10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2012

OR

¨ 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: 001-32026

INSTITUTIONAL FINANCIAL MARKETS, INC.

(Exact name of registrant as specified in its charter)

Maryland	16-1685692
(State or other jurisdiction of Incorporation or organization)	(IRS Employer Identification Number)

Cira Centre 2929 Arch Street, 17th Floor Philadelphia, Pennsylvania	19104
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (215) 701-9555

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.    x  Yes    ¨  No

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).    x  Yes    ¨  No

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

As of April 30, 2012 there were 12,733,660 shares of common stock ($0.001 par value per share) of Institutional Financial Markets, Inc. outstanding.

INSTITUTIONAL FINANCIAL MARKETS, INC.

FORM 10-Q

INDEX TO QUARTERLY REPORT ON FORM 10-Q

March 31, 2012

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)		5
	Consolidated Balance Sheets—March 31, 2012 and December 31, 2011		5
	Consolidated Statements of Operations and Comprehensive Income (Loss) —Three Months Ended March 31, 2012 and 2011		6
	Consolidated Statements of Changes in Equity—Three Months Ended March 31, 2012		7
	Consolidated Statements of Cash Flows—Three Months Ended March 31, 2012 and 2011		8
	Notes to Consolidated Financial Statements (Unaudited)		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		47
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		67
Item 4.	Controls and Procedures		68
Part II. OTHER INFORMATION
Item 1.	Legal Proceedings		68
Item 1A.	Risk Factors		68
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		69
Item 6.	Exhibits		70
Signatures			71

2

Forward Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

While we cannot predict all of the risks and uncertainties, they include, but are not limited to, those described in “Item 1A—Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and include information concerning possible or assumed future results of our operations, including statements about the following subjects:

• benefits, results, cost reductions and synergies resulting from the Company’s recent business combinations;

• integration of operations;

• business strategies;

• growth opportunities;

• competitive position;

• market outlook;

• expected financial position;

• expected results of operations;

• future cash flows;

• financing plans;

• plans and objectives of management;

• tax treatment of business combinations;

• fair value of assets; and

• any other statements regarding future growth, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You should consider the areas of risk and uncertainty described above and discussed under “Item 1A—Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form 10-Q. Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

3

Certain Terms Used in this Quarterly Report on Form 10-Q

In this Quarterly Report on Form 10-Q, unless otherwise noted or as the context otherwise requires: “IFMI” refers to Institutional Financial Markets, Inc., a Maryland corporation. The “Company,” “we,” “us,” and “our” refer to IFMI and its subsidiaries on a consolidated basis; “IFMI, LLC” (formerly Cohen Brothers, LLC), or the “Operating LLC” refer to the main operating subsidiary of the Company; “Cohen Brothers” refers to the pre-merger Cohen Brothers, LLC and its subsidiaries; “AFN” refers to the pre-merger Alesco Financial Inc. and its subsidiaries; “Merger Agreement” refers to the Agreement and Plan of Merger among AFN, Alesco Financial Holdings, LLC, a wholly owned subsidiary of AFN which we refer to as the “Merger Sub,” and Cohen Brothers, dated as of February 20, 2009 and amended on June 1, 2009, August 20, 2009 and September 30, 2009; “Merger” refers to the December 16, 2009 closing of the merger of Merger Sub with and into Cohen Brothers pursuant to the terms of the Merger Agreement, which resulted in Cohen Brothers becoming a majority owned subsidiary of the Company. When the term, “IFMI” is used, it is referring to the parent company itself, Institutional Financial Markets, Inc. “JVB” refers to JVB Financial Holdings, L.L.C.; “EDML” refers to EuroDekania, LTD; “PrinceRidge Holdings” refers to PrinceRidge Holdings LP and its subsidiaries; “PrinceRidge GP” refers to PrinceRidge Partners LLC; and “PrinceRidge” refers to PrinceRidge Holdings together with PrinceRidge GP.

“Securities Act” refers to the Securities Act of 1933, as amended; and “Exchange Act” refers to the Securities Exchange Act of 1934, as amended.

In accordance with accounting principles generally accepted in the United States of America, or “U.S. GAAP,” the Merger was accounted for as a reverse acquisition, Cohen Brothers was deemed to be the accounting acquirer and all of AFN’s assets and liabilities were required to be revalued at fair value as of the acquisition date. Therefore, any financial information reported herein prior to the Merger is the historical financial information of Cohen Brothers. As used throughout this filing, the terms, the “Company,” “we,” “us,” and “our” refer to the operations of Cohen Brothers and its consolidated subsidiaries prior to December 17, 2009 and the combined operations of the merged company and its consolidated subsidiaries from December 17, 2009 forward. AFN refers to the historical operations of Alesco Financial Inc. through to December 16, 2009, the date of the Merger, or the “Merger Date.”

4

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

INSTITUTIONAL FINANCIAL MARKETS, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

(unaudited)

	March 31, 2012			December 31, 2011
Assets
Cash and cash equivalents	$	14,070		$	18,221
Receivables from brokers, dealers, and clearing agencies		22,007			70,963
Due from related parties		762			679
Other receivables		6,075			5,531
Investments-trading		166,400			124,546
Other investments, at fair value		37,569			42,772
Receivables under resale agreements		215,985			129,978
Goodwill		11,206			11,206
Other assets		16,004			16,694
Total assets	$	490,078		$	420,590
Liabilities
Payables to brokers, dealers, and clearing agencies	$	25,586		$	24,633
Accounts payable and other liabilities		12,791			13,567
Accrued compensation		6,480			8,657
Trading securities sold, not yet purchased		91,017			99,613
Securities sold under agreement to repurchase		220,312			134,870
Deferred income taxes		7,964			7,500
Debt		36,928			37,167
Mandatorily redeemable equity interests		8,970			3,149
Total liabilities		410,048			329,156
Commitments and contingencies (See Note 17)
Temporary Equity:
Redeemable non-controlling interest		8,129			14,026
Permanent Equity:
Stockholders’ Equity:
Preferred Stock, $0.001 par value per share, 50,000,000 shares authorized:
Series A Voting Convertible Preferred Stock, $0.001 par value per share, 1 share authorized, no shares issued and outstanding		—			—
Series B Voting Non-Convertible Preferred Stock, $0.001 par value per share, 4,983,557 shares authorized, 4,983,557 shares issued and outstanding		5			5
Series C Junior Participating Preferred Stock, $0.001 par value per share, 10,000 shares authorized, no shares issued and outstanding		—			—
Common Stock, $0.001 par value per share, 100,000,000 shares authorized, 13,009,350 and 12,730,117 shares issued, respectively; 12,958,950 and 12,679,717 shares outstanding, respectively, including 2,584,428 and 2,597,620 unvested restricted share awards, respectively		10			10
Additional paid-in capital		63,957			63,032
Accumulated deficit		(9,194	)		(5,121	)
Accumulated other comprehensive loss		(522	)		(626	)
Treasury stock at cost (50,400 shares of Common Stock)		(328	)		(328	)
Total stockholders’ equity		53,928			56,972
Non-controlling interest		17,973			20,436
Total permanent equity		71,901			77,408
Total liabilities and equity	$	490,078		$	420,590

See accompanying notes to unaudited consolidated financial statements.

5

INSTITUTIONAL FINANCIAL MARKETS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / (LOSS)

(Dollars in Thousands, except share or per share information)

(Unaudited)

	Three months ended March 31,
	2012			2011
Revenues
Net trading	$	17,691		$	27,274
Asset management		4,937			5,970
New issue and advisory		1,077			109
Principal transactions and other income		(4,945	)		(1,039	)
Total revenues		18,760			32,314
Operating expenses
Compensation and benefits		16,274			21,988
Business development, occupancy, equipment		1,174			1,439
Subscriptions, clearing, and execution		3,073			2,815
Professional fees and other operating		3,051			4,015
Depreciation and amortization		391			470
Total operating expenses		23,963			30,727
Operating income / (loss)		(5,203	)		1,587
Non-operating income / (expense)
Interest expense, net		(1,215	)		(1,482	)
Gain on repurchase of debt		3			—
Income / (loss) from equity method affiliates		516			95
Income / (loss) before income tax expense / (benefit)		(5,899	)		200
Income tax expense / (benefit)		(9	)		(213	)
Net income / (loss)		(5,890	)		413
Less: Net income / (loss) attributable to the non-controlling interest		(2,031	)		38
Net income / (loss) attributable to IFMI	$	(3,859	)	$	375
Income / (loss) per share data (see Note 16):
Income / (loss) per common share – basic:
Income / (loss) per common share	$	(0.37	)	$	0.03
Weighted average shares outstanding – basic		10,443,752			10,819,955
Income / (loss) per common share – diluted:
Income / (loss) per common share	$	(0.37	)	$	0.03
Weighted average shares outstanding – diluted		15,695,754			16,125,155
Dividends declared per common share	$	0.02		$	0.05
Comprehensive income / (loss):
Net income / (loss) (from above)	$	(5,890	)	$	413
Other comprehensive income / (loss) item:
Foreign currency translation adjustments, net of tax of $0		189			362
Other comprehensive income / (loss), net of tax of $0		189			362
Comprehensive income		(5,701	)		775
Less: comprehensive income (loss) attributable to the non-controlling interest		(1,968	)		160
Comprehensive income / (loss) attributable to IFMI	$	(3,733	)	$	615

See accompanying notes to unaudited consolidated financial statements.

6

INSTITUTIONAL FINANCIAL MARKETS, INC.

Consolidated Statement of Changes in Equity

(Dollars in Thousands)

(Unaudited)

	Institutional Financial Markets, Inc.
	Preferred Stock Class A $ Amount		Preferred Stock Class B $ Amount		Common Stock $ Amount		Additional Paid-In Capital			Retained Earnings/ (Accumulated Deficit)			Accumulated Other Comprehensive Income / (Loss)			Treasury Stock			Total Stockholders’ Equity			Non-controlling Interest			Total Permanent Equity			Redeemable non- controlling interest (Temporary Equity)
Balance at December 31, 2011	$	—	$	5	$	10	$	63,032		$	(5,121	)	$	(626	)	$	(328	)	$	56,972		$	20,436		$	77,408		$	14,026
Net loss		—		—		—		—			(3,859	)		—			—			(3,859	)		(1,902	)		(5,761	)		(129	)
Other comprehensive income / (loss) (1)		—		—		—		—			—			126			—			126			63			189			—
Acquisition / (surrender) of additional units of consolidated subsidiary, net		—		—		—		664			—			(22	)		—			642			(642	)		—			—
Equity-based compensation and vesting of shares		—		—		—		263			—			—			—			263			124			387			161
Shares withheld for employee taxes		—		—		—		(2	)		—			—			—			(2	)		(1	)		(3	)		—
Redemption of non-controlling interest		—		—		—		—			—			—			—			—			—			—			(5,929	)
Dividends/ Distributions		—		—		—		—			(214	)		—			—			(214	)		(105	)		(319	)		—
Balance at March 31, 2012	$	—	$	5	$	10	$	63,957		$	(9,194	)	$	(522	)	$	(328	)	$	53,928		$	17,973		$	71,901		$	8,129

(1) Represents foreign currency translation adjustment.

See accompanying notes to unaudited consolidated financial statements.

7

INSTITUTIONAL FINANCIAL MARKETS, INC.

Consolidated Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)

	Three Months Ended March 31,
	2012			2011
Operating activities
Net income / (loss)	$	(5,890	)	$	413
Adjustments to reconcile net income / (loss) to net cash provided by (used in) operating activities:
Gain on repurchase of debt		(3	)		—
Equity-based compensation		548			2,189
Realized loss / (gain) on other investments, at fair value		—			23
Change in unrealized (gain) / loss on other investments, at fair value		5,174			1,517
Depreciation and amortization		391			470
(Income) / loss from equity method affiliates		(516	)		(95	)
Change in operating assets and liabilities, net:
(Increase) decrease in other receivables		(508	)		530
(Increase) decrease in investments-trading		(41,854	)		(95,444	)
(Increase) decrease in other assets		63			3,518
(Increase) decrease in receivables under resale agreement		(86,007	)		—
Change in receivables from / payables to related parties, net		(67	)		296
Increase (decrease) in accrued compensation		(2,196	)		(8,854	)
Increase (decrease) in accounts payable and other liabilities		(889	)		(140	)
Increase (decrease) in trading securities sold, not yet purchased		(8,596	)		32,034
Change in receivables from / payables to brokers, dealers, and clearing agencies, net		49,932			50,761
Increase (decrease) in securities sold under agreement to repurchase		85,442			35,674
Increase (decrease) in deferred income taxes		464			(250	)
Change in mandatorily redeemable equity interests		(65	)		—
Net cash provided by (used in) operating activities		(4,577	)		22,642
Investing activities
Cash paid for acquisition of JVB, net of cash acquired		—			(14,956	)
Purchase of investments-other investments, at fair value		—			(342	)
Sales and return of principal of other investments, at fair value		11			111
Investment in equity method affiliates		(6	)		(172	)
Return from equity method affiliates		800			465
Purchase of furniture, equipment, and leasehold improvements		(17	)		(166	)
Net cash provided by (used in) investing activities		788			(15,060	)
Financing activities
Repayment and repurchase of debt		(147	)		(1,458	)
Cash used to net share settle equity awards		(3	)		(3	)
Redemption of redeemable non-controlling interest		(43	)		—
Distributions to non-controlling interest		(105	)		(264	)
Dividends		(214	)		(545	)
Net cash used in financing activities		(512	)		(2,270	)
Effect of exchange rate on cash		150			290
Net increase (decrease) in cash and cash equivalents		(4,151	)		5,602
Cash and cash equivalents, beginning of period		18,221			43,946
Cash and cash equivalents, end of period	$	14,070		$	49,548

See accompanying notes to unaudited consolidated financial statements.

8

INSTITUTIONAL FINANCIAL MARKETS, INC.

Notes to Consolidated Financial Statements

(Dollars in Thousands, except share or per share information)

(Unaudited)

1. ORGANIZATION AND NATURE OF OPERATIONS

The Formation Transaction

Cohen Brothers, LLC (“Cohen Brothers”) was formed on October 7, 2004 by Cohen Bros. Financial, LLC (“CBF”). Cohen Brothers was formed to acquire the net assets of CBF’s subsidiaries (the “Formation Transaction”): Cohen Bros. & Company, Inc.; Cohen Frères SAS; Dekania Investors, LLC; Emporia Capital Management, LLC; and the majority interest in Cohen Bros. & Tororian Investment Management, Inc. The Formation Transaction was accomplished through a series of transactions occurring between March 4, 2005 and May 31, 2005.

The Company

From its formation until December 16, 2009, Cohen Brothers operated as a privately owned limited liability company. On December 16, 2009, Cohen Brothers completed its merger (the “Merger”) with a subsidiary of Alesco Financial Inc. (“AFN”) a publicly traded real estate investment trust.

As a result of the Merger, AFN received 10,343,347 or 66.2% of the membership interests in Cohen Brothers. Of the 66.2% of Cohen Brothers received by AFN in connection with the Merger, 38.5% was received in the form of units issued directly by Cohen Brothers. The remaining 27.7% was acquired by AFN from Cohen Brothers members in exchange for the issuance of AFN common stock to those members. The remaining 5,283,556 membership interests or 33.8% of Cohen Brothers was held by Daniel Cohen (31.9% or 4,983,557 membership interests) and other members (1.9% or 299,999 membership interests). Each of Mr. Cohen’s membership units is redeemable at Mr. Cohen’s option, at any time on or after January 1, 2013, for (i) cash in amount equal to the average of the per share closing prices of the Company’s Common Stock for the ten consecutive trading days immediately preceding the date the Company receives Mr. Cohen’s redemption notice, or (ii) at the Company’s option, one share of the Company’s Common Stock, subject, in each case, to appropriate adjustment upon the occurrence of the issuance of additional shares of the Company’s Common Stock as a dividend or other distribution on the Company’s outstanding Common Stock, or a further subdivision or combination of the outstanding shares of the Company’s Common Stock. The membership units held by the other members have the same redemption rights as described for Mr. Cohen except that the members holding these units may elect to redeem their shares at any time.

Therefore, the members of Cohen Brothers at the time of the Merger received 61.5% of the total ownership interests in the combined entity (33.8% remained as members of Cohen Brothers and 27.7% exchanged their interest in Cohen Brothers for AFN stock). In accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), the Merger was accounted for as a reverse acquisition, and Cohen Brothers was deemed to be the accounting acquirer primarily because the owners of Cohen Brothers at the time of the Merger received the majority interest in the merged entity as previously described. As a result, all of AFN’s assets and liabilities were required to be revalued at fair value as of the acquisition date. The financial statements presented herein include the operations of the merged entity.

Subsequent to the Merger, AFN was renamed Cohen & Company Inc. In January 2011, it was renamed again as Institutional Financial Markets, Inc. (“IFMI”). As used in these consolidated financial statements, the term “the Company” refers to the combined operations of the merged company and its consolidated subsidiaries subsequent to December 17, 2009. “AFN” refers to the historical operations of Alesco Financial Inc. through the December 16, 2009 Merger Date. When the term “IFMI” is used, it is referring to the parent company itself, Institutional Financial Markets, Inc. Subsequent to the Merger, Cohen Brothers changed its name to IFMI, LLC and functions as the main operating majority-owned subsidiary of the Company, and in these statements it is referred to as the “Operating LLC.”

Effective January 1, 2010, the Company ceased to qualify as a real estate investment trust, or a REIT. The Company trades on the NYSE Amex LLC under the ticker symbol “IFMI.” The Company is an investment firm specializing in credit related fixed income investments. As of March 31, 2012, the Company had $7.8 billion in assets under management (“AUM”) of which 98%, or $7.6 billion, was in collateralized debt obligations (“CDOs”).

The Company’s business is organized into the following three business segments:

Capital Markets: The Company’s Capital Markets segment consists of credit-related fixed income securities sales, trading, and financing, as well as new issue placements in corporate and securitized products and advisory services revenue. The Company’s fixed income sales and trading group provides trade execution to corporate and institutional investors and other broker-dealers. The Company specializes in the following products: corporate bonds and loans, asset backed securities (“ABS”), mortgage backed securities (“MBS”), collateralized loan obligations (“CLOs”), CDOs, collateralized bond obligations, collateralized mortgage obligations (“CMOs”),

9

commercial mortgage backed securities (“CMBS”), residential mortgage backed securities (“RMBS”), Small Business Administration (“SBA”) loans, municipal bonds, U.S. government bonds, U.S. government agency securities, brokered deposits and CDs for small banks, hybrid capital of financial institutions including trust preferred securities (“TruPS”), whole loans, and other structured financial instruments. The Company also offers execution and brokerage services for cash equity and derivative products. The Company carries out its capital market activities primarily through its subsidiaries: JVB, PrinceRidge Holdings, and EDML.

Asset Management: Historically, the Company has served the needs of client investors by managing assets within investment funds, managed accounts, permanent capital vehicles, and CDOs (collectively referred to as “Investment Vehicles”). A CDO is a form of secured borrowing. The borrowing is secured by different types of fixed income assets such as corporate or mortgage loans or bonds. The borrowing is in the form of a securitization which means that the lenders are actually investing in notes backed by the assets. The lender will have recourse only to the assets securing the loan. The Company’s Asset Management segment includes its fee based asset management operations which include ongoing base and incentive management fees.

Principal Investing: The Company’s Principal Investing segment is comprised primarily of its investments in certain Investment Vehicles it manages.

The Company generates its revenue by segment primarily through the following activities:

Capital Markets:

• trading activities of the Company which include execution and brokerage services, securities lending activities, riskless trading activities as well as gains and losses (unrealized and realized) and income and expense earned on securities classified as trading;

• new issue and advisory revenue comprised primarily of (i) origination fees for corporate debt issues originated by the Company; (ii) revenue from advisory services; and (iii) new issue revenue associated with arranging the issuance of newly created debt, equity, and hybrid financial instruments;

Asset Management:

• asset management fees for the Company’s on-going services as asset manager charged and earned by managing Investment Vehicles, which may include fees both senior and subordinated to the securities in the Investment Vehicle;

• incentive management fees earned based on the performance of the various Investment Vehicles;

Principal Investing:

• gains and losses (unrealized and realized) and income and expense earned on securities (primarily seed capital investments in certain Investment Vehicles which Company manages) classified as other investments, at fair value; and

• income or loss from equity method affiliates.

2. BASIS OF PRESENTATION

The financial statements of the Company included herein were prepared in conformity with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim months periods. All intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three ended March 31, 2012 and 2011 are not necessarily indicative of the results for the entire year or any subsequent interim period. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Capitalized terms used herein without definition have the meanings ascribed to them in the Annual Report on Form 10-K for the year ended December 31, 2011.

Certain prior period amounts have been reclassified to conform to the current period presentation.

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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Adoption of New Accounting Standards

In April 2011, the FASB issued ASU No. 2011-03, Reconsideration of Effective Control for Repurchase Agreements (“ASU 2011-03”), which revises the criteria for assessing effective control for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The determination of whether the transfer of a financial asset subject to a repurchase agreement is a sale is based, in part, on whether the entity maintains effective control over the financial asset. ASU 2011-03 removes from the assessment of effective control: the criterion requiring the transferor to have the ability to repurchase or redeem the financial asset on substantially the agreed terms, even in the event of default by the transferee, and the related requirement to demonstrate that the transferor possesses adequate control to fund substantially all the cost of purchasing replacement financial assets. The amendments in ASU 2011-03 will be effective for interim and annual reporting periods beginning on or after December 15, 2011, early adoption is prohibited, and the amendments will be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. The Company’s adoption of the provisions of ASU 2011-03 effective January 1, 2012 did not have an effect on the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”), which amends FASB Accounting Standards Codification (“ASC”) 820, Fair Value Measurements. The amended guidance changes the wording used to describe many requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additional disclosure requirements include transfers between levels 1 and 2; and for level 3 fair value measurements, a description of the Company’s valuation processes and additional information about unobservable inputs impacting level 3 measurements. Additionally, the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements. The amendments result in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. The guidance provided in ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively. The Company’s adoption of the provisions of ASU 2011-04 effective January 1, 2012 did not have a material effect on the Company’s consolidated financial position and results of operations.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income, (“ASU 2011-05”) which requires companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The standard does not change the items that must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011. In December 2011, the FASB issued ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“ASU 2011-12”). ASU 2011-12 defers the requirement that companies present reclassification adjustments and the effect of those reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. The effective dates for ASU 2011-12 are consistent with the effective dates for ASU 2011-05. Effective January 1, 2012, the Company adopted the provisions of ASU 2011-05 and ASU 2011-12, which resulted in the Company presenting the components of comprehensive income (loss) within the consolidated statements of operations and comprehensive income (loss). The Company’s adoption of the new guidance did not have an effect on the Company’s financial condition, results of operations or cash flows.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment (“ASU 2011-08”), which permits companies 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 whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles-Goodwill and Other. The more likely than not threshold is defined as having a likelihood of more than 50%. Under this option, a company would no longer be required to calculate the fair value of the reporting unit unless the company determines, based on that qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. A company has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment tests. A company may resume performing the qualitative assessment in any subsequent period. The guidance also includes examples of the types of events and circumstances to consider in conducting the qualitative assessment. These examples of events and circumstances supersede (1) the previous examples included in Topic 350 of event and circumstances that a company should consider when testing goodwill for impairment between annual tests and (2) the previous examples of events and circumstances that a company having a reporting unit with a zero or negative carrying amount should consider in determining whether to perform the second step of the impairment test, used to measure the amount of the loss, if any. The guidance provided in ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company’s adoption of the provisions of ASU 2011-08 effective January 1, 2012 did not have an effect on the Company’s consolidated financial statements.

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B. Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments. These determinations were based on available market information and appropriate valuation methodologies. Considerable judgment is required to interpret market data to develop the estimates and, therefore, these estimates may not necessarily be indicative of the amount the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Refer to note 6 for a discussion of the fair value hierarchy with respect to investments-trading, other investments, at fair value and the derivatives held by the Company.

Cash and cash equivalents and restricted cash: Both restricted and unrestricted cash are carried at historical cost which is assumed to approximate fair value. The estimated fair value measurements of cash and cash equivalents and restricted cash are generally classified within level 1 of the valuation hierarchy.

Investments-trading: These amounts are carried at fair value. The fair value is based on either quoted market prices of an active exchange, independent broker market quotations, market price quotations from third party pricing services, or valuation models when quotations are not available. See note 6 for disclosures about the categorization of the fair value measurements of investments-trading within the three level fair value hierarchy.

Other investments, at fair value: These amounts are carried at fair value. The fair value is based on quoted market prices of an active exchange, independent broker market quotations, or valuation models when quotations are not available. In the case of investments in alternative investment funds, fair value is generally based on the reported net asset value of the underlying fund. See note 6 for disclosures concerning the categorization of the fair value measurements of other investments, at fair value within the three level fair value hierarchy.

Receivables under resale agreements: Receivables under resale agreements are carried at their contracted resale price, have short-term maturities (one year or less), and are repriced frequently or bear market interest rates and, accordingly, these contracts are at amounts that approximate fair value. The estimated fair value measurements of receivables under resale agreements are based on observations of actual market activity and are generally classified within level 2 of the fair value hierarchy.

Trading securities sold, not yet purchased: These amounts are carried at fair value. The fair value is based on quoted market prices of an active exchange, independent market quotations, market price quotations from third party pricing services, or valuation models when quotations are not available. See note 6 for disclosures concerning the categorization of the fair value measurements of trading securities sold, not yet purchased within the three level fair value hierarchy.

Securities sold under agreement to repurchase: The liability for securities sold under agreement to repurchase are carried at their contracted repurchase price, and are very short-term in nature, and are repriced frequently with amounts normally due in one month or less and, accordingly, these contracts are at amounts that approximate fair value. The estimated fair value measurements of securities sold under agreement to repurchase are based on observations of actual market activity and are generally classified within level 2 of the fair value hierarchy.

Debt: These amounts are carried at outstanding principal less unamortized discount. However, a substantial portion of the debt was assumed in the Merger and recorded at fair value as of that date. As of March 31, 2012 and December 31, 2011, the fair value of the Company’s debt was estimated to be $43.5 million. The estimated fair value measurements of the debt are generally based on discounted cash flow models prepared by the Company’s management primarily using discount rates for similar instruments issued to companies with similar credit risks to the Company and are generally classified within level 3 of the fair value hierarchy.

Derivatives: These amounts are carried at fair value. Derivatives may be included as a component of investments-trading, trading securities sold, not yet purchased, and other investments, at fair value. See notes 6 and 7. The fair value is generally based on quoted market prices on an exchange that is deemed to be active for derivative instruments such as foreign currency forward contracts and EuroDollar futures. For derivative instruments, such as “to-be-announced” securities (“TBAs”), the fair value is generally based on market price quotations from third party pricing services. See note 6 for disclosures concerning the categorization of the fair value measurements within the three level fair value hierarchy.

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C. Recent Accounting Developments

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”), which requires companies to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on a company’s financial position. The amendments require enhanced disclosures by requiring improved information about financial statements and derivative instruments that are either (1) offset in accordance with current literature, or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with current literature. ASU 2011-11 is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013, and interim periods within those annual periods. The disclosures required by ASU 2011-11 will be applied retrospectively for all comparative periods presented. The Company is currently evaluating the impact of ASU 2011-11 on its disclosures about offsetting assets and liabilities.

4. RECEIVABLES FROM AND PAYABLES TO BROKERS, DEALERS, AND CLEARING AGENCIES

Amounts receivable from brokers, dealers and clearing agencies consist of the following at March 31, 2012 and December 31, 2011.

RECEIVABLES FROM BROKERS, DEALERS, AND CLEARING AGENCIES

(Dollars in Thousands)

	March 31, 2012		December 31, 2011
Receivable from clearing organizations	$	20,345	$	51,619
Unsettled regular way trades, net		—		17,232
Deposits with clearing organizations		1,662		2,112
Receivables from brokers, dealers, and clearing agencies	$	22,007	$	70,963

Receivable from clearing organizations represents un-invested cash held by the clearing organization which includes cash proceeds from short sales.

Amounts payable to brokers, dealers and clearing agencies consists of the following at March 31, 2012 and December 31, 2011.

PAYABLES TO BROKERS, DEALERS, AND CLEARING AGENCIES

(Dollars in Thousands)

	March 31, 2012		December 31, 2011
Unsettled regular way trades, net	$	6,320	$	—
Margin payable		19,266		24,633
Payables to brokers, dealers, and clearing agencies	$	25,586	$	24,633

Securities transactions are recorded on a trade date, as if they had settled. The related amounts receivable and payable for unsettled securities transactions are recorded net in receivables from or payables to brokers, dealers, and clearing agencies on the Company’s consolidated balance sheets. The Company incurred interest on margin payable of $887 and $625 for the three months ended March 31, 2012 and 2011, respectively.

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5. FINANCIAL INSTRUMENTS

Investments — Trading

The following table displays the carrying value of all investments classified as investments-trading as of the periods indicated:

INVESTMENTS — TRADING

(Dollars in Thousands)

Security Type	March 31, 2012		December 31, 2011
U.S. government agency MBS and CMOs (1)	$	17,134	$	7,563
U.S. government agency debt securities		18,237		14,600
RMBS		491		7,108
CMBS		—		1,587
U.S. Treasury securities		5,366		8,524
Interests in securitizations (2)		2,665		608
SBA loans		10,786		9,049
Corporate bonds and redeemable preferred stock		90,016		65,445
Foreign government bonds		49		67
Municipal bonds		15,142		9,225
Certificates of deposit		2,580		710
Equity securities		3,934		60
Investments-trading	$	166,400	$	124,546

(1) Includes TBAs. See note 7.

