Edgar Filing: COWEN GROUP, INC.

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

FORM 10-Q


(Mark One)
ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
or
o		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: 001-34516

Cowen Group, Inc.
(Exact name of registrant as specified in its charter)


Delaware (State or Other Jurisdiction of Incorporation or Organization)		27-0423711 (I.R.S. Employer Identification No.)
599 Lexington Avenue New York, New York (Address of Principal Executive Offices)		10022 (Zip Code)

(212) 845-7900
(Registrant's telephone number, including area code)

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 ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer ý		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of November 4, 2011 there were 115,581,533 shares of the registrant's common stock outstanding.

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Item No.

PART I. FINANCIAL INFORMATION			4
	1. Unaudited Condensed Consolidated Financial Statements		4
		Condensed Consolidated Statements of Financial Condition	4
		Condensed Consolidated Statements of Operations	5
		Condensed Consolidated Statements of Changes in Equity	6
		Condensed Consolidated Statements of Cash Flows	7
		Notes to Condensed Consolidated Financial Statements	9
	2. Management's Discussion and Analysis of Financial Condition and Results of Operations		69
	3. Quantitative and Qualitative Disclosures About Market Risk		107
	4. Controls and Procedures		107
PART II. OTHER INFORMATION			108
	1. Legal Proceedings		108
	1A. Risk Factors		111
	2. Unregistered Sales of Equity Securities and Use of Proceeds		112
	3. Defaults Upon Senior Securities		112
	4. (Removed and Reserved)		112
	5. Other Information		112
	6. Exhibits		112
SIGNATURES			113
EXHIBIT INDEX			114
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32

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Special Note Regarding Forward-Looking Statements

We have made statements in this Quarterly Report on Form 10-Q (including in "Management's Discussion and Analysis of Financial Condition and Results of Operations") that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking terms such as "may," "might," "will," "would," "could," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "project," "possible," "potential," "intend," "seek" or "continue," the negative of these terms and other comparable terminology or similar expressions. In addition, our management may make forward-looking statements to analysts, representatives of the media and others. These forward-looking statements represent only the Company's beliefs regarding future events (many of which, by their nature, are inherently uncertain and beyond our control) and are predictions only, based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by the forward-looking statements. In particular, you should consider the risks contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010 updated in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update any of these forward-looking statements after the date of this filing to conform our prior statements to actual results or revised expectations.

Unaudited Condensed Consolidated Financial Statements are presented for the three and nine months ended September 30, 2011 and 2010. The Condensed Consolidated Financial Statements as of December 31, 2010 were audited.

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PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

Cowen Group, Inc.

Condensed Consolidated Statements of Financial Condition

(in thousands, except share and per share data)

(unaudited)

				As of September 30, 2011			As of December 31, 2010

Assets
	Cash and cash equivalents			$	83,520		$	36,354
	Cash collateral pledged				9,764			8,633
	Securities owned, at fair value				801,080			474,663
	Securities purchased under agreements to resell				238,149			97,755
	Other investments				51,222			39,752
	Receivable from brokers				121,616			95,937
	Fees receivable				21,572			31,688
	Due from related parties (see Note 19)				17,686			16,370
	Fixed assets, net of accumulated depreciation and amortization of $22,448 and $17,764, respectively				46,497			36,591
	Goodwill				27,179			27,179
	Intangible assets, net of accumulated amortization of $10,859 and $8,146, respectively				15,121			12,754
	Other assets				41,200			19,456
	Consolidated Funds
	Cash and cash equivalents				191			7,210
	Securities owned, at fair value				4,246			8,722
	Other investments, at fair value				243,617			333,374
	Other assets				257			732

			Total Assets	$	1,722,917		$	1,247,170

Liabilities and Stockholders' Equity
	Securities sold, not yet purchased, at fair value			$	451,128		$	197,916
	Securities sold under agreements to repurchase				138,837			192,165
	Payable to brokers				336,749			85,655
	Compensation payable				35,023			76,204
	Short-term borrowings and other debt				6,022			31,733
	Fees payable (see Note 19)				3,202			8,797
	Due to related parties (see Note 19)				1,482			9,187
	Accounts payable, accrued expenses and other liabilities				57,050			42,267
	Consolidated Funds
	Capital withdrawals payable				—			7,817
	Accounts payable, accrued expenses and other liabilities				216			1,827

			Total Liabilities		1,029,709			653,568

Commitments and Contingencies (see Note 13)
Redeemable non-controlling interests					107,970			144,346

Stockholders' equity
	Preferred stock, par value $0.01 per share; 10,000,000 shares authorized, no shares issued and outstanding				—			—
	Class A common stock, par value $0.01 per share: 250,000,000 shares authorized, 118,494,951 issued and 115,086,360 outstanding as of September 30, 2011 and 75,490,209 shares issued and outstanding as of December 31, 2010, (including 1,083,330 and 1,554,124 restricted shares, respectively)				1,135			726
	Class B common stock, par value $0.01 per share: 250,000,000 authorized, no shares issued and outstanding				—			—
	Additional paid-in capital				680,355			504,480
	(Accumulated deficit) retained earnings				(84,083	)		(55,970	)
	Accumulated other comprehensive income				(469	)		20
	Less: Class A common stock held in treasury, at cost: 3,408,528 shares as of September 30, 2011				(11,700	)		—

		Total Stockholders' Equity			585,238			449,256

			Total Liabilities and Stockholders' Equity	$	1,722,917		$	1,247,170

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Cowen Group, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

				Three Months Ended September 30,						Nine Months Ended September 30,

				2011			2010			2011			2010
Revenues
	Investment banking			$	10,816		$	7,199		$	39,841		$	23,142
	Brokerage				26,459			26,020			78,657			85,389
	Management fees				14,778			8,278			37,799			26,429
	Incentive income				(1,823	)		2,672			3,233			4,666
	Interest and dividends				11,083			4,270			21,483			7,054
	Reimbursement from affiliates				978			1,380			2,968			4,864
	Other revenues				236			622			1,157			1,642
	Consolidated Funds
		Interest and dividends			138			1,764			443			10,510
		Other			163			(3	)		171			384

			Total revenues		62,828			52,202			185,752			164,080
Expenses
	Employee compensation and benefits				46,002			47,994			134,664			130,005
	Floor brokerage and trade execution				4,657			3,664			12,452			12,637
	Interest and dividends				1,922			1,299			7,645			2,366
	Professional, advisory and other fees				8,440			3,258			25,978			8,519
	Service fees				3,815			3,783			11,792			12,359
	Communications				4,619			3,584			11,855			10,198
	Occupancy and equipment				6,301			5,609			16,413			17,559
	Depreciation and amortization				3,328			2,212			7,397			7,096
	Client services and business development				3,534			2,885			12,343			11,316
	Other				3,066			4,712			7,101			15,529
	Consolidated Funds
		Interest and dividends			51			109			137			1,499
		Professional, advisory and other fees			1,002			843			2,075			2,352
		Floor brokerage and trade execution			—			6			—			1,000
		Other			82			287			423			753

			Total expenses		86,819			80,245			250,275			233,188
Other income (loss)
	Net gains (losses) on securities, derivatives and other investments				(22,156	)		8,810			(4,798	)		9,983
	Bargain purchase gain				—			—			22,244			—
	Consolidated Funds:
		Net realized and unrealized gains (losses) on investments and other transactions			(3,181	)		8,220			4,133			19,225
		Net realized and unrealized gains (losses) on derivatives			70			(1,312	)		(456	)		(813	)
		Net gains (losses) on foreign currency transactions			313			(702	)		40			(650	)

			Total other income		(24,954	)		15,016			21,163			27,745

			Income (loss) before income taxes		(48,945	)		(13,027	)		(43,360	)		(41,363	)

Income tax expense (benefit)					72			299			(17,720	)		632

			Net income (loss)		(49,017	)		(13,326	)		(25,640	)		(41,995	)
	Net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries				(783	)		2,029			2,473			7,533

			Net income (loss) attributable to Cowen Group, Inc. stockholders	$	(48,234	)	$	(15,355	)	$	(28,113	)	$	(49,528	)

Weighted average common shares outstanding:
	Basic				115,664			73,385			89,118			72,866
	Diluted				115,664			73,385			89,118			72,866
Earnings (loss) per share:
	Basic			$	(0.42	)	$	(0.21	)	$	(0.32	)	$	(0.68	)

	Diluted			$	(0.42	)	$	(0.21	)	$	(0.32	)	$	(0.68	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Cowen Group, Inc.

Condensed Consolidated Statements of Changes in Equity

(in thousands, except share data)

(unaudited)

				Common Stock		Treasury Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income			Retained Earnings/ (Accumulated deficit)			Total Stockholders' Equity			Redeemable Noncontrolling Interest			Total Comprehensive Income (Loss)

Balance, December 31, 2010		75,490,209		$	726	$	—		$	504,480	$	20		$	(55,970	)	$	449,256		$	144,346

Comprehensive income (loss):
	Net income (loss)	—			—		—			—		—			(28,113	)		(28,113	)		2,473		$	(25,640	)
	Defined Benefit Plans	—			—		—			—		(137	)		—			(137	)		—			(137	)
	Foreign currency translation	—			—		—			—		(352	)		—			(352	)		—			(352	)

Total comprehensive income (loss)		—			—		—			—		(489	)		(28,113	)		(28,602	)		2,473		$	(26,129	)
Capital contributions		—			—		—			—		—			—			—			4,038
Capital withdrawals		—			—		—			—		—			—			—			(46,357	)
Consolidation of RCG Linkem II LLC		—			—		—			—		—			—			—			3,470
Restricted stock awards issued		2,154,609			—		—			—		—			—			—			—
Common stock issuance upon acquisition (see Note 2)		40,850,133			409		—			155,639		—			—			156,048			—
Purchase of treasury stock, at cost		(3,408,591	)		—		(11,700	)		—		—			—			(11,700	)		—
Amortization of share based compensation		—			—		—			20,236		—			—			20,236			—

Balance, September 30, 2011		115,086,360		$	1,135	$	(11,700	)	$	680,355	$	(469	)	$	(84,083	)	$	585,238		$	107,970

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Cowen Group, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

						Nine Months Ended September 30,

						2011			2010
						(dollars in thousands)
Cash flows from operating activities:
	Net income (loss)					$	(25,640	)	$	(41,995	)
	Adjustments to reconcile net income (loss) to net cash provided by / (used in) operating activities:
		Bargain purchase gain					(22,244	)		—
		Depreciation and amortization					7,397			7,096
		Share-based compensation					20,236			17,286
		Net loss on disposal of fixed assets					—			267
		Purchases of securities owned, at fair value					(6,750,192	)		(1,963,890	)
		Proceeds from sales of securities owned, at fair value					6,524,723			1,352,942
		Proceeds from the sale of securities sold, not yet purchased, at fair value					3,464,059			1,170,810
		Payments to cover securities sold, not yet purchased, at fair value					(3,246,988	)		(911,040	)
		Net (gains) losses on securities, derivatives and other investments					11,239			(12,305	)
		Consolidated Funds:
			Purchases of securities owned, at fair value				(368,933	)		(302,406	)
			Proceeds from sales of securities owned, at fair value				373,392			292,548
			Purchases of other investments				(15,108	)		(23,693	)
			Proceeds from sales of other investments				106,611			252,930
			Net realized and unrealized (gains) losses on investments and other transactions				(1,729	)		(22,452	)
		(Increase) decrease in operating assets:
			Cash acquired upon acquisition (see Note 2)				117,496			—
			Cash collateral pledged				(4	)		(1,381	)
			Securities owned, at fair value, held at broker dealer				95,813			74,384
			Receivable from brokers				68,075			(20,377	)
			Fees receivable				10,116			2,455
			Due from related parties				2,154			2,337
			Other assets				(16,960	)		3,054
			Consolidated Funds:
				Cash and cash equivalents			7,019			948
				Other assets			475			134
		Increase (decrease) in operating liabilities:
			Securities sold, not yet purchased, at fair value, held at broker dealer				(131,773	)		36,584
			Payable to brokers				169,558			99,914
			Compensation payable				(46,404	)		(39,693	)
			Fees payable				(6,564	)		(3,208	)
			Due to related parties				(7,705	)		221
			Accounts payable, accrued expenses and other liabilites				(1,329	)		(21,011	)
			Consolidated Funds:
				Accounts payable, accrued expenses and other liabilities			(1,611	)		1,966

					Net cash provided by / (used in) operating activities		335,179			(47,575	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Cowen Group, Inc.

Condensed Consolidated Statements of Cash Flows (Continued)

(in thousands)

(unaudited)

				Nine Months Ended September 30,

				2011			2010
				(dollars in thousands)
Cash flows from investing activities:
	Securities purchased under agreements to resell				(140,394	)		(180,903	)
	Purchases of other investments				(56,565	)		(207,021	)
	Proceeds from sales of other investments				52,134			199,940
	Purchase of fixed assets				(5,786	)		(1,794	)

			Net cash provided by / (used in) investing activities		(150,611	)		(189,778	)

Cash flows from financing activities:
	Securities sold under agreements to repurchase				(53,328	)		259,454
	Repayments on short-term borrowings and other debt				(26,204	)		(25,001	)
	Borrowings on short-term borrowings and other debt				493			—
	Purchase of treasury stock				(8,228	)		—
	Capital withdrawals to non-controlling interests in operating entities				(2,009	)		—
	Consolidated Funds:
		Capital contributions by non-controlling interests in Consolidated Funds			4,038			5,603
		Capital withdrawals to non-controlling interests in Consolidated Funds			(52,164	)		(122,485	)

			Net cash (used in) / provided by financing activities		(137,402	)		117,571

Change in cash and cash equivalents					47,166			(119,782	)
Cash and cash equivalents at beginning of year					36,354			147,367

Cash and cash equivalents at end of period				$	83,520		$	27,585

Supplemental non-cash information:
	Deconsolidation of CHRP GP (see Note 3b)			$	—		$	1,712

	Net assets of consolidated entity			$	3,470		$	—

	Net settlement of cash collateral pledged with repayments on the line of credit			$	—		$	6,745

	Purchase of treasury stock, at cost, upon close of acquisition (see Note 16)			$	1,906		$	—

	Purchase of treasury stock, at cost, through net settlement (see Note 16)			$	1,566

	Common stock issuance upon close of acquisition (See Note 2)			$	156,048		$	—

	Net assets acquired upon acquisition (net of cash) (see Note 2)			$	58,486		$	—

	Non compete agreements acquired (see Note 2)			$	2,310		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Organization and Business

Cowen Group, Inc., a Delaware corporation, was formed on June 1, 2009 in connection with the Transaction Agreement and Agreement and Plan of Merger ("Transaction Agreement"), dated as of June 3, 2009, by and among Cowen Holdings, Inc. ("Cowen Holdings," formerly Cowen Group, Inc.), Lexington Merger Corp., Ramius LLC ("Ramius," formerly Park Exchange LLC) and RCG Holdings LLC ("RCG," formerly Ramius LLC).

