory technology that utilizes trading algorithms initially developed by STCH to create our robo-advisor. This technology
provides clients with cost-efficient, competitively priced, and automated wealth management solutions intended to maximize portfolio returns
based on specific risk tolerance. The platform utilizes Nobel Prize-winning Modern Portfolio Theory (“MPT”) to create optimal
portfolios for each client. We provide web-based tools to enable clients to monitor and interact with the robo-advisor’s automated
portfolio manager application. The robo-advisor selects low-cost, well-managed, exchange-traded funds (“ETFs”) and exchange-traded
notes (“ETNs”) that represent the asset classes that provide clients the necessary risk-adjusted exposure given current market
conditions. The robo-advisor continuously monitors and periodically rebalances portfolios to address changes in market and economic conditions.
On
January 1, 2024, SNXT changed its name to Siebert AdvisorNXT, LLC and its tax status from a C-Corporation to a Limited Liability Corporation.
Refer to Note 24 – Subsequent Events for further detail.
Products and Services
The products and services offered by SNXT include:
● Managed portfolios
● Separately managed accounts
Park Wilshire Companies, Inc.
Overview
PW is a full-service insurance
agency founded in 2010. Through PW, our product offerings include various insurance products such as fixed annuities and property and
casualty insurance.
Products and Services
The products and services offered by PW include:
● Fixed annuities
● Personal insurance
● Property and casualty insurance
● Natural disaster insurance
● Life and disability
Siebert Technologies, LLC
STCH is a technology company
through which we are expanding our products and services and we plan to use this subsidiary for
future fintech opportunities.
RISE Financial Services, LLC
During 2022, RISE was a prime
broker focused on providing institutional quality services to hedge funds and other institutional investors.
In 2022, Siebert and RISE
engaged in certain transactions with Tigress Holdings, LLC (“Tigress”) and Hedge Connection, Inc. (“Hedge Connection”)
to exchange equity, cash, and respective leadership positions. In 2023, based upon the strategic direction of these ventures, management
of the respective businesses decided to unwind the original transactions with Siebert, RISE, Hedge Connection and Tigress. See Note 3
– Transactions with Tigress and Hedge Connection for further detail on these transactions.
Competition
We encounter significant competition
from full-commission, online and discount brokerage firms, including zero commission firms, as well as from financial institutions, mutual
fund sponsors, venture-backed technology and cryptocurrency firms, and other organizations. Although there has been consolidation in the
industry in both the online and traditional brokerage business during recent years, we believe that additional competitors such as banks,
insurance companies, providers of online financial and information services, and others will continue to be attracted to the brokerage
industry. We compete with a wide variety of vendors of financial services for the same customers; however, our success in the financial
services industry is a result of our high-quality customer service, responsiveness, products offered, and excellent executions.
Siebert 2023 Form-10K 5
Regulations
Overview
The securities industry in
the U.S. is subject to extensive regulation under both federal and state laws. The SEC is the federal agency charged with administration
of the federal securities laws. MSCO and RISE are registered as broker-dealers with the SEC. MSCO is a member of the NYSE and FINRA, and
RISE is a member of FINRA. Much of the regulation of broker-dealers has been delegated to self-regulatory organizations (“SROs”),
principally FINRA, which is MSCO’s and RISE’s primary regulator with respect to financial and operational compliance. These
SROs adopt rules (subject to approval by the SEC) governing their members and conduct periodic examinations of broker-dealers. Securities
firms are also subject to regulation by state securities authorities in the states in which they do business. 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.
These regulations affect our business operations and impose capital, client protection, and market conduct requirements, among others.