(2) Primarily comprised of CDOs, CLOs, and ABS.

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Trading Securities Sold, Not Yet Purchased

The following table displays the carrying value of all trading securities sold, not yet purchased as of the periods indicated:

TRADING SECURITIES SOLD, NOT YET PURCHASED

(Dollars in Thousands)

Security Type	March 31, 2012		December 31, 2011
U.S. government agency MBS (1)	$	22	$	16
U.S. Treasury securities		12,950		11,755
Corporate bonds and redeemable preferred stock		73,830		87,537
Foreign government bonds		16		158
Municipal bonds		143		143
Exchange traded funds		4,056		—
Certificates of deposit		—		4
Total	$	91,017	$	99,613

(1) Represents TBAs. See note 7.

The Company tries to manage its exposure to changes in interest rates for the interest rate sensitive securities it holds by entering into offsetting short positions for similar fixed rate securities.

The Company included the change in unrealized losses in the amount of $52 for the three months ended March 31, 2012 and the change in unrealized gains in the amount $1,264 for the three months ended March 31, 2011 in net trading revenue in the Company’s consolidated statements of operations.

Other Investments, at fair value

The following table provides detail of the investments included within other investments, at fair value:

OTHER INVESTMENTS, AT FAIR VALUE

(Dollars in Thousands)

	March 31, 2012
Security Type	Cost		Carrying Value		Unrealized Gain / (Loss)
Interests in securitizations (1)	$	217	$	97	$	(120	)
Equity Securities:
EuroDekania		7,792		2,348		(5,444	)
Star Asia		23,219		32,118		8,899
Tiptree Financial Partners, L.P.		5,561		2,650		(2,911	)
Other securities		232		103		(129	)
Total equity securities		36,804		37,219		415
Residential loans		267		253		(14	)
Other investments, at fair value	$	37,288	$	37,569	$	281

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	December 31, 2011
Security Type	Cost		Carrying Value		Unrealized Gain / (Loss)
Interests in securitizations (1)	$	217	$	88	$	(129	)
Equity Securities:
EuroDekania		7,792		2,370		(5,422	)
Star Asia		23,219		37,358		14,139
Tiptree Financial Partners, L.P.		5,561		2,533		(3,028	)
Other securities		232		156		(76	)
Total equity securities		36,804		42,417		5,613
Residential loans		278		267		(11	)
Other investments, at fair value	$	37,299	$	42,772	$	5,473

(1) Represents an interest in a CDO.

6. FAIR VALUE DISCLOSURES

Fair Value Option

The Company has elected to account for certain of its other financial assets at fair value under the fair value option provisions of FASB ASC 825, Financial Instruments (“FASB ASC 825”). The primary reason for electing the fair value option when it first became available in 2008, was to reduce the burden of monitoring the differences between the cost and the fair value of the Company’s investments, previously classified as available for sale securities, including the assessment as to whether the declines are temporary in nature and to further remove an element of management judgment. In addition, the election was made for certain investments that were previously required to be accounted for under the equity method because their fair value measurements were readily obtainable.

Such financial assets accounted for at fair value include:

• in general, securities that would otherwise qualify for available for sale treatment;

• in general, investments in equity method affiliates where the affiliate has all of the attributes in FASB ASC 946-10-15-2 (commonly referred to as investment companies); and

• in general, investments in residential loans.

The changes in fair value (realized and unrealized gains and losses) of these instruments for which the Company has elected the fair value option are recorded in principal transactions and other income in the consolidated statements of operations. All of the investments for which the Company has elected the fair value option are included as a component of other investments, at fair value in the consolidated balance sheets. The Company recognized net losses of $5,174 and $1,540 related to changes in fair value of investments that are included as a component of other investments, at fair value during the three months ended March 31, 2012 and 2011, respectively.

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Fair Value Measurements

In accordance with FASB ASC 820, Fair Value Measurements and Disclosures (“FASB ASC 820”), the Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. 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 hierarchy under FASB ASC 820 are described below:

Level 1	Financial assets and liabilities whose values are based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2	Financial assets and liabilities whose values are based on one or more of the following:
1.	Quoted prices for similar assets or liabilities in active markets;
2.	Quoted prices for identical or similar assets or liabilities in non-active markets;
3.	Pricing models whose inputs other than quoted prices are observable for substantially the full term of the asset or liability; or
4.	Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.
Level 3	Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the level 3 category. As a result, the unrealized gains and losses for assets and liabilities within the level 3 category presented in the tables below may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain financial assets or liabilities. There were not transfers between level 1 and level 2 of the fair value hierarchy during the three months ended March 31, 2012 and 2011. Reclassifications impacting level 3 of the fair value hierarchy are reported as transfers in or transfers out of the level 3 category as of the beginning of the quarter in which reclassifications occur.

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2012 and December 31, 2011, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.

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FAIR VALUE MEASUREMENTS ON A RECURRING BASIS

(Dollars in Thousands)

	March 31, 2012 Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Investments-trading:
U.S. government agency MBS and CMOs	$	17,134	$	—	$	17,134	$	—
U.S. government agency debt securities		18,237		—		18,237		—
RMBS		491		—		491		—
U.S. Treasury securities		5,366		5,366		—		—
Interests in securitizations (1)		2,665		—		256		2,409
SBA loans		10,786		—		10,786		—
Corporate bonds and redeemable preferred stock		90,016		2,280		87,736		—
Foreign government bonds		49		—		49		—
Municipal bonds		15,142		—		15,142		—
Certificates of deposit		2,580		—		2,580		—
Equity securities		3,934		3,767		—		167
Total investments-trading	$	166,400	$	11,413	$	152,411	$	2,576
Other investments, at fair value:
Equity Securities:
Other Investment Vehicles
EuroDekania (2)		2,348		—		—		2,348
Star Asia (3)		32,118		—		—		32,118
Tiptree Financial Partners L.P. (4)		2,650		—		—		2,650
		37,116		—		—		37,116
Other		103		21		—		82
Total equity securities		37,219		21		—		37,198
Interests in securitizations (1)		97		—		—		97
Residential loans		253		—		253		—
Total other investments, at fair value	$	37,569	$	21	$	253	$	37,295
Liabilities:
Trading securities sold, not yet purchased:
U.S. government agency MBS	$	22	$	—	$	22	$	—
U.S. Treasury securities		12,950		12,950		—		—
Corporate bonds and redeemable preferred stock		73,830		—		73,830		—
Foreign government bonds		16		—		16		—
Municipal bonds		143		—		143		—
Exchange traded funds		4,056		4,056		—		—
Total trading securities sold, not yet purchased	$	91,017	$	17,006	$	74,011	$	—

(1) Primarily comprised of CDOs, CLOs, and ABS.

(2) Hybrid Securities Fund — European.

(3) Real Estate Fund — Asian.

(4) Diversified Fund.

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FAIR VALUE MEASUREMENTS ON A RECURRING BASIS

(Dollars in Thousands)

	December 31, 2011 Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Investments-trading:
U.S. government agency MBS and CMOs	$	7,563	$	—	$	7,563	$	—
U.S. government agency debt securities		14,600		144		14,456		—
RMBS		7,108		—		2,176		4,932
CMBS		1,587		—		1,587		—
U.S. Treasury securities		8,524		8,524		—		—
Interests in securitizations (1)		608		—		387		221
SBA loans		9,049		—		9,049		—
Corporate bonds and redeemable preferred stock		65,445		779		64,666		—
Foreign government bonds		67		—		67		—
Municipal bonds		9,225		—		9,225		—
Certificates of deposit		710		—		710		—
Equity securities		60		25		—		35
Total investments-trading	$	124,546	$	9,472	$	109,886	$	5,188
Other investments, at fair value:
Equity Securities:
Other Investment Vehicles
EuroDekania (2)		2,370		—		—		2,370
Star Asia (3)		37,358		—		—		37,358
Tiptree Financial Partners L.P. (4)		2,533		—		—		2,533
		42,261		—		—		42,261
Other		156		24		—		132
Total equity securities		42,417		24		—		42,393
Interests in securitizations (1)		88		—		—		88
Residential loans		267		—		—		267
Total other investments, at fair value	$	42,772	$	24	$	—	$	42,748
Liabilities:
Trading securities sold, not yet purchased:
U.S. government agency MBS	$	16	$	—	$	16	$	—
U.S. Treasury securities		11,755		11,755		—		—
Corporate bonds and redeemable preferred stock		87,537		1,084		86,453		—
Foreign government bonds		158		—		158		—
Municipal bonds		143		—		143		—
Certificates of deposit		4		—		4		—
Total trading securities sold, not yet purchased	$	99,613	$	12,839	$	86,774	$	—

(1) Primarily comprised of CDOs, CLOs, and ABS.

(2) Hybrid Securities Fund — European.

(3) Real Estate Fund — Asian.

(4) Diversified Fund.

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The following provides a brief description of the types of financial instruments the Company holds, the methodology for estimating fair value, and the level within the hierarchy of the estimate.

U.S. Government Agency MBS and CMOs: These are securities which are generally traded over-the-counter. The Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices or market price quotations from third party pricing services. These valuations are based on a market approach. This is considered a level 2 valuation in the hierarchy.

In instances where the securities are either new issuances or experience illiquidity, such as CMOs and, more specifically, agency inverse interest-only securities, principal only, and fixed interest only among others, the Company may use its own internal valuation models which are based on an income approach. In some cases, new issuances are senior in nature or fairly liquid, however, due to the fact that it is a new issuance, it is difficult to obtain third party pricing and the Company uses internal models to determine fair value. In these cases, the Company will classify such an issuance as level 3 within the hierarchy until it is able to obtain third party pricing. Fair values based on internal valuation models prepared by the Company’s management are generally classified within level 3 of the valuation hierarchy. In general, the fair values of U.S. government agency and MBS and CMOs which are classified as level 3 are determined primarily using discounted cash flow and option adjusted spread methodologies. Key inputs to these models are interest rates and prepayment rates. Attributes of the underlying mortgage loans, in the case of CMOs, that affect the pricing inputs include, but are not limited to, weighted average coupon; average and maximum loan size; loan-to-value ratios; credit scores; documentation type; geographic location; weighted average loan age; originator; servicer; and historical prepayment. Yield curves used in the discounted cash flow models are based on observed market prices for comparable securities and published interest rate data to estimate market yields. The level 3 classification of the fair value measurements of certain CMOs was applicable during the 2011 period.

U.S. Government Agency Debt Securities: Callable and non-callable U.S. government agency debt securities are measured primarily based on quoted market prices obtained from third party pricing services. Non-callable U.S. government agency debt securities are generally classified within level 1 and callable U.S. government agency debt securities are classified within level 2 of the valuation hierarchy.

RMBS and CMBS: The Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices or market price quotations from third party pricing services. These valuations are based on a market approach. The Company generally classifies the fair value of these securities based on third party quotations within level 2 of the valuation hierarchy.

In instances where the Company is unable to obtain a reliable market price quotation from third party pricing services and there are no substantially similar securities that trade frequently as the securities held in trading inventory, the Company may determine the fair value of those securities using its own internal valuation models, which are based on an income approach. Fair values based on internal valuation models prepared by the Company’s management are generally classified within level 3 of the valuation hierarchy. Information utilized in the Company’s internal valuation models may include the security’s credit rating, coupon rate, estimated prepayment speeds, expected weighted average life, collateral composition, estimated future interest rates, expected credit losses, credit enhancement, and recently executed transactions. The level 3 classification of the fair value measurements of certain residential mortgage-backed securities and commercial mortgage-backed securities was applicable during the 2011 period.

U.S. Treasury Securities: U.S. Treasury securities include U.S. Treasury bonds and notes and the fair values of the U.S. Treasury securities are based on quoted prices in active markets. Valuation adjustments are not applied. The Company classifies the fair value of these securities within level 1 of the valuation hierarchy.

Interests in Securitizations: Interests in securitizations may be comprised of CDOs, CLOs and ABS, which may include, but are not limited to, securities backed by auto loans, credit card receivables or student loans. Where the Company is able to obtain independent market quotations from at least two broker-dealers and where a price within the range of at least two broker-dealers is used or market price quotations from third party pricing services is used, interests in securitizations will generally be classified as level 2 of the valuation hierarchy. These valuations are based on a market approach. The independent market quotations from broker-dealers are generally nonbinding. The Company seeks quotations from broker-dealers that historically have actively traded, monitored, issued, and been knowledgeable about interests in securitizations. The Company

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generally believes that to the extent that (1) it receives two quotations in a similar range from broker-dealers knowledgeable about interests in securitizations, and (2) the Company believes the broker-dealers gather and utilize observable market information such as new issue activity in the primary market, trading activity in the secondary market, credit spreads versus historical levels, bid-ask spreads, and price consensus among market participants and sources, then classification as level 2 of the valuation hierarchy is appropriate. In the absence of two broker-dealer market quotations, a single broker-dealer market quotation may be used without corroboration of the quote in which case the Company generally classifies the fair value within level 3 of the valuation hierarchy.

If quotations are unavailable, prices observed by the Company for recently executed market transactions may be used or valuation models prepared by the Company’s management may be used, which are based on an income approach. The models prepared by the Company’s management include estimates and the valuations derived from them could differ materially from amounts realizable in an open market exchange. Fair values based on internal valuation models prepared by the Company’s management are generally classified within level 3 of the valuation hierarchy.

Establishing fair value is inherently subjective given the volatile and sometimes illiquid markets for certain interests in securitizations and requires management to make a number of assumptions, including assumptions about the future of interest rates, discount rates and the timing of cash flows. The assumptions the Company applies are specific to each security. Although the Company may rely on internal calculations to compute the fair value of certain interest in securitizations, the Company requests and considers indications of fair value from third party pricing services to assist in the valuation process.

SBA Loans: The Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices or market price quotations from third party pricing services. The Company generally classifies these investments within level 2 of the valuation hierarchy. These valuations are based on a market approach.

Corporate Bonds, Redeemable Preferred Stock, and Foreign Government Bonds: The Company uses recently executed transactions, or third party quotations from independent pricing services to arrive at the fair value of its investments in corporate bonds, redeemable preferred stock and foreign government bonds. These valuations are based on a market approach. The Company generally classifies the fair value of these bonds within level 2 of the valuation hierarchy. In instances, where the fair values of securities are based on quoted prices in active markets (for example with redeemable preferred stock), the Company classifies the fair value of these securities within level 1 of the valuation hierarchy.

Municipal Bonds: Municipal bonds which include obligations of U.S. states, municipalities and political subdivisions primarily include bonds or notes issued by U.S. municipalities. The Company generally values these securities using third party quotations such as market price quotations from third party pricing services. The Company generally classifies the fair value of these bonds within level 2 of the valuation hierarchy. The valuations are based on a market approach. In instances where the Company is unable to obtain reliable market price quotations from third party pricing services, the Company will use its own internal valuation models. In these cases, the Company will classify such securities as level 3 within the hierarchy until it is able to obtain third party pricing.

Equity Securities: The fair value of equity securities that represent investments in publicly traded companies (common or preferred shares, options, warrants, and other equity investments) are determined using the closing price of the security as of the reporting date. These are securities which are traded on a recognized liquid exchange. This is considered a level 1 value in the valuation hierarchy. In some cases, the Company owns options or warrants in publicly traded companies when the option or warrant itself is not publicly traded. In those cases, the Company uses an internal valuation model and classifies the investment within level 3 of the valuation hierarchy. The non-exchange traded equity options and warrants are measured using the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. Other equity securities represent investments in investment funds and other non-publicly traded entities. Substantially all of these other entities have the attributes of investment companies as described in FASB ASC 946-15-2. The Company estimates the fair value of these entities using the reported net asset value per share as of the reporting date in accordance with the “practical expedient” provisions related to investments in certain entities that calculate net asset value per share (or its equivalent) included in FASB ASC 820 for all entities except Star Asia. The Company generally classifies these estimates within either level 2 of the valuation hierarchy if its investment in the entity is currently redeemable or level 3 if its investment is not currently redeemable.

In the case of Star Asia, the Company utilizes a series of valuation models to determine fair value, which use both market and income based approaches and generally classifies its investment within level 3 of the valuation hierarchy. Star Asia accounts for itself as an investment company as described in ASC 946, Financial Services—Investment Companies. As an investment company, Star Asia carries its assets at fair value and reports NAV per share to its investors. However, Star Asia issued subordinated debt securities in 2009 at a significant discount to par. Upon issuance, Star Asia did not elect the fair value option for these liabilities and was not required to do so under ASC 946. Over time, it is the Company’s assessment that the fair value of the subordinated debt securities has diverged from its carrying value. Because Star Asia’s published NAV is calculated using the amortized cost of these subordinated debt securities, the Company has concluded it would be appropriate to adjust Star Asia’s reported NAV to recalculate it as if Star Asia’s subordinated debt were recorded at fair value as opposed to its historical amortized cost. The Company estimates the fair value of Star Asia’s

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subordinated debt securities by projecting the remaining debt cash outflows and discounting them at an estimated market rate as of the reporting date, for similar non-investment grade long term subordinated debt issuances.

The Company used discount rates of 7.50% and 7.25% as of December 31, 2011 and March 31, 2012, respectively, in determining the fair value of Star Asia’s subordinated debt securities. If the Company had used Star Asia’s unadjusted NAV, rather than the Company’s financial model described above in determining the fair value of the Company’s investment in Star Asia, the Company would have recorded its investment in Star Asia at a value of $46,031 and $41,333 as of December 31, 2011 and March 31, 2012, respectively, as compared to the fair value as determined by the Company’s internal valuation model of $37,358, and $32,118 as of December 31, 2011 and March 31, 2012, respectively.

Residential Loans: Management utilizes home price indices to value the residential loans. Previously management had considered adjustments to these indices but has elected going forward to not adjust the indices. Adjustments to the index implied a level 3 valuation. The new methodology uses an unadjusted index, which is considered an observable input and moves these investments into level 2.

Certificates of Deposit: The fair value of certificates of deposit is estimated using valuations provided by third party pricing services. Certificates of deposit are generally categorized in level 2 of the valuation hierarchy. However, in instances where the certificates of deposit are new issuances, or the payments of certificate of deposit are linked to an index, it may be difficult to obtain third party pricing and, in these cases, the Company uses internal models to determine fair value and the fair value is generally classified within level 3 of the valuation hierarchy. The level 3 classification of the fair value measurements of certain certificates of deposit was applicable during the 2011 period.

Derivatives:

TBAs

The Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices or market price quotations from third party pricing services. TBAs are generally classified within level 2 of the fair value hierarchy. If there is limited transaction activity or less transparency to observe market based inputs to valuation models, TBAs are classified in level 3 of the fair value hierarchy. U.S. government agency MBS and CMOs include TBAs. Unrealized gains on TBAs are included in investments-trading on the Company’s consolidated balance sheets and unrealized losses on TBAs are included in trading securities sold, not yet purchased on the Company’s consolidated balance sheets. See note 7.

Trading Securities Sold, Not Yet Purchased: The securities are valued using quoted active market prices of the securities sold and are generally categorized within level 1 or 2 of the valuation hierarchy depending on the type of investment sold.

For a discussion of the valuation methodology used for U.S. government agency MBS, refer to “U.S. Government Agency MBS and CMOs.”

For a discussion of the valuation methodology used for U.S. Treasury securities, refer to “U.S. Treasury Securities.”

For a discussion of the valuation methodology for corporate bonds, redeemable preferred stock and foreign government bonds, refer to “Corporate Bonds, Redeemable Preferred Stock and Foreign Government Bonds.”

For a discussion of the valuation methodology for municipal bonds, refer to “Municipal Bonds.”

For a discussion of the valuation methodology for certificates of deposit, refer to “Certificates of Deposit.”

For a discussion of the valuation methodology for TBAs, refer to “Derivatives-TBAs.”

Exchange traded funds are investment funds that trade in active markets, similar to public company stocks. The fair values of exchange traded funds are based on quoted prices in active markets. Valuation adjustments are not applied. The Company classifies the fair value of these securities within level 1 of the valuation hierarchy.

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Level 3 Financial Assets and Liabilities

Financial Instruments Measured at Fair Value on a Recurring Basis

The following table presents additional information about assets and liabilities measured at fair value on a recurring basis and for which the Company has utilized level 3 inputs to determine fair value for the three months ended March 31, 2012 and 2011.

LEVEL 3 INPUTS

Three Months Ended March 31, 2012

(Dollars in Thousands)

	January 1, 2012		Total gains and losses included in earnings									Purchases		Sales			March 31, 2012		Change in unrealized gains/(losses) for the period included in earnings (1)
			Net trading			Principal transactions and other income			Transfers out of Level 3
Assets:
Investments-trading:
RMBS	$	4,932	$	17		$	—		$	—		$	171	$	(5,120	)	$	—	$	—
Interests in securitizations (2)		221		(37	)		—			—			2,225		—			2,409		(37	)
Equity securities		35		6			—			—			126		—			167		6
Total investments-trading	$	5,188	$	(14	)	$	—			—		$	2,522	$	(5,120	)	$	2,576	$	(31	)
Other investments, at fair value:
Equity Securities:
Other Investment Vehicles
EuroDekania (3)	$	2,370	$	—		$	(22	)		—		$	—	$	—		$	2,348	$	(22	)
Star Asia (4)		37,358		—			(5,240	)		—			—		—			32,118		(5,240	)
Tiptree Financial Partners, L.P. (5)		2,533		—			117			—			—		—			2,650		117
		42,261		—			(5,145	)		—			—		—			37,116		(5,145	)
Other		132		—			(50	)		—			—		—			82		(50	)
Total equity securities		42,393		—			(5,195	)		—			—		—			37,198		(5,195	)
Interests in securitizations (2)		88		—			9			—			—		—			97		9
Residential loans		267		—			—			(267	)		—		—			—		—
Total other investments, at fair value	$	42,748	$	—		$	(5,186	)	$	(267	)	$	—	$	—		$	37,295	$	(5,186	)

(1) Represents the change in unrealized gains and losses for the period included in earnings for assets held at the end of the reporting period.

(2) Primarily comprised of CDOs, CLOs, and ABS.

(3) Hybrid Securities Funds — European.

(4) Real Estate Funds — Asian.

(5) Diversified Fund.

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LEVEL 3 INPUTS

Three Months Ended March 31, 2011

(Dollars in Thousands)

	January 1, 2011		Total gains and losses included in earnings						Transfers into Level 3		Purchases		Sales (1)			March 31, 2011		Change in unrealized gains/(losses) for the period included in earnings (2)
			Net trading			Principal transactions and other income
Assets:
Investments-trading:
U.S. government agency MBS and CMOs	$	68,885	$	(572	)	$	—		$	4,332	$	13,316	$	(73,755	)	$	12,206	$	(232	)
Interests in securitizations (3)		4,500		5,238			—			—		1,085		(8,966	)		1,857		516
Certificates of deposit		—		3			—			—		761		(371	)		393		3
Equity securities		—		76			—			—		—		(2	)		74		76
Total investments-trading	$	73,385	$	4,745		$	—		$	4,332	$	15,162	$	(83,094	)	$	14,530	$	363
Other investments, at fair value:
Equity Securities:
Other Investment Vehicles
EuroDekania (4)	$	1,258	$	—		$	775		$	—	$	—	$	—		$	2,033	$	775
Star Asia (5)		38,025		—			(2,681	)		—		226		(476	)		35,094		(2,681	)
MFCA (6)		2,480		—			31			—		—		—			2,511		31
		41,763		—			(1,875	)		—		226		(476	)		39,638		(1,875	)
Investment Funds
Deep Value (7)		28		—			—			—		—		—			28		—
		28		—			—			—		—		—			28		—
Other		500		—			53			—		—		—			553		53
Total equity securities		42,291		—			(1,822	)		—		226		(476	)		40,219		(1,822	)
Interests in securitizations (3)		105		—			—			—		—		—			105		—
Residential loans		303		—			2			—		—		(18	)		287		2
Total other investments, at fair value	$	42,699	$	—		$	(1,820	)	$	—	$	226	$	(494	)	$	40,611	$	(1,820	)

(1) Includes return of principal/capital of interests in U.S. government agency MBS and CMOs, securitizations, investment funds and residential loans. The sale of $476 attributable to Star Asia represents the transfer of 54,452 shares of Star Asia to an employee for services rendered during 2010.

(2) Represents the change in unrealized gains and losses for the period included in earnings for assets held at the end of the reporting period.

(3) Primarily comprised of CDOs and CLOs.

(4) Hybrid Securities Funds — European.

(5) Real Estate Funds — Asian.

(6) Diversified Fund.

(7) Real Estate Funds.

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The circumstances that would result in transferring certain financial instruments from level 2 to level 3 of the valuation hierarchy would typically include what the Company believes to be a decrease in the availability, utility, and reliability of observable market information such as new issue activity in the primary market, trading activity in the secondary market, credit spreads versus historical levels, bid-ask spreads, and price consensus among market participants and sources.

During 2009, the liquidity and transparency surrounding structured credit products, such as interests in securitizations, continued to diminish. The absence of new issue activity in the primary market led to a continually decreasing level of transparency, as seasoned secondary issuances could not be analyzed on a comparative basis relative to new issuances. In addition, diminished trading activity in the secondary market also led the Company to believe that broker-dealer quotations may not be based on observable and reliable market information. The Company has maintained this assessment during 2012 and has not transferred any of these assets out of level 3 of the valuation hierarchy.

Investments-trading: During the three months ended March 31, 2012, there were not any transfers into or out of level 3 of the valuation hierarchy.

During the three months ended March 31, 2011, there were no transfers out of level 3 and there was one transfer of $4,332 into level 3 of the valuation hierarchy related to one security. In this case, as of December 31, 2010, the Company was able to obtain a reliable quote from a third party pricing service. As of March 31, 2011, the Company was unable to obtain a reliable quote and relied upon an internal valuation model.

Other investments, at fair value: During the three months ended March 31, 2012, the Company transferred $267 in residential loans from level 3 to level 2 of the valuation hierarchy. During the three months ended March 31, 2011, there were not any transfers into or out of level 3 of the valuation hierarchy.

The following table provides the quantitative information about level 3 fair value measurements as of March 31, 2012:

QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS

(Dollars in Thousands)

	Fair Value at March 31, 2012		Valuation Technique	Significant Unobservable Inputs	Weighted average	Range of Significant Inputs
Assets:
Investments-trading:
Equity securities	$	167	Black Scholes	Expected Life Volatility Dividend Yield	5 years 25% 0%	5 years 25% 0%
Other investments, at fair value:
Equity Securities:
Other Investment Vehicles
Star Asia	$	32,118	Adjusted NAV	Discount rate on debt	7.25%	7.25%
Other	$	82	Black Scholes	Expected Life Volatility Dividend Yield	5.2 years 25% 0%	5-10 years 25% 0%

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Investments in Certain Entities That Calculate Net Asset Value Per Share (Or Its Equivalent)

The following table presents additional information about investments in certain entities that calculate net asset value per share (regardless of whether the “practical expedient” provisions of FASB ASC 820 have been applied) which are measured at fair value on a recurring basis at March 31, 2012 and December 31, 2011.

FAIR VALUE MEASUREMENTS OF INVESTMENTS IN CERTAIN ENTITIES

THAT CALCULATE NET ASSET VALUE PER SHARE (OR ITS EQUIVALENT)

		0000000000000		0000000000000		0000000000000		0000000000000
	Fair Value at March 31, 2012 (dollars in thousands)		Unfunded Commitments		Redemption Frequency (if Currently Eligible)		Redemption Notice Period
Other Investment Vehicles:
EuroDekania (a)	$	2,348		N/A		N/A		N/A
Star Asia (b)		32,118		N/A		N/A		N/A
Tiptree Financial Partners, L.P. (c)		2,650		N/A		N/A		N/A
	$	37,116

		0000000000000		0000000000000		0000000000000		0000000000000
	Fair Value at December 31, 2011 (dollars in thousands)		Unfunded Commitments		Redemption Frequency (if Currently Eligible)		Redemption Notice Period
Other Investment Vehicles:
EuroDekania (a)	$	2,370		N/A		N/A		N/A
Star Asia (b)		37,358		N/A		N/A		N/A
Tiptree Financial Partners, L.P. (c)		2,533		N/A		N/A		N/A
	$	42,261

N/A — Not applicable.

(a) EuroDekania’s investment strategy is to make investments in hybrid capital securities that have attributes of debt and equity, primarily in the form of subordinated debt issued by insurance companies, banks and bank holding companies based primarily in Western Europe (“EuroTruPS”); widely syndicated leveraged loans issued by European corporations CMBS, including subordinated interests in first mortgage real estate loans (“B-Notes”); and RMBS and other ABS backed by consumer and commercial receivables. The majority of the assets are denominated in Euros and U.K. Pounds Sterling. The fair value of the investment in this category has been estimated using the net asset value per share of the investment in accordance with the “practical expedient” provisions of FASB ASC 820.

(b) Star Asia’s investment strategy is to make investments in Asian real estate structured finance investments, including CMBS, corporate debt of REITs and real estate operating companies, whole loans, mezzanine loans and other commercial real estate fixed income investments. The fair value of the investment in this category has been estimated using a series of internal valuation models that use both the market and income approach. If the Company had used Star Asia’s unadjusted reported net asset value to determine its fair value, the carrying value of its investment in Star Asia would have been $41,333 as of March 31, 2012 and $46,031 as of December 31, 2011.