Cowen Group, Inc. is a diversified financial services firm and, together with its consolidated subsidiaries (collectively, "Cowen," "Cowen Group" or the "Company"), provides alternative investment management, investment banking, research, market-making and sales and trading services through its two business segments: alternative investment management and broker-dealer. The alternative investment management segment includes hedge funds, replication products, mutual funds, managed futures funds, fund of funds, real estate, healthcare royalty funds, cash management services and mortgage advisory services, offered primarily under the Ramius name. The broker-dealer segment offers industry-focused investment banking services for growth-oriented companies, including advisory and global credit markets origination and domain knowledge-driven research, and a sales and trading platform for institutional investors, primarily under the Cowen name and an Exchange Traded Funds ("ETFs") market-making business, both domestically and internationally.

2. Acquisition

The acquisition of LaBranche & Co Inc. ("LaBranche") by the Company was consummated pursuant to the terms of the Agreement and Plan of Merger ("Merger Agreement"), dated as of February 16, 2011, after the market close on June 28, 2011. LaBranche Capital, LLC (LCAP), which was renamed "Cowen Capital LLC" following consummation of the acquisition, was a wholly owned subsidiary of LaBranche and is now a wholly-owned subsidiary of the Company, is a registered broker-dealer and Financial Industry Regulatory Authority ("FINRA") member firm that operates as a market-maker in ETFs, engages in hedging activities in options, ETFs, structured notes, foreign currency securities and futures related to its market-making operations and also conducts principal trading activities in these securities. Prior to the acquisition, LaBranche discontinued certain operations in its market-making segment, including upstairs options market-making on various exchanges and electronic market-making in the International Securities Exchange. As of the close of market on June 28, 2011, LaBranche stock was delisted and no longer trades on the New York Stock Exchange.

Under the terms of the Merger Agreement, each outstanding share of LaBranche was converted into 0.9980 shares of Cowen Class A common stock (the "Exchange Ratio"). The consideration received by LaBranche's shareholders was valued at approximately $156 million in the aggregate, based on the closing price of Cowen Class A common stock on the NASDAQ Global Select Market of $3.82 on June 28, 2011. This is based on 40,931,997 shares of LaBranche stock that were outstanding on the date of the completion of the acquisition.

The acquisition was accounted for under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). In this case, the acquisition was accounted for as an acquisition by Cowen of LaBranche. As such, results of operations for LaBranche are included in the accompanying condensed consolidated statements of operations since the date of acquisition, and the assets acquired and liabilities assumed were recorded at their estimated fair values. The fair value of Cowen shares issued to LaBranche shareholders was the

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

2. Acquisition (Continued)

purchase consideration for the acquisition. Based on the June 28, 2011 preliminary purchase price allocation, the fair value of the net identifiable assets acquired and liabilities assumed amounted to $175.9 million, (excluding $2.3 million non-compete agreements and covenants with limiting conditions acquired) exceeding the fair value of the purchase price of $156 million. As a result, the Company recognized a preliminary, nonrecurring bargain purchase gain of approximately $22.2 million in the second quarter of 2011, which is included in other income in the condensed consolidated statements of operations for the nine months ended September 30, 2011. The Company's share price has traded below its book value for a substantial part of the last 52 weeks, and as the purchase consideration (the Exchange Ratio) was determined based on the stock price of Cowen on June 28, 2011, the purchase price allocation based on the fair value of LaBranche's net assets at acquisition date reflected in these condensed consolidated financial statements has resulted in a bargain purchase gain.

The Company is currently in the process of finalizing the valuation for certain acquired assets of LaBranche; therefore, the fair value measurements as of June 28, 2011 and the gain on acquisition of business are preliminary and subject to further adjustment. The allocation of the purchase price to the net assets acquired will be finalized as necessary, up to one year after the acquisition closing date, as information becomes available. The following table summarizes the preliminary purchase price allocation of net tangible and intangible assets acquired as of June 28, 2011:

		(dollars in thousands)

	Cash and cash equivalents	$	117,496
	Cash collateral pledged		1,127
	Securities owned, at fair value		221,855
	Other investments		2,569
	Receivable from brokers		93,754
	Fixed assets, net		8,804
	Intangibles		2,770
	Other assets		5,137
	Securities sold, not yet purchased, at fair value		(175,391	)
	Payable to brokers		(81,536	)
	Compensation payable		(3,521	)
	Fees payable		(969	)
	Unfavorable lease		(3,388	)
	Accounts payable, accrued expenses and other liabilities		(12,725	)

Total net assets acquired		$	175,982

	Non compete agreements and covenants with limiting conditions acquired		2,310
	Goodwill/(Bargain purchase gain) on transaction		(22,244)	(1)

Total purchase price		$	156,048

(1): Represents the preliminary bargain purchase gain on the acquisition.

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

2. Acquisition (Continued)

The Company believes that all of the acquired receivables and contractual amounts receivable as reflected above in the preliminary allocation of the purchase price are recorded at fair value and are expected to be collected in full.

The Company recognized approximately $0.6 million and $2.9 million of acquisition-related costs, including legal, accounting, and valuation services for the three and nine months ended September 30, 2011, respectively. These costs are included in professional, advisory and other fees and other expenses in the condensed consolidated statements of operations.

As of the acquisition date, the estimated fair value of the Company's intangibles, as acquired through the acquisition, is $2.8 million. In addition, non-compete agreements and covenants with limiting conditions for the amount of $2.3 million, were negotiated as part of the acquisition, which have been recognized separately from the acquisition of assets and liabilities assumed in accordance US GAAP. The total non-compete agreements and covenants with limiting conditions acquired of $2.5 million have been included within intangible assets, net in the condensed consolidated statements of financial condition. The allocation of the intangibles is as follows:

		Estimated Intangible Assets Acquired		Estimated average remaining useful lives

		(in thousands)		(years)
Intangible asset class
Covenants to not compete			1,950	1 or 2
Covenants with limiting conditions			580	10
Intellectual property			2,550	3

	Total intangible assets	$	5,080

Amortization expense for the three and nine months ended September 30, 2011, respectively, was $0.5 million. The estimated amortization expense related to these intangible assets in future years is as follows:

	(dollars in thousands)

2011	$	498
2012		1,883
2013		1,341
2014		483
2015		58
Thereafter		318

	$	4,581

Included in the accompanying condensed consolidated statements of operations for the three months ended September 30, 2011 and for the period from June 29, 2011 through September 30, 2011 are revenues of $0.7 million and $0.9 million, respectively, and net loss of $5.4 million and $5.2 million, respectively, related to LaBranche's results of operations.

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

2. Acquisition (Continued)

The following unaudited supplemental pro forma information presents condensed consolidated financial results for the nine month periods as if the acquisition was completed as of January 1, 2010. This supplemental pro forma information has been prepared for comparative purposes only and is not intended to be indicative of what the Company's results would have been had the acquisition been completed on January 1, 2010, nor does it purport to be indicative of any future results.

		For the nine months ended September 30,

		2011			2010
		(in thousands)
Revenues		$	186,371			165,437
Net Income (loss)			(68,714	)		(81,410	)
Net Income per common share
	Basic		(0.59	)		(0.72	)
	Diluted		(0.59	)		(0.72	)

3. Significant Accounting Policies

a. Basis of presentation

These unaudited condensed consolidated financial statements and related notes have been prepared in accordance with US GAAP and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") related to interim financial statements. Results for interim periods should not be considered indicative of results for any other interim period or for the full year. These financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2010 and 2009 and for the years ended December 31, 2010, 2009, and 2008, included in the Form 10-K of Cowen Group as filed with the SEC on March 14, 2011. The financial information contained herein is unaudited; however, management believes all adjustments have been made that are necessary for a fair presentation of the results for the interim periods. The year end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by US GAAP. All material intercompany transactions and balances have been eliminated in consolidation. Certain fund entities that are consolidated in these condensed consolidated financial statements, as further discussed below, are not subject to these consolidation provisions with respect to their own investments pursuant to their specialized accounting.

The Company serves as the managing member/general partner and/or investment manager to affiliated fund entities which it sponsors and manages. Funds in which the Company has controlling financial interest are consolidated with the Company pursuant to US GAAP as described below. Consequently, the Company's condensed consolidated financial statements reflect the assets, liabilities, income and expenses of these funds on a gross basis. The ownership interests in these funds which are not owned by the Company are reflected as redeemable non-controlling interests in consolidated subsidiaries in the accompanying condensed consolidated financial statements. The management fees and incentive income earned by the Company from these funds are eliminated in consolidation.

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

3. Significant Accounting Policies (Continued)

b. Principles of consolidation

The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting operating entity ("VOE") or a variable interest entity ("VIE") under US GAAP.

Voting Operating Entities—VOEs are entities in which (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (ii) the equity holders at risk have the obligation to absorb losses, the right to receive residual returns and the right to direct the activities of the entity that most significantly impact the entity's economic performance. VOEs are consolidated in accordance with US GAAP.

Under US GAAP, the usual condition for a controlling financial interest in an entity is ownership of a majority voting interest. Accordingly, the Company consolidates VOEs in which it owns a majority of the entity's voting shares or units. US GAAP also provide that a general partner of a limited partnership (or a managing member, in the case of a limited liability company) is presumed to control the partnership, and thus should consolidate it, unless a simple majority of the limited partners has the right to remove the general partner without cause or to terminate the partnership. In accordance with these standards, the Company presently consolidates five funds deemed to be VOEs for which it acts as the general partner and investment manager.

As of September 30, 2011 the Company consolidates the following funds (the "Consolidated Funds"): Ramius Enterprise LP ("Enterprise LP"), Ramius Multi-Strategy FOF LP ("Multi-Strat FOF"), Ramius Vintage Multi-Strategy FOF LP ("Vintage LP"), Ramius Levered Multi-Strategy FOF LP ("Levered FOF"), and RTS Global 3x Fund LP ("RTS Global 3x").

In addition, RCG Linkem II LLC, an investment company, which was formed to make an investment in a wireless broadband communication provider in Italy, was consolidated when it first commenced operations during the second quarter of 2011. The Company determined that it exercises control over RCG Linkem II LLC as it acts as a managing member of this entity.

The Company has determined that it no longer exercises control over Cowen Healthcare Royalty GP, LLC (the "CHRP GP") as it no longer acts as a managing member of this entity, and beginning with the first quarter of 2010, no longer consolidates this entity. The Company now accounts for its investment in the CHRP GP under the equity method of accounting.

Variable Interest Entities—VIEs are entities that lack one or more of the characteristics of a VOE. In accordance with US GAAP, an enterprise must consolidate all VIEs of which it is the primary beneficiary. Under the US GAAP consolidation model for VIEs, an enterprise that (1) has the power to direct the activities of a VIE that most significantly impacts the VIE's economic performance, and (2) has an obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE, is considered to have a controlling financial interest in the VIE and thus is required to consolidate it.

However, the Financial Accounting Standards Board ("FASB") has deferred the application of the new consolidation model for VIEs that meet the following conditions; (a) the entity has all the attributes of an investment company as defined under AICPA Audit and Accounting Guide, Investment

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

3. Significant Accounting Policies (Continued)

Companies, or does not have all the attributes of an investment company but is an entity for which it is acceptable based on industry practice to apply measurement principles that are consistent with the AICPA Audit and Accounting Guide, Investment Companies, (b) the reporting entity does not have explicit or implicit obligations to fund any losses of the entity that could potentially be significant to the entity, and (c) the entity is not a securitization entity, asset-backed financing entity or an entity that was formerly considered a qualifying special-purpose entity. The Company's involvement with its funds is such that all three of the above conditions are met. Where the VIEs have qualified for the deferral, the analysis is based on previous consolidation rules. These rules require an analysis to (a) determine whether an entity in which the Company holds a variable interest is a variable interest entity and (b) whether the Company's involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (e.g., management and performance related fees), would be expected to absorb a majority of the VIE's expected losses, receive a majority of the VIEs expected residual returns, or both. If these conditions are met, the Company is considered to be the primary beneficiary of the VIE and thus is required to consolidate it. Under both guidelines, the Company determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a variable interest entity and reconsiders that conclusion continuously.

The Company determines whether it is the primary beneficiary of a VIE by performing a periodic qualitative and/or quantitative analysis of the VIE that includes a review of, among other things, its capital structure, terms of any contracts between the Company and the VIE, which interests create or absorb variability, related party relationships and the design of the VIE. As of September 30, 2011, the Company does not consolidate any VIEs.

As of September 30, 2011, the Company holds a variable interest in Ramius Enterprise Master Fund Ltd ("Enterprise Master"), Ramius Multi-Strategy Master FOF LP and Ramius Vintage Multi-Strategy Master FOF LP (the "Unconsolidated Master Funds") through three of its Consolidated Funds: Enterprise LP, Multi-Strat FOF and Vintage FOF (the "Consolidated Feeder Funds"), respectively. Investment companies like the Consolidated Feeder Funds, which account for their investments under the specialized industry accounting guidance for investment companies prescribed under US GAAP, are not subject to the consolidation provisions for their investments. Therefore, the Company has not consolidated the Unconsolidated Master Funds.