Conduct and Training
The principal purpose of regulation
and discipline of broker-dealers is the protection of customers and the securities markets. The regulations to which broker-dealers are
subject cover all aspects of the securities business, including training and supervision of personnel, sales methods, trading practices
among broker-dealers, uses and safekeeping of customers’ funds and securities, capital structure of securities firms, record keeping,
fee arrangements, disclosure to clients, and the conduct of directors, officers and employees. Additional legislation, changes in rules
promulgated by the SEC and by SROs and/or changes in the interpretation or enforcement of existing laws and rules may directly affect
the methods of operation and profitability of broker-dealers. The SEC, SROs and state securities authorities may conduct administrative
proceedings which can result in censure, fine, cease and desist orders or suspension or expulsion of a broker-dealer, its officers or
its employees.
Dodd-Frank Act of 2010
As a result of the enactment
of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 (“Dodd-Frank”), the adoption of implementing regulations
by the federal regulatory agencies, as well as other recent regulatory reforms, we have experienced significant changes in the laws and
regulations that apply to us, how we are regulated, and regulatory expectations in the areas of compliance, risk management, corporate
governance, operations, capital and liquidity.
Regulation Best Interest
Pursuant to the Dodd-Frank
Act, the SEC was charged with considering whether broker-dealers should be subject to a standard of care similar to the fiduciary standard
applicable to registered investment advisers (“RIAs”). In June 2019, the SEC adopted a package of rules and interpretations
related to the provision of advice by broker-dealers and investment advisers, including Regulation Best Interest and Form CRS (collectively,
these regulations, rules and interpretations are referred to herein as the “Regulation Best Interest Rules”). Among other things,
Regulation Best Interest requires a broker-dealer to act in the best interest of a retail customer when making a recommendation to that
customer of any securities transaction or investment strategy involving securities. Form CRS requires that broker-dealers and investment
advisers provide retail investors with a brief summary document containing simple, easy-to-understand information about the nature of
the relationship between the parties. Regulation Best Interest and Form CRS had a compliance date of June 30, 2020.
The Regulation Best Interest
Rules have impacted the conduct of our business, especially with respect to our business with our retail clients. The need for enhanced
documentation for recommendations of securities transactions to broker-dealer retail clients as well as the increased supervision of sales
practices and transactions increased the amount of record-keeping and training for our sales staff. The related new rules and procedures
have and may continue to bring increased costs associated with compliance and enhanced technology.
We operate pursuant to the
Regulation Best Interest Rules and as such, we conduct thorough training of all our employees with respect to the requirements of Regulation
Best Interest. Additionally, we created the Regulation Best Interest Rule’s required documents and completed each of the required
mailings (both electronic and conventional) prior to the effective date. We believe that the changes made to our business processes resulted
in compliance with these new requirements. As business continues to be conducted under the Regulation Best Interest Rules, it is likely
that additional changes may be necessary.
SIPC
As a registered broker-dealer
and FINRA member organization, MSCO and RISE are required by federal law to belong to SIPC which provides, in the event of the liquidation
of a broker-dealer, protection for securities held in customer accounts held by the firm of up to $500,000 per customer, subject to a
limitation of $250,000 on claims for cash balances. SIPC is principally funded through assessments on registered broker-dealers. MSCO
has purchased $50 million additional account protection above SIPC coverage. Equities, bonds, mutual funds and money market funds are
included at net asset value for purposes of SIPC protection and the additional protection. Neither SIPC protection nor the additional
protection insures against fluctuations in the market value of securities.
Siebert 2023 Form-10K 6
MSRB
MSCO is also authorized by
the Municipal Securities Rulemaking Board (“MSRB”) to affect transactions in municipal securities on behalf of its customers
and has obtained certain additional registrations with the SEC and state regulatory agencies necessary to permit it to engage in certain
other activities incidental to its brokerage business.