(c) The investment strategy of Tiptree Financial Partners, L.P. (“Tiptree”) is currently focused on investing in (a) specialty finance companies; (b) alternative asset management companies, and (c) diversified credit assets and related equity interests. Tiptree primarily seeks to acquire majority ownership interests in its investees. The fair value of the investment in this category has been estimated using the net asset value per share of the investment in accordance with the “practical expedient” provisions of FASB ASC 820. The Company uses the latest reported net asset value from Tiptree. From time to time, the net asset value may be one quarter in arrears.

7. DERIVATIVE FINANCIAL INSTRUMENTS

FASB ASC 815, Derivatives and Hedging (“FASB ASC 815”), provides for optional hedge accounting. When a derivative is deemed to be a hedge and certain documentation and effectiveness testing requirements are met, reporting entities are allowed to record all or a portion of the change in the fair value of a designated hedge as an adjustment to other comprehensive income (“OCI”) rather than as a gain or loss in the statements of operations. To date, the Company has not designated any derivatives as hedges under the provisions included in FASB ASC 815.

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Derivative financial instruments are recorded at fair value in the consolidated statements of operations and are included within investments-trading; other investments, at fair value; and trading securities sold, not yet purchased.

The Company may, from time to time, enter into derivatives to manage its risk exposures (i) arising from fluctuations in foreign currency rates with respect to the Company’s investments in foreign currency denominated investments; (ii) arising from the Company’s investments in floating rate investments; and (iii) arising from the Company’s facilitation of mortgage-backed trading. Derivatives entered into by the Company, from time to time, may include (i) foreign currency forward contracts; (ii) EuroDollar futures; and (iii) purchase and sale agreements of TBAs. TBAs are forward mortgage-backed securities whose collateral remain “to be announced” until just prior to the trade settlement. TBAs are accounted for as derivatives under FASB ASC 815 when either of the following conditions exists: (i) when settlement of the TBA trade is not expected to occur at the next regular settlement date (which is typically the next month); or (ii) a mechanism exists to settle the contract on a net basis. Otherwise, TBAs are recorded as a standard security trade. The settlement of these transactions is not expected to have a material effect on the Company’s consolidated financial statements.

Derivatives involve varying degrees of off-balance sheet risk, whereby changes in the level or volatility of interest rates or market values of the underlying financial instruments may result in changes in the value of a particular financial instrument in excess of its carrying amount. Depending on the Company’s investment strategy, realized and unrealized gains and losses are recognized in principal transactions and other income or in net trading in the Company’s consolidated statements of operations on a trade date basis.

The Company may, from time to time, enter into the following derivative instruments:

Foreign Currency Forward Contracts

The Company invests in foreign currency denominated investments that expose it to fluctuations in foreign currency rates and, therefore, the Company may, from time to time, hedge such exposure by using foreign currency forward contracts. The Company carries the foreign currency forward contracts at fair value and includes them as a component of other investments, at fair value in the Company’s consolidated balance sheets. As of March 31, 2012 and December 31, 2011, the Company did not have any outstanding foreign currency forward contracts.

EuroDollar Futures

The Company invests in floating rate investments that expose it to fluctuations in interest and, therefore, the Company may, from time to time, hedge such exposure using EuroDollar futures. The Company carries the EuroDollar futures contracts at fair value and includes them as a component of investments-trading in the Company’s consolidated balance sheets. As of March 31, 2012 and December 31, 2011, the Company did not have any outstanding EuroDollar futures contracts.

TBAs

The Company trades U.S. Government agency obligations. In connection with these activities, the Company may be required to maintain inventory in order to facilitate customer transactions. In order to mitigate exposure to market risk, the Company enters in to the purchase and sale of TBAs. The Company carries the TBAs at fair value and includes them as a component of investments–trading or trading securities sold, not yet purchased in the Company’s consolidated balance sheets. At March 31, 2012, the Company had entered into four open TBA sale agreements in the notional amount of $11,500, and five open TBA purchase agreements in the notional amount of $5,023. At December 31, 2011, the Company had entered into seven open TBA sale agreements in the notional amount of $4,325.

The following table presents the Company’s derivative financial instruments and the amount and location of the fair value recognized in the consolidated balance sheets as of March 31, 2012 and December 31, 2011, respectively.

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DERIVATIVE FINANCIAL INSTRUMENTS-BALANCE SHEET INFORMATION

(Dollars in Thousands)

Derivative Financial Instruments Not Designated as Hedging Instruments under FASB ASC 815	Balance Sheet Classification	Unrealized Gain / (Loss) as of March 31, 2012			Unrealized Gain / (Loss) as of December 31, 2011
TBAs	Trading securities sold, not yet purchased	$	(22	)	$	(16	)
		$	(22	)	$	(16	)

The following table presents the Company’s derivative financial instruments and the amount and location of the net gain (loss) recognized in the consolidated statement of operations for the three months ended March 31, 2012 and 2011:

DERIVATIVE FINANCIAL INSTRUMENTS-STATEMENT OF OPERATIONS INFORMATION

(Dollars in Thousands)

Derivative Financial Instruments Not Designated as Hedging Instruments under FASB ASC 815	Income Statement Classification	Three Months Ended March 31, 2012			Three Months Ended March 31, 2011
Foreign currency forward contracts	Revenues — principal transactions and other income	$	—		$	703
EuroDollar futures contracts	Revenues — net trading		—			62
TBAs	Revenues — net trading		(30	)		143
		$	(30	)	$	908

8. COLLATERALIZED SECURITIES TRANSACTIONS

Securities purchased under agreements to resell (“reverse repurchase agreements” or “receivables under resale agreements”) or sales of securities under agreements to repurchase (“repurchase agreements”), principally U.S. government and federal agency obligations, SBA loans and mortgage-backed securities, are treated as collateralized financing transactions and are recorded at their contracted resale or repurchase amounts plus accrued interest. Resulting interest income and expense are included in net trading in the consolidated statements of operations.

In the case of reverse repurchase agreements, the Company generally takes possession of securities as collateral. Likewise, in the case of repurchase agreements, the Company is required to provide the counterparty with securities.

In certain cases a repurchase agreement and a reverse repurchase agreement may be entered into with the same counterparty. If certain requirements are met, the offsetting provisions included in FASB ASC 210, Balance Sheet (“FASB ASC 210”), allow (but do not require) the reporting entity to net the asset and liability on the balance sheet. It is the Company’s policy to present the assets and liabilities on a gross basis even if the conditions described in offsetting provisions included in FASB ASC 210 are met. The Company classifies reverse repurchase agreements as a separate line item within the assets section of the Company’s consolidated balance sheets. The Company classifies repurchase agreements as a separate line item within the liabilities section of the Company’s consolidated balance sheets.

In the case of reverse repurchase agreements, if the counterparty does not meet its contractual obligation to return securities used as collateral, or does not deposit additional securities or cash for margin when required, the Company may be exposed to the risk of reacquiring the securities or selling the securities at unfavorable market prices in order to satisfy its obligations to its customers or counterparties. The Company’s policy to control this risk is monitoring the market value of securities pledged or used as collateral on a daily basis and requiring adjustments in the event of excess market exposure.

In the case of repurchase agreements, if the counterparty makes a margin call and the Company is unable or unwilling to meet the margin call, the counterparty can sell the securities to repay the obligation. The Company is at risk that the counterparty may sell the securities at unfavorable market prices and the Company may sustain significant loss. The Company controls this risk by monitoring its liquidity position to ensure it has sufficient cash or liquid securities to meet margin calls.

In the normal course of doing business, the Company enters into reverse repurchase agreements that permit it to re-pledge or resell the securities to others.

The Company enters into reverse repurchase agreements to acquire securities to cover short positions or as an investment. The Company enters into repurchase agreements to finance the Company’s securities positions held in inventory or to finance reverse repurchase agreements entered into as an investment.

28

At March 31, 2012 and December 31, 2011, the Company held reverse repurchase agreements of $215,985 and $129,978, respectively, and the fair value of securities received as collateral under reverse repurchase agreements was $230,275 and $137,829, respectively. Substantially all of the collateral for reverse repurchase agreements was re-pledged as collateral for repurchase agreements.

At March 31, 2012 and December 31, 2011, the Company had repurchase agreements of $220,312 and $134,870, respectively, and the fair value of securities pledged as collateral under repurchase agreements was $233,357 and $142,295, respectively. These amounts include collateral for reverse repurchase agreements that were re-pledged as collateral for repurchase agreements.

9. INVESTMENTS IN EQUITY METHOD AFFILIATES

The Company has several investments that are accounted for under the equity method. Equity method accounting requires that the Company record its investment on the consolidated balance sheets and recognize its share of the affiliate’s net income as earnings each year. Investment in equity method affiliates is included as a component of other assets on the Company’s consolidated balance sheets.

The Company has certain equity method affiliates for which it has elected the fair value option. The Company elected the fair value option for its investments in MFCA effective January 1, 2008 and effective with the ownership increase in Star Asia in March 2010, which qualified it for equity method treatment, the Company continued its fair value election regarding Star Asia. See notes 5 and 6. Prior to this increase, Star Asia had been treated as an available for sale security for which the fair value option had been elected.

During the three months ended March 31,2012, the Company had the following equity method investees (excluding equity method affiliates for which it had adopted the fair value option): (i) Star Asia Manager; (ii) Deep Value GP; (iii) Deep Value GP II; (iv) Star Asia SPV; (v) Star Asia Opportunity; (vi) Star Asia Capital Management; and (vii) Duart Capital. The following table summarizes the activity and the earnings of the Company’s equity method affiliates.

INVESTMENT IN EQUITY METHOD AFFILIATES

(Dollars in Thousands)

	Investment in
	Star Asia Manager			Deep Value GP		Deep Value GP II		Star Asia SPV		Star Asia Opportunity			Star Asia Capital Management		Duart Capital and Other		Total
Balance at January 1, 2012	$	1,046		$	21	$	33	$	466	$	4,460		$	50	$	—	$	6,076
Investments / advances		—			—		—		—		—			6		—		6
Distributions/repayments		(800	)		—		—		—		—			—		—		(800	)
Earnings / (loss) realized		274			—		1		479		(304	)		66		—		516
Balance at March 31, 2012	$	520		$	21	$	34	$	945	$	4,156		$	122	$	—	$	5,798

The following table summarizes the combined financial information for all equity method investees, including equity method investees for which the fair value option was elected. This aggregated summarized financial data does not represent the Company’s proportionate share of equity method investees’ assets or earnings.

SUMMARY DATA OF EQUITY METHOD INVESTEES

(unaudited)

(Dollars in Thousands)

	March 31, 2012		December 31, 2011
Total Assets	$	264,655	$	257,735
Liabilities	$	93,916	$	68,530
Equity attributable to the investees		170,019		188,170
Non-controlling interest		720		1,035
Liabilities & Equity	$	264,655	$	257,735

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	Three Months Ended March 31,
	2012			2011
Net income / (loss)	$	(15,885	)	$	(19,163	)
Net income / (loss) attributable to the investees	$	(15,570	)	$	(18,873	)

See note 20 for information regarding transactions with the Company’s equity method investees.

10. OTHER ASSETS AND ACCOUNTS PAYABLE AND OTHER LIABILITIES

Other assets include prepaid expenses; security deposits; miscellaneous other assets; cost method investments; furniture, equipment and leasehold improvements, net; intangible assets; and investments in private partnerships and limited liability companies that are valued using the equity method of accounting.

Other assets at March 31, 2012 and December 31, 2011 included:

	March 31, 2012		December 31, 2011
Prepaid expenses	$	3,401	$	3,819
Security deposits		2,547		2,541
Miscellaneous other assets		461		97
Cost method investment		250		250
Furniture, equipment and leasehold improvements, net		3,009		3,373
Intangible assets		538		538
Equity method affiliates		5,798		6,076
Other assets	$	16,004	$	16,694

Accounts payable and other liabilities include accounts payable, rent payable, payroll tax liabilities, accrued interest payable, accrued income taxes, guarantee liabilities related to Alesco XIV (see note 17), deferred income, and other general accrued expenses.

Accounts payable and other liabilities at March 31, 2012 and December 31, 2011 included:

	March 31, 2012		December 31, 2011
Accounts payable	$	1,230	$	1,181
Rent payable		1,204		1,289
Accrued interest payable		1,106		662
Income and payroll taxes payable		1,608		1,947
Guarantee liability		1,084		1,084
Deferred income		1,257		1,761
Other general accrued expenses		5,302		5,643
Accounts payable and other liabilities	$	12,791	$	13,567

11. VARIABLE INTEREST ENTITIES

FASB ASC 810, Consolidation (“FASB ASC 810”) contains the guidance surrounding the definition of variable interest entities (“VIEs”), the definition of variable interests, and the consolidation rules surrounding VIEs. In general, VIEs are entities in which equity investors lack the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. The Company has variable interests in VIEs through its management contracts and investments in various securitization entities including CLOs and CDOs.

Once it is determined that the Company holds a variable interest in a VIE, FASB ASC 810 requires that the Company perform a qualitative analysis to determine (i) which entity has the power to direct the matters that most significantly impact the VIEs financial performance and (ii) if the Company has the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive the benefits of the VIE that could potentially be significant to the VIE. The entity that has both of these

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characteristics is deemed to be the primary beneficiary and required to consolidate the VIE. This assessment must be done on an ongoing basis.

The Company classifies the VIEs it is involved with into two groups: (i) VIEs managed by the Company and (ii) VIEs managed by third parties. In the case of the VIEs that the Company has been involved with, the Company has generally concluded that the entity that manages the VIE has the power to direct the matters that most significantly impact the VIEs financial performance. This is not a blanket conclusion as it is possible for an entity other than the manager to have the power to direct such matters. However, for all the VIEs the Company is involved with as of March 31, 2012, the Company has drawn this conclusion.

In the case where the Company has an interest in a VIE managed by a third party, the Company has concluded that it is not the primary beneficiary because the Company does not have the power to direct its activities. In the case of an interest in a VIE managed by the Company, the Company will perform an additional qualitative analysis to determine if its interest (including any investment as well as any management fees that qualify as variable interests) could absorb losses or receive benefits that could potentially be significant to the VIE. This analysis considers the most optimistic and pessimistic scenarios of potential economic results that could reasonably be experienced by the VIE. Then, the Company compares the benefits it would receive (in the optimistic scenario) or the losses it would absorb (in the pessimistic scenario) as compared to all benefits and losses absorbed by the VIE in total. If the benefits or losses absorbed by the Company were significant as compared to total benefits and losses absorbed by all variable interest holders, then the Company would conclude it is the primary beneficiary.

As of March 31, 2012, the Company has variable interests in various securitizations but it has determined that it is not the primary beneficiary and, therefore, is not consolidating the securitization VIEs. The maximum potential financial statement loss the Company would incur if the securitization vehicles were to default on all of their obligations would be (i) the loss of value of the interests in securitizations that the Company holds in its inventory at the time and (ii) any management fee receivables in the case of managed VIEs. The Company has not provided financial support to these VIEs during the three months ended March 31, 2012 and 2011 and had no liabilities, contingent liabilities, or guarantees (implicit or explicit) related to these VIEs at March 31, 2012 and December 31, 2011.

The following table presents the carrying amounts of the assets in the Company’s consolidated balance sheets that relate to the Company’s variable interest in identified VIEs with the exception of the two trust VIEs that hold the Company’s junior subordinated notes (see note 12) and the Company’s maximum exposure to loss associated with these identified nonconsolidated VIEs in which it holds variable interests at March 31, 2012 and December 31, 2011.

NON-CONSOLIDATED VARIABLE INTEREST ENTITIES

(Dollars in Thousands)

	March 31, 2012
	Carrying Amount				Maximum Exposure to loss in non- consolidated VIEs
	Other Receivables		Other Investments, at Fair Value
Managed VIEs	$	1,456	$	—	$	1,456
Third party managed VIEs		19		97		116
Total	$	1,475	$	97	$	1,572

	December 31, 2011
	Carrying Amount				Maximum Exposure to loss in non- consolidated VIEs
	Other Receivables		Other Investments, at Fair Value
Managed VIEs	$	1,830	$	—	$	1,830
Third party managed VIEs		175		88		263
Total	$	2,005	$	88	$	2,093

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12. DEBT

The Company had the following debt outstanding as of March 31, 2012 and December 31, 2011, respectively:

DETAIL OF DEBT

(Dollars in Thousands)

Description	Current Outstanding Par			March 31, 2012		December 31, 2011		Interest Rate Terms			Weighted Average Interest Rate at 03/31/2012			Weighted Average Maturity
Contingent convertible senior notes:
7.625% Contingent convertible senior notes (the “Old Notes”)	$	10,210		$	10,187	$	10,303		7.63	%		7.63	%	May 2012 (1)
10.50% Contingent convertible senior notes (the “New Notes”)		8,121			8,040		8,030		10.50	%		10.50	%	May 2014(1)
	$	18,331		$	18,227	$	18,333
Junior subordinated notes	$	48,125	(2)		17,210		17,343		7.47	%		7.47	%	August 2036
Subordinated notes payable	$	1,491			1,491		1,491		12.00	%(3)		12.00	%	June 2013
Total				$	36,928	$	37,167

(1) Represents the weighted average put date maturity. The weighted average contractual maturity for the Old Notes and the New Notes is May 2027.

The Company may redeem all or part of the $10,210 aggregate principal amount of the Old Notes for cash on or after May 20, 2012, at a redemption price equal to 100% of the principal amount of the Old Notes, plus accrued and unpaid interest and additional interest, if any, to, but excluding, the redemption date. The holders of the Old Notes may require the Company to repurchase all or a portion of the Old Notes for cash on May 15, 2012; May 15, 2017; and May 15, 2022 for a repurchase price equal to 100% of the principal amount of the Old Notes, plus accrued and unpaid interest and additional interest, if any, to, but excluding, the repurchase date. The holders of the Old Notes are required to provide notice to the Company of their plan to redeem the Old Notes at any time during the 30 days prior to May 15, 2012; May 15, 2017; and May 15, 2022.

The Company may redeem all or part of the $8,121 aggregate principal amount of the New Notes for cash on or after May 20, 2014, at a redemption price equal to 100% of the principal amount of the New Notes, plus accrued and unpaid interest and additional interest, if any, to, but excluding the repurchase date. The holders of the New Notes may require the Company to repurchase all or a portion of the New Notes for cash on May 15, 2014; May 15, 2017; and May 15, 2022 for a repurchase price equal to 100% of the principal amount of the New Notes, plus accrued and unpaid interest and additional interest, if any, to, but excluding, the repurchase date. The holders of the New Notes are required to provide notice to the Company of their plan to redeem the New Notes at any time during the 30 days prior to May 15, 2014; May 15, 2017; and May 15, 2022.

(2) The outstanding par represents the total par amount of the junior subordinated notes held by two separate VIE trusts. The Company does not consolidate these trusts. The Company holds $1,489 par value of these junior subordinated notes. These notes held by the Company have a carrying value of $0. Therefore, the net par value held by third parties is $48,125.

(3) Comprised of 9% paid currently and 3% paid in kind.

Refer to note 19 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for a discussion of the Company’s debt.

In March 2012, the Company repurchased $150 aggregate principal amount of the Old Notes from an unrelated third party for $147 excluding accrued interest. The Company recognized a gain from repurchase of debt of $3 which was included as a separate component of non-operating income / (expense) in the Company’s consolidated statements of operations.

13. REDEEMABLE NON-CONTROLLING INTEREST (TEMPORARY EQUITY)

The redeemable non-controlling interest represents the equity interests of PrinceRidge which are not owned by the Company. The members of PrinceRidge have the right to withdraw from PrinceRidge and require PrinceRidge to redeem the interests for cash over a contractual payment period. The Company has concluded these interests should be treated as temporary equity under Accounting Series Release 268 (“ASR 268”). These interests are shown outside of the permanent equity of IFMI in its consolidated balance sheet as redeemable non-controlling interests.

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In June 2011, one partner withdrew from PrinceRidge and, therefore, the Company reclassified $3,536 from redeemable non-controlling interest to mandatorily redeemable equity interests on its consolidated balance sheets. During the first quarter of 2012, two partners withdrew from PrinceRidge, and the Company reclassified $5,886 from redeemable non-controlling interest to mandatorily redeemable equity interests in its consolidated balance sheets. In addition, the Company also distributed cash of $43 during the first quarter of 2012 to another withdrawing partner. Per the terms of the operating agreement, PrinceRidge may redeem the partner’s equity interests over a five year period. The amount actually due to the withdrawing partner will fluctuate over time based on the operating results of PrinceRidge. The carrying value of the liability owed to the withdrawing partner will be recorded at the amount owed as of each balance sheet date. Any increases or decreases in the amount owed will be recorded as interest income or expense and will be included in the non operating section of the consolidated statement of operations. As of March 31, 2012 and December 31, 2011, the mandatorily redeemable equity interests totaled $8,970 and $3,149, respectively.

14. PERMANENT EQUITY

Stockholders’ Equity

Common Equity: The following table reflects the activity for the three months ended March 31, 2012 related to the number of shares of unrestricted common stock that the Company had issued as of March 31, 2012:

	Common Stock Shares
Balance at December 31, 2011 (1)		10,132,497
Shares issued in connection with the redemption of Operating LLC units		186,339
Vesting of shares		107,176
Shares withheld for employee taxes		(1,090	)
Balance at March 31, 2012 (1)		10,424,922

(1) Includes 50,400 shares of the Company’s common stock held as treasury stock.

In connection with the acquisition of JVB in January 2011, the Company issued 559,020 restricted units of the Operating LLC to certain of the former owners of JVB that remained employees of JVB following the acquisition. These units include a service requirement and vest over a three year period and are treated as compensation for future service rather than as part of the purchase price to acquire JVB. In January 2012, 186,339 restricted units of the Operating LLC vested, and the holders of these vested Operating LLC membership units elected to redeem these units. The Company, at its discretion, issued 186,339 shares of IFMI common stock to the JVB sellers in exchange for the 186,339 vested membership units.

Acquisition and Surrender of Additional Units of the Operating LLC, net: Effective January 1, 2011, IFMI and the Operating LLC entered into a Unit Issuance and Surrender Agreement (the “UIS Agreement”) which was approved by IFMI’s Board of Directors and the board of managers of the Operating LLC. In an effort to maintain a 1:1 ratio of IFMI’s common stock to the number of membership units IFMI holds in the Operating LLC, the UIS Agreement calls for the issuance of additional membership units of the Operating LLC to IFMI when IFMI issues its common stock to employees under existing equity compensation plans. In certain cases, the UIS Agreement calls for IFMI to surrender units to the Operating LLC when certain restricted shares are forfeited by the employee or repurchased. During the three months ended March 31, 2012, the Operating LLC issued to IFMI 335,636 units related to the UIS Agreement.

In January 2012, IFMI received 186,339 vested membership units from certain former owners of JVB in exchange for the Company’s issuance of 186,339 shares of IFMI common stock to the same former owners.

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In summary, during the three months ended March 31, 2012, IFMI received (net of surrenders) 521,975 units of the Operating LLC pursuant to the UIS Agreement, as a result of the vesting and redemption of membership units of the Operating LLC by certain former owners of JVB for IFMI common stock. The Company recognized a net increase in additional paid in capital of $664 and a net increase in accumulated other comprehensive loss of $22 with an offsetting decrease in non-controlling interest of $642 in connection with the acquisition and surrender of additional units of Operating LLC.

The following schedule presents the effects of changes in IFMI’s ownership interest in the Operating LLC on the equity attributable to IFMI:

	March 31, 2012			March 31, 2011
Net income / (loss) attributable to IFMI	$	(3,859	)	$	375
Transfers (to) from the non-controlling interest:
Increase in IFMI’s paid in capital for the acquisition / (surrender) of additional units of consolidated subsidiary, net		664			807
Changes from net income / (loss) attributable to IFMI and transfers (to) from non-controlling interest	$	(3,195	)	$	1,182

15 . NET CAPITAL REQUIREMENTS

The U.S. broker-dealer subsidiaries of the Company are subject to the net capital provision of Rule 15c3-1 under the Exchange Act, which requires the maintenance of minimum net capital, as defined therein. As of March 31, 2012, the Company had the following three U.S. broker-dealers: Cohen & Company Securities, LLC (“CCS”), JVB, and the PrinceRidge Group LLC (“TPRG”). In February 2012, PrinceRidge merged its broker dealer subsidiary, Cohen & Company Capital Markets, LLC (“CCCM”) into TPRG.

As of March 31, 2012, CCS’ adjusted net capital was $3,826, which exceeded the minimum requirement by $3,726. As of March 31, 2012, JVB’s adjusted net capital was $10,324, which exceeded the minimum requirements by $10,197. As of March 31, 2012, TPRG had net capital of $20,032, which exceeded the minimum requirements by $19,782

EDML, a subsidiary of the Company regulated by the Financial Services Authority in the United Kingdom, is subject to the net liquid capital provision of the Financial Services and Markets Act 2000, GENPRU 2.140R to 2.1.57R, relating to financial prudence with regards to the European Investment Services Directive and the European Capital Adequacy Directive, which requires the maintenance of minimum liquid capital, as defined therein. As of March 31, 2012, the total minimum required net liquid capital was $1,429, and net liquid capital in EuroDekania Management Limited was $4,065 which exceeded the minimum requirements by $2,636 and was in compliance with the net liquid capital provisions.

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16. EARNINGS / (LOSS) PER COMMON SHARE

The following table presents a reconciliation of basic and diluted earnings / (loss) per common share for the periods indicated. Membership units that may be issued in connection with the vesting of a restricted unit issued pursuant to the Amended and Restated Cohen Brothers, LLC 2009 Equity Award Plan (the “2009 Equity Award Plan”) have been excluded from the diluted weighted average shares outstanding calculations because of the obligations of Mr. Daniel G. Cohen, the Company’s Chairman and Chief Executive Officer, under the Equity Plan Funding Agreement to transfer to (1) the Operating LLC the number of Operating LLC membership units or shares of the Company’s Common Stock equal to the number of Operating LLC membership units to be issued by the Operating LLC to the participants in the 2009 Equity Award Plan in connection with vesting of an Operating LLC restricted unit, or (2) the Company the number of shares of the Company’s Common Stock equal to the number of Operating LLC membership units to be issued by the Operating LLC to the participants in the 2009 Equity Award Plan in connection with the vesting of an Operating LLC restricted unit. See note 22 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

EARNINGS / (LOSS) PER COMMON SHARE

(Dollars in Thousands, except share or per share information)

	Three months ended March 31,
	2012			2011
Net income / (loss) attributable to IFMI	$	(3,859	)	$	375
Add / (deduct): Income / (loss) attributable to the non-controlling interest attributable to Operating LLC membership units exchangeable into IFMI shares (1)		(1,902	)		38
Add /(deduct): Adjustment for income tax benefit / (expense) (2)		(26	)		145
Net income / (loss) on a fully converted basis	$	(5,787	)	$	558
Weighted average common shares outstanding — Basic		10,443,752			10,819,955
Unrestricted Operating LLC membership units exchangeable into IFMI shares (1)		5,252,002			5,283,556
Restricted Operating LLC membership units exchangeable into IFMI shares (3)		—			7,227
Restricted stock of IFMI shares (4)		—			14,417
Weighted average common shares outstanding — Diluted (5)		15,695,754			16,125,155
Net income / (loss) per common share — Basic	$	(0.37	)	$	0.03
Net income / (loss) per common share — Diluted	$	(0.37	)	$	0.03

(1) The Operating LLC membership units not held by IFMI (that is, those held by the non-controlling interest for the three months ended March 31, 2012 and 2011) may be redeemed and exchanged into shares of the Company on a one-to-one basis. These units are not included in the computation of basic earnings per share. These units enter into the computation of diluted net income / (loss) per common share when the effect is dilutive using the if-converted method.

(2) If the Operating LLC membership units had been converted at the beginning of the period, the Company would have incurred a higher income tax expense or realized a higher income tax benefit, as applicable.

(3) Restricted Operating LLC membership units do not participate in the earnings of the Company until the restricted Operating LLC membership units vest, therefore, such restricted Operating LLC membership units are included as incremental shares in the diluted calculation pursuant to the treasury stock method as long as the effect is dilutive.

(4) Excludes shares of restricted stock that are considered participating securities since such shares participate in all of the earnings of the Company in the computation of basic earnings per share, and therefore, such shares of restricted stock are not included as incremental shares in the diluted calculation.

(5) Due to the net loss for the three months ended March 31, 2012, the weighted average shares calculation excluded (i) 23,256 restricted Operating LLC membership units; (ii) 12,945 restricted shares of IFMI Common Stock; and (iii) 5,107 restricted units of the Company’s Common Stock.

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17. COMMITMENTS AND CONTINGENCIES

Legal and Regulatory Proceedings

One of the Company’s U.S. broker-dealer subsidiaries, CCS, is a party to litigation commenced on January 12, 2009 in the United States District Court for the Northern District of Illinois (the “Illinois Court”) under the caption Frederick J. Grede, not individually, but as Liquidation Trustee and Representative of the Estate of Sentinel Management Group, Inc. v. Delores E. Rodriguez, Barry C. Mohr, Jr., Jacques de Saint Phalle, Keefe, Bruyette & Woods, Inc., and Cohen & Company Securities, LLC. The plaintiff in this case is the Liquidation Trustee (the “Liquidation Trustee”) for the Estate of Sentinel Management Group, Inc. (“Sentinel”), which filed a bankruptcy petition in August 2007. The Liquidation Trustee alleges that CCS sold Sentinel securities, mainly CDOs that the Liquidation Trustee contends were unsuitable for Sentinel and that CCS violated Section 10(b) of the Exchange Act and Rule 10b-5. The Liquidation Trustee also seeks relief under the Illinois Blue Sky Law, the Illinois Consumer Fraud Act, the United States Bankruptcy Code, and under common law theories of negligence and unjust enrichment. The relief sought by the Liquidation Trustee under these various legal theories includes damages, rescission, disgorgement, and recovery of allegedly voidable transactions under the Bankruptcy Code, as well as costs and attorneys’ fees. The Company is vigorously defending the claims. By order dated July 8, 2009, the Illinois Court dismissed the Liquidation Trustee’s Illinois Consumer Fraud Act claim. Discovery is ongoing with respect to the remaining claims. No contingent liability was recorded in the Company’s consolidated financial statements related to this litigation.