In the ordinary course of business, the Company also sponsors various other entities that it has determined to be VIEs. These VIEs are primarily funds and real estate entities for which the Company serves as the general partner, managing member and/or investment manager with decision-making rights.

The Company does not consolidate any of these funds or real estate entities that are VIEs as it has concluded that it is not the primary beneficiary in each instance. Fund investors are entitled to all of the economics of these VIEs with the exception of the management fee and incentive income, if any, earned by the Company. The Company's involvement with funds and real estate entities that are unconsolidated VIEs is limited to providing investment management services in exchange for management fees and incentive income. Although the Company may advance amounts and pay certain expenses on behalf of the funds and real estate entities that it considers to be VIEs, it does not provide, nor is it required to provide, any type of substantive financial support to these entities outside of regular investment management services.

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

3. Significant Accounting Policies (Continued)

The total assets and liabilities of the variable interest entities for which the Company has concluded that it holds a variable interest, but for which it is not the primary beneficiary, are $266.8 million and $2.5 million as of September 30, 2011 and $383.3 million and $26.7 million as of December 31, 2010, respectively. In addition, the maximum exposure relating to these variable interest entities as of September 30, 2011 was $216.5 million, all of which is in other investments, at fair value and as of December 31, 2010 was $307.8 million, of which $307.2 million is included in other investments, at fair value and $0.6 million is included in due from related parties in the Company's condensed consolidated statements of financial condition, respectively. The Consolidated Feeder Funds' maximum exposure to loss related to their respective Unconsolidated Master Funds as of September 30, 2011 and December 31, 2010 was limited to their investments in their respective Unconsolidated Master Funds. See Note 5 for further information regarding the Company's investments.

Equity Method Investments—For operating entities over which the Company exercises significant influence but which do not meet the requirements for consolidation as outlined above, the Company uses the equity method of accounting. The Company's investments in equity method investees are recorded in other investments in the condensed consolidated statements of financial condition. The Company's share of earnings or losses from equity method investees is included in net gains (losses) on securities, derivatives and other investments in the condensed consolidated statements of operations.

The Company evaluates for impairment its equity method investments whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. The difference between the carrying value of the equity method investment and its estimated fair value is recognized as an impairment when the loss in value is deemed other than temporary.

Cost Method Investments—When the Company does not have a controlling financial interest and does not exert significant influence over an entity's operating and financial policies, but has an investment in private equity for which market quotations are not readily available and is not otherwise accounted for at fair value, the Company accounts for its investment in accordance with the cost method of accounting.

Other—If the Company does not consolidate an entity, apply the equity method of accounting or account for an investment under the cost method, the Company accounts for all other debt and marketable equity securities which are bought and held principally for the purpose of selling them in the near term as trading securities in accordance with US GAAP, at fair value with unrealized gains (losses) resulting from changes in fair value reflected within net gains (losses) on securities, derivatives and other investments in the condensed consolidated statements of operations.

Retention of Specialized Accounting—The Consolidated Funds are investment companies and apply specialized industry accounting for investment companies. The Company has retained this specialized accounting for these funds pursuant to US GAAP. The Consolidated Funds report their investments on the condensed consolidated statements of financial condition at their estimated fair value, with unrealized gains (losses) resulting from changes in fair value reflected as a component of operations. Accordingly, the accompanying condensed consolidated financial statements reflect different accounting policies for investments depending on whether or not they are held through a consolidated investment company. In addition, the Company's broker-dealer subsidiaries, Cowen and Company, LLC ("Cowen

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

3. Significant Accounting Policies (Continued)

and Company"), Cowen Capital LLC, Cowen International Trading Limited ("CITL"), Cowen and Company (Asia) Limited ("CCAL"), and Cowen Structured Products Hong Kong Limited ("CSPH"), apply the specialized industry accounting for brokers and dealers in securities also prescribed under US GAAP. The Company also has retained this specialized accounting in consolidation.

c. Use of estimates

The preparation of the condensed consolidated financial statements in conformity with US GAAP requires the management of the Company to make estimates and assumptions that affect the fair value of securities and other investments, the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, the accounting for goodwill and identifiable intangible assets and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

d. Valuation of investments and derivative contracts

US GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are as follows:


Level 1		Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date;
Level 2		Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; and
Level 3		Fair value is determined based on pricing inputs that are unobservable and includes situations where there is little, if any, market activity for the asset or liability. The determination of fair value for assets and liabilities in this category requires significant management judgment or estimation.

Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes "observable" requires significant judgment by the Company. The Company considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Company's perceived risk of that instrument.

The Company and its operating company subsidiaries act as the manager for the Consolidated Funds. Both the Company and the Consolidated Funds hold certain investments which are valued by

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

3. Significant Accounting Policies (Continued)

the Company, acting as the investment manager. The fair value of these investments is generally estimated based on proprietary models developed by the Company, which include discounted cash flow analyses, public market comparables, and other techniques and may be based, at least in part, on independently sourced market information. The material estimates and assumptions used in these models include the timing and expected amount of cash flows, the appropriateness of discount rates used, and, in some cases, the ability to execute, timing of, and estimated proceeds from expected financings. Significant judgment and estimation goes into the selection of an appropriate valuation methodology as well as the assumptions used in these models, and the timing and actual values realized with respect to investments could be materially different from values derived based on the use of those estimates. The valuation methodologies applied impact the reported value of the Company's investments and the investments held by the Consolidated Funds in the condensed consolidated financial statements. Certain of the Company's investments are relatively illiquid or thinly traded and may not be immediately liquidated on demand if needed. Fair values assigned to these investments may differ significantly from the fair values that would have been used had a ready market for the investments existed and such differences could be material.

The Company primarily uses the "market approach" valuation technique to value its financial instruments measured at fair value. In determining an instrument's placement within the hierarchy, the Company separates the Company's financial instruments into three categories: securities, derivative contracts and other investments. To the extent applicable, each of these categories can further be divided between those held long or sold short.

Securities—Securities whose values are based on quoted market prices in active markets for identical assets, and are therefore classified in level 1 of the fair value hierarchy, include active listed equities, certain U.S. government and sovereign obligations, ETF's and certain money market securities. The Company does not adjust the quoted price for such instruments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.

Certain positions for which there is a limited market, consisting primarily of convertible debt, corporate debt and loans, are stated at fair value. The estimated fair values assigned by management are determined in good faith and are based on available information considering, among other things, quotations provided by published pricing services, counterparties and other market participants, and pricing models using quoted inputs, and do not necessarily represent the amounts which might ultimately be realized. Such positions that trade in markets that are not considered to be active, but are valued based on quoted market prices, dealer quotations or alternative pricing sources which are supported by observable inputs are classified within level 2. As level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability.

Derivative contracts—Derivative contracts can be exchange-traded or privately negotiated over-the-counter ("OTC"). Exchange-traded derivatives, such as futures contracts and exchange traded option contracts, are typically classified within level 1 or level 2 of the fair value hierarchy depending on whether or not they are deemed to be actively traded. OTC derivatives, such as generic forwards, swaps and options, have inputs which can generally be corroborated by market data and are therefore classified within level 2. Futures, equity swaps and credit default swaps are included within other assets

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

3. Significant Accounting Policies (Continued)

on the condensed consolidated statements of financial condition and all other derivatives are included within securities owned, at fair value on the condensed consolidated statements of financial condition.

Other investments—Other investments consist primarily of portfolio funds, real estate investments and equity method investments, which are valued as follows:

i.: Portfolio funds—Portfolio funds ("Portfolio Funds") include interests in funds and investment companies managed by the Company or its affiliates. The Company follows US GAAP regarding fair value measurements and disclosures relating to investments in certain entities that calculate net asset value ("NAV") per share (or its equivalent). The guidance permits, as a practical expedient, an entity holding investments in certain entities that either are investment companies as defined by the AICPA Audit and Accounting Guide, Investment Companies, or have attributes similar to an investment company, and calculate net asset value per share or its equivalent for which the fair value is not readily determinable, to measure the fair value of such investments on the basis of that NAV per share, or its equivalent, without adjustment.

The Company categorizes its investments in Portfolio Funds within the fair value hierarchy dependent on its ability to redeem the investment. If the Company has the ability to redeem its investment at NAV at the measurement date or within the near term, the Portfolio Fund is categorized as a level 2 investment within the fair value hierarchy. If the Company does not know when it will have the ability to redeem its investment or cannot do so in the near term, the Portfolio Fund is categorized as a level 3 investment within the fair value hierarchy. See Notes 5 and 6 for further details of the Company's investments in Portfolio Funds.

ii.: Real estate investments—Real estate investments are valued at estimated fair value. The fair value of real estate investments are estimated based on the price that would be received to sell an asset in an orderly transaction between marketplace participants at the measurement date. Real estate investments without a public market are valued based on assumptions and valuation techniques used by the Company. Such valuation techniques may include discounted cash flow analysis, prevailing market capitalization rates or earning multiples applied to earnings from the investment, analysis of recent comparable sales transactions, actual sale negotiations and bona fide purchase offers received from third parties, consideration of the amount that currently would be required to replace the asset, as adjusted for obsolescence, as well as independent external appraisals. In general, the Company considers several valuation techniques when measuring the fair value of a real estate investment. However, in certain circumstances, a single valuation technique may be appropriate. Real estate investments are reviewed on a quarterly basis by the Company for significant changes at the property level or a significant change in the overall market which would impact the value of the real estate investment resulting in unrealized appreciation or depreciation.

The Company also reflects its real estate equity investments net of investment level financing. Valuation adjustments attributable to underlying financing arrangements are considered in the real estate equity valuation based on amounts at which the financing liabilities could be transferred to market participants at the measurement date.

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

3. Significant Accounting Policies (Continued)

Real estate and capital markets are cyclical in nature. Property and investment values are affected by, among other things, the availability of capital, occupancy rates, rental rates and interest and inflation rates. In addition, the Company invests in real estate and real estate related investments for which no liquid market exists. The market prices for such investments may be volatile and may not be readily ascertainable. Amounts ultimately realized by the Company from investments sold may differ from the fair values presented, and the differences could be material.

The Company's real estate investments are typically categorized as a level 3 investment within the fair value hierarchy as management uses significant unobservable inputs in determining their estimated fair value.

See Notes 5 and 6 for further information regarding the Company's investments, including equity method investments, and fair value measurements.

e. Securities purchased under agreements to resell and securities sold under agreements to repurchase

The Company uses securities purchased under agreements to resell and securities sold under agreements to repurchase ("Repurchase Agreements") as part of its liquidity management activities and to support its trading and risk management activities. In particular, securities purchased and sold under Repurchase Agreements are used for short-term liquidity purposes. As of September 30, 2011, Repurchase Agreements are secured predominantly by liquid corporate credit and/or government-issued securities. The use of Repurchase Agreements will fluctuate with the Company's need to fund short term credit or obtain competitive short term credit financing. The Company's securities purchased under agreements to resell and securities sold under agreements to repurchase were transacted pursuant to agreements with multiple counterparties as of September 30, 2011 and December 31, 2010.

Transactions involving purchases of securities under agreements to resell are carried at their contract value which approximates fair value. As of September 30, 2011 and December 31, 2010, the fair value of the collateral received by the Company was $237.8 million and $95.5 million, respectively.

Transactions involving the sale of securities under Repurchase Agreements are carried at their contract value and are accounted for as collateralized financings. In connection with these financings, as of September 30, 2011 and December 31, 2010, the Company had pledged collateral in the amount of $149.6 million and $207.4 million, respectively, which is included in securities owned, at fair value in the condensed consolidated statements of financial condition.

Collateral is valued daily and the Company and its counterparties may adjust the collateral or require additional collateral to be deposited when appropriate. Collateral held by counterparties may be sold or re-hypothecated by such counterparties, subject to certain limitations sometimes imposed by the Company. Collateralized Repurchase Agreements may result in credit exposure in the event the counterparties to the transactions are unable to fulfill their contractual obligations. The Company minimizes the credit risk associated with this activity by monitoring credit exposure and collateral values, and by requiring additional collateral to be promptly deposited with or returned to the Company when deemed necessary.

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

3. Significant Accounting Policies (Continued)

f. Deferred rent

Deferred rent primarily consists of step rent, allowances from landlords and valuing the Company's lease properties in accordance with US GAAP in relation to business combinations related to our leased properties. Step rent represents the difference between actual operating lease payments due and straight-line rent expense, which is recorded by the Company over the term of the lease, including the build-out period. This amount is recorded as deferred rent in the early years of the lease, when cash payments are generally lower than straight-line rent expense, and reduced in the later years of the lease when payments begin to exceed the straight-line expense. Landlord allowances are generally comprised of amounts received and/or promised to the Company by landlords and may be received in the form of cash or free rent. These allowances are part of the negotiated terms of the lease. The Company recorded a receivable from the landlord and a deferred rent liability when the allowances are earned. This deferred rent is amortized into income (through lower rent expense) over the term (including the pre-opening build-out period) of the applicable lease, and the receivable is reduced as amounts are received from the landlord. Liabilities resulting from valuing the Company's leased properties acquired through business combinations are quantified by comparing the current fair value of the leased space to the current rental payments. Deferred rent, included in accounts payable, accrued expenses and other liabilities in the accompanying condensed consolidated statements of financial condition, as of September 30, 2011 and December 31, 2010 is $18.1 million and $15.1 million, respectively.

g. Treasury stock

In accordance with the guidance relating to repurchases of an entity's own outstanding common stock, the Company records the purchases of stock held in treasury at cost and it is reported separately as a deduction from total stockholders' equity on the condensed consolidated statements of financial condition and changes in equity.

h. Expenses

Included within expenses for the three and nine months ended September 30, 2011 is $ 0.6 million and $2.9 million, respectively, are acquisition-related expenses such as legal, consulting and banking fees, associated with the acquisition of LaBranche and other reorganization charges within the alternative investment management business.

i. Recently adopted accounting pronouncements

In September 2011, the FASB amended the guidance for impairment testing of goodwill presented on the statement of financial condition. These amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining if it is necessary to perform the two-step goodwill impairment test required under the current guidance. The amendment is effective prospectively for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company is currently assessing the impact of this amendment on its condensed consolidated financial statements.