Margin Lending
Margin lending activities
are subject to limitations imposed by regulations of the Board of Governors of the Federal Reserve System and FINRA, as well as other
SROs. In general, these regulations provide that, in the event of a significant decline in the value of securities collateralizing a margin
account, we are required to obtain additional collateral from the borrower or liquidate securities positions. Margin lending arranged
by MSCO through third parties is subject to the margin rules of the Board of Governors of the Federal Reserve System and the NYSE. Under
such rules, broker-dealers are limited in the amount they may lend in connection with certain purchases and short sales of securities
and are also required to impose certain maintenance requirements on the amount of securities and cash held in margin accounts. In addition,
those rules and rules of the Chicago Board Options Exchange govern the amount of margin customers must provide and maintain in writing
uncovered options.
Investment Advisers Act of 1940
SNXT is registered with the
SEC as an investment adviser pursuant to the Advisers Act. The Advisers Act, together with the SEC’s regulations and interpretations
thereunder, is a highly prescriptive regulatory statute. The SEC is authorized to institute proceedings and impose sanctions for violations
of the Advisers Act, ranging from fines and censures to termination of an adviser’s registration and, in the case of willful violations,
can refer a matter to the United States Department of Justice for criminal prosecution.
Under the Advisers Act, an
investment adviser (whether or not registered under the Advisers Act) owes fiduciary duties to its clients. These duties impose standards,
requirements and limitations on, among other things, trading for proprietary, personal and client accounts; allocations of investment
opportunities among clients; use of “soft dollar arrangements,” a practice that involves using client brokerage commissions
to purchase research or other services that help managers make investment decisions; execution of transactions; and recommendations to
clients.
As an RIA, SNXT is subject
to additional requirements that cover, among other things, disclosure of information about its business to clients; maintenance of written
policies and procedures; maintenance of extensive books and records; restrictions on the types of fees SNXT may charge; custody of client
assets; client privacy; advertising; and solicitation of clients. The SEC has legal authority to examine any RIA and, depending upon the
type of exam, may review the examined RIAs to determine whether the adviser is conducting its activities in compliance with (i) applicable
laws and regulations, (ii) disclosures made to clients and (iii) adequate systems, policies and procedures reasonably designed to prevent
and detect violations of the Advisers Act.
Section 28(e) of the Exchange
Act provides a “safe harbor” to investment managers who use commission dollars generated by their advised accounts to obtain
investment research and brokerage services that provide lawful and appropriate assistance to the manager in the performance of investment
decision-making responsibilities. SNXT, as a matter of policy, does not use “soft dollars” and as such, it has no incentive
to select or recommend a broker or dealer based on any interest in receiving research or related services. Rather, as a fiduciary, SNXT
selects brokers based on its clients’ interests in receiving best execution.
Bank Secrecy Act of 1970
We conduct financial services
activities that are subject to the Bank Secrecy Act of 1970 (“BSA”), as amended by the USA PATRIOT Act of 2001 (“PATRIOT
Act”), which require financial institutions to develop and implement programs reasonably designed to achieve compliance with these
regulations. The BSA and PATRIOT Act include a variety of monitoring, recordkeeping, and reporting requirements (such as currency transaction
reporting and suspicious activity reporting) as well as identity verification and client due diligence requirements, which are intended
to detect, report and/or prevent money laundering, and the financing of terrorism. As FINRA member firms, MSCO and RISE are subject to
FINRA rules requiring written anti-money laundering programs. In addition, we are subject to U.S. sanctions programs administered by the
Office of Foreign Assets Control.
Siebert 2023 Form-10K 7
Net Capital
As registered broker-dealers,
MSCO and RISE are subject to the requirements of the Exchange Act and the rules thereunder relating to broker-dealers, such as minimum
net capital requirements under the SEC Uniform Net Capital Rule (Rule 15c3-1) and segregation of fully paid client funds and securities
under the SEC Customer Protection Rule (Rule 15c3-3), administered by the SEC and FINRA.