CCS is also party to litigation commenced on May 21, 2009 in the Illinois Court under the caption Frederick J. Grede, not individually, but as Liquidation Trustee of the Sentinel Liquidation Trust, Assignee of certain claims v. Keefe, Bruyette & Woods, Inc., Cohen & Company Securities, LLC., Delores E. Rodriguez, Barry C. Mohr, Jr., and Jacques de Saint Phalle. The plaintiff in this case is the Liquidation Trustee of the Sentinel Liquidation Trust, which emerged from the bankruptcy of Sentinel, filed in August 2007. The Liquidation Trustee, purportedly as the assignee of claims of Sentinel’s customers, alleges that, by recommending that Sentinel purchase securities, mainly CDOs, that the trustee deems to have been unsuitable for Sentinel’s customer accounts, CCS aided and abetted breaches of fiduciary duties purportedly owed by Sentinel and its head trader to Sentinel’s customers, in violation of Illinois common law. The complaint also alleges claims under common law theories of negligence and unjust enrichment. The relief sought by the Liquidation Trustee under these various legal theories includes damages, disgorgement, costs, and attorneys’ fees. The Company is vigorously defending all claims. CCS filed a motion to dismiss the Liquidation Trustee’s complaint on July 21, 2009; that motion was dismissed “as moot” on March 29, 2011. Neither the court nor the Liquidation Trustee has taken any action since that time. No contingent liability was recorded in the Company’s consolidated financial statements related to this litigation.

In addition to the matters set forth above, the Company is a party to various routine legal proceedings and regulatory inquiries arising out of the ordinary course of the Company’s business. Management believes that the results of these routine legal proceedings and regulatory matters will not have a material adverse effect on the Company’s financial condition, or on the Company’s operations and cash flows. However, the Company cannot estimate the legal fees and expenses to be incurred in connection with these routine matters and, therefore, is unable to determine whether these future legal fees and expenses will have a material impact on the Company’s operations and cash flows. It is the Company’s policy to expense legal and other fees as incurred.

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Non-Profit Preferred Funding I (“NPPF I”) Arrangement with Merrill Lynch Portfolio Management, Inc.

On December 27, 2007, Merrill Lynch Portfolio Management, Inc. (the “NPPF I Trustor”) and the trustee of the NPPF I CDO entered into a loan agreement whereby the NPPF I Trustor made an initial $3,000 advance to the NPPF I CDO so that additional funds would be available for the most junior CDO certificate holders in future distributions of CDO waterfall payments. At each waterfall payment date, the advance is repaid in full and the NPPF I Trustor re-advances a scheduled amount to the collateralized debt obligation trust. The advance does not bear interest. The Company is not a party to this agreement and is not obligated to provide reimbursement for any outstanding advances to NPPF I Trustor. As of March 31, 2012, the outstanding advance between NPPF I Trustor and Merrill Lynch Portfolio Management, Inc. was $600.

As an accommodation to the NPPF I Trustor, the Company agreed to pay 6% simple interest on the advance via a side letter agreement entered into on December 27, 2007 between the Company and the NPPF I Trustor. The Company is only obligated to pay interest on outstanding advances. The side letter will terminate on the earlier of the payment in full of all advances and December 2014. The Company accounts for the interest on the outstanding advances as a reduction to revenue since these interest payments are deemed a direct reduction of the Company’s on-going revenue that otherwise would have been earned for the duration of the trust. The reduction in revenue earned by the Company for the three months ended March 31, 2012 and 2011 was $9 and $17, respectively. The potential additional liability the Company would have, assuming the $600 advance (as of March 31, 2012) to the NPPF I Trust remained outstanding through December 2014 would be approximately $99.

The Company sold the NPPF I management contract during the first quarter of 2009. However, the Company retained this obligation.

Alesco XIV Guarantee

AFN invested in a CDO (Alesco XIV) in which Assured Guaranty (“Assured”) was providing credit support to the senior interests in securitizations. Alesco XIV made a loan (the “Guaranteed Loan”) to a particular borrower and AFN entered into an arrangement with Assured whereby AFN agreed to make payments to Assured upon the occurrence of both (i) a loss on the Guaranteed Loan; and (ii) a loss suffered by Assured on its overall credit support arrangement to Alesco XIV security holders. This arrangement is accounted for as a guarantee by the Company. At the Merger Date, the Company recorded a liability of $1,084 related to this arrangement which is included in accounts payable and other liabilities in the Company’s consolidated balance sheet. This amount does not represent the expected loss; rather it represents the Company’s estimate of the fair value of its guarantee (i.e. the amount it would have to pay a third party to assume this obligation). This arrangement is being accounted for as a guarantee. The value will be adjusted under certain limited circumstances such as: (i) when the guarantee is extinguished or (ii) if payment of amounts under the guarantee become probable and estimable. The maximum potential loss to the Company on this arrangement is $8,750. Under certain circumstances, Assured can require the Company to post liquid collateral.

Contribution to Alesco Preferred Funding X Legal Settlement

Alesco Preferred Funding X, Ltd. (“Alesco X”) is a CDO that was managed by Cohen & Company Financial Management, LLC (“CCFM”). Alesco X owned $4,000 of Trust Preferred Securities issued by Leawood Bancshares Statutory Trust I (the “Leawood TruPS”). Leawood Bancshares, Inc. (“Leawood”), and Alesco X entered into a letter agreement dated March 1, 2010 (the “Leawood/Alesco Agreement”) regarding the sale back to Leawood of the Leawood TruPS in exchange for $1,000 upon the occurrence of certain conditions related to the sale of Leawood to CrossFirst Holdings, LLC (“CrossFirst”). The proposed transaction contemplated by the Leawood/Alesco Agreement never closed as a result of the objections of investors in Alesco X, but the ultimate transaction between Leawood and CrossFirst did close.

On or about July 23, 2010, Leawood and CrossFirst Holdings, LLC filed a lawsuit against Alesco X in the United States District Court for the Southern District of New York, Civil Action No. 10-CV-5637 (JSR) alleging that there was a breach of the Leawood/Alesco Agreement. CCFM was not named in the lawsuit. ATP Management LLC, as purchaser of the management rights of Alesco X from CCFM, took over the defense of the action. In late October 2011, the Court issued a summary judgment decision against Alesco X and in favor of Leawood and CrossFirst. On or about December 6, 2011, the United States District Court for the Southern District of New York issued a judgment in favor of Leawood and against Alesco in the amount of $1,618 and in favor of CrossFirst and against Alesco X in the amount of $1,840. In exchange for a full release from Leawood, CrossFirst and Alesco X, the Company agreed to contribute $2,250 to Alesco X’s settlement of the judgment. This amount was included as a component of professional services and other operating expense in the consolidated statement of operations in the fourth quarter of 2011. The Company made the payment of $2,250 in April 2012.

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Accumulated Dividends and Dividend Equivalents on Restricted Stock and Restricted Units

From time to time, the Company has granted restricted stock and restricted units which are entitled to receive dividends or dividend equivalents as and when such dividends or dividend equivalents are declared and paid by the Company; provided, however, that the cash dividends or dividend equivalents on such restricted stock or restricted units are held by the Company until the period of forfeiture lapses and forfeited if the underlying restricted shares or restricted units are forfeited. The Company’s potential liability, assuming the restricted stock or restricted units were to vest as of March 31, 2012, is approximately $350.

18. SEGMENT AND GEOGRAPHIC INFORMATION

Segment Information

The Company operates within three business segments: Capital Markets, Asset Management, and Principal Investing. See note 1.

The Company’s business segment information for the three months ended March 31, 2012 and 2011 is prepared using the following methodologies and generally represents the information that is relied upon by management in its decision making processes:

(a) Revenues and expenses directly associated with each business segment are included in determining net income / (loss) by segment.

(b) Indirect expenses (such as general and administrative expenses including executive and indirect overhead costs) not directly associated with specific business segments are not allocated to the segments’ statements of operations. Accordingly, the Company presents segment information consistent with internal management reporting. See note (1) in the table below for more detail on unallocated items. The following tables present the financial information for the Company’s segments for the periods indicated. Effective with the second quarter of 2011, the Company modified its policy and began recording direct overhead costs that only benefit a particular segment in that segment. As a result of this policy change, the Company reclassified certain overhead costs for the three months ended March 31, 2011 that directly support its capital markets segment from its unallocated segment to its capital markets segment.

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As of and for the three months ended March 31, 2012	Capital Markets			Asset Management		Principal Investing			Segment Total			Unallocated (1)			Total
Summary statement of operations
Net trading	$	17,691		$	—	$	—		$	17,691		$	—		$	17,691
Asset management		—			4,937		—			4,937			—			4,937
New issue and advisory		1,077			—		—			1,077			—			1,077
Principal transactions and other income		(27	)		160		(5,078	)		(4,945	)		—			(4,945	)
Total revenues		18,741			5,097		(5,078	)		18,760			—			18,760
Total operating expenses		18,870			1,080		81			20,031			3,932			23,963
Operating income / (loss)		(129	)		4,017		(5,159	)		(1,271	)		(3,932	)		(5,203	)
Income / (loss) from equity method affiliates		—			—		516			516			—			516
Other non operating income / (expense)		65			—		—			65			(1,277	)		(1,212	)
Income / (loss) before income taxes		(64	)		4,017		(4,643	)		(690	)		(5,209	)		(5,899	)
Income tax expense / (benefit)		—			—		—			—			(9	)		(9	)
Net income / (loss)		(64	)		4,017		(4,643	)		(690	)		(5,200	)		(5,890	)
Less: Net income / (loss) attributable to the non-controlling interest		(129	)		—		—			(129	)		(1,902	)		(2,031	)
Net income / (loss) attributable to IFMI	$	65		$	4,017	$	(4,643	)	$	(561	)	$	(3,298	)	$	(3,859	)
Other statement of operations data:
Depreciation and amortization (included in total operating expense)	$	229		$	4	$	—		$	233		$	158		$	391
Balance sheet data:
Total assets (2) (3)	$	427,004		$	6,315	$	43,364		$	476,683		$	13,395		$	490,078
Investment in equity method affiliates (included in total assets)	$	—		$	—	$	5,798		$	5,798		$	—		$	5,798

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As of and for the three months ended March 31, 2011	Capital Markets		Asset Management		Principal Investing			Segment Total			Unallocated (1)			Total
Summary statement of operations
Net trading	$	27,274	$	—	$	—		$	27,274		$	—		$	27,274
Asset management		—		5,970		—			5,970			—			5,970
New issue and advisory		109		—		—			109			—			109
Principal transactions and other income		18		578		(1,635	)		(1,039	)		—			(1,039	)
Total revenues		27,401		6,548		(1,635	)		32,314			—			32,314
Total operating expenses		19,454		2,277		55			21,786			8,941			30,727
Operating income / (loss)		7,947		4,271		(1,690	)		10,528			(8,941	)		1,587
Income / (loss) from equity method affiliates		—		—		95			95			—			95
Other non operating income / (expense)		—		—		—			—			(1,482	)		(1,482	)
Income / (loss) before income taxes		7,947		4,271		(1,595	)		10,623			(10,423	)		200
Income tax expense / (benefit)		—		—		—			—			(213	)		(213	)
Net income / (loss)		7,947		4,271		(1,595	)		10,623			(10,210	)		413
Less: Net income / (loss) attributable to the non-controlling interest		—		—		—			—			38			38
Net income / (loss) attributable to IFMI	$	7,947	$	4,271	$	(1,595	)	$	10,623		$	(10,248	)	$	375
Other statement of operations data:
Depreciation and amortization (included in total operating expense)	$	29	$	4	$	—		$	33		$	437		$	470
Balance sheet data:
Total assets (2) (3)	$	333,350	$	18,307	$	46,910		$	398,567		$	43,221		$	441,788
Investment in equity method affiliates (included in total assets)	$	—	$	—	$	2,138		$	2,138		$	—		$	2,138

(1) Unallocated includes certain expenses incurred by indirect overhead and support departments (such as the executive, finance, legal, information technology, human resources, risk, compliance, and other similar overhead and support departments). Some of the items not allocated include: (1) operating expenses related to support departments excluding certain departments that directly support the capital markets segment; (2) interest expense on debt; and (3) income taxes. Management does not consider these items necessary for an understanding of the operating results of these segments and such amounts are excluded in segment reporting to the Chief Operating Decision Maker.

(2) Unallocated assets primarily include (1) amounts due from related parties; (2) furniture and equipment, net; and (3) other assets that are not considered necessary for an understanding of segment assets and such amounts are excluded in segment reporting to the Chief Operating Decision Maker.

(3) Goodwill and intangible assets as of March 31, 2012 and 2011 are allocated to the Capital Markets and Asset Management segments as indicated in the table listed below.

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As of March 31, 2012:

	Capital Markets		Asset Management		Principal Investing		Segment Total		Unallocated		Total
Goodwill	$	8,030	$	3,176	$	—	$	11,206	$	—	$	11,206
Intangible assets (included in other assets)	$	538	$	—	$	—	$	538	$	—	$	538

As of March 31, 2011:

	Capital Markets		Asset Management		Principal Investing		Segment Total		Unallocated		Total
Goodwill	$	7,008	$	3,176	$	—	$	10,184		—	$	10,184
Intangible assets (included in other assets)	$	372	$	—	$	—	$	372		—	$	372

Geographic Information

The Company conducts its business activities through offices in the following locations: (1) United States and (2) United Kingdom and other. Total revenues by geographic area are summarized as follows:

GEOGRAPHIC INFORMATION

(Dollars in Thousands)

	Three months ended March 31,
	2012		2011
Total Revenues:
United States	$	17,113	$	28,190
United Kingdom & Other		1,647		4,124
Total	$	18,760	$	32,314

Long-lived assets attributable to an individual country, other than the United States, are not material.

19. SUPPLEMENTAL CASH FLOW DISCLOSURE

Interest paid by the Company on its debt was $914 and $1,015 for the three months ended March 31, 2012 and 2011, respectively.

The Company paid income taxes of $6 and $120 for the three months ended March 31, 2012 and 2011, respectively, and received no income tax refunds for the three months ended March 31, 2012 and 2011, respectively.

In the three months ended March 31, 2012, the Company had the following significant non-cash transactions which are not reflected on the statement of cash flows:

• During the first quarter of 2012, the Company acquired additional units of the Operating LLC pursuant to the UIS Agreement. In an effort to maintain a 1:1 ratio of the Company’s Common Stock to the number of membership units the Company holds in the Operating LLC, the UIS Agreement calls for the issuance of additional membership units of the Operating LLC to the Company when the Company issues its Common Stock to employees under existing equity compensation plans. In certain cases, the UIS Agreement calls for the Company to surrender units to the Operating LLC when certain restricted shares are forfeited by the employee or repurchased. In addition, the Company acquired additional units of the Operating LLC from certain former owners of JVB in exchange for the Company’s issuance of 186,339 shares of the Company’s Common Stock to them in January 2012. The Company recognized a net increase in additional paid-in capital of $664, a net increase of $22 in accumulated other comprehensive loss and a decrease of $642 in non-controlling interest. See note 14.

In the three months ended March 31, 2011, the Company had the following significant non-cash transactions which are not reflected on the statement of cash flows:

• Effective January 1, 2011, the Company acquired additional units of the Operating LLC pursuant to the UIS Agreement.

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In addition, the Company acquired additional units of the Operating LLC in connection with the JVB acquisition. The Company recognized an increase in additional paid-in capital of $807, an increase of $23 in accumulated other comprehensive loss and a decrease of $784 in non-controlling interest.

• During the first quarter of 2011, the Company transferred 54,452 shares of Star Asia in the amount of $476 to an employee for services rendered during 2010.

• In connection with the consummation of the JVB acquisition on January 2011: The Company acquired the net assets of JVB for approximately $16,813, consisting of $14,956 in cash and 313,051 shares of the Company’s Common Stock for stock consideration of $1,531 and contingent payments due of $326.

20. RELATED PARTY TRANSACTIONS

The Company has identified the following related party transactions for the three months ended March 31, 2012 and 2011. The transactions are listed by related party and, unless otherwise noted in the text of the description, the amounts are disclosed in the tables at the end of this section.

A. Cohen Bros. Financial, LLC (“CBF”)

CBF has been identified as a related party because (i) CBF is a noncontrolling interest of the Company and (ii) CBF is wholly owned by the chairman and chief executive officer of the Company.

Beginning in October 2008, the Company began receiving a monthly advisory fee for consulting services provided by the Company to CBF. The fee is recognized as a component of asset management revenue in the consolidated statements of operations. This fee is disclosed as management fee revenue in the tables at the end of this section.

B. The Bancorp, Inc.

The Bancorp, Inc. (“TBBK”) is identified as a related party because TBBK’s chairman is the Company chairman and chief executive officer.

TBBK maintained deposits for the Company in the amount of $53 and $91 as of March 31, 2012 and December 31, 2011, respectively.

As part of the Company’s broker-dealer operations, the Company from time to time purchases securities from third parties and sells those securities to TBBK. The Company may purchase securities from TBBK and ultimately sell those securities to a third party. In either of the cases listed above, the Company includes the trading revenue earned (i.e. the gain or loss realized) by the Company for the entire transaction in the amounts disclosed as part of net trading in the table at the end of this section.

C. Investment Vehicles and Other

The following are identified as related parties. Amounts with respect to the transactions identified below are summarized in a table at the end of this section.

1. Star Asia invests primarily in Asian commercial real estate structured finance products, including CMBS, corporate debt of REITs and real estate operating companies, B notes, mezzanine loans and other commercial real estate fixed income investments. As of March 31, 2012 and December 31, 2011, the Company directly owned approximately 28% of Star Asia’s outstanding shares. Star Asia has been identified as a related party because in the absence of the fair value option of FASB ASC 825, Star Asia would be treated as an equity method affiliate, and because the chairman and chief executive officer of the Company is a member of Star Asia’s board of directors. The Company has an investment in Star Asia. Dividends received on that investment are disclosed as part of dividend income in the tables at the end of this section. Gains or losses recognized from its investment are disclosed as part of gain / (loss) in the tables at the end of this section.

2. EuroDekania invests primarily in hybrid capital securities of European bank and insurance companies, CMBS, RMBS and widely syndicated leverage loans. As of March 31, 2012 and December 31, 2011, the Company directly owned approximately 10% of EuroDekania’s outstanding shares. EuroDekania has been identified as a related party because the chairman and chief executive officer of the Company is a member of EuroDekania’s board of directors. The Company has a management contract with and an investment in EuroDekania. Dividends received on that investment are disclosed as part of dividend income in the tables at the end of this section. Gains or losses recognized from its investment are disclosed as part of the gain / (loss) in the tables at the end of this

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section. Amounts earned from its management contract are disclosed as part of management fee revenue in the tables at the end of this section.

As part of the Company’s broker-dealer operations, the Company from time to time purchases securities from third parties and sell those securities to EuroDekania. Or, the Company may purchase securities from EuroDekania and ultimately sell those securities to third parties. In either case, the Company includes the trading revenue earned (i.e. the gain or loss realized) by the Company for the entire transaction in the amounts disclosed as part of net trading in the table at the end of this section.

3. Star Asia Manager serves as external manager of Star Asia and Star Asia SPV (see C-8. listed below) and the Company owns 50% of Star Asia Manager. Star Asia Manager has been identified as a related party because it is an equity method investee of the Company. The Company recognizes its share of the income or loss of Star Asia Manager as income or loss from equity method affiliates in the consolidated statements of operations. Income or loss recognized under the equity method is disclosed in the table at the end of this section.

4. Prior to June 23, 2011 the Company owned approximately 3% of MFCA’s outstanding shares. On June 23, 2011, MFCA became a wholly owned subsidiary of Tiptree. As part of that transaction, the Company exchanged its 1,000,200 shares of MFCA for 111,133 shares of Tiptree. As of March 31, 2012 and December 31, 2011, the Company owned approximately 1% of Tiptree. Prior to MFCA’s merger with Tiptree, MFCA had been identified as a related party because: (i) in the absence of the fair value option of FASB ASC 825, MFCA would have been treated as an equity method affiliate of the Company; (ii) the chairman and chief executive officer of the Company was the former chairman of MFCA’s board and served as a member of the board until June 22, 2011; and (iii) the former president of the Company served as vice chairman of MFCA’s board until March 18, 2009. In March 2009, the board of directors of MFCA assigned the management contract to an unrelated third party. The Company had a management contract with MFCA. The Company had an investment in MFCA and had a shared services arrangement with MFCA. Dividends received on that investment are disclosed as part of dividend income in the tables at the end of this section. Gains or losses recognized from its investment are disclosed as part of gain / (loss) in the tables at the end of this section. Amounts earned from its management contract are disclosed as part of management fee revenue in the tables at the end of this section. Payments received under the shared services arrangement are disclosed as part of shared services (paid) / received in the tables at the end of this section. In June 2011, MFCA was merged into Tiptree. No employees of the Company serve on the board of Tiptree and Tiptree is not an equity method investee of the Company. Therefore, Tiptree is not a related party.

5. Cohen Financial Group, Inc. (“CFG”) had been identified as a related party because it was a member of the Company prior to the Merger. CFG filed a Certificate of Dissolution with the Secretary of State of the State of Delaware on December 16, 2009, and is in process of completing the liquidation process. From time to time, the Company advanced CFG funds for normal operating purposes; these amounts were treated as due from related party in the consolidated balance sheets.

6. The Deep Value GP serves as the general partner for the feeder funds of Strategos Deep Value Funds (in the case of the first master fund) and as the general partner of the master fund itself (in the case of a second master fund). The Deep Value GP II serves as the general partner for the offshore feeder fund (in the case of a third master fund). The Deep Value GP and the Deep Value GP II are collectively referred to as the “Deep Value GPs.” The Company owns 50% of the Deep Value GP and 40% of the Deep Value GP II. The Deep Value GP and the Deep Value GP II have been identified as related parties because the Deep Value GPs are equity method affiliates of the Company. Income or loss recognized under the equity method is disclosed in the table at the end of this section. The Company previously served as the investment advisor to these funds and sold these advisory contracts in March 2011.

7. Deep Value is a series of closed-end distressed debt funds. Deep Value raises capital from investors, and earns investment returns by investing in a diversified portfolio of asset backed securities consisting primarily of RMBS and other real estate related securities, as well as other U.S. real estate related assets and related securities. As of June 30, 2011, the first Deep Value fund was completely liquidated. Deep Value (as a group) had been identified as a related party because in the absence of the fair value option of FASB ASC 825, the onshore and offshore feeders in which the Company had an investment would be treated as equity method affiliates of the Company. The Company had a management contract with and an investment in Deep Value. Amounts earned from its management contract are disclosed as part of management fee revenue in the tables at the end of this section. Gains or losses recognized from its investment are disclosed as part of gain / (loss) in the tables at the end of this section. The Company previously served as the investment advisor to these funds and sold these advisory contracts in March 2011.

8. Star Asia SPV is a Delaware limited liability company formed in 2010. It was formed to create a pool of assets that would provide collateral to investors who participated in Star Asia’s 2010 rights offering. The investors in Star Asia’s rights offering also received equity interests in Star Asia SPV. Star Asia SPV purchased certain assets from Star Asia and the equity interest holders of Star Asia SPV receive investment returns on the assets held in the SPV up to an agreed upon maximum. Returns above that agreed upon maximum are remitted back to Star Asia. The Company directly owned approximately 31% of Star Asia SPV’s outstanding shares as of March 31, 2012 and December 31, 2011. Star Asia SPV has been identified as a related party because it is an

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equity method investee of the Company. Income or loss recognized under the equity method is disclosed in the table at the end of this section.

9. Duart Capital is a Delaware limited liability company formed in 2010. The Company directly owned 20% of Duart Capital’s outstanding equity interests as of March 31, 2012 and December 31, 2011. Duart Capital has been identified as a related party because it is an equity method investee of the Company. Duart Capital also serves as the investment manager of the Duart Fund (see below). The Company did not elect the fair value option for its investment in Duart Capital. Income or loss recognized under the equity method is disclosed in the table at the end of this section.

10. The Duart Fund is a specialized deep value and special situations opportunity fund that was formed in September 2010. The Duart Fund’s investment objective is to provide superior absolute returns by investing primarily in a portfolio of long and short positions in public and private real estate equity securities, equity-linked securities, or debt securities (including, but not limited to, convertible debt, debt with warrants, warrants, and credit default swaps that related to real estate securities) and partnership or fund interests in the real estate markets. Effective December 31, 2010, the Company submitted a redemption notice to the Duart Fund to redeem 100% of its capital. The Company received its redemption in April 2011. The Duart Fund had been identified as a related party because in the absence of the fair value option of FASB ASC 825, the onshore feeder fund in which the Company had an investment was treated as an equity method affiliate of the Company. Gains or losses recognized from its investment are disclosed as part of the gain / (loss) in the tables at the end of this section.

11. Star Asia Opportunity is a Delaware limited liability company formed in July 2011 to partially finance the acquisition of seven real estate properties in Japan. As of March 31, 2012 and December 31, 2011, the Company directly owned approximately 28% of Star Asia Opportunity’s outstanding equity interests. Star Asia Opportunity has been identified as a related party because it is an equity method investee of the Company. The Company recognizes its share of the income or loss of Star Asia Opportunity as income or loss from equity method affiliates in the consolidated statements of operations. Income or loss recognized under the equity method is disclosed in the table at the end of this section.

12. Star Asia Capital Management serves as external manager of Star Asia Opportunity (see C-11 listed above) and the Company owns 33% of Star Asia Capital Management. Star Asia Capital Management has been identified as a related party because it is an equity method investee of the Company. The Company recognizes its share of the income or loss of Star Asia Capital Management as income or loss from equity method affiliates in the consolidated statements of operations. Income or loss recognized under the equity method is disclosed in the table at the end of this section.

The following tables display the routine intercompany transactions recognized in the statements of operations from the identified related parties during the three months ended March 31, 2012 and 2011, respectively, which are described above. Amounts shown as shared services (paid) / received are included as a component of operating expense in the Company’s consolidated statements of operations:

RELATED PARTY TRANSACTIONS

Three months ended March 31, 2012

(Dollars in Thousands)

					Principal transactions and other income					Income / (loss)			Shared
	Management fee revenue		Net trading		Dividend income and other		Gain/ (Loss)			from equity method affiliates			Services (Paid) / Received
CBF	$	64	$	—	$	—	$	—		$	—		$	—
TBBK		—		35		—		—			—			—
Star Asia		—		—		—		(5,240	)		—			—
Star Asia Manager		—		—		—		—			274			—
Star Asia SPV		—		—		—		—			479			—
Star Asia Opportunity		—		—		—		—			(304	)		—
Star Asia Capital		—		—		—		—			66			—
EuroDekania		139		—		94		(22	)		—			—
Deep Value		—		—		—		—			1			—
Total	$	203	$	35	$	94	$	(5,262	)	$	516		$	—

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RELATED PARTY TRANSACTIONS

Three months ended March 31, 2011

(Dollars in Thousands)

						Principal transactions and other income					Income /  (loss) from equity method affiliates			Shared Services (Paid) / Received
	Management fee revenue		Net trading			Dividend income and other		Gain/ (Loss)
CBF	$	67	$	—		$	—	$	—		$	—		$	—
Star Asia		—		—			—		(2,680	)		—			—
Star Asia Manager		—		—			—		—			220			—
Star Asia SPV		—		—			—		—			273			—
EuroDekania		167		(101	)		—		775			—			—
MFCA		—		—			32		30			—			5
Deep Value		452		—			—		—			1			—
Duart Fund		—		—			—		(455	)		—			—
Duart Capital		—		—			—		—			(399	)		—
Total	$	686	$	(101	)	$	32	$	(2,330	)	$	95		$	5

The following related party transactions are non-routine and are not included in the tables above.

D. Directors and Employees

In addition to the employment agreements the Company has entered into with its chairman and its chief financial officer, the Company has entered into its standard indemnification agreement with each of its directors and executive officers.

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21. DUE FROM / DUE TO RELATED PARTIES

The following table summarizes the outstanding due from / to related parties. These amounts may result from normal operating advances or from timing differences between the transactions disclosed in note 20 and final settlement of those transactions in cash. All amounts are non-interest bearing.

DUE FROM/DUE TO RELATED PARTIES

(Dollars in Thousands)

	March 31, 2012		December 31, 2011
Deep Value GP	$	42	$	29
Deep Value GP II		64		61
Star Asia Manager		51		50
Cohen Brothers Financial, LLC		92		306
Employees and other		513		233
Total Due from Related Parties	$	762	$	679

22. SUBSEQUENT EVENTS

Loan from PrinceRidge

In May 2012, the Operating LLC borrowed $8 million from PrinceRidge. The loan bears interest at 10% and is due in one year. PrinceRidge is a majority owned consolidated subsidiary of the Company.