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

3. Significant Accounting Policies (Continued)

In June 2011, the FASB issued guidance which eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. The guidance requires consecutive presentation of the statement of operation and other comprehensive income and present reclassification adjustments on the face of the financial statement from other comprehensive income to net income. This guidance helps financial statement users better understand the causes of an entity's change in financial position and results of operations. The guidance was originally effective retrospectively for interim and annual periods beginning after December 15, 2011. On October 21, 2011 FASB proposed to defer the effective date of the guidance to interim and annual periods beginning after December 15, 2012. The Company is currently assessing the impact of this guidance on its condensed consolidated financial statements.

In May 2011, the FASB issued guidance that changes the wording used to describe many of the requirements of US GAAP for measuring the fair value and for disclosing information about fair value measurements. The guidance is effective prospectively for interim and annual periods beginning after December 15, 2011. Certain of the amendments could change how the fair value measurement guidance is applied including provisions related to highest and best use and valuation premise for nonfinancial assets, application to financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk, premiums or discounts in fair value measurement, fair value of an instrument classified in a reporting entity's shareholders' equity, and additional disclosure requirements about fair value measurements. The Company is currently assessing the impact of this guidance on its condensed consolidated financial statements.

In April 2011, the FASB issued guidance to improve the accounting for Repurchase Agreements and other agreements by modifying the criteria for determining when the transactions would be accounted for as financings (secured borrowings/lending agreements) as opposed to sales (purchases) with commitments to repurchase (resell). Specifically, the guidance removes from the assessment of effective control the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in default by the transferee. In accordance with the new guidance, the contractual rights and obligations determine effective control and there does not need to be a requirement to assess the ability to exercise those rights. The guidance is effective prospectively for new transfers and existing transactions that are modified in the first interim or annual period beginning on or after December 15, 2011. The Company is currently assessing the impact of this guidance on its condensed consolidated financial statements.

In December 2010, the FASB issued enhanced guidance on when to perform step two of the goodwill impairment test for reporting units with zero or negative carrying amounts. The updated guidance modifies existing requirements under step one of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires step two to be performed if it is more likely than not that a goodwill impairment exists. The guidance is effective for interim and annual reporting periods beginning after December 15, 2010. As the Company's reporting units do not currently have zero or negative carrying values, adoption did not have a material impact on the Company's condensed consolidated financial statements.

In December 2010, the FASB issued guidance on disclosures around business combinations for public entities that present comparative financial statements. The guidance specifies that an entity should disclose revenue and earnings of the combined entity as though the business combination(s) that

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

3. Significant Accounting Policies (Continued)

occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. As the guidance is limited to disclosures, adoption did not have a material impact on the Company's condensed consolidated financial statements.

4. Cash collateral pledged

As of September 30, 2011 and December 31, 2010, cash collateral pledged in the amount of $9.8 million and $8.6 million, respectively, primarily relates to (a) a bond held as collateral on a letter of credit and (b) letters of credit issued to the landlord of the Company's premises in New York City (see Note 14). Also included in cash collateral pledged as of September 30, 2011 and December 31, 2010 is $0.5 million, respectively, relating to an agreement that the Company has with Société Générale to cover the costs of litigation matters subject to the agreement.

5. Investments of Operating Entities and Consolidated Funds

a. Operating Entities

Securities owned, at fair value

Securities owned are held by the Company and considered held for trading and carried at fair value. Substantially all equity securities and options are pledged to the clearing broker under terms which permit the clearing broker to sell or re-pledge the securities to others subject to certain limitations.

As of September 30, 2011 and December 31, 2010, securities owned consisted of the following, at fair value:

	As of September 30, 2011		As of December 31, 2010

	(dollars in thousands)
US Government securities(a)	$	112,545	$	143,247
Common stocks		174,403		116,215
Restricted common stock		—		5,000
Convertible bonds(b)		49,981		—
Corporate bonds(c)		323,298		191,702
Exchange traded funds		93,419		566
Options		42,250		14,349
Warrants and rights		1,956		2,334
Mutual funds		3,228		1,250

	$	801,080	$	474,663

(a): As of September 30, 2011, maturities ranged from September 2014 to November 2021 and interest rates ranged between 0.25% and 8%. As of December 31, 2010, maturities

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Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

5. Investments of Operating Entities and Consolidated Funds (Continued)

ranged from November 2019 to February 2026 and interest rates ranged between 3.38% and 8%.

(b): As of September 30, 2011, maturities ranged from April 2015 to August 2027 and interest rates ranged between 2.75% and 3.25%.
(c): As of September 30, 2011, maturities ranged from January 2012 to December 2049 and interest rates ranged between 1.75% and 13.13%. As of December 31, 2010, maturities ranged from May 2011 to August 2039 and interest rates ranged between 1.4% and 13%.

The Company's direct involvement with derivative financial instruments includes credit default swaps, futures, equity swaps, options and warrants and rights. Open equity positions in futures transactions are recorded as receivables from and payables to broker-dealers or clearing brokers as applicable. The Company's derivatives trading activities exposes the Company to certain risks, such as price and interest rate fluctuations, volatility risk, credit risk, counterparty risk, foreign currency movements and changes in the liquidity of markets. The Company's long exposure to futures, equity swap and credit default swap derivative contracts, at fair value, as of September 30, 2011 and December 31, 2010 of $5.8 million and $0.4 million, respectively, is included in other assets in the accompanying condensed consolidated statements of financial condition. The Company's short exposure to futures and equity swap derivative contracts, at fair value, as of September 30, 2011 and December 31, 2010 of $1 million and $0.6 million, respectively, is included in accounts payable, accrued expenses and other liabilities in the accompanying condensed consolidated statements of financial condition. The gains/(losses) related to derivatives trading activities for the three and nine months ended September 30, 2011 were not material. The gains/(losses) on derivative contracts are included in other income in the condensed consolidated statements of operations.

Pursuant to the various derivatives transactions discussed above, the Company is required to post collateral for its obligations or potential obligations. As of September 30, 2011 and December 31, 2010, collateral consisting of $5.5 million and $3.2 million, respectively, is included in receivable from brokers on the condensed consolidated statements of financial condition. As of September 30, 2011 and December 31, 2010 all derivative contracts were with multiple major financial institutions.

Other investments

As of September 30, 2011 and December 31, 2010, other investments consisted of the following:

Other investments

	As of September 30, 2011		As of December 31, 2010

	(dollars in thousands)
(1) Portfolio Funds, at fair value	$	34,534	$	28,823
(2) Real estate investments, at fair value		2,307		1,882
(3) Equity method investments		13,880		8,734
(4) Lehman claims, at fair value		501		313

	$	51,222	$	39,752

Table of Contents

Cowen Group, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

5. Investments of Operating Entities and Consolidated Funds (Continued)

The Portfolio Funds, at fair value as of September 30, 2011 and December 31, 2010, included the following:

Real estate investments as of September 30, 2011 and December 31, 2010 are carried at fair value and include real estate equity investments held by RCG RE Manager, LLC ("RE Manager"), a real estate operating subsidiary of the Company, of $1.5 million and $1.1 million, respectively, and real estate debt investments held by the Company of $0.8 million, respectively.

Equity method investments include investments held by the Company in several operating companies whose responsibilities primarily include the day to day management of a number of real estate funds, including the portfolio management and administrative services related to the acquisition, disposition, and active monitoring of the real estate funds' underlying debt and equity investments. The Company's ownership interests in these equity method investments range from 30% to 55%. The Company holds a majority of the outstanding ownership interest (i.e., more than 50%) in three of these entities: RCG Longview Debt Fund IV Management, LLC, RCG Longview Debt Fund IV Partners, LLC and RCG Longview Partners II, LLC. The operating agreements that govern the management of day-to-day operations and affairs of each of these three entities stipulate that certain decisions require support and approval from other members in addition to the support and approval of the Company. As a result, all operating decisions made in these three entities require the support of both the Company and an affirmative vote of a majority of the other managing members who are not affiliates of the Company that is not protective in nature. As the Company does not possess control over any of these entities, the presumption of consolidation has been overcome pursuant to current accounting standards and the Company accounts for these investments under the equity method of accounting. Also included in equity method investments is the investment in (a) CHRP GP (see Note 3), (b) an investment in the CBOE (Chicago Board Options Exchange) Stock Exchange LLC representing a 9.7% stake in the exchange service provider and (c) Starboard Value LP (and certain related parties) which serves as an operating company whose responsibilities primarily include the day to day management (including

portfolio management) of a deep value small cap hedge fund and related managed accounts. The following table summarizes equity method investments held by the Company:

As of September 30, 2011, the Company's share of losses in its equity method investment in RCG Longview Partners II, LLC has exceeded the carrying amount recorded in this investee. RCG Longview Partners II, LLC, as general partner to a real estate fund, has reversed previously recorded incentive income allocations and has recorded a current clawback obligation to the limited partners in the fund. This obligation is due to a change in unrealized value of the fund on which there have previously been distributed carried interest realizations; however, the settlement of a potential obligation is not due until the end of the life of the respective fund. As the Company is obligated to return previous distributions it received from RCG Longview Partners II, LLC, it has continued to record its share of gains/losses in the investee including reflecting its share of the clawback obligation in the amount of $6.2 million. All such amounts are included in accounts payable, accrued expenses and other liabilities in the condensed consolidated statements of financial condition.

The Company's income (loss) from equity method investments was $0.5 million and $1.5 million for the three months ended September 30, 2011 and 2010, respectively, and was $2.9 million and $2.4 million for the nine months ended September 30, 2011 and 2010, respectively, and is included in net gains (losses) on securities, derivatives and other investments on the accompanying condensed consolidated statements of operations. In addition, the Company recorded no impairment charges in relation to its equity method investments for the three and nine months ended September 30, 2011 and 2010, as the recoverable value of these investments exceeds their respective carrying values.

Lehman Brothers International (Europe) ("LBIE"), through certain affiliates, was a prime broker to the Company, and the Company held cash and cash equivalent balances with LBIE. On September 15, 2008, LBIE was placed into administration (the "Administration") in the United Kingdom and, as a result, the assets held by the Company in its LBIE accounts were frozen at LBIE. The status and ultimate resolution of the assets under LBIE's Administration proceedings is uncertain. The assets of the Company at LBIE at the time of Administration (the "Total Net Equity Claim") consist of $1 million, which the Company believes will represent an unsecured claim against LBIE. This does not include claims held by the Company against LBIE through its investment in Enterprise Master discussed in Note 5b. There can be no assurance that the Total Net Equity Claim value, as determined by the Company, will be accepted by the Administrators, nor does the Company know the manner and timing in which such claim will be satisfied and the ultimate value that will be received.

Given the great degree of uncertainty as to the status of the assets held at LBIE and the process and prospects of the return of those assets, the Company has decided to record the estimated fair value of the Total Net Equity Claim at an approximately 52% discount as of September 30, 2011 and a 70% discount as of December 31, 2010, which represents management's best estimate at the respective dates of the value that ultimately may be recovered with respect to the Total Net Equity Claim (the "Estimated Recoverable Lehman Claim"). The Estimated Recoverable Lehman Claim was recorded at estimated fair value considering a number of factors including the status of the assets under U.K. insolvency laws and the trading levels of LBIE unsecured debt. In determining the estimated value of the Total Net Equity Claim, the Company was required to use considerable judgment and is based on the facts currently available. As additional information on the LBIE proceeding becomes available, the Company may need to adjust the valuation of the Estimated Recoverable Lehman Claim. The actual loss that may ultimately be incurred by the Company with respect to the pending LBIE claim is not known and could be materially different from the estimated value assigned by the Company.

Securities sold, not yet purchased, represent obligations of the Company to deliver a specified security at a contracted price and, thereby, create a liability to purchase that security at prevailing prices. The Company's liability for securities to be delivered is measured at their fair value as of the date of the condensed consolidated financial statements. However, these transactions result in off-balance sheet risk, as the Company's ultimate cost to satisfy the delivery of securities sold, not yet purchased, may exceed the amount reflected in the condensed consolidated statements of financial condition. Substantially all equity securities and options are pledged to the clearing broker under terms which permit the clearing broker to sell or re-pledge the securities to others subject to certain

limitations. As of September 30, 2011 and December 31, 2010, securities sold, not yet purchased, consisted of the following, at fair value:

Securities purchased under agreements to resell and securities sold under agreements to repurchase

The following table represents the Company's securities purchased under agreements to resell and securities sold under agreements to repurchase as of September 30, 2011and December 31, 2010:

As of September 30, 2011 and December 31, 2010 securities owned, at fair value, held by the Consolidated Funds are comprised of:

As of September 30, 2011 and December 31, 2010 other investments, at fair value, held by the Consolidated Funds are comprised of:

As of September 30, 2011 and December 31, 2010, investments in Portfolio Funds, at fair value, included the following:

Enterprise LP operates under a "master-feeder" structure with Enterprise Master, whereby Enterprise Master's shareholders are Enterprise LP and RCG II Intermediate Fund, L.P. The consolidated investments in Portfolio Funds recorded in other investments on the condensed consolidated statements of financial condition include Enterprise LP's investment of $198 million and $257 million in Enterprise Master as of September 30, 2011 and December 31, 2010, respectively. On May 12, 2010, the Company announced its intention to close Enterprise Master. Prior to this announcement, strategies utilized by Enterprise Master included merger arbitrage and activist investing, investments in distressed securities, convertible hedging, capital structure arbitrage, equity market neutral, investments in private placements of convertible securities, proprietary mortgages, structured credit investments, investments in mortgage backed securities and other structured finance products, investments in real estate and real property interests, structured private placements and other relative value strategies. Enterprise Master had broad investment powers and maximum flexibility in seeking to achieve its investment objective. Enterprise Master was permitted to invest in equity securities, debt instruments, options, futures, swaps, credit default swaps and other derivatives. Enterprise Master has been selling, and will continue to sell, its positions and return capital to its investors. There are no unfunded commitments at Enterprise LP. See Note 13 for unfunded commitments of Enterprise Master.