Net capital rules are designed
to protect clients, counterparties and creditors by requiring a broker-dealer to have sufficient liquid resources available to satisfy
its financial obligations. Net capital is a measure of a broker-dealer’s readily available liquid assets, reduced by its total liabilities
other than approved subordinated debt. Under the SEC Uniform Net Capital Rule, a broker-dealer may not repay any subordinated borrowings,
pay cash dividends or make any unsecured advances or loans to its parent company or employees if such payment would result in a net capital
amount below required levels. Failure to maintain the required regulatory net capital may subject a firm to suspension or expulsion by
the NYSE or FINRA, as well as certain punitive actions by the SEC and other regulatory bodies, which ultimately could require a firm’s
liquidation.
Best Execution
As explained in SEC guidelines
and FINRA rules, brokers are required to seek the “best execution” reasonably available for their clients’ orders. In
part, this requires brokers to use reasonable diligence so that the price to the client is as favorable as possible under prevailing market
conditions. MSCO and RISE send client orders for execution to a number of market centers, including market makers and exchanges, which
encourages competition and ensures redundancy. For non-directed client orders, it is our policy to route orders to market centers based
on a number of factors that are more fully discussed in the Supplemental Materials of FINRA Rule 5310, including, where applicable, but
not necessarily limited to, speed of execution, price improvement opportunities, differences in price dis-improvement, likelihood of execution,
the marketability of the order, size guarantees, service levels and support, the reliability of order handling systems, client needs and
expectations, transaction costs, and whether the firm will receive remuneration for routing order flow to such market centers. Price improvement
is available under certain market conditions and for certain order types and we regularly monitor executions to ensure best execution
standards are met.
Consumer Financial Information Privacy
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 and regulations governing the protection
of personally identifiable information. These laws and regulations are increasing in complexity and number, change frequently and sometimes
conflict. To the extent they are applicable to us, we must comply with federal and state information-related laws and regulations in the
United States, including the Gramm-Leach-Bliley Act of 1999, SEC Regulation S-P, the Fair Credit Reporting Act of 1970, as amended, and
Regulation S-ID (the Identity Theft Red Flags Rule), as well as the California Consumer Protection Act and further potential federal and
state requirements.
Human Capital
Our success depends on our
ability to attract, hire, retain and develop highly skilled professionals in a variety of specialties, including finance, technology,
compliance, business development, cybersecurity and management. Due to the complexity of our business, we compete for talent with other
companies, both inside and outside of our industry, and in multiple geographical areas in the U.S.
Our human capital efforts
focus on establishing a culture of service that emphasizes taking care of our employees, so they can take care of our clients. To that
end, we seek employees who are approachable, proactive, collaborative, agile and innovative, and who share our commitment to excellence,
integrity, and service. As of May 1, 2024, we had 124 employees, two of whom were corporate officers. None of our employees are represented
by a union, and we believe that relations with our employees are good.
To maintain a high-caliber,
values-driven workforce that is committed to our culture, we strive to offer total rewards, including compensation and benefits that position
our company as an employer of choice. We design our compensation to be competitive in the markets in which we compete, and closely monitor
industry trends and practices to ensure we are able to attract and retain the personnel who are critical to our success. To support our
employees’ health and well-being, we offer competitive medical, dental and vision plans as well as other health benefits.
We believe in our employees’
potential and provide training and development opportunities intended to maximize their performance and professional growth. We require
all of our employees to complete courses in key regulatory areas, such as insider trading and anti-money laundering compliance.
We aim to provide a safe,
inclusive environment for our employees where they feel engaged in our business, supported in who they are and empowered to succeed. We
are committed to providing a workplace that is free from violence, harassment and other unsafe or disruptive conditions, and require our
personnel to attend regular training sessions and workshops on those topics.
Siebert 2023 Form-10K 8
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 Wall Street
Reform and Consumer Protection Act (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.
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 Commodity Futures Trading Commission (“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 National Futures Association (“NFA”) and function as a registered introducing broker.
Siebert 2023 Form-10K 9
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 by 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.
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.
Siebert 2023 Form-10K 10
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, change 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. In addition, our liability insurance might not be sufficient in type or amount to cover us against claims related to security
breaches, cyber-attacks and other related breaches.
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