Modification to Series B Preferred Stock

On April 26, 2012, the Company’s board of directors authorized the Company’s management to negotiate and execute an amendment to the Operating LLC’s operating agreement such that the date upon which Daniel G. Cohen may exercise his right under the Operating LLC operating agreement to require the Company to redeem all or a portion of the Units (as defined in the Operating LLC operating agreement) held by Mr. Cohen is delayed by one year to December 31, 2013. Subject to the foregoing, the board of directors also authorized the Company’s management to amend the Institutional Financial Markets, Inc. (formerly Alesco Financial Inc.) Articles Supplementary Series B Non-Voting Preferred Stock in order to amend the redemption date of the Company’s Series B Voting Non-Convertible Preferred Stock from December 31, 2012 to December 31, 2013.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of the consolidated financial condition and results of operations of Institutional Financial Markets, Inc. and its majority owned subsidiaries (collectively, “we,” “us,” “our,” or the “Company”) should be read in conjunction with the unaudited consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On a regular basis, we evaluate these estimates, including fair value of financial instruments. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

All amounts in this disclosure are in thousands (except share and per share data) unless otherwise noted.

Overview

We are an investment firm specializing in credit-related fixed income investments. We began operations, through our predecessors, in 1999 as an investment firm focused on small and mid-cap banks, but have grown over the past years into a more diversified fixed income specialty investment firm. We are organized into three business segments: Capital Markets, Asset Management, and Principal Investing.

• Capital Markets: Our Capital Markets business segment consists of credit-related fixed income sales, trading and financing, as well as new issue placements in corporate and securitized products and advisory services revenue. Our fixed income sales and trading group provides trade execution to corporate and institutional investors. We specialize in the following products: corporate bonds and loans, ABS, MBS, CLOs, CBOs, CDOs, CMBS, RMBS, SBA loans, municipal bonds, U.S. government bonds, U.S. government agency securities, brokered deposits and CDs for small banks, and hybrid capital of financial institutions including TruPS, whole loans, and other structured financial instruments. We also offer execution and brokerage services for cash equity and derivative products. We carry out our capital market activities primarily through our subsidiaries: JVB, Prince Ridge and EDML.

• Asset Management: We manage assets within managed accounts, permanent capital vehicles, and CDOs (collectively, “investment vehicles”). A CDOs is a form of secured borrowing. The borrowing is secured by different types of fixed income assets such as corporate or mortgage loans or bonds. The borrowing is in the form of a securitization which means that the lenders are actually investing in notes backed by the assets. The lenders have recourse only to the assets securing the loan. Our Asset Management business segment includes our fee based asset management operations which include on-going base and incentive management fees. As of March 31, 2012, we had approximately $7.8 billion in AUM of which 98%, or $7.6 billion, was in CDOs.

• Principal Investing: Our Principal Investing business segment is comprised primarily of our seed capital investments in investment vehicles we manage.

We generate our revenue by business segment primarily through:

Capital Markets:

• our trading activities, which include execution and brokerage services, providing securities financing to customers, riskless trading activities, as well as gains and losses (unrealized and realized) and income and expense earned on securities classified as trading

• new issue and advisory revenue comprised of (a) origination fees for corporate debt issues originated by us; (b) revenue from advisory services; and (c) new issue revenue associated with arranging the issuance of newly created debt, equity, and hybrid financial instruments;

Asset Management:

• asset management fees for our on-going services as asset manager charged and earned by managing investment vehicles, which may include fees both senior and subordinated to the securities issued by the investment vehicle

• incentive management fees earned based on the performance of the various investment vehicles;

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Principal Investing:

• gains and losses (unrealized and realized) and income and expense earned on securities, primarily seed capital investments in vehicles we manage, classified as other investments, at fair value; and

• income or loss from equity method affiliates.

Business Environment

Our business is materially affected by economic conditions in the financial markets, political conditions, broad trends in business and finance, changes in volume and price levels of securities transactions, and changes in interest rates, all of which can affect our profitability and which are unpredictable and beyond our control. These factors may affect the financial decisions made by investors, including their level of participation in the financial markets. Severe market fluctuations or weak economic conditions could continue to reduce our trading volume and revenues and adversely affect our profitability.

The markets remain uneven and vulnerable to changes in investor sentiment. We believe the general business environment will continue to be challenging for the remainder of 2012 and near future periods.

A portion of our revenues is generated from net trading activity. We engage in proprietary trading for our own account, provide securities financing for our customers, as well as execute “riskless” trades with a customer order in hand resulting in limited market risk to us. The inventory of securities held for our own account as well as held to facilitate customer trades and our market making activities are sensitive to market movements.

A portion of our revenues are generated from new issue and advisory engagements. The fees charged and volume of these engagements are sensitive to the overall business environment.

A portion of our revenues are generated from management fees. Our ability to charge management fees and the amount of those fees is dependent upon the underlying investment performance and stability of the investment vehicles. If these types of investments do not provide attractive returns to investors, the demand for such instruments will likely fall, thereby reducing our opportunity to earn new management fees or maintain existing management fees. Ninety-eight percent of our existing assets under management are CDOs. The creation of CDOs and permanent capital vehicles has depended upon a vibrant securitization market. Since 2008, volumes within the securitization market have dropped significantly and not recovered. We have been unable to complete a new securitization since 2008.

A portion of our revenues is generated from our principal investing activities. Therefore, our revenues are impacted by the underlying operating results of these investments. As of March 31, 2012, we had $37,569 of other investments, at fair value representing our principal investment portfolio. Of this amount, $37,116 or 99% is comprised of investments in three separate investment funds and permanent capital vehicles: Star Asia, EuroDekania, and Tiptree. Furthermore, the investment in Star Asia is our largest single principal investment and, as of March 31, 2012, has a fair value of $32,118, representing 85% of the total amount of other investments, at fair value. Star Asia seeks to invest in Asian commercial real estate structured finance products, including CMBS, corporate debt of REITs and real estate operating companies, whole loans, mezzanine loans, and other commercial real estate fixed income investments. Therefore, our results of operations and financial condition will be significantly impacted by the financial results of these investments and, in the case of Star Asia, the Japanese real estate market in general. Our investment in Star Asia and our principal investing revenue was impacted by the earthquake, tsunami, and nuclear disaster in Japan that occurred during the first quarter of 2011. See “Revenues — Principal Transactions and Other Income” below.

Margin Pressures in Corporate Bond Brokerage Business

Performance in the financial services industry in which we operate is highly correlated to the overall strength of the economy and financial market activity. Overall market conditions are a product of many factors, which are beyond our control and can be unpredictable. These factors may affect the financial decisions made by investors, including the level of participation in the financial markets. In turn, these decisions may affect our business results. With respect to financial market activity, our profitability is sensitive to a variety of factors, including the volatility of the equity and fixed income markets, the level and shape of the various yield curves, and the volume and value of trading in securities.

Since 2010, both margins and volumes in certain products and markets within the corporate bond brokerage business have decreased materially as competition has increased and general market activity has declined. Further, we expect that competition will increase over time, resulting in continued margin pressure.

Our response to this margin compression has included: (i) building a diversified securitized product trading platform; (ii) building European capital markets business; (iii) acquiring new product lines, including through the acquisitions of JVB and PrinceRidge in 2011; and (iv) monitoring our fixed costs. During the third quarter of 2011, the Company implemented significant cost savings initiatives. These initiatives included the elimination of duplicative costs that arose with the PrinceRidge transaction as well as net reductions in overall costs to address adverse market conditions. The initiatives included: termination of staff, reductions in compensation and benefits of remaining staff, the sublease and termination of duplicative leases, termination of or

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reduction in pricing of subscriptions, and other measures. However, there can be no certainty that these efforts will be sufficient. If insufficient, we will likely see a continued decline in profitability.

Recent Legislation Affecting the Financial Services Industry

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law. The Dodd-Frank Act contains a variety of provisions designed to regulate financial markets, including credit and derivative transactions. Many aspects of the Dodd-Frank Act are subject to rulemaking that will take effect over the next several years, thus making it difficult to assess the impact on the financial industry, including us, at this time. The Dodd-Frank Act establishes new and enhanced compensation and corporate governance oversight for the financial services industry, provides a specific framework for payment, clearing and settlement regulation, and empowers the SEC to adopt regulations requiring new fiduciary duties and other more stringent regulation of broker-dealers, investment companies and investment advisers. We will continue to monitor all applicable developments in the implementation of the Dodd-Frank Act and expect to adapt successfully to any new applicable legislative and regulatory requirements.

Consolidated Results of Operations

The following section provides a comparative discussion of our consolidated results of operations for the specified periods. The period-to-period comparisons of financial results are not necessarily indicative of future results.

Three Months Ended March 31, 2012 compared to the Three Months Ended March 31, 2011

The following table sets forth information regarding our consolidated results of operations for the three months ended March 31, 2012 and 2011.

INSTITUTIONAL FINANCIAL MARKETS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands)

(Unaudited)

	Three months ended March 31,						Favorable/(Unfavorable)
	2012			2011			$ Change			% Change
Revenues
Net trading	$	17,691		$	27,274		$	(9,583	)		(35	)%
Asset management		4,937			5,970			(1,033	)		(17	)%
New issue and advisory		1,077			109			968			888	%
Principal transactions and other income		(4,945	)		(1,039	)		(3,906	)		376	%
Total revenues		18,760			32,314			(13,554	)		(42	)%
Operating expenses
Compensation and benefits		16,274			21,988			5,714			26	%
Business development, occupancy, equipment		1,174			1,439			265			18	%
Subscriptions, clearing, and execution		3,073			2,815			(258	)		(9	)%
Professional fees and other operating		3,051			4,015			964			24	%
Depreciation and amortization		391			470			79			17	%
Total operating expenses		23,963			30,727			6,764			22	%
Operating income / (loss)		(5,203	)		1,587			(6,790	)		(428	)%
Non operating income / (expense)
Interest expense, net		(1,215	)		(1,482	)		267			18	%
Gain on repurchase of debt		3			—			3			NM
Income / (loss) from equity method affiliates		516			95			421			443	%
Income / (loss) before income tax expense / (benefit)		(5,899	)		200			(6,099	)		(3,050	)%
Income tax expense / (benefit)		(9	)		(213	)		(204	)		(96	)%
Net income / (loss)		(5,890	)		413			(6,303	)		(1,526	)%
Less: Net income/ (loss) attributable to the non-controlling interest		(2,031	)		38			2,069			5,445	%
Net income / (loss) attributable to IFMI	$	(3,859	)	$	375		$	(4,234	)		(1,129	)%

NM = Not Meaningful

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Revenues

Revenues decreased by $13,554, or 42%, to $18,760 for the three months ended March 31, 2012 from $32,314 for the three months ended March 31, 2011. As discussed in more detail below, the change was comprised of decreases of $9,583 in net trading, $3,906 in principal transactions and other income, and $1,033 in asset management revenue, partially offset by an increase of $968 in new issue and advisory revenue.

Net Trading

Net trading revenue decreased by $9,583, or 35%, to $17,691 for the three months ended March 31, 2012 from $27,274 for the three months ended March 31, 2011.

Net trading revenue for the three months ended March 31, 2012 was impacted by general adverse trading conditions. The following table provides detail on net trading revenue by operation. JVB was acquired effective January 1, 2011 and PrinceRidge was acquired on May 31, 2011. The PrinceRidge and other capital markets line below includes the operations of PrinceRidge since its acquisition on May 31, 2011 as well as the results from the Company’s other capital markets professionals not included in the JVB or EDML lines below for 2011. In conjunction with the acquisition of PrinceRidge, we contributed substantially all of our capital markets professionals (with the exception of those within JVB and EDML) to PrinceRidge. Therefore, the revenues earned from PrinceRidge during the period we owned them include the revenues earned by the capital markets professionals contributed.

	March 31, 2012		March 31, 2011		Change
JVB	$	6,590	$	4,889	$	1,701
PrinceRidge and other capital markets		10,509		19,207		(8,698	)
EDML		592		3,178		(2,586	)
Total	$	17,691	$	27,274	$	(9,583	)

Our net trading revenue includes unrealized gains on our trading investments, as of the applicable measurement date, which may never be realized due to changes in market or other conditions not in our control that may adversely affect the ultimate value realized from our trading investments. In addition, our net trading revenue also includes realized gains on certain proprietary trading positions. Our ability to derive trading gains from trading positions is subject to overall market conditions. Due to volatility and uncertainty in the capital markets, the net trading revenue recognized during the three months ended March 31, 2012 may not be indicative of future results. Furthermore, some of the assets included in the Investments-trading line of our consolidated balance sheets represent level 3 valuations within the FASB fair value hierarchy. Level 3 assets are carried at fair value based on estimates derived using internal valuation models and other estimates. See notes 5 and 6 to our consolidated financial statements included in Item 1 in this Quarterly Report on Form 10-Q. The fair value estimates made by the Company may not be indicative of the final sale price at which these assets may be sold.

Asset Management

Assets Under Management

AUM refers to our assets under management and equals the sum of: (1) the gross assets included in CDOs that we have sponsored and manage; plus (2) the NAV of the permanent capital vehicles and investment funds we manage; plus (3) the NAV of other accounts we manage.

Our calculation of AUM may differ from the calculations used by other asset managers and, as a result, this measure may not be comparable to similar measures presented by other asset managers. This definition of AUM is not necessarily identical to a definition of AUM that may be used in our management agreements.

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ASSETS UNDER MANAGEMENT

(dollars in thousands)

	As of March 31,				As of December 31,
	2012		2011		2011		2010
Company sponsored CDOs	$	7,565,084	$	9,372,454	$	7,859,755	$	9,730,374
Permanent capital vehicles		151,953		154,441		169,237		171,028
Investment funds		—		—		—		129,027
Managed accounts (1)		41,135		32,311		33,644		288,608
Assets under management (2)	$	7,758,172	$	9,559,206	$	8,062,636	$	10,319,037
Average assets under management — company sponsored CDOs	$	7,650,978	$	9,594,308	$	8,835,773	$	12,199,716

(1) Represents client funds managed pursuant to separate account arrangements. Subsequent to March 28, 2011, certain separate account arrangements were excluded due to the sale of those management contracts to a new entity owned by two former Company employees, known as Strategos Capital Management, LLC.

(2) AUM for company sponsored CDOs, other managed assets, permanent capital vehicles, investment funds and other managed accounts represents total AUM at the end of the period indicated.

Asset management fees decreased by $1,033, or 17%, to $4,937 for the three months ended March 31, 2012 from $5,970 for the three months ended March 31, 2011, as discussed in more detail below. The following table provides a more detailed comparison of the two periods:

ASSET MANAGEMENT

(dollars in thousands)

	March 31, 2012		March 31, 2011		Change
CDOs and related service agreements	$	4,508	$	4,767	$	(259	)
Investment funds		—		452		(452	)
Other		429		751		(322	)
Total	$	4,937	$	5,970	$	(1,033	)

CDOs

Asset management revenue from company-sponsored CDOs decreased by $259 to $4,508 for the three months ended March 31, 2012 from $4,767 for the three months ended March 31, 2011. The following table summarizes the periods presented by asset class:

FEES EARNED BY ASSET CLASS

(dollars in thousands)

	March 31, 2012		March 31, 2011		Change
TruPS and insurance company debt — U.S.	$	2,883	$	2,970	$	(87	)
High grade and mezzanine ABS		488		602		(114	)
TruPS and insurance company debt — Europe		705		769		(64	)
Broadly syndicated loans — Europe		432		426		6
Total	$	4,508	$	4,767	$	(259	)

Asset management fees for TruPS and insurance company debt of United States companies decreased primarily because the average AUM in this asset class declined as a result of greater levels of deferrals, defaults, and prepayments of the underlying assets.

On July 29, 2010, we entered into a Master Transaction Agreement pursuant to which we sold to a third party collateral management rights and responsibilities arising after the sale relating to the Alesco X through XVII securitizations. In connection with the Master Transaction Agreement, we entered into a three-year Services Agreement under which we provide and will continue to

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provide certain services to the third party purchaser. $4,664 of the cash received up front was recognized as deferred revenue and is amortized into revenue over the life of the Services Agreement. In addition, the Master Transaction Agreement calls for additional payments to be made to us on a quarterly basis through February 23, 2017 if the management fees earned by the third party exceed certain thresholds. It should be noted that the assets of the Alesco X through XVII securitizations are not included in our AUM disclosed in the table above as we are no longer the manager. However, we continue to generate revenue through the services agreement related to these securitizations.

During the three months ended March 31, 2012 and 2011, we recognized $1,627 and $1,668, respectively, in revenue for the Alesco X through XVII securitizations which is included in the TruPS and insurance company debt – U.S. in the table above. Of these amounts, $168 and $119 represent incentive payments received from the third party under the Master Transaction Agreement during the three months ended March 31, 2012 and 2011, respectively. As of March 31, 2012, we have the potential to earn additional incentive payments (through February of 2017) if certain performance hurdles are met. Not including any potential incentive fees, we expect to recognize an additional $5,348 in revenue in the remainder of 2012 and beyond from the Services Agreement over its remaining term (ending February of 2013) of the $5,348 in revenue $4,161 is from payments under the Services Agreement and $1,187 represents amortization of the initial payment of $4,664 received up front. At that point, with the exception of potential incentive payments, the Company will stop recognizing revenue from the Alesco X through XVII securitizations.

Substantially all of our TruPS trusts have stopped paying subordinated management fees due to diversion of cash flow to pay down the senior notes of the securitization as a result of defaults within the securitization. In this case, we do not recognize revenue for unpaid subordinated fees. We will begin accruing the subordinated asset management fees again if payments resume and, in our estimate, continued payment by the trusts is reasonably assured. If payments resume in the future, but we are unsure of continued payment, we will recognize the subordinated asset management fee as payments are received and will not accrue the fee on a monthly basis. We do not anticipate that we will receive subordinated asset management fees in the near future.

Asset management fees for high grade and mezzanine ABS declined primarily because the average AUM in this asset class declined due to defaults of the underlying assets and liquidations of certain CDOs.

Asset management fees for TruPS and insurance company debt of European companies decreased primarily due to the decline in the underlying collateral balances as a result of lower foreign exchange rates, as well as the occurrence of prepayments and defaults.

Investment Funds and Other

Our asset management revenue from investment funds was comprised of fees from the management of Deep Value prior to 2012.

	March 31, 2012		March 31, 2011		Change
Deep Value	$	—	$	452	$	(452	)
Separate accounts and other		429		751		(322	)
Total	$	429	$	1,203	$	(774	)

The decrease in Deep Value revenue was primarily because we sold our investment advisory agreements relating to the Deep Value funds to Strategos Capital Management, LLC (the “Buyer”), a newly formed entity owned by two former Company employees on March 29, 2011. Pursuant to the terms of the sale, we will be entitled to 10% of all revenue, net of certain expenses, earned by the Buyer between March 29, 2011 and December 31, 2014. This revenue sharing arrangement is recorded as a component of principal transactions and other income going forward.

The net decrease of $322 from separate accounts and other was primarily comprised of (a) a decrease of $335 relating to certain managed accounts sold to the Buyer in 2011 as part of the transaction described above; partially offset by (b) a net increase of $13 in fees earned primarily from other separate accounts.

New Issue and Advisory Revenue

New issue and advisory revenue increased by $968 to $1,077 for the three months ended March 31, 2012 as compared to $109 for the same period in 2011. The increase is primarily attributable to an increased number of new issue and advisory engagements that closed during the first quarter of 2012 as compared to the first quarter of 2011.

Principal Transactions and Other Income

Principal transactions and other income decreased by $3,906 to a loss of $4,945 for the three months ended March 31, 2012, as compared to a loss of $1,039 for the three months ended March 31, 2011.

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Principal Transactions & Other Income

(dollars in thousands)

	March 31, 2012			March 31, 2011			Change
Change in fair value of other investments, at fair value	$	(5,174	)	$	(1,540	)	$	(3,634	)
Foreign currency		(30	)		(124	)		94
Dividend, interest, and other income		259			625			(366	)
Total	$	(4,945	)	$	(1,039	)	$	(3,906	)

The decrease in the change in fair value of other investments of $3,634 is comprised of the following:

	March 31, 2012			March 31, 2011			Change
EuroDekania	$	(22	)	$	775		$	(797	)
Star Asia		(5,240	)		(2,680	)		(2,560	)
Yen Hedge		—			703			(703	)
Tiptree (MFCA prior to June 23, 2011)		117			30			87
Duart Fund		—			(455	)		455
Other		(29	)		87			(116	)
Total	$	(5,174	)	$	(1,540	)	$	(3,634	)

For the three months ended March 31, 2012 and 2011, the change in the value of our investment in EuroDekania was entirely comprised of the change in the underlying NAV of EuroDekania.

Star Asia is an investment fund that, like any other investment fund, is exposed to changes in its value due to the performance of its underlying investments. The value of our investment in Star Asia has also been impacted by the following items: (a) during 2011, we acquired shares of Star Asia from unrelated third party investors at amounts less than the underlying NAV of Star Asia; (b) in 2011, certain of Star Asia’s investments were impacted by the earthquake, tsunami, and nuclear disaster in Japan that occurred during the first quarter; and (c) Star Asia’s investments are primarily denominated in Japanese Yen and Star Asia itself does not hedge against currency fluctuations. The following table shows the change in the value of our investment in Star Asia and how it was impacted by these items:

	March 31, 2012			March 31, 2011			Change
Purchase or receipt of shares for below NAV	$	—		$	1,020		$	(1,020	)
Foreign exchange		(2,927	)		(1,200	)		(1,727	)
Earthquake, tsunami, nuclear disaster		—			(1,900	)		1,900
Underlying investment values, net		(2,313	)		(600	)		(1,713	)
Total	$	(5,240	)	$	(2,680	)	$	(2,560	)

Purchase or receipt of shares for below NAV: During the first quarter of 2012, we did not purchase any shares of Star Asia. During the first quarter of 2011, we purchased 151,074 shares directly from unrelated third parties for $226. All of these purchases were made at amounts below Star Asia’s NAV.

Foreign exchange: These amounts represent the impact to fair value of our investment in Star Asia from currency fluctuations. This is caused because Star Asia’s investments are primarily denominated in Japanese Yen and Star Asia itself does not hedge against currency fluctuations. Accordingly, we are exposed to increases and decreases in the value of our investment in Star Asia that result from fluctuations of the Japanese Yen as compared to the U.S. Dollar. We may seek to minimize this risk by entering into a yen hedge. However, our hedging activities could negatively impact our liquidity. That is, the hedge itself settles in cash on a periodic basis while our investment in Star Asia is comparatively illiquid. Therefore, we continuously consider the appropriate level for the Yen hedge, especially considering our overall corporate liquidity position. During three months ended March 31, 2011, we had hedged a portion of our investment in Star Asia and recorded the gains or losses as a component of principal transactions. Since October 2011, our investment has been un-hedged. We may or may not enter into hedges in the future based on our corporate liquidity. Any un-hedged portion of our investment in Star Asia will continue to be exposed to currency fluctuations.

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As of March 31, 2012, our long exposure to Japanese Yen through our investment in Star Asia was 3.7 billion Yen (representing the total net Yen based assets of Star Asia multiplied by our ownership percentage). The spot rate of the U.S. Dollar to Japanese Yen was 82.87 as of March 31, 2012 which means the un-hedged portion of Star Asia was $45.0 million. As of March 31, 2011, our long exposure to Japanese Yen was 4.6 billion Yen. Our hedge was 2.4 billion Yen resulting in net long exposure of 2.2 billion Yen. The spot rate of U.S. Dollar to Japanese Yen was 82.78 as of March 31, 2011 which means our un-hedged portion of Star Asia was $26.6 million.

Earthquake, tsunami, nuclear disaster: During the three months ended March 31, 2011, certain of Star Asia’s investments were impacted by the earthquake, tsunami, and nuclear disaster in Japan that occurred during the first quarter of 2011.

Underlying investment values: This represents the impact to the fair value of our investment in Star Asia from changes in the underlying net investment values of Star Asia’s investments, net of debt, exclusive of the impact of foreign currency changes.

In June 2011, MFCA became a wholly owned subsidiary of Tiptree. We exchanged our 1,000,200 shares of MFCA for 111,133 shares of Tiptree. We carry our investment in Tiptree at the NAV of the underlying fund. We carried our investment in MFCA at the NAV of the underlying fund.

We carried our investment in the Duart Fund at the NAV of the underlying fund. Effective December 31, 2010, we submitted a redemption notice to the Duart Fund to redeem 100% of our capital. We received our redemption in April 2011.

The change in other investments of $116 related primarily to certain investments in securitizations that were sold for a gain of $32 during the first quarter of 2011. There were no sales of investments during the first quarter of 2012. In addition, a decrease in value of $84 primarily related to remaining changes in certain warrants and options the Company held as of March 31, 2012 and December 31, 2011.

We earn certain revenues in Euros and U.K. Pounds Sterling; however, our functional currency is the U.S. Dollar. The foreign currency fluctuations are due to changes in the exchange rates between Euros, U.K. Pounds Sterling and U.S. Dollars in the related periods. We have not hedged our foreign currency exposure related to management fees paid in Euros or U.K. Pounds Sterling to date.

The change in dividend, interest and other income of $366 primarily related to a decrease in other income of (i) $502 of revenue share from our revenue share arrangement related to NPPF 1; partially offset by an increase of (ii) $95 from our revenue share arrangement related to the Buyer which was not in place until March 29, 2011, and an increase in (iii) the amount of $55 in dividends and interest income received on our investments in other investments, at fair value.

Operating Expenses

Operating expenses decreased by $6,764, or 22%, to $23,963 for the three months ended March 31, 2012 from $30,727 for the three months ended March 31, 2011. The change was due to decreases of $5,714 in compensation and benefits, $964 in professional fees and other operating expenses, $265 in business development, occupancy, equipment, and $79 in depreciation and amortization, partially offset by an increase of $258 in subscriptions, clearing and execution.

Compensation and Benefits

Compensation and benefits decreased by $5,714, or 26%, to $16,274 for the three months ended March 31, 2012 from $21,988 for the three months ended March 31, 2011.

COMPENSATION AND BENEFITS

(dollars in thousands)

	March 31, 2012		March 31, 2011		Change
Cash compensation and benefits	$	15,726	$	19,799	$	(4,073	)
Equity-based compensation		548		2,189		(1,641	)
Total	$	16,274	$	21,988	$	(5,714	)

Cash compensation and benefits in the table above is primarily comprised of salary, incentive compensation, and benefits. The decrease in cash compensation and benefits is primarily a result of the decrease in incentive compensation which is tied to revenue and operating profitability.

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Our total headcount increased from 191 at March 31, 2011 to 219 at March 31, 2012.

Compensation and benefits includes equity-based compensation which decreased by $1,641 to $548 for the three months ended March 31, 2012 from $2,189 for the three months ended March 31, 2011. The decrease was comprised of (i) $2,078 which primarily represented IFMI stock awards granted to IFMI employees which were forfeited subsequent to March 31, 2011 and (ii) the 2011 period included $156 of expense attributable to an award of 360,000 restricted shares granted during the first half of 2011 to our former president, Mr. Christopher Ricciardi, which was fully expensed during 2011; partially offset by the increases of (iii) $55 related to IFMI stock grants to employees of JVB; and (iv) $240 related to PrinceRidge membership unit grants and $298 related to the grant of IFMI stock to employees of PrinceRidge (who were not formerly employees of IFMI).

Business Development, Occupancy and Equipment

Business development, occupancy, and equipment decreased by $265, or 18%, to $1,174 for the three months ended March 31, 2012 from $1,439 for the three months ended March 31, 2011. The decrease was primarily due to decreases in business development expenses, such as promotion, advertising, travel and entertainment of $146, in rent expense of $96, and in other expenses associated with occupancy and equipment of $23. The decreases are primarily due to our cost saving measures instituted following the acquisition of PrinceRidge.

Subscriptions, Clearing and Execution

Subscriptions, clearing, and execution increased by $258, or 9%, to $3,073 for the three months ended March 31, 2012 from $2,815 for the three months ended March 31, 2011. The increase included an increase of $142 in subscriptions primarily due to an increase in headcount as noted in the discussion of compensation above. The increase in clearing and execution costs of $116 is primarily attributable to increased clearing costs primarily in PrinceRidge.

Professional Fees and Other Operating Expenses

Professional fees and other operating expenses decreased by $964, or 24%, to $3,051 for the three months ended March 31, 2012 from $4,015 for the three months ended March 31, 2011. The decrease included a decrease in legal and professional fees of $795 and an overall net decrease of $169 in other costs.

Depreciation and Amortization

Depreciation and amortization decreased by $79, or 17%, to $391 for the three months ended March 31, 2012 from $470 for the three months ended March 31, 2011. The entire decline was due to a decrease in depreciation expense related to certain property and equipment that was fully depreciated prior to January 1, 2012.

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Non-Operating Income and Expense

Interest Expense, net

Interest expense decreased by $267, or 18%, to $1,215 for the three months ended March 31, 2012 from $1,482 for the three months ended March 31, 2011. This decrease of $267 was comprised of (a) a decrease of $145 of interest incurred on our bank debt which we paid off and terminated during the fourth quarter of 2011; (b) an increase of $18 of interest incurred on the convertible senior notes (comprised of our Old Notes and our New Notes); (c) a decrease of $77 of interest incurred on the junior subordinated notes; (d) an increase of $2 of interest incurred on subordinated notes payable; and (e) an increase of $65 of interest income related to the amount owed to withdrawing partners of PrinceRidge. See note 13 to our consolidated financial statements included in Item 1 in this Quarterly Report on Form 10-Q.

The increase in interest expense of $18 on the convertible senior notes was primarily due to the fact that we incurred interest expense on $8,121 aggregate principal amount of New Notes at a rate of 10.50% related to the exchange of debt that occurred during the second half of 2011.

The decrease in interest expense of $77 on the junior subordinated notes was primarily due to a decrease in the effective interest rate of the loan. A portion of these notes bear interest at a variable rate.