The investments of consolidated fund of funds investment companies of $39 million and $70 million as of September 30, 2011 and December 31, 2010, respectively, include the investments of Levered FOF, Multi-Strat FOF and Vintage FOF, all of which are investment companies managed by Ramius Alternative Solutions LLC, as well as RTS Global 3x, which is managed by Ramius Trading Strategies LLC. Multi-Strat FOF's investment objectives is to invest discrete pools of their capital among portfolio managers that invest through Portfolio Funds, forming a multi-strategy, diversified investment portfolio designed to achieve returns with low to moderate volatility. Levered FOF had a similar strategy, but on a levered basis, prior to the fund winding down. Levered FOF is no longer levered. Vintage FOF's investment objective is to allocate its capital among portfolio managers that invest through investment pools or managed accounts thereby forming concentrated investments in high conviction managers designed to achieve attractive risk adjusted returns with moderate relative volatility. RTS Global 3x's investment objective is to achieve attractive investment returns on a risk-adjusted basis that are non-correlated with the traditional equity and bond markets by investing substantially all of its capital in managed futures and global macro-based investment strategies. RTS Global 3x seeks to achieve its objective through a multi-advisor investment approach by allocating its capital among third-party trading advisors that are unaffiliated with RTS Global 3x. However, unlike a traditional "fund of funds" that invests with advisors through entities controlled by third-parties, RTS Global 3x will allocate its capital among a number of different trading accounts organized and managed by the general partner.

The following is a summary of the investments held by the four consolidated fund of funds, at fair value, as of September 30, 2011 and December 31, 2010:

With respect to the aforementioned Lehman claims, the Total Net Equity Claim of Enterprise Master consists of $24.3 million. Included in this claim were assets with a value of $9.5 million, at the time LBIE entered administration, that were returned to Enterprise Master and its affiliated funds in June 2010. Enterprise Master and its affiliated funds sold the returned assets, for an aggregate $10.7 million, and distributed this amount to Enterprise Master's investors in July 2010. As a result, the remaining Net Equity Claim for Enterprise Master is $14.8 million. Enterprise Master is valuing this claim at $9 million as of September 30, 2011. Of this amount, $7.2 million was attributable to Enterprise LP based on its ownership percentage in Enterprise Master at the time of the Administration. As discussed in Note 5a, the Company has an additional $1 million claim against LBIE as a result of certain cash and cash equivalent balances held at LBIE. LBIE claims consist of several components, valued as follows: (a) the trust assets that the Company was informed were within the control of LBIE and were expected to be returned in the relatively near term were valued at market less a 1% discount that corresponds to the fee to be charged under the Claim Resolution Agreement ("CRA"), (b) the trust assets that are not within the control of LBIE and are not believed to be held through Lehman Brothers, Inc. ("LBI") were valued at 54% with respect to US denominated Assets and 48% with respect to foreign denominated Assets, which represented the Company's estimate of potential recovery rates (c) the remaining unsecured claims against LBIE were valued at 48%, which represented the Company's estimate of potential recovery rates with respect to this exposure using available market quotes. The estimated final recoverable amount by Enterprise Master may differ from the actual recoverable amount of the pending LBIE and LBI claims, and the differences may be material.

As a result of Enterprise Master and certain of the funds managed by the Company having assets they held at LBIE frozen in their LBIE prime brokerage account and the degree of uncertainty as to the status of those assets and the process and prospects of the return of those assets, Enterprise Master and the funds managed by the Company decided that only the investors who were invested at the time of the Administration should participate in any profit or loss relating to the Estimated Recoverable Lehman Claim. As a result, Enterprise Master and certain of the funds managed by the Company with assets held at LBIE granted a 100% participation in the Estimated Recoverable Lehman Claims to Special Purpose Vehicles (the "SPVs" or "Lehman Segregated Funds") incorporated under the laws of the Cayman Islands on September 29, 2008, whose shares were distributed to each of their investor funds. Fully redeeming investors of Enterprise LP will not be paid out on the balance invested in the SPV until the claim with LBIE is settled and assets are returned by LBIE.

In addition to Enterprise Master's claims against LBIE, LBI was a prime broker to Enterprise Master and Enterprise Master holds cash balances of $5.3 million at LBI. On September 19, 2008, LBI was placed in a Securities Investor Protection Corporation ("SIPC") liquidation proceeding after the filing for bankruptcy of its parent Lehman Brothers Holdings, Inc. The status of the assets under LBI's bankruptcy proceedings has not been determined. The amount that will ultimately be recovered from LBI will depend on the amount of assets available in the fund of customer property to be established by the trustee appointed under the Securities Investor Protection Act (the "SIPA Trustee") as approved by the bankruptcy court as well as the total amount of customer claims that seek recovery from the fund of customer property. Based on court filings by the SIPA Trustee, the total amount of customer claims exceeds the assets that are likely to be in the fund of customer property. In addition, while there has been an initial ruling with respect to the claims asserted by Barclays plc against LBI relating to an asset purchase agreement entered into by Barclays plc with LBIE near the time of the SIPC liquidation proceeding, there is still uncertainty regarding the ultimate resolution of these claims that could affect the amount of assets that are included in the fund of customer property. As a result of these uncertainties and the timing of any distributions from LBI in respect of the Company's customer claims, management has estimated recovery with respect to the Company's exposure to LBI at 54% or $2.9 million as of September 30, 2011, which represents the present value of the mid point between what management believes are reasonable estimates of the low side and high side potential recovery rates with respect to the Company's exposure. The estimated recoverable amount by the Company may differ from the actual recoverable amount of the pending LBI claim, and the differences may be material.

Indirect Concentration of the Underlying Investments Held by Consolidated Funds

From time to time, through its investments in the Consolidated Funds, the Company may indirectly maintain exposure to a particular issue or issuer (both long and/or short) which may account for 5% or more of the Consolidated Funds' net assets (on an aggregated basis). Based on information that is available to the Company as of September 30, 2011 and December 31, 2010, the Company assessed whether or not its Consolidated Funds had interests in an issuer for which the Company's pro-rata share exceeds 5% of the Consolidated Funds' net assets (on an aggregated basis). There were no indirect concentrations that exceed 5% of the Consolidated Funds' net assets held by the Company as of September 30, 2011 or December 31, 2010.

Enterprise LP's investment in Enterprise Master represents Enterprise LP's proportionate share of Enterprise Master's net assets; as a result, the investment balances of Enterprise Master reflected below may exceed the net investment which Enterprise LP has recorded. The following tables present

summarized investment information for the underlying investments and derivatives held by Enterprise Master as of September 30, 2011 and December 31, 2010:

Multi-Strat FOF's and Vintage FOF's investments in their respective master funds represent their proportionate share of their master fund's net assets; as a result, the master funds investments in Portfolio Funds reflected below may exceed the net investment which Multi-Strat FOF and Vintage FOF have recorded. The following table presents summarized investment information for the

underlying Portfolio Funds held by Ramius Multi-Strategy Master FOF LP and Ramius Vintage Multi-Strategy Master FOF LP, at estimated fair value, as of September 30, 2011 and December 31, 2010:

RTS Global 3x, which commenced operations in March 2010, invests over half of its equity in six externally managed portfolio funds which primarily concentrate on futures and global macro strategies. The following table presents the summarized investment information, which primarily consists of receivables/(payables) on derivatives, for the underlying Portfolio Funds held by RTS Global 3X, at fair value, as of September 30, 2011 and December 31, 2010:

The following table presents the financial instruments recorded at fair value on the condensed consolidated statements of financial condition by caption and by level within the valuation hierarchy as of September 30, 2011 and December 31, 2010:

6. Fair Value Measurements for Operating Entities and Consolidated Funds (Continued)

The following table includes a rollforward of the amounts for the three and nine months ended September 30, 2011 and 2010 for financial instruments classified within level 3. The classification of a financial instrument within level 3 is based upon the significance of the unobservable inputs to the overall fair value measurement.

6. Fair Value Measurements for Operating Entities and Consolidated Funds (Continued)

All realized and unrealized gains (losses) in the table above are reflected in other income (loss) in the accompanying condensed consolidated statements of operations.

There were no significant transfers between level 1 and level 2 assets and liabilities for the three and nine months ended September 30, 2011 and September 30, 2010, respectively.

Receivables from and payable to brokers includes cash held at the clearing brokers, amounts receivable or payable for unsettled transactions, monies borrowed and proceeds from short sales (including commissions and fees related to securities transactions) equal to the fair value of securities sold, not yet purchased, which are restricted until the Company purchases the securities sold short. Pursuant to the master netting agreements, the Company entered into with its brokers, these balances are presented net (assets less liabilities) across balances with the same broker. As of September 30, 2011 and December 31, 2010, receivable from brokers was $121.6 million and $95.9 million, respectively. Payable to brokers was $336.7 million and $85.7 million as of September 30, 2011 and December 31, 2010, respectively.

At least annually, and more frequently if warranted, the Company assesses whether the goodwill has been impaired by comparing the estimated fair value of each reporting unit with its estimated net book value. Periodically estimating the fair value of a reporting unit requires significant judgment and often involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant effect on whether or not an impairment charge is recorded and the magnitude of

such a charge. There were no additions or impairment losses to goodwill during the three and nine months ended September 30, 2011.

As a result of increased uncertainty and current market dynamics, making a judgment on the goodwill asset is increasingly difficult and requires significant judgment by management. In addition, to the extent that the stock prices are depressed for prolonged periods of time and market conditions stagnate or worsen as a result of global debt fears and the threat of another financial crisis, or if we continue to experience significant decreases in revenues, profitability, our stock price may continue to be adversely affected. Although the stock price is just one factor in the calculation of fair value, if current stock price levels continue or decline further, reaching the conclusion that fair value exceeds carrying value will, over time, become more difficult. As a result, subsequent impairment tests may be more frequent and be based upon more negative assumptions and future cash flow projections, which may result in an impairment of this asset. Any impairment could reduce the recorded amount of goodwill with a corresponding charge to our earnings.

Redeemable non-controlling interests in consolidated subsidiaries and the related net income (loss) attributable to redeemable non-controlling interests in consolidated subsidiaries are comprised as follows:

The Company issues share based compensation under Cowen Holdings' previously established 2006 Equity and Incentive Plan, the 2007 Equity and Incentive Plan and the Cowen Group, Inc. 2010 Equity and Incentive Plan (collectively, the "Equity Plans"). The Equity Plans permit the grant of options, restricted shares, restricted stock units and other equity based awards to the Company's employees, consultants and directors for up to 17,725,000 shares of common stock. Stock options granted generally vest over two to five year periods and expire seven years from the date of grant. Restricted shares and restricted share units issued may be immediately vested or may generally vest over a two to five year period. As of September 30, 2011, there were approximately 0.7 million shares available for future issuance under the Equity Plans. On January 1, 2011, 0.9 million shares were added to the shares available under the 2010 Equity and Incentive Plan to bring the total equal to 7.5% of the Company's outstanding shares of stock.

In addition to the Equity Plans, certain employees of the Company were issued RCG membership interests by RCG, a related party of the Company, in connection with the Transactions (the "RCG Grants"). Substantially all of the assets owned by RCG consist of shares of common stock of the Company. Accordingly, upon withdrawal of capital from RCG, members receive either distributions in kind of shares of common stock of the Company, or the proceeds from the sale of shares of the Company's common stock attributable to their capital accounts. The RCG Grants are subject to a service condition and vest to each employee over a period of approximately three years. Any RCG Grants forfeited are redistributed to the remaining stakeholders in RCG, which includes both employees and non-employees. The RCG Grants represent awards to employees of the Company by a related party, as compensation for services provided to the Company. As such, the expense related to these grants is included in the compensation expense of the Company, with a corresponding credit to stockholders equity.

The Company measures compensation cost for share based awards according to the equity method. In accordance with the expense recognition provisions of those standards, the Company amortizes unearned compensation associated with share based awards on a straight-line basis over the vesting period of the option or award. In relation to awards under the Equity Plans, the Company recognized expense of $5.1 million and $6.5 million for the three months ended September 30, 2011 and 2010, respectively, and $15.6 million and $12.2 million for the nine months ended September 30, 2011 and 2010, respectively. The income tax effect recognized for the Equity Plans was a benefit of $2.8 million and $2.9 million for the three months ended September 30, 2011 and 2010, respectively, and $7.8 million and $5.5 million for the nine months ended September 30, 2011 and 2010, respectively.

In relation to awards under the RCG Grants, the Company recognized expense of $1 million and $1.5 million, respectively, for the three months ended September 30, 2011 and 2010 and $3.9 million and $5.1 million for the nine months ended September 30, 2011 and 2010, respectively. The income tax effect recognized for the RCG Grants was a benefit of $0.4 million and $0.5 million, respectively, for the three months ended September 30, 2011 and 2010, respectively, and $1.5 million and $1.9 million for the nine months ended September 30, 2011 and 2010, respectively.

The following table summarizes the Company's stock option activity for the nine months ended September 30, 2011:

As of September 30, 2011, there was $0.2 million of unrecognized compensation expense related to the Company's grant of stock options.

The following table summarizes the Company's restricted share and restricted stock unit activity for the nine months ended September 30, 2011:

The fair value of restricted stock is determined based on the number of shares granted and the quoted price of the Company's common stock on the date of grant.

As of September 30, 2011, there was $29.8 million of unrecognized compensation expense related to the Company's grant of nonvested restricted shares and restricted stock units to employees.

Unrecognized compensation expense related to nonvested restricted shares and restricted stock units granted to employees is expected to be recognized over a weighted-average period of 1.43 years.

The following table summarizes the Company's RCG Grants activity for the nine months ended September 30, 2011:

The fair value of the RCG Grants was determined based on the number of the Company's shares underlying the RCG membership interest and the quoted price of the Company's common stock on the date of the Transactions.

As of September 30, 2011 there was $6.4 million of unrecognized compensation expense related to the Company's RCG Grants. Unrecognized compensation expense related to RCG Grants is expected to be recognized over a weighted-average period of 1.08 years.

Restricted Shares and Restricted Stock Units Granted to Non-employee Board Members

There were 18,845 and 163,554 restricted stock units awarded during the three and nine months ended September 30, 2011, respectively. Vested awards of 73,480 were delivered to non-employee members of the Company's Board of Directors during the nine months ended September 30, 2011. As of September 30, 2011 there were 188,128 restricted stock units outstanding for awards to non-employee members of the Company's Board of Directors.

The following amounts relate to the defined benefit plans in aggregate for the three and nine months ended September 30, 2011 and 2010.

During the nine months ended September 30, 2011, the Company contributed $0.6 million to its defined benefit plan. The Company does not plan to contribute any additional amounts during the fourth quarter of 2011.

The taxable results of the Company's U.S. operations are included in the consolidated income tax returns of Cowen Group, Inc. as well as stand-alone state and local tax returns. The Company has subsidiaries that are resident in foreign countries where tax filings have to be submitted on a stand-alone basis. These subsidiaries are subject to tax in their respective countries and the Company is responsible for and, thus, reports all taxes incurred by these subsidiaries. The countries where the Company owns subsidiaries are United Kingdom, Germany, Luxembourg, Gibraltar, Japan, Hong Kong, and China.

The Company calculated its U.S. tax provision using the estimated annual effective tax rate methodology. The tax expense or benefit caused by an unusual or infrequent item is recorded in the quarter in which it occurs. The Company used the discrete methodology to calculate its income tax provision for its foreign subsidiaries. Based on these methodologies, the Company's effective income tax rate was 40.87% and (1.53)% for the nine months ended September 30, 2011 and 2010, respectively. During the nine months ended September 30, 2011, the unusual or infrequent items whose tax impact was recorded discretely were the benefit from the acquisition of a reinsurance company in Luxembourg, bargain purchase gain recorded as a result of the transaction with LaBranche and tax provisions of the Company's foreign subsidiaries.

For the nine months ended September 30, 2011, the effective tax rate differs from the statutory rate of 35% primarily because of the recognition of deferred tax benefits that resulted from the

acquisition of a Luxembourg reinsurance company with deferred tax liabilities; the non-taxable bargain purchase gain recorded as a result of the transaction with LaBranche; stock compensation; non-deductible syndication costs; other non-deductible expenses, and an increase in the Company's valuation allowance. The Luxembourg reinsurance company, which carried deferred tax liabilities, was acquired by a consolidated subsidiary of the Company as part of a reinsurance service program and this subsidiary recorded a deferred tax benefit upon the acquisition of the reinsurance company pursuant to an Advance Tax Agreement.

For the nine months ended September 30, 2010, the effective tax rate differs from the statutory rate of 35% primarily due to an increase in the Company's valuation allowance.

The Company records deferred tax assets and liabilities for the future tax benefit or expense that will result from differences between the carrying value of its assets for income tax purposes and for financial reporting purposes, as well as for operating or capital loss and tax credit carryovers. A valuation allowance is recorded to bring the net deferred tax assets to a level that, in management's view, is more likely than not to be realized in the foreseeable future. This level will be estimated based on a number of factors, especially the amount of net deferred tax assets of the Company that are actually expected to be realized, for tax purposes, in the foreseeable future. As of September 30, 2011 the Company recorded a valuation allowance against substantially all of its net deferred tax assets.

The Company is subject to examination by the United States Internal Revenue Service (IRS), the United Kingdom Inland Revenue Service and state and local and foreign tax authorities in jurisdictions where the Company has significant business operations, such as New York. The Company is currently undergoing an audit by the IRS for tax years 2006 to 2009, which was automatically triggered by the Company's refund claims resulting from NOL carrybacks which exceeded Joint Committee thresholds. The Company does not believe this audit will yield any significant adjustments.

The Company intends to permanently reinvest the capital and accumulated earnings of its foreign subsidiaries in the respective subsidiary, but repatriates the current earnings of its foreign subsidiaries to the United States to the extent such repatriation is permissible under local regulatory rules. The undistributed earnings of the Company's foreign subsidiaries totaled $4.7 million as of September 30, 2011. The tax liability that would arise if these earnings were remitted to the United States is approximately $0.4 million.

The Company has entered into non-cancellable leases for office space and equipment. These leases contain rent escalation clauses. The Company records rent expense on a straight-line basis over the lease term, including any rent holiday periods. Net rent expense was $3.6 million and $4.1 million, for the three months ended September 30, 2011 and 2010, respectively, and was $10.5 million and $12 million for the nine months ended September 30, 2011 and 2010, respectively.

As of September 30, 2011, future minimum annual lease and service payments for the Company were as follows:

For financial reporting purposes, the general partners have recorded a liability for potential clawback obligations to the limited partners of a real estate fund, due to changes in the unrealized value of the fund's remaining investments and where the fund's general partner has previously received carried interest distributions.

The actual clawback liability, however, does not become realized until the end of a fund's life. The life of the real estate funds with a potential clawback obligation, including available contemplated extensions, are currently anticipated to expire at the end of 2013. Further extensions of such terms may be implemented under certain circumstances. As of September 30, 2011, the clawback obligations were $6.2 million which was recorded within accounts payable, accrued expenses and other liabilities. (See Note 19).

The Company serves as the general partner/managing member and/or investment manager to various affiliated and sponsored funds. As such, the Company is contingently liable for obligations for those entities. These amounts are not included above as the Company believes that the assets in these funds are sufficient to discharge any liabilities.

As of September 30, 2011, the Company had unfunded commitments of $6.5 million pertaining to capital commitments in three real estate investments held by the Company, all of which pertain to related party investments. Such commitments can be called at any time, subject to advance notice. The Company also has committed to invest $41 million to the funds managed by Cowen Healthcare Royalty Partners (the "CHRP Funds") as a limited partner of the CHRP Funds and also as a member of CHRP GP, the general partner of the CHRP Funds. This commitment is expected to be called over a two to five year period. The Company will make its pro-rata investment in the CHRP Funds along with

the other limited partners. Through September 30, 2011, the Company has funded $19.3 million towards these commitments. In April 2011, the Company committed $15 million to Starboard Value and Opportunity Fund LP, which may increase or decrease over time with the performance of Starboard Value and Opportunity Fund LP. As of September 30, 2011 the Company's unfunded commitment to Starboard Value and Opportunity Fund LP is $5.4 million.

The Company faces significant legal risks in its businesses and, in recent years, the volume of claims and amount of damages sought in litigation and regulatory proceedings against financial institutions have been increasing. These risks include potential liability under federal securities and other laws in connection with securities offerings and other transactions, as well as advice and opinions the Company provides concerning strategic transactions. In addition, like most financial institutions, the Company is often the subject of claims made by current and former employees arising out of their employment or termination of employment with the Company. The Company is involved in a number of judicial, regulatory and arbitration matters arising in connection with its business including those described herein.

Pursuant to US GAAP, the Company reviews the need for any loss contingency reserves, and the Company has established reserves, as described below, for certain of these matters that the Company believe are adequate as of September 30, 2011 where, in the opinion of management, the likelihood of liability is probable and the extent of such liability is reasonably estimable. These amounts are included within accounts payable, accrued expenses and other liabilities in the condensed consolidated statements of financial condition. Estimates, by their nature, are based on judgment and currently available information and involve a variety of factors, including, but not limited to, the type and nature of the litigation, claim or proceeding, the progress of the matter, the advice of legal counsel, the Company's defenses and its experience in similar cases or proceedings as well as its assessment of matters, including settlements, involving other defendants in similar or related cases or proceedings. The Company may increase or decrease its legal reserves in the future, on a matter-by-matter basis, to account for developments in such matters.

In connection with Cowen Holdings' previous initial public offering ("IPO") and separation from Société Générale ("SG") in 2006, Cowen Holdings entered into an indemnification agreement with SG under which (1) SG will indemnify, and will defend and hold harmless Cowen Holdings and each of the Cowen Holdings' subsidiaries from and against certain liabilities assumed or retained by SG; and (2) SG will indemnify Cowen Holdings for known, pending and threatened litigation (including the costs of such litigation) and certain known regulatory matters, in each case, that existed prior to the date of the Cowen Holdings' IPO to the extent the cost of such litigation results in payments in excess of the amount placed in escrow to fund such matters (the "Indemnification Agreement"). To the extent that the Company is indemnified by SG, indemnified legal expenses and liabilities will be paid out of escrow pursuant to an escrow agreement with SG. As of September 30, 2011 and December 31, 2010, the total amount reserved in relation to the Indemnification Agreement was $0.5 million, respectively, and is accrued in accounts payable, accrued expenses and other liabilities in the condensed consolidated statement of financial condition.

In view of the inherent difficulty of predicting the outcome of various claims against the Company, particularly where the matters are in early stages of discovery or claimants seek indeterminate damages, the Company cannot reasonably determine the possible outcome, the timing of ultimate resolution or estimate a range of possible loss, or impact related to each currently pending matter.

Based on information currently available, the Company believes that the amount of reasonably possible losses will not have a material adverse effect on the Company's condensed consolidated statements of financial condition or cash flows. However, in light of the uncertainties involved in such proceedings, losses may be material to the Company's operating results in a future period, depending in part, on the operating results for such period and the size of the loss or liability imposed.

There have been no material new developments in the Company's legal proceedings since the August 9, 2011 filing of its Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, except as follows:

On or about June 1, 2011, an action was filed in the Supreme Court of the State of New York (the "Supreme Court") by successor indenture trustees for certain indebtedness of the Tribune Company ("Tribune"), against persons and entities who owned stock in Tribune at the time of Tribune's leveraged buyout ("LBO") in 2007. LaBranche & Co. LLC and LaBranche Structured Products, LLC are defendants in this proceeding, initially captioned Deutsche Bank Trust Company Americas, et al. v. Adaly Opportunity Fund TD Securities Inc. c/o Adaly Investment Management Co., et al., No. 651515/2011. The Deutsche Bank plaintiffs seek to avoid and recover, as constructively fraudulent conveyances, all transfers of any proceeds in cash received by each defendant in connection with the LBO.

On or about June 2, 2011, a similar action was brought by retirees of the Times Mirror Company, Tribune, and/or more than 110 affiliates or subsidiaries of Tribune. William A. Niese, et al. v. Alliance Bernstein L.P., et al., No. 651516/2011. LaBranche Structured Products, LLC is named in the complaint but has not been served.

In July 2011, both proceedings were removed to the United States District Court of the Southern District of New York ("SDNY"). The actions are currently captioned Deutsche Bank Trust Company Americas, et al. v. Adaly Opportunity Fund TD Securities Inc. c/o Adaly Investment Management Co., et al, No. 1:11 CV 4784 and William A. Niese, et. al. v. Alliance Bernstein L.P. et al., No. 1:11 CV 4538.

On August 16, 2011, the Deutsche Bank plaintiffs moved pursuant to 28 U.S.C. § 1407, to transfer 44 actions pending in other federal districts to the SDNY for consolidated proceedings with the Deutsche Bank action under the caption In re Tribune Fraudulent Conveyance Litigation (MDL No. 2296) (the "Motion to Consolidate"). On September 13, 2011, the Niese plaintiffs filed an Interested Party Response to the Motion to Consolidate, requesting that the Panel consolidate the Niese action and several other actions with the Deutsche Bank action. Briefing on the Motion to Consolidate is complete and a hearing is scheduled for December 1, 2011.

The Deutsche Bank plaintiffs filed an Amended Complaint on August 22, 2011 and a Second Amended Complaint on October 25, 2011. The Deutsche Bank action is currently stayed until further order of the court.

The Niese plaintiffs filed a First Amended Complaint on August 17, 2011. The Niese Action is also stayed until further order of the court.

The Company cannot presently predict the ultimate outcome of the litigation or estimate the possible loss or range of loss, if any.

On July 18, 2011, the SDNY ordered the settlement stipulation between Société Générale, which was liable for any losses in the Adelphia litigation pursuant to the Indemnification Agreement by and between Cowen and Société Générale, and the Huff plaintiffs and dismissed Société Générale from the lawsuit. No settlement contribution was made by Cowen Group.

On September 2, 2011, the court denied the underwriter-defendants' (including Cowen) demurrer. On September 13, 2011 plaintiffs filed a motion for class certification, with oppositions due on December 30, 2011 and plaintiffs' reply due on January 6, 2012. A hearing on the motion is scheduled for January 13, 2012. On September 16, 2011, the underwriter-defendants filed an answer to the complaint. The Company cannot presently predict the ultimate outcome of the litigation or estimate the possible loss or range of loss, if any.

In August 2011, the parties reached an agreement in principle to settle the lawsuit. Cowen's portion of the proposed settlement does not have a material impact on the Company's condensed consolidated financial statements. The parties currently expect to enter into a stipulation of settlement which will contain customary releases and will be subject to customary conditions, including approval by the SDNY. In the event that the parties enter into a stipulation of settlement, a hearing will be scheduled at which the SDNY will consider the fairness, reasonableness and adequacy of the settlement which, if finally approved by the SDNY, will resolve all of the claims that were or could have been brought in the actions being settled. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the SDNY will approve the settlement even if the parties were to enter into such stipulation.

As previously disclosed, on May 2, 2011, the parties to the consolidated lawsuit reached an agreement in principle to settle the consolidated lawsuit, which was reflected in a memorandum of understanding, pursuant to which LaBranche and Cowen Group made certain additional disclosures in the Form S-4 filed in connection with the LaBranche transaction. On October 25, 2011, the parties executed a stipulation of settlement, which was filed with the Supreme Court on October 27, 2011. A hearing will be scheduled at which the Supreme Court will consider the fairness, reasonableness and adequacy of the settlement which, if finally approved by the Supreme Court, will resolve all of the claims that were or could have been brought in the actions being settled, including all claims relating to the acquisition, the Merger Agreement and any disclosure made in connection therewith.