Gain on Repurchase of Debt

In March 2012, we repurchased $150 aggregate principal amount of Old Notes from an unrelated third party for $151, including accrued interest of $4. The notes had a carrying value of $150 resulting in a gain from repurchase of debt of $3 which was included as a separate component of non-operating income / (expense) in our consolidated statements of operations.

We did not repurchase any debt in the three month period ended March 31, 2011.

Income / (Loss) from Equity Method Affiliates

Income from equity method affiliates increased by $421 to $516 for the three months ended March 31, 2012 from $95 for the three months ended March 31, 2011. Income or loss from equity method affiliates represents our share of the related entities’ earnings. As of March 31, 2011, we had five equity method investees: (i) Star Asia Manager; (ii) Deep Value GP; (iii) Deep Value GP II; (iv) Star Asia SPV; and (v) Duart Capital. As of March 31, 2012, we had seven equity method investees: (i) Star Asia Manager; (ii) Deep Value GP; (iii) Deep Value GP II; (iv) Star Asia SPV; (v) Star Asia Opportunity; (vi) Star Asia Capital Management; and (vii) Duart Capital. See notes 9 and 20 to our consolidated financial statements included in Item 1 in this Quarterly Report on Form 10-Q.

Income Tax Expense / (Benefit)

The income tax benefit decreased by $204 to an income tax benefit of $9 for the three months ended March 31, 2012 from an income tax benefit of $213 for the three months ended March 31, 2011.

The tax benefit realized by us during the three months ended March 31, 2012 was primarily the result of losses incurred in our French subsidiary.

The tax benefit realized by us during the three months ended March 31, 2011 was the result of our acquisition of JVB. JVB’s operations are primarily based in Florida. As a result of this acquisition, we determined that more of our income will be allocated to Florida and less income will be allocated in certain higher tax jurisdictions (primarily New York State and New York City). Therefore, our state effective rate declined. Because the Company has a net deferred tax liability, the reduction in the state effective rate reduces this liability and results in a tax benefit to us. This tax benefit was recorded as a discrete item in the first quarter of 2011.

See note 23 to the December 31, 2011 consolidated financial statements of the Company’s Annual Report on Form 10-K for a more complete description of the Company’s tax attributes and unrecognized tax benefits.

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Net Income / (Loss) Attributable to the Non-controlling Interest

Net income / (loss) attributable to the non-controlling interest for the three months ended March 31, 2012 and 2011 includes the 32.8% non-controlling interest related to member interests in the Operating LLC other than interests held by us for the relevant periods. In addition, net income / (loss) attributable to the non-controlling interest also includes the redeemable non-controlling interest related to partnership interests in PrinceRidge other than interests held by us for the three months ended March 31, 2012. PrinceRidge was acquired by us effective May 31, 2011.

Summary calculation of non-controlling interest - Three Months Ended March 31, 2012

	Wholly  owned subsidiaries			Majority owned subsidiaries			Total Operating LLC			IFMI		Consolidated
Net loss before tax	$	(5,319	)	$	(580	)	$	(5,899	)	$	—	$	(5,899	)
Income tax benefit		—			—			(9	)		—		(9	)
Net income / (loss) after tax		(5,319	)		(580	)		(5,890	)		—		(5,890	)
Majority owned subsidiary non-controlling interest					(129	)		(129	)
Net loss attributable to the Operating LLC		(5,319	)		(451	)		(5,761	)
Average Effective Operating LLC non-controlling interest (1)%								33.01	%
Operating LLC non-controlling interest								(1,902	)
Majority owned subsidiary non-controlling interest								(129	)
Total non-controlling interest							$	(2,031	)

Summary calculation of non-controlling interest - Three Months Ended March 31, 2011

	Wholly owned subsidiaries		Majority owned subsidiaries		Total Operating LLC			IFMI			Consolidated
Net income before tax	$	200	$	—	$	200		$	—		$	200
Income tax expense / (benefit)		—		—		85			(298	)		(213	)
Net income / (loss) after tax		200		—		115			298			413
Majority owned subsidiary non-controlling interest				—		—
Net income attributable to the Operating LLC		200		—		115
Average effective Operating LLC non-controlling interest (1)%						32.76	%
Operating LLC non-controlling interest						38
Majority owned subsidiary non-controlling interest						—
Total non-controlling interest					$	38

⁽¹⁾ Non-controlling interest is recorded on a monthly basis. Because earnings are recognized unevenly throughout the year and the non-controlling interest percentage may change during the period, the average effective non-controlling interest percentage may not equal the percentage at the end of any period or the simple average of the beginning and ending percentages.

Liquidity and Capital Resources

Liquidity is a measurement of our ability to meet potential cash requirements including ongoing commitments to repay debt borrowings, make interest payments on outstanding borrowings, fund investments, and support other general business purposes. In addition, our United States and United Kingdom broker-dealer subsidiaries are subject to certain regulatory requirements to maintain minimum levels of net capital. Historically, our primary sources of funds have been our operating activities and general corporate borrowings. In addition, our trading operations have generally been financed by use of collateralized securities financing arrangements as well as margin loans. Since January 2010, we significantly expanded our trading operations leading to a greater amount of securities owned as well as greater balances of securities purchased under agreements to resell and securities sold under agreements to repurchase.

As a holding company that does not conduct business operations in its own right, substantially all of the assets of the Company are comprised of our majority ownership interest in the Operating LLC. Substantially all of our subsidiaries are subject to restrictions on paying distributions to us. In this regard, approximately $38.8 million of net assets including $3.2 million of cash as of March 31, 2012 are subject to withdrawal restrictions as a result of the Operating LLC’s investment in PrinceRidge.

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Distributions from PrinceRidge to the Operating LLC are governed by the PrinceRidge partnership agreement. In general, the agreement calls for annual distributions equal to one half of the net income of PrinceRidge. However, the board of PrinceRidge GP can decide to forgo these distributions or to pay distributions in excess of this amount with the unanimous vote of the board. The board of PrinceRidge GP is comprised of five members. Three members are designated by the Operating LLC and the remaining two are appointed by the individuals that were members of PrinceRidge GP prior to our investment. However, each member/partner of PrinceRidge does have the ability to borrow up to 30% of their investment from PrinceRidge. The member must provide 45 days notice of such borrowing and PrinceRidge must determine that the loan would not cause material harm to it. The borrowing member must pay 10% interest on this borrowing and the borrowing may only be outstanding for one year. Each partner may exercise this right to borrow once every two year period. See note 22 to our consolidated financial statements included in Item 1 to this Quarterly Report on Form 10-Q.

The holders of the Old Notes have the option to redeem their notes in full in May 2012. See Liquidity and Capital Resources – Debt Financing and Liquidity and Capital Resources – Contractual Obligations below. If all of the holders of the Old Notes redeem, the Company will utilize its cash on hand including its borrowing from PrinceRidge to satisfy the redemption. See note 22 to our consolidated financial statements included in Item 1 to this Quarterly Report on Form 10-Q.

Our ability to pay dividends to our stockholders will be dependent on distributions we receive from the Operating LLC and subject to the Operating LLC’s operating agreement. The amount and timing of distributions by the Operating LLC will be at the discretion of the Operating LLC’s board of managers.

During the third quarter of 2010, our board of directors initiated a dividend of $0.05 per quarter which was paid regularly through December 31, 2011. The Company declared a $0.02 dividend for the first and second quarters of 2012. The Company’s board of directors has the power to decide to increase, reduce, or eliminate dividends in the future. The board’s decision will depend on a variety of factors, including business, financial and regulatory considerations as well as any limitations under Maryland law or imposed by any agreements governing indebtedness of the Company. There can be no assurances that such dividends will be maintained or increased and, if maintained or increased, will not subsequently be discontinued.

Each time a cash dividend was declared by our board of directors, a pro rata distribution was made to the other members of the Operating LLC upon the payment of dividends to stockholders of the Company.

We filed a Registration Statement on Form S-3 on April 29, 2010, which was declared effective by the SEC on May 24, 2010. This registration statement enables us to offer and sell, in the aggregate, up to $300,000 of debt securities, preferred stock (either separately or represented by depositary shares), or Common Stock (including, if applicable, any associated preferred stock purchase rights, subscription rights, stock purchase contracts, stock purchase units and warrants, as well as units that include any of these securities). The debt securities, preferred stock, subscription rights, stock purchase contracts, stock purchase units and warrants may be convertible into or exercisable or exchangeable for Common Stock or preferred stock of IFMI. We may offer and sell these securities separately or together, in any combination with other securities. The registration statement provides another source of liquidity in addition to the alternatives already in place. The net proceeds from a sale of our securities may be used for our operations and for other general corporate purposes, including, but not limited to, capital expenditures, repayment or refinancing of borrowings, working capital, investments and acquisitions.

Cash Flows

We have four primary uses for capital:

(1) To fund the operations of our capital markets segment: Our capital markets segment utilizes capital (i) to fund securities inventory to facilitate client trading activities; (ii) for risk trading on the firm’s own account; (iii) to fund our collateralized securities lending activities; (iv) for temporary capital needs associated with underwriting activities; (v) to fund business expansion into existing or new product lines; and (vi) to fund any operating losses incurred.

(2) To fund investments: Our investments take several forms, including investments in securities and “sponsor investments” in permanent capital vehicles or investment funds. We may need to raise additional debt or equity financing in order to ensure we have the capital necessary to take advantage of attractive investment opportunities.

(3) To fund mergers or acquisitions: We may opportunistically use capital to acquire other asset managers or individual asset management contracts or financial services firms. To the extent our liquidity sources are insufficient to fund our future activities; we may need to raise additional funding through an equity or debt offering. No assurances can be given that additional financing will be available in the future, or that, if available, such financing will be on favorable terms.

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(4) To fund potential dividends and distributions: During the third quarter of 2010 and for each subsequent quarter through March 31, 2012, we have declared a dividend. A pro rata distribution has been paid to the other members of the Operating LLC upon the payment of any dividends to stockholders of IFMI.

If we are unable to raise sufficient capital on economically favorable terms, we may need to reduce the amount of capital invested for the uses described above, which may adversely impact earnings and our ability to pay dividends.

As of March 31, 2012 and December 31, 2011, we maintained cash and cash equivalents of $14,070 and $18,221, respectively. We generated cash from or used cash for the following activities:

SUMMARY CASH FLOW INFORMATION

(dollars in thousands)

	Three Months Ended March  31,
	2012			2011
Cash flow from operating activities	$	(4,577	)	$	22,642
Cash flow from investing activities		788			(15,060	)
Cash flow from financing activities		(512	)		(2,270	)
Effect of exchange rate on cash		150			290
Net cash flow		(4,151	)		5,602
Cash and cash equivalents, beginning		18,221			43,946
Cash and cash equivalents, ending	$	14,070		$	49,548

See the statement of cash flows in our consolidated financial statements. We believe our available cash and cash equivalents as well as our investment in our trading portfolio will provide sufficient liquidity to meet the cash needs of our ongoing operations in the near term.

Three Months Ended March 31, 2012

As of March 31, 2012, our cash and cash equivalents were $14,070, representing a net decrease of $4,151 from December 31, 2011. The decrease was attributable to the cash used by operating activities of $4,577, the cash provided by investing activities of $788, and the cash used for financing activities of $512, partially offset by the effect of the increase of the exchange rate on cash of $150.

The cash used by operating activities of $4,577 was comprised of (a) net cash outflows of $3,198 related to working capital fluctuations primarily comprised of net outflows of $2,196 related to a decrease in accrued compensation payable offset by other working capital fluctuations; (b) $1,083 of net cash outflows from trading activities comprised of our investments-trading, trading securities sold, not yet purchased, securities sold under agreement to repurchase, and receivables and payables from brokers, dealers, and clearing agencies, as well as the unrealized gains and losses on the investments-trading and trading securities sold, but not yet purchased; and (c) a decrease in cash generated from other earnings items of $296 (which represents net income or loss adjusted for the following non-cash operating items: gain on repurchase of debt, realized and unrealized gains and losses on other investments, at fair value, income or loss from equity method affiliates, equity-based compensation, and depreciation and amortization).

The cash provided in investing activities of $788 was comprised of (a) the purchase of additional furniture and leasehold improvements of $17; (b) the investment of $6 in the equity method affiliate Star Asia Capital Management; (c) cash proceeds from the return of principal of $11 from our investments in certain residential loans; and (d) cash received of $800 from our equity method affiliate, Star Asia Manager.

The cash used in financing activities of $512 was comprised of (a) the repurchase of $150 notional amount of Old Notes for $147; (b) distributions to the non-controlling interest holders of $105; (c) dividends to the Company’s stockholders of $214; (d) the redemption of the redeemable non-controlling interest of $43 to one withdrawing partner from PrinceRidge (see note 13 to our consolidated financial statements included in Item 1 in this Quarterly Report on Form 10-Q); and (e) the payment of $3 for employees’ tax obligations to taxing authorities related to the vesting of equity based awards. In the case of (e), the total shares withheld were determined based on the value of the restricted stock award on the applicable vesting date based on the closing price of the Company’s Common Stock. These net share settlements reduced and retired the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company.

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Three Months Ended March 31, 2011

As of March 31, 2011, our cash and cash equivalents were $49,548, representing a net increase of $5,602 from December 31, 2010. The increase was attributable to the cash provided by operating activities of $22,642 and the effect of the increase in the exchange rate on cash of $290, partially offset by the cash used for investing activities of $15,060, and the cash used for financing activities of $2,270.

The cash provided by operating activities of $22,642 was comprised of (a) net outflows of $7,647 related to working capital fluctuations primarily comprised of net outflows of $8,854 related to a decrease in accrued compensation payable offset by other working capital fluctuations; (b) $25,772 of net cash inflows from investments in our overall net trading activities comprised of our investments-trading, trading securities sold, not yet purchased, securities sold under agreement to repurchase, and receivables and payables from brokers, dealers, and clearing agencies and restricted cash on deposit which is related to various trading activities as well as the unrealized gains and losses on the investments-trading and trading securities sold, but not yet purchased; and (c) an increase in cash generated from other earnings items of $4,517 (which represents net income or loss adjusted for the following non-cash operating items: realized and unrealized gains and losses on other investments, income or loss from equity method affiliates, equity-based compensation, and depreciation and amortization).

The cash used in investing activities of $15,060 was comprised of (a) cash proceeds from the return of principal of $18 from our investments in certain residential loans; (b) cash received of $93 from the sale of certain investments in securitizations that were classified as other investments, at fair value on the consolidated balance sheets; (c) cash of $465 we received from equity method affiliates Deep Value GP and Star Asia SPV; offset by (d) the cash consideration paid, net of cash acquired, for the acquisition of JVB of $14,956; (e) the investment of $172 in equity method affiliates related to Duart Capital and Star Asia SPV; (f) the purchase of other investments, at fair value of $342, specifically the purchase of additional shares of Star Asia in the amount of $226 directly from unrelated third parties during the first quarter of 2011 and the purchase of other investments of $116; and (g) the purchase of additional furniture and leasehold improvements of $166 related to the New York office and the EDML office in the United Kingdom.

The cash used in financing activities of $2,270 was comprised of (a) the repayment of $1,458 of outstanding borrowings under our secured credit facility entered into on July 29, 2010 between our subsidiary, Dekania Investors, LLC and T.D. Bank, N.A. (the “2010 Credit Facility”), which was subsequently paid in full and terminated by the Company during the fourth quarter of 2011; (b) distributions to the noncontrolling interest holders of $264; (c) dividends to the Company’s stockholders of $545; and (d) $3 for the payment of the employees’ tax obligations to taxing authorities related to the vesting of equity based awards and the surrender of 898 shares of the Company’s Common Stock. In the case of (d), the total shares withheld were determined based on the value of the restricted stock award on the applicable vesting date based on the closing price of the Company’s Common Stock. These net share settlements reduced and retired the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company.

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Regulatory Capital Requirements

Four of our majority owned subsidiaries include licensed securities dealers in the United States and the United Kingdom. As broker-dealers, our subsidiaries, CCS, JVB and TPRG, are subject to Uniform Net Capital Rule, Rule 15c3-1 under the Exchange Act, and our London-based subsidiary, EDML, is subject to the regulatory supervision and requirements of the FSA in the United Kingdom. The amount of net assets that these subsidiaries may distribute is subject to restrictions under these applicable net capital rules. These subsidiaries have historically operated in excess of minimum net capital requirements. Our minimum capital requirements at March 31, 2012, which amounted to $1,906 were as follows:

MINIMUM NET CAPITAL REQUIREMENTS

(dollars in thousands)

United States	$	477
United Kingdom		1,429
Total	$	1,906

We operate with more than the minimum regulatory capital requirement in our licensed broker-dealers and at March 31, 2012, the total net capital, or equivalent as defined by the relevant statutory regulations in our licensed broker-dealers amounted to $38,247.

In addition, our licensed broker-dealers are generally subject to capital withdrawal notification and restrictions.

Securities Financing

We maintain repurchase agreements with various third party financial institutions. There is no maximum limit as to the amount of securities that may be transferred pursuant to these agreements, and transactions are approved on a case-by-case basis. The repurchase agreements do not include substantive provisions other than those covenants and other customary provisions contained in standard master repurchase agreements. The repurchase agreements generally require us to transfer additional securities to the counterparty in the event the value of the securities then held by the counterparty in the margin account falls below specified levels and contains events of default in cases where we breach our obligations under the agreement. We receive margin calls from our repurchase agreement counterparties from time to time in the ordinary course of business. To date, we have maintained sufficient liquidity to meet margin calls, and we have never been unable to satisfy a margin call; however, no assurance can be given that we will be able to satisfy requests from our counterparties to post additional collateral in the future. See note 8 to our consolidated financial statements included in Item 1 in this Quarterly Report on Form 10-Q.

If there were an event of default under the repurchase agreements, we would give our counterparty the option to terminate all repurchase transactions existing with us and make any amount due from us to the counterparty payable immediately. Repurchase obligations are full recourse obligations to us. If we were to default under a repurchase obligation, the counterparty would have recourse to our other assets if the collateral was not sufficient to satisfy the obligation in full.

The Company’s clearing brokers provide securities financing arrangements including margin arrangements and securities borrowing and lending arrangements. These arrangements generally require us to transfer additional securities or cash to the clearing broker in the event the value of the securities then held by the clearing broker in the margin account falls below specified levels and contains events of default in cases where we breach our obligations under the agreements.

An event of default under the clearing agreement would give our counterparty the option to terminate our clearing arrangement. Any amounts owed to the clearing broker would be immediately due and payable. These obligations are recourse to us. Furthermore, a termination of our clearing arrangements would result in a significant disruption to our business and would have a significant negative impact on our dealings and relationship with our customers.

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The following table presents our period end balance, average monthly balance and maximum balance at any month end during the three months ended March 31, 2012 and the twelve months ended December 31, 2011 for receivables under resale agreements and securities sold under agreements to repurchase.

	Three Months Ended March  31,		Twelve Months  Ended December 31,
	2012		2011
Receivables under Resale Agreements
Period end	$	215,985	$	129,978
Monthly average		168,724		111,904
Maximum month end		215,985		158,099
Securities Sold Under Agreements to Repurchase
Period end	$	220,312	$	134,870
Monthly average		173,394		104,984
Maximum month end		220,312		178,998

Fluctuations in the balance of our repurchase agreements from period to period and intraperiod are dependent on business activity in those periods. The general growth in outstanding repurchase activity in 2012 and 2011 is reflective of supporting our overall business growth, particularly the continued expansion of our sales and trading platform. The fluctuations in the balances of our securities purchased under agreements to resell over the periods presented is impacted in any given period by our clients’ desires to execute collateralized financing arrangements through the repurchase market or other financing products.

Average balances and period end balances will fluctuate based on market and liquidity conditions and we consider such intraperiod fluctuations as typical for the repurchase market. Month-end balances may be higher or lower than average period balances.

Debt Financing

As of March 31, 2012, we have three sources of debt financing other than securities financing arrangements: (1) contingent convertible senior notes, which is comprised of the Old Notes and the New Notes; (2) junior subordinated notes payable to the following two special purpose trusts: (a) Alesco Capital Trust I and (b) Sunset Financial Statutory Trust I; and (3) unsecured subordinated financing.

In March 2012, we repurchased $150 aggregate principal amount of the Old Notes from unrelated third parties for $147, excluding accrued interest and recognized a gain on repurchase of debt of $3. As of March 31, 2012, we were in compliance with the covenants in our debt financing documents. See note 12 to our consolidated financial statements included in Item 1 in this Quarterly Report on Form 10-Q for a discussion of the Company’s outstanding debt.

The following table summarizes the Company’s long-term indebtedness and other financing as of March 31, 2012 and December 31, 2011, respectively:

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DETAIL OF DEBT FINANCING SOURCES

(dollars in thousands)

	As of March 31, 2012
Description	Current Outstanding Par			Carrying Value		Interest Rate Terms			Weighted Average Interest @ 03/31/2012 (4)			Weighted Average Maturity
Contingent convertible senior notes:
7.625% Contingent convertible senior notes (the “Old Notes”)	$	10,210		$	10,187		7.6	%		7.6	%		May 2012	(1)
10.50% Contingent convertible senior notes (the “New Notes”)		8,121			8,040		10.5	%		10.5	%		May 2014	(1)
	$	18,331			18,227
Junior subordinated notes	$	48,125	(2)		17,210		7.5	%		7.5	%		August 2036
Subordinated notes payable	$	1,491			1,491		12.0	%(3)		12.0	%		June 2013
Total				$	36,928

	As of December 31, 2011
Description	Current Outstanding  Par			Carrying Value		Interest Rate Terms			Weighted Average Interest @ 12/31/2011 (4)			Weighted Average Maturity
Contingent convertible senior notes:
7.625% Contingent convertible senior notes (the “Old Notes”)	$	10,360		$	10,303		7.6	%		7.6	%		May 2012	(1)
10.50% Contingent convertible senior notes (the “New Notes”)		8,121			8,030		10.5	%		10.5	%		May 2014	(1)
	$	18,481			18,333
Junior subordinated notes	$	48,125	(2)		17,343		7.5	%		7.5	%		August 2036
Subordinated notes payable	$	1,491			1,491		12.0	%(3)		12.0	%		June 2013
Total				$	37,167

(1) Represents the holders’ earliest redemption date. The weighted average contractual maturity for the Old Notes and the New Notes is May 2027.

We may redeem all or part of the $10,210 principal amount of the Old Notes for cash on or after May 20, 2012, at a redemption price equal to 100% of the principal amount of the Old Notes, plus accrued interest and unpaid interest and additional interest, if any, to, but excluding, the redemption date. The holders of the Old Notes may require us to repurchase all or a portion of the Old Notes for cash on May 15, 2012; May 15, 2017; and May 15, 2022 for a repurchase price equal to 100% of the principal amount of the Old Notes, plus accrued and unpaid interest and additional interest, if any, to, but excluding, the repurchase date. The holders of the Old Notes are required to provide notice to us of their plan to redeem the Old Notes at any time during the 30 days prior to May 15, 2012; May 15, 2017; and May 15, 2022.

We may redeem all or part of the $8,121 aggregate principal amount of the New Notes for cash on or after May 20, 2014, at a redemption price equal to 100% of the principal amount of the New Notes, plus accrued and unpaid interest and additional interest, if any, to but excluding the repurchase date. The holders of the New Notes may require us to repurchase all or a portion of the New Notes for cash on May 15, 2014; May 15, 2017; and May 15, 2022 for a repurchase price equal to 100% of the principal amount of the New Notes, plus accrued and unpaid interest and additional interest, if any, to, but excluding, the repurchase date. The holders of the New Notes are required to provide notice to us of their plan to redeem the notes at any time during the 30 days prior to May 15, 2014; May 15, 2017; and May 15, 2022.

(2) We issued total par of junior subordinated debentures of $49,614. These junior subordinated notes are held by two separate VIE trusts. We do not consolidate these trusts. We hold $1,489 par value of common stock of these trusts. These notes held by us have a carrying value of $0. Therefore, the net par value held by third parties is $48,125.

(3) Comprised of 9% paid currently and 3% paid in kind.

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(4) Weighted average interest rate is calculated as a percentage of par using the rates in effect as of the last day of the reporting period.

Off-Balance Sheet Arrangements

AFN invested in a CDO (Alesco XIV) in which Assured Guaranty (“Assured”) was providing credit support to the senior interests in securitizations. Alesco XIV made a loan (the “Guaranteed Loan”) to a particular borrower and AFN entered into an arrangement with Assured whereby AFN agreed to make payments to Assured upon the occurrence of both (i) a loss on the Guaranteed Loan; and (ii) a loss suffered by Assured on its overall credit support arrangement to Alesco XIV security holders. This arrangement is accounted for as a guarantee by us. Upon completion of the Merger, we recorded a liability of $1,084 related to this arrangement which is included in accounts payable and other liabilities in the Company’s consolidated balance sheet. This amount does not represent the expected loss; rather it represents our estimate of the fair value of our guarantee (i.e. the amount we would have to pay a third party to assume this obligation). This arrangement is being accounted for as a guarantee. The value will be adjusted under certain limited circumstances such as: (i) when the guarantee is extinguished or (ii) if payment of amounts under the guarantee become probable and estimable. The maximum potential loss to us on this arrangement is $8,750. Under certain circumstances, Assured can require us to post liquid collateral.

Contractual Obligations

The table below summarizes our significant contractual obligations as of March 31, 2012 and the future periods in which such obligations are expected to be settled in cash. Our junior subordinated notes and subordinated notes payable are assumed to be repaid on their respective maturity dates. The Old Notes in the aggregate principal amount of $10,210 are assumed to be repaid on May 15, 2012, which represents the earliest date that the holders of the Old Notes may require us to repurchase such notes for cash. The New Notes in the aggregate principal amount of $8,121 are assumed to be repaid on May 15, 2014, which represents the earliest day that the holders of the New Notes may require us to repurchase the notes for cash. Excluded from the table are obligations that are short-term in nature, including trading liabilities and repurchase agreements. In addition, excluded from the table is an unrecognized tax benefit of $1,231 because we are unable, at this time, to make a reasonably reliable estimate of the period of cash settlement. See note 23 to our consolidated financial statements included in the 2011 Annual Report on Form 10-K for further information about the unrecognized tax benefit.

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CONTRACTUAL OBLIGATIONS

As of March 31, 2012

(dollars in thousands)

	Payment Due by Period
	Total		Less than 1 year		1-3 Years		3-5 Years		More Than 5 Years
Operating lease arrangements	$	6,800	$	2,269	$	3,589	$	942	$	—
Maturity of the Old Notes (1)		10,210		10,210		—		—		—
Interest on the Old Notes (1)		396		396		—		—		—
Maturity of the New Notes (2)		8,121		—		8,121		—		—
Interest on the New Notes (2)		2,132		853		1,279		—		—
Maturities on junior subordinated notes		48,125		—		—		—		48,125
Interest on junior subordinated notes (3)		53,994		2,888		4,360		4,360		42,386
Maturities of subordinated notes payable (4)		1,559		—		1,559		—		—
Interest on subordinated notes payable (5)		204		135		69		—		—
Total	$	131,541	$	16,751	$	18,977	$	5,302	$	90,511

(1) Assumes the Old Notes are repurchased on May 15, 2012. Interest includes amounts payable during the period the Old Notes are outstanding at an annual rate of 7.625%.

(2) Assumes the New Notes are repurchased on May 15, 2014. Interest includes amounts payable during the period the New Notes are outstanding at an annual rate of 10.50%.

(3) The interest on the junior subordinated notes related to the Alesco Capital Trust is based on a fixed interest rate of 9.50% through to July 30, 2012, and an assumed variable rate of 4.468% based on a 90-day LIBOR rate as of March 31, 2012 plus 4.00% calculated from July 30, 2012 through to maturity. The interest on the junior subordinated notes related to the Sunset Financial Statutory Trust is variable. The interest rate of 4.618% (based on a 90-day LIBOR rate as of March 31, 2012 plus 4.15%) was used to compute the contractual interest payment in each period noted.

(4) The subordinated notes payable mature on June 20, 2013 and bear interest at an annual rate of 12% (9% is payable in cash and 3% is paid in-kind semiannually on May 1 and November 1). Maturities include in-kind interest of $154. All accrued in-kind interest is added to the unpaid principal balance of the subordinated notes payable on each May 1 and November 1, and thereafter the increased principal balance accrues interest at the annual rate of 12%.

(6) Represents the cash interest payable on the outstanding balance of the subordinated notes payable in each period noted.

We believe that we will be able to continue to fund our current operations and meet our contractual obligations through a combination of existing cash resources and other sources of credit. Due to the uncertainties that exist in the economy, we cannot be certain that we will be able to replace existing financing or find sources of additional financing in the future.

Recent Accounting Pronouncements

The following is a list of recent accounting pronouncements that we believe will have a continuing impact on our financial statements going forward.

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”), which requires companies to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on a company’s financial position. The amendments require enhanced disclosures by requiring improved information about financial statements and derivative instruments that are either (1) offset in accordance with current literature, or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with current literature. ASU 2011-11 is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013, and interim periods within those annual periods. The disclosures required by ASU 2011-11 will be applied retrospectively for all comparative periods presented. The Company is currently evaluating the impact of ASU 2011-11 on its disclosures about offsetting assets and liabilities.

Critical Accounting Policies and Estimates

Our accounting policies are essential to understanding and interpreting the financial results reported in our condensed consolidated financial statements. The significant accounting policies used in the preparation of our condensed consolidated financial statements are summarized in note 3 to the Company’s consolidated financial statements and notes thereto found in our Annual Report on Form 10-K for the year ended December 31, 2011. Certain of those policies are considered to be particularly important to the presentation of our financial results because they require us to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenues, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting

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policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

During the three months ended March 31, 2012, there were no material changes to matters discussed under the heading “Critical Accounting Policies and Estimates” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

All amounts in this section are in thousands unless otherwise noted.

Market Risk

Market risk is the risk of economic loss arising from the adverse impact of market changes to the market value of our trading and investment positions. Market risk is inherent to both derivative and non-derivative financial instruments, and accordingly, the scope of our market risk management procedures extends beyond derivatives to include all market risk sensitive financial instruments. For purposes of analyzing the components of market risk, we have broken out our investment portfolio into three broad categories:

Fixed Income Securities: We hold, from time to time, the following securities: U.S. treasury securities, U.S. government agency MBS, U.S government agency debt securities, CMOs, non-government MBS, corporate bonds, non-redeemable and redeemable preferred stock, municipal bonds, certificates of deposits, SBA loans, residential loans, whole loans, unconsolidated investments in the middle and senior tiers of securitization entities and TruPS. We attempt to mitigate our exposure to market risk by entering into economic hedging transactions, which may include TBAs. The fixed income category can be broadly broken down into two subcategories: fixed rate and floating rate.

Floating rate securities are not in themselves particularly sensitive to interest rate risk. Because they generally accrue income at a variable rate, the movement in interest rates typically does not impact their fair value. Fluctuations in their current income due to variations in interest rates are generally not material to us. Floating rate fixed income securities are subject to other market risks such as: default risk of the underlying issuer, changes in issuer’s credit spreads, investor demand and supply of securities within a particular asset class or industry class of the ultimate obligor. The sensitivity to any individual market risk cannot be quantified.

The fair value of fixed rate securities is sensitive to changes in interest rates. However, fixed rate securities that have low credit ratings or represent junior interests in securitizations are not particularly interest rate sensitive. In general, when we acquire interest rate sensitive securities, we enter into an offsetting short position for a similar fixed rate security. Alternatively, we may enter into other interest rate hedging arrangements such as interest rate swaps or EuroDollar futures. We measure our net interest rate sensitivity by determining how the fair value of our net interest rate sensitive assets would change as a result of a 100 basis points (“ bps”) adverse shift across the entire yield curve. Based on this analysis, as of March 31, 2012, we would incur a loss of $3,572 if the yield curve rises 100 bps across all maturities and a gain of $3,555 if the yield curve falls 100 bps across all maturities.

Equity Securities: We hold, from time to time, equity interests in the form of investments in investment funds, permanent capital vehicles, and equity instruments of publicly traded companies. These investments are subject to equity price risk. Equity price risk results from changes in the level or volatility of underlying equity prices, which affect the value of equity securities or instruments that in turn derive their value from a particular stock. We attempt to reduce the risk of loss inherent in our inventory of equity securities by closely monitoring those security positions. However, since we generally make investments in our investment funds and permanent capital vehicles in order to facilitate third party capital raising (and hence increase our AUM and asset management fees), we may be unwilling to sell these positions as compared to investments in unaffiliated third parties. We have one permanent capital vehicle investment which is denominated in Euros and another permanent capital vehicle for which our investment is denominated in U.S. Dollars, but for which the underlying net assets are primarily based in Japanese Yen. The fair values of these investments are subject to change as the spot foreign exchange rate between these currencies and the U.S. Dollar (our functional currency) fluctuates. We may, from time to time, enter into foreign exchange rate derivatives to hedge all or a portion of this risk. We measure our net equity price sensitivity and foreign currency sensitivity by determining how the net fair value of our equity price sensitive and foreign exchange sensitive assets would change as a result of a 10% adverse change in equity prices or foreign exchange rates. Based on this analysis, as of March 31, 2012 our equity price sensitivity was $3,722 and our foreign exchange currency sensitivity was $4,326.

Other Securities: These investments are primarily made up of residual interests in securitization entities. The fair value of these investments will fluctuate over time based on a number of factors including, but not limited to: liquidity of the investment type, the credit performance of the individual assets and issuers within the securitization entity, the asset class of the securitization entity and the relative supply of and demand for investments within that asset class, credit spreads in general, the transparency of valuation of the assets and liabilities of the securitization entity, and investors’ view of the accuracy of ratings prepared by the independent rating agencies. The sensitivity to any individual market risk cannot be quantified.

Debt: In addition to the risks noted above, we incur interest rate risk related to our debt obligations. We have debt that accrues interest at either variable rates or fixed rates. As of March 31, 2012, a 100 bps change in three month LIBOR would result in a change in our annual cash paid for interest in the amount of $200. A 100 bps adverse change in the market yield to maturity would result in an increase in the fair value of the debt in the amount of $2,297.

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How we manage these risks

We will seek to manage our market risk by utilizing our underwriting and credit analysis processes that are performed in advance of acquiring any investment. In addition, we continually monitor our investments — trading and our trading securities sold, not yet purchased on a daily basis and our other investments on a monthly basis. We perform an in-depth monthly analysis on all our investments and our risk committee meets on a monthly basis to review specific issues within our portfolio and to make recommendations for dealing with these issues.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We have established and maintain disclosure controls and procedures that are designed to ensure that material information relating to the Company (and its consolidated subsidiaries) required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, who certify our financial reports and to other members of senior management and the board of directors.

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of March 31, 2012. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective at March 31, 2012.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As described in “Item 9A — Controls and Procedures” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, the Company is currently in the process of integrating controls of PrinceRidge with the controls of IFMI. The Company expects to have this integration complete by the end of 2012.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Incorporated by reference to the headings titled “Legal and Regulatory Proceedings” in Note 17 to the consolidated financial statements include in Item 1 in this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

In addition to the information set forth in this Quarterly Report on Form 10-Q, you should also carefully review and consider the risk factors contained in our other reports and periodic filings with the SEC, including without limitation the risk factors contained under the caption “Item 1A — Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011, which could materially and adversely affect our business, financial condition and results of operations. The risk factors discussed in that Form 10-K do not identify all risks that we face because our business operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations. There have been no material changes in the significant factors that may affect our business and operations as described in “Item 1A — Risk Factors” of the Annual Report on 10-K for the year ended December 31, 2011.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased (1)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Dollar Value of  Shares that May Yet be Purchased Under the Plans or Program (2)
January 1, 2012 to January 31, 2012		1,090	$	1.86		—	$	45,815,766
February 1, 2012 to February 29, 2012		—		—		—		45,815,766
March 1, 2012 to March 31, 2012		—		—		—		45,815,766
Total		1,090	$	1.86		—

(1) We repurchased an aggregate of 1,090 shares other than as part of a publicly announced plan or program. We repurchased these securities in connection with our stock compensation plans which allow participants to use shares to satisfy certain tax liabilities arising from the vesting of restricted stock.

(2) On August 3, 2007, our board of directors authorized us to repurchase up to $50 million of our Common Stock from time to time in open market purchases or privately negotiated transactions. The repurchase plan was publicly announced on August 7, 2007.

Effective January 1, 2010, the Company ceased to qualify as a REIT and, therefore, is not required to make any dividends or other distributions to its stockholders. However, the Company’s board of directors has the power to decide to increase, reduce, or eliminate dividends in the future. The board’s decision will depend on a variety of factors, including business, financial and regulatory considerations as well as any limitations under Maryland law or imposed by any agreements governing indebtedness of the Company.

In addition, the Company’s ability to pay dividends to its stockholders will be dependent on distributions it receives from the Operating LLC and subject to the Operating LLC’s operating agreement. The amount and timing of distributions by the Operating LLC will be at the discretion of the Operating LLC’s board of managers and is subject to the provisions of the Operating LLC’s operating agreement. In this regard, approximately $38.8 million of net assets including $3.2 million of cash as of March 31, 2012 are subject to withdrawal restrictions as a result of the Operating LLC’s investment in PrinceRidge. Distributions from PrinceRidge to the Operating LLC are governed by the PrinceRidge partnership agreement. In general, the agreement calls for annual distributions equal to one half of the net income of PrinceRidge. However, the board of PrinceRidge GP can decide to forego these distributions or to pay distributions in excess of this amount with a unanimous vote of the board. The board of PrinceRidge GP is comprised of five members. Three members are appointed by the Operating LLC and the remaining two are designated by the individuals that were members of PrinceRidge GP prior to our investment. However, each member/partner of PrinceRidge does have the ability to borrow up to 30% of their investment from PrinceRidge. The member must provide 45 days notice of such borrowing and PrinceRidge must determine that the loan would not cause material harm to it. The borrowing member must pay 10% interest on this borrowing and the borrowing may only be outstanding for one year. Each partner may exercise this right to borrow once every two year period. In May 2012, the Company entered into a loan agreement with PrinceRidge whereby the Company has the ability to borrow $8 million from PrinceRidge.

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Item 6. Exhibits

Exhibit No.	Description
10.1	Amended and Restated Institutional Financial Markets, Inc. 2010 Long-Term Incentive Plan.**
10.2	Confidential Agreement, dated as of March 30, 2012, by and between Alesco Preferred Funding X, Ltd. and Cohen & Company Financial Management, LLC f/k/a Cohen Bros. Financial Management, LLC.**
11.1	Statement Regarding Computation of Per Share Earnings.*
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.**
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.**
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.***
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.***
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets at March 31, 2012 and December 31, 2011, (ii) the Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2012 and 2011, (iii) the Consolidated Statement of Changes in Equity for the Three Months Ended March 31, 2012, (iv) the Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011; and (v) Notes to Consolidated Financial Statements.***

* Data required by FASB Accounting Standards Codification 260, “Earnings per Share,” is provided in note 16 to our consolidated financial statements included in Item 1 in this Quarterly Report on Form 10-Q.

** Filed herewith.

*** Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Institutional Financial Markets, Inc.
	By:	/s/    DANIEL G. COHEN
		Daniel G. Cohen
Date: May 4, 2012		Chairman of the Board and Chief Executive Officer
	Institutional Financial Markets, Inc.
	By:	/s/    JOSEPH W. POOLER, JR.
		Joseph W. Pooler, Jr.
Date: May 4, 2012		Executive Vice President, Chief Financial Officer and Treasurer

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EX-10.1

Exhibit 10.1

AMENDED AND RESTATED INSTITUTIONAL FINANCIAL MARKETS, INC.

2010 LONG-TERM INCENTIVE PLAN

Institutional Financial Markets, Inc., a Maryland corporation, wishes to attract key employees, Directors, officers, advisors and consultants to the Company and Subsidiaries, and induce key employees, Directors, officers, advisors, consultants and other personnel to remain with the Company and Subsidiaries and encourage them to increase their efforts to make the Company’s business more successful whether directly or through Subsidiaries or other Affiliates. In furtherance thereof, the Institutional Financial Markets, Inc. 2010 Long-Term Incentive Plan is designed to provide equity-based incentives to certain Eligible Persons. Awards under the Plan may be made to Eligible Persons in the form of Options (including Stock Appreciation Rights), Restricted Stock, Restricted Stock Units, Dividend Equivalent Rights and other forms of equity based Awards as contemplated herein.

WHEREAS, effective February 3, 2011, the Board amended the Plan (the “February 2011 Amendment”) to reflect the change in the Company’s name to “Institutional Financial Markets, Inc.” and to increase the number of shares available for Awards under the Plan from 1,580,000 to 3,580,000;

WHEREAS, effective April 18, 2011, the Board amended the Plan (together with the February 2011 Amendment, the “Amendment”) to increase the number of shares available for Awards under the Plan from 3,580,000 to 4,580,000;

WHEREAS, the stockholders of the Company approved the Amendment on June 7, 2011;

WHEREAS, the Board desires to amend and restate the Company’s 2011 Long-Term Incentive Plan in its entirety; and

WHEREAS, capitalized terms used but not defined herein shall have the respective meanings ascribed thereto in the Plan.

1. DEFINITIONS

Whenever used herein, the following terms shall have the meanings set forth below:

“Affiliate” means any entity other than a Subsidiary that is controlled by or under common control with the Company that is designated as an “Affiliate” by the Committee in its discretion.

“Award” except where referring to a particular category of grant under the Plan, shall include Options, Restricted Stock, RSUs, Dividend Equivalent Rights and other equity-based Awards as contemplated herein.

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“Award Agreement” means a written agreement in a form approved by the Committee, as provided in Section 3. An Award Agreement may be, without limitation, an employment or other similar agreement containing provisions governing grants hereunder, if approved by the Committee for use under the Plan.

“Board” means the Board of Directors of the Company.

“Cause” means, unless otherwise provided in the Participant’s Award Agreement (i) engaging in (A) willful or gross misconduct or (B) willful or gross neglect; (ii) repeatedly failing to adhere to the directions of superiors or the Board or the written policies and practices of the Company, Subsidiaries or Affiliates; (iii) the commission of a felony or a crime of moral turpitude, dishonesty, breach of trust or unethical business conduct, or any crime involving the Company, Subsidiaries, or Affiliates; (iv) fraud, misappropriation or embezzlement; (v) acts or omissions constituting a material failure to perform substantially and adequately the duties assigned to the Participant; (vi) any illegal act detrimental to the Company, Subsidiaries or Affiliates; (vii) repeated failure to devote substantially all of the Participant’s business time and efforts to the Company, Subsidiaries, or Affiliates if required by the Participant’s employment agreement; or (viii) the Participant’s failure to competently perform his duties after receiving notice from the Company, a Subsidiary, or Affiliate, specifically identifying the manner in which the Participant has failed to perform; provided, however, that, if at any particular time the Participant is subject to an effective employment agreement with the Company, a Subsidiary or Affiliate, then, in lieu of the foregoing definition, “Cause” shall at that time have such meaning as may be specified in such employment agreement.

“Change in Control” means the happening of any of the following:

(i) any “person,” including a “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), but excluding Daniel G. Cohen, Christopher Ricciardi, Parent, the Company, any entity or person controlling, controlled by or under common control with Daniel G. Cohen, Christopher Ricciardi, Parent, the Company, any employee benefit plan of Parent, the Company or any such entity, and Executive and any “group” (as such term is used in Section 13(d)(3) of the Exchange Act) of which the Executive is a member) is or becomes the “beneficial owner” (as defined in Rule 13(d)(3) under the Exchange Act), directly or indirectly, of securities of Parent representing 50% or more of either (A) the combined voting power of Parent’s then outstanding securities or (B) the then outstanding common stock of Parent (in either such case other than as a result of an acquisition of securities directly from Parent, the Company or any of their respective subsidiaries); provided, however, that, in no event shall a Change in Control be deemed to have occurred upon an initial public offering or a subsequent public offering of the common stock of Parent under the Securities Act of 1933, as amended; or

(ii) any consolidation or merger of Parent where the stockholders of Parent, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the

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aggregate 50% or more of the combined voting power of the securities of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any);

(iii) there shall occur (A) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of Parent, other than a sale or disposition by Parent of all or substantially all of Parent’s assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by “persons” (as defined above) in substantially the same proportion as their ownership of Parent immediately prior to such sale or (B) the approval by stockholders of Parent of any plan or proposal for the liquidation or dissolution of Parent; or

(iv) the members of the Board of Directors of Parent at the beginning of any consecutive 24-calendar-month period (the “Incumbent Directors”) cease for any reason other than due to death to constitute at least a majority of the members of the Board of Directors of Parent; provided that any director whose election, or nomination for election by Parent’s stockholders, was approved by a vote of at least a majority of the members of the Board of Directors of Parent then still in office who were members of the Board of Directors of Parent at the beginning of such 24-calendar-month period, shall be deemed to be an Incumbent Director.

Notwithstanding the foregoing provisions of this definition of Change in Control, if at any time the Participant is subject to an effective employment agreement with the Company, a Subsidiary or Affiliate which expressly provides for the definition of a change in control of the Company, then, in lieu of the foregoing definition, “Change in Control” shall at that time have such meaning as may be specified, in such employment agreement, with respect to the Company.

Notwithstanding the foregoing, if an event constitutes a Change in Control as described above but does not constitute a “change in the ownership”, “change in effective control” or “change in the ownership of a substantial portion of the assets” of the Company, as such terms are defined in Treasury Regulations § 1.409A-3 (or other applicable guidance issued under Section 409A of the Code) then such event shall not be deemed a Change in Control to the extent that it would result in the imposition of the 20% excise tax as set forth in Section 409A(a)(1)(B). Such event may however, continue to constitute a Change in Control to the extent possible (e.g., vesting without an acceleration of distribution) without causing the imposition of such 20% tax.

“Code” means the Internal Revenue Code of 1986, as amended.

“Committee” means the Compensation Committee of the Board.

“Common Stock” means the Company’s Common Stock, par value $.001 per share, either currently existing or authorized hereafter.

“Company” means Institutional Financial Markets, Inc., a Maryland corporation.

“Director” means a non-employee director of the Company or Subsidiary that is not an employee of the Company or a Subsidiary.

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“Disability” means, unless otherwise provided by the Committee in the Participant’s Award Agreement, a disability which renders the Participant incapable of performing all of his or her duties for a period of at least 180 consecutive or non-consecutive days during any consecutive twelve-month period. Notwithstanding the foregoing, no circumstances or condition shall constitute a Disability to the extent that, if it were, a 20% tax would be imposed under Section 409A of the Code; provided that, in such a case, the event or condition shall continue to constitute a Disability to the maximum extent possible (e.g., if applicable, in respect of vesting without an acceleration of distribution) without causing the imposition of such 20% tax.

“Dividend Equivalent Right” means a right awarded under Section 8 to receive (or have credited) the equivalent value of dividends paid on Common Stock.

“Eligible Person” means (i) a key employee, Director, officer, advisor, consultant or other personnel of the Company or Subsidiaries or other person expected to provide significant services (of a type expressly approved by the Committee as covered services for these purposes) to the Company or Subsidiaries or (ii) joint venture affiliates of the Company or other entities designated in the discretion of the Committee, or officers, directors, employees, members, or managers of the foregoing. In the case of grants directly or indirectly to employees of entities described in clause (ii) of the foregoing sentence, the Committee may make arrangements with such entities as it may consider appropriate in its discretion, in light of tax and other considerations.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Fair Market Value” per Share as of a particular date means (i) if Shares are then listed on a national securities exchange, the closing sales price per Share on the exchange for the last preceding date on which there was a sale of Shares on such exchange, as determined by the Committee, (ii) if Shares are not then listed on a national securities exchange but are then traded on an over-the-counter market, the average of the closing bid and asked prices for the Shares in such over-the-counter market for the last preceding date on which there was a sale of such Shares in such market, as determined by the Committee, or (iii) if Shares are not then listed on a national securities exchange or traded on an over-the-counter market, such value as the Committee in its discretion may in good faith determine; provided that, where the Shares are so listed or traded, the Committee may make such discretionary determinations where the Shares have not been traded for 10 consecutive trading days.

“Grantee” means an Eligible Person granted Restricted Stock, RSUs, Dividend Equivalent Rights or such other equity-based Awards (other than an Option) as may be granted pursuant to Section 9.

“Incentive Stock Option” means an “incentive stock option” within the meaning of Section 422(b) of the Code.

“Non-Qualified Stock Option” means an Option which is not an Incentive Stock Option.

“Option” means the right to purchase, at a price and for the term fixed by the Committee in accordance with the Plan, and subject to such other limitations and restrictions in the Plan and the applicable Award Agreement, a number of Shares determined by the Committee.

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“Optionee” means an Eligible Person to whom an Option is granted, or the Successors of the Optionee, as the context so requires.

“Option Price” means the price per Share, determined by the Board or the Committee, at which an Option may be exercised.

“Participant” means a Grantee or Optionee.

“Performance Goals” has the meaning set forth in Section 10.

“Plan” means the Company’s 2010 Long-Term Incentive Plan, as set forth herein and as the same may from time to time be amended.

“Restricted Stock” means an award of Shares that are subject to restrictions hereunder.

“Restricted Stock Unit” or “RSU” means a right, pursuant to the Plan, of the Grantee to payment of the RSU Value.

“RSU Value,” per RSU, means the Fair Market Value of a Share or, if so provided by the Committee, such Fair Market Value to the extent in excess of a base value established by the Committee at the time of grant.

“Retirement” means, unless otherwise provided by the Committee in the Participant’s Award Agreement, the Termination of Service (other than for Cause) of a Participant on or after the Participant’s attainment of age 65 or on or after the Participant’s attainment of age 55 with five consecutive years of service with the Company, Subsidiaries or Affiliates.

“Securities Act” means the Securities Act of 1933, as amended.

“Settlement Date” means the date determined under Section 7.4(c).

“Shares” means shares of Common Stock of the Company.

“Stock Appreciation Right” means an Option described in Section 5.7.

“Subsidiary” means any corporation, partnership or other entity of which at least 50% of the economic interest in the equity is owned (directly or indirectly) by the Company or by another subsidiary. In the event the Company becomes such a subsidiary of another company (directly or indirectly), the provisions hereof applicable to subsidiaries shall, unless otherwise determined by the Committee, also be applicable to such parent company.

“Successor of the Optionee” means the legal representative of the estate of a deceased Optionee or the person or persons who shall acquire the right to exercise an Option by bequest or inheritance or by reason of the death of the Optionee.

“Termination Event” means a Change in Control.

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“Termination of Service” means a Participant’s termination of employment or other service (as a consultant or otherwise), as applicable, with the Company, Subsidiaries and Affiliates.

2. EFFECTIVE DATE AND TERMINATION OF PLAN

The effective date of the Plan is April 22, 2010. The Plan shall terminate on, and no Award shall be granted hereunder on or after, the 10-year anniversary of the earlier of the approval of the Plan by (i) the Board or (ii) the stockholders of the Company; provided, however, that the Board may at any time prior to that date terminate the Plan.

3. ADMINISTRATION OF PLAN

(a) The Plan shall be administered by the Committee. The Committee, upon and after such time as it is subject to Section 16 of the Exchange Act, shall consist of at least two individuals each of whom shall be a “nonemployee director” as defined in Rule 16b-3 as promulgated by the Securities and Exchange Commission (“Rule 16b-3”) under the Exchange Act and shall, at such times as the Company is subject to Section 162(m) of the Code (to the extent relief from the limitation of Section 162(m) of the Code is sought with respect to Awards), qualify as “outside directors” for purposes of Section 162(m) of the Code; provided that no action taken by the Committee (including, without limitation, grants) shall be invalidated because any or all of the members of the Committee fails to satisfy the foregoing requirements of this sentence. The acts of a majority of the members present at any meeting of the Committee at which a quorum is present, or acts approved in writing by a majority of the entire Committee, shall be the acts of the Committee for purposes of the Plan. If and to the extent applicable, no member of the Committee may act as to matters under the Plan specifically relating to such member. Notwithstanding the other foregoing provisions of this Section 3(a), any Award under the Plan to a person who is a member of the Committee shall be made and administered by the Board. If no Committee is designated by the Board to act for these purposes, the Board shall have the rights and responsibilities of the Committee hereunder and under the Award Agreements.

(b) Subject to the provisions of the Plan, the Committee shall in its discretion as reflected by the terms of the Award Agreements (i) authorize the granting of Awards to Eligible Persons and (ii) determine the eligibility of Eligible Persons to receive an Award, as well as determine the number of Shares to be covered under any Award Agreement, considering the position and responsibilities of the Eligible Persons, the nature and value to the Company of the Eligible Person’s present and potential contribution to the success of the Company whether directly or through Subsidiaries or Affiliates and such other factors as the Committee may deem relevant.

(c) The Award Agreement shall contain such other terms, provisions and conditions not inconsistent herewith as shall be determined by the Committee. In the event that any Award Agreement or other agreement hereunder provides (without regard to this sentence) for the obligation of the Company, Subsidiaries or Affiliates to purchase or repurchase Shares from a Participant or any other person, then, notwithstanding the

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provisions of the Award Agreement or such other agreement, such obligation shall not apply to the extent that the purchase or repurchase would not be permitted under governing state law. The Participant shall take whatever additional actions and execute whatever additional documents the Committee may in its reasonable judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the Participant pursuant to the express provisions of the Plan and the Award Agreement.

4. SHARES AND UNITS SUBJECT TO THE PLAN.

4.1 In General.

(a) Subject to adjustments as provided in Section 14, the total number of Shares subject to Awards granted under the Plan (including securities convertible into or exchangeable for Shares), in the aggregate, may not exceed 4,580,000. In no event may an Eligible Person receive Options for more than 500,000 Shares on an annual basis, and the maximum number of Shares that may underlie Awards, other than Options, granted in any one year to any Eligible Person, shall not exceed 500,000. Shares distributed under the Plan may be treasury Shares or authorized but unissued Shares. Any Shares that have been granted as Restricted Stock or that have been reserved for distribution in payment for Options, RSUs or other equity-based Awards but are later forfeited or for any other reason are not payable under the Plan may again be made the subject of Awards under the Plan.

(b) Shares subject to Dividend Equivalent Rights, other than Dividend Equivalent Rights based directly on the dividends payable with respect to Shares subject to Options or the dividends payable on a number of Shares corresponding to the number of RSUs awarded, shall be subject to the limitation of Section 4.1(a). Notwithstanding Section 4.1(a), except in the case of Awards intended to qualify for relief from the limitations of Section 162(m) of the Code, there shall be no limit on the number of RSUs or Dividend Equivalent Rights to the extent they are paid out in cash that may be granted under the Plan. If any RSUs, Dividend Equivalent Rights or other equity-based Awards under Section 9 are paid out in cash, then, notwithstanding the first sentence of Section 4.1(a) above (but subject to the second sentence thereof) the underlying Shares may again be made the subject of Awards under the Plan.

(c) The certificates for Shares issued hereunder may include any legend which the Committee deems appropriate to reflect any rights of first refusal or restrictions on transfer hereunder or under the Award Agreement, or as the Committee may otherwise deem appropriate.

4.2 Options.

Subject to adjustments pursuant to Section 14, and subject to the last sentence of Section 4.1(a), Options with respect to an aggregate of no more than 4,580,000 Shares may be granted under the Plan.

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5. PROVISIONS APPLICABLE TO STOCK OPTIONS.

5.1 Grant of Option.

Subject to the other terms of the Plan, the Committee shall, in its discretion as reflected by the terms of the applicable Award Agreement: (i) determine and designate from time to time those Eligible Persons to whom Options are to be granted and the number of Shares to be optioned to each Eligible Person; (ii) determine whether to grant Options intended to be Incentive Stock Options, or to grant Non-Qualified Stock Options, or both (to the extent that any Option does not qualify as an Incentive Stock Option, it shall constitute a separate Non-Qualified Stock Option); provided that Incentive Stock Options may only be granted to employees of the Company, Subsidiaries or Affiliates; (iii) determine the time or times when and the manner and condition in which each Option shall be exercisable and the duration of the exercise period; (iv) designate each Option as one intended to be an Incentive Stock Option or as a Non-Qualified Stock Option; and (v) determine or impose other conditions to the grant or exercise of Options under the Plan as it may deem appropriate.

5.2 Option Price.

The Option Price shall be determined by the Committee on the date the Option is granted and reflected in the Award Agreement, as the same may be amended from time to time. Any particular Award Agreement may provide for different Option Prices for specified amounts of Shares subject to the Option; provided that the Option Price shall not be less than 100% of the Fair Market Value of a Share on the day the Option is granted.

5.3 Period of Option and Vesting.

(a) Unless earlier expired, forfeited or otherwise terminated, each Option shall expire in its entirety upon the 10th anniversary of the date of grant or shall have such other term as is set forth in the applicable Award Agreement. The Option shall also expire, be forfeited and terminate at such times and in such circumstances as otherwise provided hereunder or under the Award Agreement.

(b) Each Option, to the extent that the Optionee has not had a Termination of Service and the Option has not otherwise lapsed, expired, terminated or been forfeited, shall first become exercisable according to the terms and conditions set forth in the Award Agreement, as determined by the Committee at the time of grant. Unless otherwise provided in the Plan or the Award Agreement, no Option (or portion thereof) shall ever be exercisable if the Optionee has a Termination of Service before the time at which such Option (or portion thereof) would otherwise have become exercisable, and any Option that would otherwise become exercisable after such Termination of Service shall not become exercisable and shall be forfeited upon such termination. Notwithstanding the foregoing provisions of this Section 5.3(b), Options exercisable pursuant to the schedule set forth by the Committee at the time of the grant may be fully or more rapidly exercisable or otherwise vested at any time in the discretion of the Committee. Upon and after the death of an Optionee, such Optionee’s Options, if and to the extent otherwise exercisable hereunder or under the applicable Award Agreement after the Optionee’s death, may be exercised by the Successors of the Optionee.

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5.4 Exercisability Upon and After Termination of Optionee.

(a) Subject to provisions of the Award Agreement, if an Optionee has a Termination of Service other than by the Company or Subsidiaries for Cause, or other than by reason of death, Retirement or Disability, then no exercise of an Option may occur after the expiration of the three-month period to follow the termination, or if earlier, the expiration of the term of the Option as provided under Section 5.3(a); provided that, if the Optionee should die after the Termination of Service, but while the Option is still in effect, the Option (if and to the extent otherwise exercisable by the Optionee at the time of death) may be exercised until the earlier of (i) one year from the date of the Termination of Service of the Optionee, or (ii) the date on which the term of the Option expires in accordance with Section 5.3(a).

(b) Subject to provisions of the Award Agreement, in the event the Optionee has a Termination of Service on account of death, Disability or Retirement, the Option (whether or not otherwise exercisable) may be exercised until the earlier of (i) one year from the date of the Termination of Service of the Optionee, or (ii) the date on which the term of the Option expires in accordance with Section 5.3.