On August 24, 2011, the U.S. District Court for the Southern District of California sua sponte adjourned the August 29, 2011 hearing on the motion to dismiss and will decide the motion on the briefs. The Company cannot presently predict the ultimate outcome of the litigation or estimate the possible loss or range of loss, if any.

On September 25, 2011, Cowen and Company, LLC and twenty-six other banks (the "Underwriter Defendants") were named as defendants in the putative class action filed in the SDNY. The complaint brings claims against the Underwriter Defendants under section 11 of the Securities Act of 1933 for alleged materially misleading statements and omissions in the registration statement and prospectus for a December 2009 offering of Common Equivalent Securities of Bank of America. The Company cannot presently predict the ultimate outcome of the litigation or estimate the possible loss or range of loss, if any.

In addition, the following are the Company's legal proceedings for which there have been no material developments since the August 9, 2011 filing of its Quarterly Report on Form 10-Q for the period ended June 30, 2011.

Given the additional market information available to Ramius, Ramius has decided to value its total net equity claim as follows: (i) the trust assets that the Company has been informed are within the control of LBIE and are expected to be distributed to the Company in the relatively near term are being valued at market less a 1% discount that corresponds to the fee that will be charged under the Claim Resolution Agreement for the return of trust assets, (ii) the trust assets that are not within the control of LBIE, but that Ramius believes are held by LBIE through Lehman Brothers, Inc. ("LBI"), are being valued at 54% which represents the present value of the mid-point between what Ramius believes are reasonable estimates of the low-side and high-side potential recovery rates with respect to its LBI exposure, (iii) Ramius's unsecured claims against LBIE are being valued at 48%, which represents Ramius's estimate of potential recovery rates with respect to this exposure and (iv) the trust assets that are not within the control of LBIE and are not believed to be held through LBI are being valued at 48%, which represents Ramius's estimate of potential recovery rates with respect to this exposure assuming that the trust assets are not available and become unsecured claims against LBIE.

On or about October 16, 2003 through December 16, 2003, four purported class action lawsuits were filed in the SDNY by persons or entities who purchased and/or sold shares of stocks of NYSE listed companies, including Pirelli v. LaBranche & Co Inc., et al., No. 03 CV 8264, Marcus v. LaBranche & Co Inc., et al., No. 03 CV 8521, Empire v. LaBranche & Co Inc., et al., No. 03 CV 8935, and California Public Employees' Retirement System (CalPERS) v. New York Stock Exchange, Inc., et al., No. 03 CV 9968. On March 11, 2004, a fifth action asserting similar claims, Rosenbaum

Partners, LP v. New York Stock Exchange, Inc., et al., No. 04 CV 2038, was also filed in the SDNY by an individual plaintiff who does not allege to represent a class.

On May 27, 2004, the SDNY consolidated these lawsuits under the caption In re NYSE Specialists Securities Litigation, No. CV 8264. The court named the following lead plaintiffs: CalPERS and Empire Programs, Inc.

On September 15, 2004, plaintiffs filed a Consolidated Complaint for Violation of the Federal Securities Laws and Breach of Fiduciary Duty, alleging that they represent a class consisting of all public investors who purchased and/or sold shares of stock listed on the NYSE from October 17, 1998 to October 15, 2003. Plaintiffs allege that LaBranche & Co Inc., LaBranche & Co. LLC, Mr. LaBranche, other NYSE specialist firms, including Bear Wagner Specialists LLC, Fleet Specialist, Inc., SIG Specialists, Inc., Spear, Leeds & Kellogg Specialists LLC, Performance Specialist Group, LLC and Van der Moolen Specialists USA, LLC, and certain parents and affiliates of those firms, and the NYSE, violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder by failing to disclose alleged improper specialist trading that was the subject of specialist trading investigations by the SEC and NYSE, improperly profiting on purchases and/or sales of NYSE listed securities, and breaching and/or aiding and abetting breaches of fiduciary duty. Section 20(a) control person claims also are alleged, including against LaBranche & Co Inc., LaBranche & Co. LLC and Mr. LaBranche. Plaintiffs seek unspecified money damages, restitution, forfeiture of fees, commissions and other compensation, equitable and/or injunctive relief, including an accounting and the imposition of a constructive trust and/or asset freeze on trading proceeds, and attorneys' fees and reimbursement of expenses.

On December 12, 2005, motions to dismiss were granted in part and denied in part. The SDNY dismissed plaintiffs' Section 10(b) and Section 20(a) claims against all defendants for conduct that occurred before January 1, 1999 and dismissed plaintiffs' breach of fiduciary duty claims against all defendants. The SDNY also dismissed all claims against the NYSE and certain claims against certain parents and affiliates of specialists other than LaBranche & Co. LLC.

On February 2, 2006, plaintiffs filed an Amended Consolidated Complaint for Violation of the Federal Securities Laws and Breach of Fiduciary Duty, adding Robert A. Martin as a plaintiff. This complaint is otherwise identical to plaintiffs' Consolidated Complaint for Violation of the Federal Securities Laws and Breach of Fiduciary Duty.

On February 23, 2006, LaBranche & Co Inc., LaBranche & Co. LLC, Mr. LaBranche and the other defendants in the case filed answers to plaintiffs' Amended Consolidated Complaint for Violation of the Federal Securities Laws and Breach of Fiduciary Duty, denying liability and asserting affirmative defenses.

On February 22, 2007, the SDNY removed Empire Programs, Inc. as co-lead plaintiff, leaving CalPERS as the sole lead plaintiff.

On June 28, 2007, CalPERS moved for class certification of "all persons and entities who submitted orders (directly or through agents) to purchase or sell NYSE-listed securities between January 1, 1999 and October 15, 2003, which orders were listed on the specialists' display book and

subsequently disadvantaged by defendants," and for the certification of CalPERS and Market Street Securities Inc. as class representatives.

On September 18, 2007, the United States Court of Appeals for the Second Circuit reinstated certain of the claims against the NYSE that previously had been dismissed.

On April 13, 2009, LaBranche & Co Inc., LaBranche & Co. LLC, Mr. LaBranche and the other specialist firm defendants and their affiliates filed a petition in the United States Court of Appeals for the Second Circuit, pursuant to Federal Rule of Civil Procedure 23(f), for permission to appeal the class certification order. On October 1, 2009, the Second Circuit denied the petition, and, on October 21, 2009, LaBranche & Co Inc., LaBranche & Co. LLC, Mr. LaBranche and the other specialist firm defendants and their affiliates filed a motion for reconsideration. On February 24, 2010, the Second Circuit denied this motion for reconsideration.

On October 5, 2009, CalPERS and the NYSE informed the SDNY that they had agreed to settle all claims against the NYSE.

On or about March 31, 2010, CalPERS and the NYSE submitted a stipulation of settlement to the SDNY, not involving any money payment by the NYSE to CalPERS. On April 2, 2010, the SDNY approved this settlement, and, on April 6, 2010, the SDNY entered a final judgment dismissing CalPERS's claims against the NYSE with prejudice.

The parties participated in non-binding mediation during May 2011 through early July 2011.

As of September 30, 2011 and December 31, 2010, short term borrowings and other debt of the Company were as follows:

On June 3, 2009, the Company entered into a collateralized revolving credit agreement with HVB AG, as lender, administrative agent and issuing bank, providing for a revolving credit facility with a $50 million aggregate loan commitment amount available. The first borrowing under this line occurred on June 30, 2009. As of September 30, 2011 and December 31, 2010, the Company had borrowings of nil and $24 million, respectively. At the Company's election and discretion, borrowings under the 2009 collateralized revolving credit agreement bore interest per annum (based on a 360 day year) equal to either: (1) the lender's prime rate plus 1.5% or (2) the 1, 2 or 3 month LIBOR rate plus 3.5%. Due to the variable interest rate on these borrowings, their carrying values approximate fair value. The

Company was required to pay a quarterly commitment fee on the undrawn portion of the revolving credit facility equal to 1.0% per annum of the undrawn amount. The 2009 collateralized revolving credit agreement was to mature on September 29, 2011. However, during 2011, the Company agreed to repay in full its obligations pursuant to the credit agreement and HVB AG agreed to terminate the credit agreement. On June 27, 2011, the Company fully repaid the then borrowing amount outstanding of $23 million and the credit agreement was terminated as of that date. The 2009 collateralized revolving credit agreement contained financial and other restrictive covenants that limited the Company's ability to incur additional debt and engage in other activities. As of September 30, 2011 and during the period from June 3, 2009 through June 27, 2011 the Company was in compliance with these covenants. The Company's investment in Enterprise Master through the Enterprise Fund had been pledged as collateral under the line of credit. Upon termination of the credit agreement on June 27, 2011, the Company's collateral pledge to HVB AG was released and the Company is no longer subject to the restrictive covenants contained in the credit agreement.

Interest incurred on the Company's lines of credit was $0.2 million for the three months ended September 30 2010, and was $0.4 million and $0.7 million for the nine months ended September 30, 2011 and 2010, respectively.

In November 2010, the Company borrowed $0.6 million and $1.5 million to fund insurance premium payments. As of September 30, 2011, these notes payable were paid in full. The interest rate on these notes were 5.05% and 4.95%, respectively. Interest expense for the three and nine months ended September 30, 2011 was not significant.

The Company entered into several capital leases for computer equipment during the fourth quarter of 2010. These leases amount to $6.3 million and are recorded in fixed assets and as capital lease obligations, which is included in short-term borrowings and other debt in the accompanying condensed consolidated statements of financial condition, and have lease terms that range from 48 to 60 months and interest rates that range from 0.60% to 6.14%. As of September 30, 2011, the remaining balance on these capital leases was $5.6 million. Interest expense for the three and nine months ended September 30, 2011 was $0.1 million, respectively.

As of September 30, 2011 the Company has six irrevocable letters of credit, for which there is cash or bond collateral pledged, including (i) $50,000, which expires on July 12, 2012, supporting workers' compensation insurance with Safety National Casualty Corporation, (ii) $57,000, which expires on May 12, 2012, supporting Cowen Healthcare Royalty Management, LLC's Stamford office lease and (iii) $82,000, which expires on May 12, 2012, supporting the Company's San Francisco office and (iv) $1.2 million which expires on August 31, 2012, supporting the Company's lease of additional office space in New York (v) $6.7 million, which expires December 12, 2011, supporting the lease of office space in New York which the Company pays a fee on the stated amount of the letter of credit at a rate equal to 0.5%, and (vi) $0.9 million which expires May 25, 2017, supporting the lease of additional office space in New York.

To the extent any letter of credit is drawn upon, interest will be assessed at the prime commercial lending rate. As of September 30, 2011 and December 31, 2010, there were no amounts due related to these letters of credit.

Annual scheduled maturities of debt and minimum lease payments for capital lease obligation and short term borrowings and other debt outstanding as of September 30, 2011, are as follows:

The Company calculates its basic and diluted earnings per share in accordance with US GAAP. Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. As of September 30, 2011, there were 115,086,360 shares outstanding, of which 1,083,330 are restricted. To the extent that outstanding restricted shares are unvested, they are excluded from the calculation of basic earnings per share. The Company has included 188,128 fully vested, unissued restricted stock units in its calculation of basic earnings per share.

Diluted earnings per common share are calculated by adjusting the weighted average outstanding shares to assume conversion of all potentially dilutive nonvested restricted stock and stock options. The Company uses the treasury stock method to reflect the potential dilutive effect of the unvested restricted shares, restricted stock units and unexercised stock options. In calculating the number of dilutive shares outstanding, the shares of common stock underlying unvested restricted shares and restricted stock units are assumed to have been delivered, and options are assumed to have been exercised, on the grant date. The assumed proceeds from the assumed vesting, delivery and exercising were calculated as the sum of (a) the amount of compensation cost attributed to future services and not yet recognized and (b) the amount of tax benefit that was credited to additional paid-in capital assuming vesting and delivery of the restricted stock. The tax benefit is the amount resulting from a tax deduction for compensation in excess of compensation expense recognized for financial statement reporting purposes. All outstanding stock options and unvested restricted shares were not included in the computation of diluted net loss per common share for the three and nine months ended September 30, 2011 and 2010, respectively, as their inclusion would have been anti-dilutive.

Treasury stock of $11.7 million as of September 30, 2011 resulted from (a) $1.9 million purchase related to the acquisition of LaBranche (see Note 2) as the Company held shares directly in LaBranche prior to the acquisition date and those shares were converted to treasury stock at the acquisition date; (b) $1.6 million acquired through repurchases of shares to cover employee minimum tax withholding obligations related to stock compensation vesting events under the Company's Equity Plan; and (c) $8.2 million purchased in connection with a share repurchase program which was approved in July 2011, authorizing the Company to purchase up to $20 million of the Company's Class A common stock. The following represents the activity relating to the treasury shares held by the Company during the nine months ended September 30, 2011:

The Company conducts its operations through two segments: the alternative investment management segment and the broker-dealer segment (subsequent to the November 2009 Ramius/Cowen transaction). The operations of LaBranche's market-making business following the Company's

June 28, 2011 acquisition of LaBranche are included in the broker-dealer segment commencing June 29, 2011. These activities are conducted primarily in the United States and substantially all of its revenues are generated domestically. The performance measure for these segments is Economic Income (Loss), which management uses to evaluate the financial performance of and make operating decisions for the segments including determining appropriate compensation levels.

In general, Economic Income (Loss) is a pre-tax measure that (i) eliminates the impact of consolidation for consolidated funds (both 2011 and 2010) (ii) excludes equity award expense related to the November 2009 Ramius/Cowen transaction (both 2011 and 2010) (iii) excludes certain other acquisition-related and/or reorganization expenses (2011 only) and (iv) excludes the bargain purchase gain which resulted from the LaBranche acquisition (see Note 2). In addition, Economic Income revenues include investment income that represents the income the Company has earned in investing its own capital, including realized and unrealized gains and losses, interest and dividends, net of associated investment related expenses. For US GAAP purposes, these items are included in each of their respective line items. Economic Income revenues also include management fees, incentive income and investment income earned through the Company's investment as a general partner in certain real estate entities. For US GAAP purposes, all of these items are recorded in other income (loss). In addition, Economic Income expenses are reduced by reimbursement from affiliates, which for US GAAP purposes is presented gross as part of revenue.

As further stated below, one major difference between Economic Income (Loss) and US GAAP net income (Loss) is that Economic Income (Loss) presents the segments' results of operations without the impact resulting from the full consolidation of any of the Consolidated Funds. Consolidation of these funds results in including in income the pro rata share of the income or loss attributable to other owners of such entities which is reflected in net income (loss) attributable to redeemable non-controlling interest in consolidated subsidiaries in the condensed consolidated statements of operations. This pro rata share has no effect on the overall financial performance for the alternative investment management segment, as ultimately, this income or loss is not income or loss for the alternative investment management segment itself. Included in Economic Income (Loss) is the actual pro rata share of the income or loss attributable to the Company as an investor in such entities, which is relevant in management making operating decisions and evaluating financial performance.

The following tables set forth operating results for the Company's alternative investment management and broker-dealer segments and related adjustments necessary to reconcile the Company's Economic Income (Loss) measure to arrive at the Company's consolidated US GAAP net income (loss):

	As of September 30, 2011		As of December 31, 2010

	(dollars in thousands)
Cowen Healthcare Royalty Partners(a)(*)		5,046		14,769
Cowen Healthcare Royalty Partners II(a)(*)		901		143
Ramius Global Credit Fund LP(b)(*)		12,111		11,733
Ramius Alternative Replication Ltd(c)(*)		809		866
Ramius Enhanced Replication Fund LLC(d)(*)		489		—
Starboard Value and Opportunity Fund LP(e)(*)		8,024		—
Other private investment(f)		6,496		—
Other affiliated funds(g)(*)		658		1,312

	$	34,534	$	28,823

	As of September 30, 2011		As of December 31, 2010

	(dollars in thousands)
U.S. Government securities(a)	$	235,635	$	100,559
Common stocks		144,700		88,580
Corporate bonds(b)		4,427		2,615
Exchange traded funds		40,251		—
Options		26,115		6,162

	$	451,128	$	197,916

	As of September 30, 2011

	(dollars in thousands)
Securities purchased under agreements to resell
Agreements with Barclays Inc bearing interest of (0.05)% - 0.04% due on October 3, 2011*	$	238,149

Securities sold under agreements to repurchase
Agreements with Royal Bank of Canada bearing interest of 1.53% - 3.11% due on October 6, 2011 to June 25, 2012		49,450
Agreements with Barclays Inc bearing interest of 0.02% - 0.14% due on October 3, 2011*		89,387

	$	138,837

	As of December 31, 2010

	(dollars in thousands)
Securities purchased under agreements to resell
Agreements with Barclays Capital Inc bearing interest of 0.07% - 0.14% due on January 3, 2011	$	97,755

Securities sold under agreements to repurchase
Agreements with Royal Bank of Canada bearing interest of 1.42% due on February 22, 2011 to September 1, 2011		48,532
Agreements with Barclays Capital Inc bearing interest of 0.18% - 1.50% due on January 7, 2011 to June 6, 2011		143,633

	$	192,165

Description	As of September 30, 2011		As of December 31, 2010

	(dollars in thousands)
Investments of Enterprise LP	$	197,652	$	257,246
Investments of consolidated fund of funds		38,770		69,885

	$	236,422	$	327,131

	As of September 30, 2011		As of December 31, 2010

	(dollars in thousands)
RCG Longview Debt Fund IV Management, LLC	$	1,355	$	2,009
Cowen Healthcare Royalty GP, LLC		391		1,176
Cowen Healthcare Royalty GP II, LLC		115		8
Chicago Board Options Exchange		2,506		—
Starboard Value LP		2,478		—
RCG Longview Partners, LLC		1,379		2,203
RCG Longview Louisiana Manager, LLC		1,031		186
RCG Urban American, LLC		1,177		889
RCG Urban American Management, LLC		969		359
RCG Longview Equity Management, LLC		366		499
Urban American Real Estate Fund II, L.P.		1,397		833
RCG Kennedy House, LLC		375		259
Other		341		313

	$	13,880	$	8,734

	As of September 30, 2011		As of December 31, 2010

	(dollars in thousands)
Government sponsored securities*	$	2,609	$	7,682
Commercial paper**		1,236		—
Corporate bond***		401		1,040

	$	4,246	$	8,722

	As of September 30, 2011		As of December 31, 2010

	(dollars in thousands)
(1) Portfolio Funds	$	236,422	$	327,131
(2) Lehman claims		7,195		6,243

	$	243,617	$	333,374

		As of September 30, 2011

		Ramius Levered Multi-Strategy FOF LP		Ramius Multi-Strategy FOF LP		Ramius Vintage Multi-Strategy FOF LP		RTS Global 3x Fund LP		Total
Description	Strategy	Fair Value		Fair Value		Fair Value		Fair Value		Fair Value
		(dollars in thousands)
Ramius Multi-Strategy Master FOF LP*	Multi-Strategy	$	—	$	8,379	$	—	$	—	$	8,379	(a)
Ramius Vintage Multi-Strategy Master FOF LP*	Multi-Strategy		—		—		9,646		—		9,646	(a)
Tapestry Pooled Account V LLC*	Credit-Based		488		—		—		—		488	(b)
Independently Advised Portfolio Funds*	Futures & Global Macro		—		—		—		17,265		17,265	(c)
Externally Managed Portfolio Funds	Credit-Based		285		—		—		—		285	(b)
Externally Managed Portfolio Funds	Event Driven		2,090		—		—		—		2,090	(d)
Externally Managed Portfolio Funds	Hedged Equity		34		—		—		—		34	(e)
Externally Managed Portfolio Funds	Multi-Strategy		528		—		—		—		528	(f)
Externally Managed Portfolio Funds	Fixed Income Arbitrage		55		—		—		—		55	(g)

		$	3,480	$	8,379	$	9,646	$	17,265	$	38,770

	As of September 30, 2011				As of December 31, 2010

Description	Securities owned		Securities sold, but not yet purchased		Securities owned		Securities sold, but not yet purchased
	(dollars in thousands)
Common stock	$	2,098	$	—	$	10,123	$	—
Corporate bonds		—		—		1,997		—
Over-the-counter foreign currency call option		—		—		—		(63	)
Preferred stock		1,137		—		410		—
Private debt		68		—		59		—
Private equity		270		—		173		—
Restricted stock		128		—		3,148		—
Rights		2,180		—		2,115		—
Trade claims		128		—		128		—
US Treasury notes		—		—		—		—
Warrants		22		—		55		—

	$	6,031	$	—	$	18,208	$	(63	)

Description	As of September 30, 2011		As of December 31, 2010

	(dollars in thousands)
Asset swaps	$	—	$	5
Currency forwards		24		(36	)

	$	24	$	(31	)

		As of September 30, 2011				As of December 31, 2010

Description	Strategy	Ramius Multi-Strategy Master FOF LP		Ramius Vintage Multi-Strategy Master FOF LP		Ramius Multi-Strategy Master FOF LP		Ramius Vintage Multi-Strategy Master FOF LP
		(dollars in thousands)
Ramius Vintage Multi-Strategy Master FOF LP*	Multi Strategy	$	600	$	—	$	1,354	$	—
Tapestry Pooled Account II, LLC*	Hedged Equity		—		—		—		3,544
Tapestry Pooled Account V, LLC*	Credit-Based		1,005		1,073		1,416		1,512
Externally Managed Funds	Credit-Based		46		438		6,653		803
Externally Managed Funds	Event Driven		4,194		5,406		6,491		6,802
Externally Managed Funds	Fixed Income Arbitrage		80		—		83		—
Externally Managed Funds	Hedged Equity		1,210		1,718		4,386		3,055
Externally Managed Funds	Multi Strategy		1,389		1,424		7,785		4,292
Externally Managed Funds	Global Macro		312		—		2,053		679
Externally Managed Funds	Opportunistic Equity		—		—		—		1,677
Externally Managed Funds	Managed Futures		—		—		2,430		—

		$	8,836	$	10,059	$	32,651	$	22,364

	As of September 30, 2011			As of December 31, 2010

	(dollars in thousands)
Bond future	$	(447	)	$	(2	)
Commodity call option		8			(5	)
Cash		—			17,139
Currency option		596			191
Commodity forward		167			32
Commodity future		756			935
Currency forward		(259	)		(63	)
Currency future		155			1,230
Index future		(131	)		130
Interest rate future		(1	)		(5	)

	$	844		$	19,582

		Assets at Fair Value as of September 30, 2011

		Level 1		Level 2		Level 3		Total
		(dollars in thousands)
Securities owned and derivatives
	US Government securities	$	112,545	$	—	$	—	$	112,545
	Common stocks		172,870		721		812		174,403
	Convertible bonds		—		49,981		—		49,981
	Corporate bonds		—		323,298		—		323,298
	Exchange-traded Funds		93,419		—		—		93,419
	Futures		35		—		—		35
	Equity swaps		—		1,067		—		1,067
	Credit default swaps		—		4,688		—		4,688
	Options		39,705		2,528		17		42,250
	Warrants and rights		619		—		1,337		1,956
	Mutual funds		3,228		—		—		3,228
Other investments
	Portfolio Funds		—		20,625		13,909		34,534
	Real estate investments		—		—		2,307		2,307
	Lehman claim		—		—		501		501

		$	422,421	$	402,908	$	18,883	$	844,212

	Operating Entities																									Consolidated Funds

	Common stocks, owned			Common stocks, sold not yet purchased		Restricted Common Stock			Corporate Bonds			Options			Warrants and Rights			Portfolio Funds			Real estate			Lehman claim		Portfolio Funds			Lehman claim
	(dollars in thousands)
Balance at June 30, 2011	$	953		$	—	$	5,000		$	—		$	123		$	3,411		$	17,744		$	2,289		$	501	$	239,588		$	7,320
Transfers in		—			—		—			—			—			—			—			—			—		—			—
Transfers out		—			—		—			—			—			—			—			—			—		—			—
Purchases/(covers)		19			—		—			—			—			40			7,356			17			—		1			—
(Sales)/short buys		(135	)		—		(4,857	)		—			—			(36	)		(11,648	)		(1	)		—		(16,320	)		—
Realized gains (losses)		135			—		(143	)		—			—			—			1			—			—		68			—
Unrealized gains (losses)		(160	)		—		—			—			(106	)		(2,078	)		456			2			—		(4,181	)		(125	)

Balance at September 30, 2011	$	812		$	—	$	—		$	—		$	17		$	1,337		$	13,909		$	2,307		$	501	$	219,156		$	7,195

Balance at June 30, 2010	$	334		$	—	$	5,000		$	1,333		$	971		$	404		$	16,208		$	1,159		$	313	$	84,735		$	14,582
Transfers in		—			—		—			—			—			—			—			—			—		382,004	(a)		—
Transfers out		—			—		—			—			—			—			—			—			—		—			—
Purchases		—			—		—			—			3,897			—			193,763			75			—		3,633			—
Sales		—			—		—			(1,634	)		(4,042	)		—			(194,177	)		(47	)		—		(135,649	)		(8,547	)
Realized gains (losses)		—			—		—			419			145			—			820			—			—		755			—
Unrealized gains (losses)		—			—		—			(118	)		87			(90	)		(561	)		52			—		6,197			(126	)

Balance at September 30, 2010	$	334		$	—	$	5,000		$	—		$	1,058		$	314		$	16,053		$	1,239		$	313	$	341,675		$	5,909

			Weighted Average Exercise Price/Share		Weighted Average Remaining Term		Aggregate Intrinsic Value(1)

					(in years)		(dollars in thousands)
Balance outstanding at December 31, 2010	893,432		$	13.04		3.50
Options granted	—			—
Options acquired	—			—
Options exercised	—			—
Options forfeited	—			—
Options expired	(27,004	)		16.00

Balance outstanding at September 30, 2011	866,428		$	12.95		2.78	$	—

Options exercisable at September 30, 2011	716,725		$	14.83		2.14	$	—

			Weighted-Average Grant Date Fair Value

Balance outstanding at December 31, 2010	5,788,021		$	5.39
Granted	6,153,187			4.27
Vested	(2,738,104	)		3.66
Cancelled	(7,735	)		4.31
Forfeited	(433,966	)		4.82

Balance outstanding at September 30, 2011	8,761,403		$	5.17

			Weighted-Average Grant Date Fair Value

Balance outstanding at December 31, 2010	2,638,078		$	7.30
Granted	—			—
Vested	—
Forfeited	(42,139	)(*)		7.30

Balance outstanding at September 30, 2011	2,595,939

	Equipment Leases(a)		Service Payments		Facility Leases(b)

	(dollars in thousands)
2011	$	825	$	4,108	$	4,292
2012		3,301		12,041		16,553
2013		3,301		7,360		16,053
2014		1,548		6,219		14,175
2015		1,051		3,117		11,583
Thereafter		194		160		63,271

	$	10,220	$	33,005	$	125,927

	As of September 30, 2011		As of December 31, 2010

	(in thousands)
Line of credit	$	—	$	24,000
Notes payable		411		1,396
Capital lease obligations		5,611		6,337

	$	6,022	$	31,733

		Cost (in thousands)		Average cost per share

Balance outstanding at December 31, 2010	—	$	—	$	—
Treasury stock purchased in connection with acquisition (see Note 2)	499,001		1,906		3.82
Shares purchased for minimum tax withholding under the Equity Plan	453,251		1,566		3.46
Purchase of treasury stock	2,456,339		8,228		3.35

Balance outstanding at September 30, 2011	3,408,591	$	11,700	$	3.43

		Three Months Ended September 30, 2011

								Adjustments
		Alternative Investment Management		Broker-Dealer		Total Economic Income/(loss)		Funds Consolidation			Other Adjustments			GAAP
								(dollars in thousands)
Revenues
	Investment banking	$	—	$	10,816	$	10,816	$	—		$	—		$	10,816
	Brokerage		306		26,153		26,459		—			—			26,459
	Management fees		18,476		—		18,476		(428	)		(3,270)	(a)	<