(c) Notwithstanding any other provision hereof, unless otherwise provided in the Award Agreement, if the Optionee has a Termination of Service for Cause, the Optionee’s Options, to the extent then unexercised, shall thereupon cease to be exercisable and shall be forfeited forthwith.

5.5 Exercise of Options.

(a) Subject to vesting, restrictions on exercisability and other restrictions provided for hereunder or otherwise imposed in accordance herewith, an Option may be exercised, and payment in full of the aggregate Option Price made, by an Optionee only by written notice (in the form prescribed by the Committee) to the Company or its designee specifying the number of Shares to be purchased.

(b) Without limiting the scope of the Committee’s discretion hereunder, the Committee may impose such other restrictions on the exercise of Options (whether or not in the nature of the foregoing restrictions) as it may deem necessary or appropriate.

5.6 Payment.

(a) The aggregate Option Price shall be paid in full upon the exercise of the Option. Payment must be made by one of the following methods:

(i) certified or bank cashier’s check;

(ii) subject to Section 12(e), the proceeds of a Company loan program or third-party sale program or a notice acceptable to the Committee given as

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consideration under such a program, in each case if permitted by the Committee in its discretion, if such a program has been established and the Optionee is eligible to participate therein;

(iii) if approved by the Committee in its discretion, Shares of previously owned Common Stock, which have been previously owned for more than six months, having an aggregate Fair Market Value on the date of exercise equal to the aggregate Option Price; or

(iv) if approved by the Committee in its discretion, through the written election of the Optionee to have Shares withheld by the Company from the Shares otherwise to be received, with such withheld Shares having an aggregate Fair Market Value on the date of exercise equal to the aggregate Option Price; or

(v) by any combination of such methods of payment or any other method acceptable to the Committee in its discretion.

(b) Except in the case of Options exercised by certified or bank cashier’s check, the Committee may impose limitations and prohibitions on the exercise of Options as it deems appropriate, including, without limitation, any limitation or prohibition designed to avoid accounting consequences which may result from the use of Common Stock as payment upon exercise of an Option.

(c) The Committee may provide that no Option may be exercised with respect to any fractional Share. Any fractional Shares resulting from an Optionee’s exercise that is accepted by the Company shall in the discretion of the Committee be paid in cash.

5.7 Stock Appreciation Rights.

(a) The Committee, in its discretion, may also permit (taking into account, without limitation, the application of Section 409A of the Code, as the Committee may deem appropriate) the Optionee to elect to receive upon the exercise of an Option a combination of Shares and cash, or, in the discretion of the Committee, either Shares or solely in cash, with an aggregate Fair Market Value (or, to the extent of payment in cash, in an amount) equal to the excess of the Fair Market Value of the Shares with respect to which the Option is being exercised over the aggregate Option Price, as determined as of the day the Option is exercised.

(b) Upon the exercise of any Stock Appreciation Rights, the greater of (i) the number of shares subject to the Stock Appreciation Rights so exercised, and (ii) the number of Shares, if any, that are issued in connection with such exercise, shall be deducted from the number of Shares available for issuance under the Plan.

(c) In no event may a Stock Appreciation Right be transferred by a holder thereof for consideration without the prior approval of the Company’s stockholders.

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5.8 Exercise by Successors.

An Option may be exercised, and payment in full of the aggregate Option Price made, by the Successors of the Optionee only by written notice (in the form prescribed by the Committee) to the Company specifying the number of Shares to be purchased. Such notice shall state that the aggregate Option Price will be paid in full, or that the Option will be exercised as otherwise provided hereunder, in the discretion of the Company or the Committee, if and as applicable.

5.9 Nontransferability of Option.

Each Option granted under the Plan shall be nontransferable by the Optionee except by will or the laws of descent and distribution of the state wherein the Optionee is domiciled at the time of his death; provided, however, that the Committee may (but need not) permit other transfers, where the Committee concludes that such transferability (i) does not result in accelerated U.S. federal income taxation, (ii) does not cause any Option intended to be an Incentive Stock Option to fail to be described in Section 422(b) of the Code, (iii) complies with applicable law, including securities laws, and (iv) is otherwise appropriate and desirable. In no event may an Option be transferred by an Optionee for consideration without the prior approval of the Company’s stockholders.

5.10 Deferral.

The Committee (taking into account, without limitation, the possible application of Section 409A of the Code, as the Committee may deem appropriate) may establish a program under which Participants will have RSUs subject to Section 7 credited upon their exercise of Options, rather than receiving Shares at that time.

5.11 Certain Incentive Stock Option Provisions.

(a) In no event may an Incentive Stock Option be granted other than to employees of the Company or a “subsidiary corporation” or a “parent corporation,” as each is defined in Section 424(f) of the Code, with respect to the Company. The aggregate Fair Market Value, determined as of the date an Option is granted, of the Common Stock for which any Optionee may be awarded Incentive Stock Options which are first exercisable by the Optionee during any calendar year under the Plan (or any other stock option plan required to be taken into account under Section 422(d) of the Code) shall not exceed $100,000. To the extent the $100,000 limit referred to in the preceding sentence is exceeded, an Option will be treated as a Non-Qualified Stock Option.

(b) If Shares acquired upon exercise of an Incentive Stock Option are disposed of in a disqualifying disposition within the meaning of Section 422 of the Code by an Optionee prior to the expiration of either two years from the date of grant of such Option or one year from the transfer of Shares to the Optionee pursuant to the exercise of such Option, or in any other disqualifying disposition within the meaning of Section 422 of the Code, such Optionee shall notify the Company in writing as soon as practicable thereafter of the date and terms of such disposition and, if the Company (or an Affiliate) thereupon has a tax-withholding obligation, shall pay to the Company (or such Affiliate) an amount equal to any withholding tax the Company (or Affiliate) is required to pay as a result of the disqualifying disposition.

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(c) The Option Price with respect to each Incentive Stock Option shall not be less than 100%, or 110% in the case of an individual described in Section 422(b)(6) of the Code (relating to certain 10% owners), of the Fair Market Value of a Share on the day the Option is granted. Also, in the case of such an individual who is granted an Incentive Stock Option, the term of such Option shall be no more than five years from the date of grant.

6. PROVISIONS APPLICABLE TO RESTRICTED STOCK.

6.1 Grant of Restricted Stock.

(a) In connection with the grant of Restricted Stock, whether or not performance goals (as provided for under Section 10) apply thereto, the Committee shall establish one or more vesting periods with respect to the shares of Restricted Stock granted, the length of which shall be determined in the discretion of the Committee. Subject to the provisions of this Section 6, the applicable Award Agreement and the other provisions of the Plan, restrictions on Restricted Stock shall lapse if the Grantee satisfies all applicable employment or other service requirements through the end of the applicable vesting period.

(b) Subject to the other terms of the Plan, the Committee may, in its discretion as reflected by the terms of the applicable Award Agreement: (i) authorize the granting of Restricted Stock to Eligible Persons; (ii) provide a specified purchase price for the Restricted Stock (whether or not the payment of a purchase price is required by any state law applicable to the Company); (iii) determine the restrictions applicable to Restricted Stock and (iv) determine or impose other conditions, including any applicable Performance Goals, to the grant of Restricted Stock under the Plan as it may deem appropriate.

6.2 Certificates/Book Entry.

(a) Unless otherwise provided by the Committee, a “book entry” (by computerized or manual entry) shall be made in the records of the Company (or, if applicable, the Company’s transfer agent) to evidence an award of Shares of Restricted Stock.

(b) If the Shares of Restricted Stock are not evidenced in “book entry” form in accordance with Section 6.2(a), each Grantee of Restricted Stock shall be issued a stock certificate in respect of Shares of Restricted Stock awarded under the Plan. Each such certificate shall be registered in the name of the Grantee. Without limiting the generality of Section 4.1(c), the certificates for Shares of Restricted Stock issued hereunder may include any legend which the Committee deems appropriate to reflect any restrictions on transfer hereunder or under the Award Agreement, or as the Committee may otherwise deem appropriate, and, without limiting the generality of the foregoing, shall bear a legend referring to the terms, conditions, and restrictions applicable to such Award, substantially in the following form:

THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING FORFEITURE) OF THE INSTITUTIONAL FINANCIAL MARKETS, INC. 2010 LONG-TERM INCENTIVE PLAN AND AN AWARD AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER AND INSTITUTIONAL FINANCIAL MARKETS, INC. COPIES OF SUCH PLAN AND AWARD AGREEMENT ARE ON FILE IN THE OFFICES OF INSTITUTIONAL FINANCIAL MARKETS, INC. AT CIRA CENTRE, 2929 ARCH STREET, 17th FLOOR, PHILADELPHIA, PENNSYLVANIA 19104.

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(c) The Committee shall require that any stock certificates evidencing such Shares be held in custody by the Company or its designee until the restrictions hereunder shall have lapsed, and that, as a condition of any Award of Restricted Stock, the Grantee shall have delivered to the Company or its designee a stock power, endorsed in blank, relating to the stock covered by such Award. If and when such restrictions so lapse, the stock certificates shall be delivered by the Company to the Grantee or his or her designee as provided in Section 6.3 (and the stock power shall cease to be of effect).

6.3 Restrictions and Conditions.

Unless otherwise provided by the Committee, the Shares of Restricted Stock awarded pursuant to the Plan shall be subject to the following restrictions and conditions:

(i) Subject to the provisions of the Plan and the Award Agreements, during a period commencing with the date of such Award and ending on the date the period of forfeiture with respect to such Shares lapses, the Grantee shall not be permitted voluntarily or involuntarily to sell, transfer, pledge, anticipate, alienate, encumber or assign Shares of Restricted Stock awarded under the Plan (or have such Shares attached or garnished). Subject to the provisions of the Award Agreements and clause (iii) below, the period of forfeiture with respect to Shares granted hereunder shall lapse as provided in the applicable Award Agreement. Notwithstanding the foregoing, unless otherwise expressly provided by the Committee, the period of forfeiture with respect to such Shares shall only lapse as to whole Shares.

(ii) Except as provided in the foregoing clause (i), below in this clause (ii), or as otherwise provided in the applicable Award Agreement, the Grantee shall have, in respect of the Shares of Restricted Stock, all of the rights of a shareholder of the Company, including the right to vote the Shares and the right to receive any cash dividends as and when such dividends are declared and paid by the Company (or as soon as practicable thereafter); provided, however, that cash dividends on such Shares shall, unless otherwise provided by the Committee, be held by the Company (unsegregated as a part of its general assets) until the period

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of forfeiture lapses (and forfeited if the underlying Shares are forfeited), and paid over to the Grantee (without interest) as soon as practicable after such period lapses (if not forfeited). Certificates for Shares (not subject to restrictions) shall be delivered to the Grantee or his or her designee promptly after, and only after, the period of forfeiture shall lapse without forfeiture in respect of such Shares of Restricted Stock.

(iii) Except as otherwise provided in the applicable Award Agreement, and subject to clause (iv) below, if the Grantee has a Termination of Service by the Company and Subsidiaries (or, if applicable, Affiliates) for Cause, or by the Grantee for any reason during the applicable period of forfeiture, then (A) all Shares still subject to restriction shall thereupon, and with no further action, be forfeited by the Grantee, and (B) the Company shall pay to the Grantee as soon as practicable (and in no event more than 30 days) after such termination an amount, equal to the lesser of (x) the amount paid by the Grantee for such forfeited Restricted Stock as contemplated by Section 6.1, and (y) the Fair Market Value on the date of termination of the forfeited Restricted Stock.

(iv) Subject to the provisions of the Award Agreement, in the event the Grantee has a Termination of Service on account of death, Disability or Retirement, or the Grantee has a Termination of Service by the Company and Subsidiaries for any reason other than Cause, or in the event of a Termination Event (regardless of whether a termination follows thereafter), during the applicable period of forfeiture, then restrictions under the Plan will immediately lapse on all Restricted Stock granted to the applicable Grantee.

7. PROVISIONS APPLICABLE TO RESTRICTED STOCK UNITS.

7.1 Grant of RSUs.

Subject to the other terms of the Plan, the Committee shall, in its discretion as reflected by the terms of the applicable Award Agreement: (i) authorize the granting of RSUs to Eligible Persons and (ii) determine or impose other conditions to the grant of RSUs under the Plan as it may deem appropriate.

7.2 Term.

The Committee may provide in an Award Agreement that any particular RSU shall expire at the end of a specified term.

7.3 Vesting.

RSUs shall vest as provided in the applicable Award Agreement.

7.4 Settlement of RSUs.

(a) Each vested and outstanding RSU shall be settled by the transfer to the Grantee of one Share; provided that, the Committee at the time of grant (or, in the

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appropriate case, as determined by the Committee, thereafter) may provide that, after consideration of possible accounting issues, an RSU may be settled (i) in cash at the applicable RSU Value, (ii) in cash or by transfer of Shares as elected by the Grantee in accordance with procedures established by the Committee or (iii) in cash or by transfer of Shares as elected by the Company.

(b) Payment (whether of cash or Shares) in respect of RSUs shall be made in a single sum by the Company; provided that, with respect to RSUs of a Grantee which have a common Settlement Date, the Committee may permit the Grantee to elect in accordance with procedures established by the Committee (taking into account, without limitation, Section 409A of the Code, as the Committee may deem appropriate) to receive installment payments over a period not to exceed 10 years, rather than a single-sum payment.

(c) Unless otherwise provided in the applicable Award Agreement, the “Settlement Date” with respect to an RSU is the first day of the month to follow the date on which the RSU vests; provided that a Grantee may elect, in accordance with procedures to be established by the Committee, that such Settlement Date will be deferred as elected by the Grantee to the first day of the month to follow the Grantee’s Termination of Service, or such other time as may be permitted by the Committee. Unless otherwise determined by the Committee, elections under this Section 7.4(c) must, except as may otherwise be permitted under the rules applicable under Section 409A of the Code, (A) be effective at least one year after they are made, or, in the case of payments to commence at a specific time, be made at least one year before the first scheduled payment and (B) defer the commencement of distributions (and each affected distribution) for at least five years.

(i) Notwithstanding Section 7.4(c), the Committee may provide that distributions of RSUs can be elected at any time in those cases in which the RSU Value is determined by reference to Fair Market Value to the extent in excess of a base value, rather than by reference to unreduced Fair Market Value.

(ii) Notwithstanding the foregoing, and unless otherwise provided in the applicable Award Agreement, the Settlement Date, if not earlier pursuant to this Section 7.4(c), is the date of the Grantee’s death.

(d) Notwithstanding the other provisions of this Section 7, and unless otherwise provided in the applicable Award Agreement, in the event of a Termination Event, the Settlement Date shall be the date of such Termination Event and all amounts due with respect to RSUs to a Grantee hereunder shall be paid as soon as practicable (but in no event more than 30 days) after such Termination Event, unless such Grantee elects otherwise in accordance with procedures established by the Committee.

(e) Notwithstanding any other provision of the Plan, a Grantee may receive any amounts to be paid in installments as provided in Section 7.4(b) or deferred by the Grantee as provided in Section 7.4(c) in the event of an “Unforeseeable Emergency.” For these purposes, an “Unforeseeable Emergency,” as determined by the Committee in its

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sole discretion, is a severe financial hardship to the Grantee resulting from a sudden and unexpected illness or accident of the Grantee or “dependent,” as defined in Section 152(a) of the Code, of the Grantee, loss of the Grantee’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Grantee. The circumstances that will constitute an Unforeseeable Emergency will depend upon the facts of each case, but, in any case, payment may not be made to the extent that such hardship is or may be relieved:

(i) through reimbursement or compensation by insurance or otherwise,

(ii) by liquidation of the Grantee’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or

(iii) by future cessation of the making of additional deferrals under Section 7.4 (b) and (c).

Without limitation, the need to send a Grantee’s child to college or the desire to purchase a home shall not constitute an Unforeseeable Emergency. Distributions of amounts because of an Unforeseeable Emergency shall be permitted to the extent reasonably needed to satisfy the emergency need.

7.5 Other RSUs Provisions.

(a) Rights to payments with respect to RSUs granted under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, garnishment, levy, execution, or other legal or equitable process, either voluntary or involuntary; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, attach or garnish, or levy or execute on any right to payments or other benefits payable hereunder, shall be void.

(b) A Grantee may designate in writing, on forms to be prescribed by the Committee, a beneficiary or beneficiaries to receive any payments payable after his or her death and may amend or revoke such designation at any time. If no beneficiary designation is in effect at the time of a Grantee’s death, payments hereunder (if any) shall be made to the Grantee’s estate. If a Grantee with a vested RSU dies, such RSU shall be settled and the RSU Value in respect of such RSUs paid, and any payments deferred pursuant to an election under Section 7.4(c) shall be accelerated and paid, as soon as practicable (but no later than 60 days) after the date of death to such Grantee’s beneficiary or estate, as applicable.

(c) The Committee may establish a program under which distributions with respect to RSUs may be deferred for periods in addition to those otherwise contemplated by foregoing provisions of this Section 7. Such program may include, without limitation, provisions for the crediting of earnings and losses on unpaid amounts, and, if permitted by the Committee, provisions under which Participants may select from among hypothetical investment alternatives for such deferred amounts in accordance with procedures established by the Committee.

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(d) Notwithstanding any other provision of this Section 7, any fractional RSU will be paid out in cash at the RSU Value as of the Settlement Date.

(e) No RSU shall be construed to give any Grantee any rights with respect to Shares or any ownership interest in the Company. Except as may be provided in accordance with Section 8, no provision of the Plan shall be interpreted to confer upon any Grantee any voting, dividend or derivative or other similar rights with respect to any RSU.

8. PROVISIONS APPLICABLE TO DIVIDEND EQUIVALENT RIGHTS.

8.1 Grant of Dividend Equivalent Rights.

Subject to the other terms of the Plan, the Committee shall, in its discretion as reflected by the terms of the Award Agreements, authorize the granting of Dividend Equivalent Rights to Eligible Persons based on the regular cash dividends declared on Common Stock, to be credited as of the dividend payment dates, during the period between the date an Award is granted, and the date such Award is exercised, vests or expires, as determined by the Committee. Such Dividend Equivalent Rights shall be converted to cash or additional Shares by such formula and at such time and subject to such limitation as may be determined by the Committee. With respect to Dividend Equivalent Rights granted with respect to Options intended to be qualified performance-based compensation for purposes of Section 162(m) of the Code, such Dividend Equivalent Rights shall be payable regardless of whether such Option is exercised. If a Dividend Equivalent Right is granted in respect of another Award hereunder, then, unless otherwise stated in the Award Agreement, in no event shall the Dividend Equivalent Right be in effect for a period beyond the time during which the applicable portion of the underlying Award is in effect.

8.2 Certain Terms.

(a) The term of a Dividend Equivalent Right shall be set by the Committee in its discretion.

(b) Unless otherwise determined by the Committee, except as contemplated by Section 8.4, a Dividend Equivalent Right is exercisable or payable only while the Participant is an Eligible Person.

(c) Payment of the amount determined in accordance with Section 8.1 shall be in cash, in Common Stock or a combination of the two, as determined by the Committee.

(d) The Committee may impose such employment-related conditions on the grant of a Dividend Equivalent Right as it deems appropriate in its discretion.

8.3 Other Types of Dividend Equivalent Rights.

The Committee may establish a program under which Dividend Equivalent Rights of a type whether or not described in the foregoing provisions of this Section 8 may be granted to Participants. For example, and without limitation, the Committee may grant a dividend equivalent right in respect of each Share subject to an Option or with respect to an RSU, which right would consist of the right (subject to Section 8.4) to receive a cash payment in an amount equal to the dividend distributions paid on a Share from time to time.

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8.4 Deferral.

The Committee may establish a program (taking into account, without limitation, the possible application of Section 409A of the Code, as the Committee may deem appropriate) under which Participants (i) will have RSUs credited, subject to the terms of Sections 7.4 and 7.5 as though directly applicable with respect thereto, upon the granting of Dividend Equivalent Rights, or (ii) will have payments with respect to Dividend Equivalent Rights deferred. In the case of the foregoing clause (ii), such program may include, without limitation, provisions for the crediting of earnings and losses on unpaid amounts, and, if permitted by the Committee, provisions under which Participants may select from among hypothetical investment alternatives for such deferred amounts in accordance with procedures established by the Committee.

9. OTHER EQUITY-BASED AWARDS.

The Committee shall have the right to grant (i) other Awards based upon the Common Stock having such terms and conditions as the Committee may determine, including, without limitation, the grant of Shares based upon certain conditions, the grant of securities convertible into Common Stock and the grant of Stock Appreciation Rights and (ii) interests (which may be expressed as units or otherwise) in Subsidiaries, as applicable.

10. PERFORMANCE GOALS.

The Committee, in its discretion, may in the case of Awards (including, in particular, Awards other than Options) intended to qualify for an exception from the limitation imposed by Section 162(m) of the Code (“Performance-Based Awards”), (i) establish one or more performance goals (“Performance Goals”) as a precondition to the issuance or vesting of Awards, and (ii) provide, in connection with the establishment of the Performance Goals, for predetermined Awards to those Participants (who continue to meet all applicable eligibility requirements) with respect to whom the applicable Performance Goals are satisfied. The Performance Goals shall be based upon the criteria set forth in Exhibit A hereto which is hereby incorporated herein by reference as though set forth in full. The Performance Goals shall be established in a timely fashion such that they are considered preestablished for purposes of the rules governing performance-based compensation under Section 162(m) of the Code. Prior to the award or vesting, as applicable, of affected Awards hereunder, the Committee shall have certified that any applicable Performance Goals, and other material terms of the Award, have been satisfied. Performance Goals which do not satisfy the foregoing provisions of this Section 10 may be established by the Committee with respect to Awards not intended to qualify for an exception from the limitations imposed by Section 162(m) of the Code.

11. TAX WITHHOLDING.

11.1 In General.

The Company shall be entitled to withhold from any payments or deemed payments any amount of tax withholding determined by the Committee to be required by law. Without limiting

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the generality of the foregoing, the Committee may, in its discretion, require the Participant to pay to the Company at such time as the Committee determines the amount that the Committee deems necessary to satisfy the Company’s obligation to withhold federal, state or local income or other taxes incurred by reason of (i) the exercise of any Option, (ii) the lapsing of any restrictions applicable to any Restricted Stock, (iii) the receipt of a distribution in respect of RSUs or Dividend Equivalent Rights or (iv) any other applicable income-recognition event (for example, an election under Section 83(b) of the Code).

11.2 Share Withholding.

(a) Upon exercise of an Option, the Optionee may, if approved by the Company in its discretion, make a written election to have Shares then issued withheld by the Company from the Shares otherwise to be received, or to deliver previously owned Shares, in order to satisfy the liability for such withholding taxes. In the event that the Optionee makes, and the Company permits, such an election, the number of Shares so withheld or delivered shall have an aggregate Fair Market Value on the date of exercise sufficient to satisfy the applicable withholding taxes. Where the exercise of an Option does not give rise to an obligation by the Company to withhold federal, state or local income or other taxes on the date of exercise, but may give rise to such an obligation in the future, the Company may, in its discretion, make such arrangements and impose such requirements as it deems necessary or appropriate.

(b) Upon lapsing of restrictions on Restricted Stock (or other income-recognition event), the Grantee may, if approved by the Company in its discretion, make a written election to have Shares withheld by the Company from the Shares otherwise to be released from restriction, or to deliver previously owned Shares (not subject to restrictions hereunder), in order to satisfy the liability for such withholding taxes. In the event that the Grantee makes, and the Company permits, such an election, the number of Shares so withheld or delivered shall have an aggregate Fair Market Value on the date of exercise sufficient to satisfy the applicable withholding taxes.

(c) Upon the making of a distribution in respect of RSUs or Dividend Equivalent Rights, the Grantee may, if approved by the Company in its discretion, make a written election to have amounts (which may include Shares) withheld by the Company from the distribution otherwise to be made, or to deliver previously owned Shares (not subject to restrictions hereunder), in order to satisfy the liability for such withholding taxes. In the event that the Grantee makes, and the Company permits, such an election, any Shares so withheld or delivered shall have an aggregate Fair Market Value on the date of exercise sufficient to satisfy the applicable withholding taxes.

11.3 Withholding Required.

Notwithstanding anything contained in the Plan or the Award Agreement to the contrary, the Participant’s satisfaction of any tax-withholding requirements imposed by the Committee shall be a condition precedent to the Company’s obligation as may otherwise be provided hereunder to provide Shares to the Participant and to the release of any restrictions as may otherwise be provided hereunder, as applicable; and the applicable Option, Restricted Stock,

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RSUs or Dividend Equivalent Rights shall be forfeited upon the failure of the Participant to satisfy such requirements with respect to, as applicable, (i) the exercise of the Option, (ii) the lapsing of restrictions on the Restricted Stock (or other income-recognition event) or (iii) distributions in respect of any RSU or Dividend Equivalent Right.

12. REGULATIONS AND APPROVALS.

(a) The obligation of the Company to sell Shares with respect to an Award granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee.

(b) The Committee may make such changes to the Plan as may be necessary or appropriate to comply with the rules and regulations of any government authority or to obtain tax benefits applicable to an Award.

(c) Each grant of Options, Restricted Stock, RSU (or issuance of Shares in respect thereof) or Dividend Equivalent Rights (or issuance of Shares in respect thereof), or other Award under Section 9 (or issuance of Shares in respect thereof), is subject to the requirement that, if at any time the Committee determines, in its discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance of Options, Shares of Restricted Stock, RSUs, Dividend Equivalent Rights, other Awards or other Shares, no payment shall be made, or RSUs or Shares issued or grant of Restricted Stock or other Award made, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions in a manner acceptable to the Committee.

(d) In the event that the disposition of stock acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act, and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required under the Securities Act, and the Committee may require any individual receiving Shares pursuant to the Plan, as a condition precedent to receipt of such Shares, to represent to the Company in writing that such Shares are acquired for investment only and not with a view to distribution and that such Shares will be disposed of only if registered for sale under the Securities Act or if there is an available exemption for such disposition.

(e) Notwithstanding any other provision of the Plan, the Company shall not be required to take or permit any action under the Plan or any Award Agreement which, in the good-faith determination of the Company, would result in a material risk of a violation by the Company of Section 13(k) of the Exchange Act.

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13. INTERPRETATION AND AMENDMENTS; OTHER RULES.

The Committee may make such rules and regulations and establish such procedures for the administration of the Plan as it deems appropriate. Without limiting the generality of the foregoing, the Committee may (i) determine the extent, if any, to which Options, RSUs or Shares (whether or not Shares of Restricted Stock) or Dividend Equivalent Rights shall be forfeited (whether or not such forfeiture is expressly contemplated hereunder); (ii) interpret the Plan and the Award Agreements hereunder, with such interpretations to be conclusive and binding on all persons and otherwise accorded the maximum deference permitted by law, provided that the Committee’s interpretation shall not be entitled to deference on and after a Termination Event except to the extent that such interpretations are made exclusively by members of the Committee who are individuals who served as Committee members before the Termination Event; and (iii) take any other actions and make any other determinations or decisions that it deems necessary or appropriate in connection with the Plan or the administration or interpretation thereof. In the event of any dispute or disagreement as to the interpretation of the Plan or of any rule, regulation or procedure, or as to any question, right or obligation arising from or related to the Plan, the decision of the Committee, except as provided in clause (ii) of the foregoing sentence, shall be final and binding upon all persons. Unless otherwise expressly provided hereunder, the Committee, with respect to any grant, may exercise its discretion hereunder at the time of the Award or thereafter. The Board may amend the Plan as it shall deem advisable, except that no amendment may adversely affect a Participant with respect to an Award previously granted without such Participant’s written consent unless such amendments are required in order to comply with applicable laws; provided, however, that the Plan may not be amended without stockholder approval in any case in which amendment in the absence of stockholder approval would cause the Plan to fail to comply with any applicable legal requirement or applicable exchange or similar rule.

14. CHANGES IN CAPITAL STRUCTURE.

(a) If (i) the Company or Subsidiaries shall at any time be involved in a merger, consolidation, dissolution, liquidation, reorganization, exchange of shares, sale of all or substantially all of the assets or stock of the Company or Subsidiaries or a transaction similar thereto, (ii) any stock dividend, stock split, reverse stock split, stock combination, reclassification, recapitalization or other similar change in the capital structure of the Company or Subsidiaries, or any distribution to holders of Common Stock other than cash dividends, shall occur or (iii) any other event shall occur which in the judgment of the Committee necessitates action by way of adjusting the terms of the outstanding Awards, then:

(x) the maximum aggregate number and kind of Shares which may be made subject to Options and Dividend Equivalent Rights under the Plan, the maximum aggregate number and kind of Shares of Restricted Stock that may be granted under the Plan, the maximum aggregate number of RSUs and other Awards which may be granted under the Plan may be appropriately adjusted by the Committee in its discretion; and

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(y) the Committee may take any such action as in its discretion shall be necessary to maintain each Participants’ rights hereunder (including under their Award Agreements) so that they are substantially in their respective Options, RSUs and Dividend Equivalent Rights substantially proportionate to the rights existing in such Options, RSUs and Dividend Equivalent Rights prior to such event, including, without limitation, adjustments in (A) the number of Options, RSUs and Dividend Equivalent Rights (and other Awards under Section 9) granted, (B) the number and kind of shares or other property to be distributed in respect of Options, RSUs and Dividend Equivalent Rights (and other Awards under Section 9 as applicable), (C) the Option Price and RSU Value, and (D) performance-based criteria established in connection with Awards (to the extent consistent with Section 162(m) of the Code, as applicable); provided that, in the discretion of the Committee, the foregoing clause (D) may also be applied in the case of any event relating to a Subsidiary if the event would have been covered under this Section 14(a) had the event related to the Company.

To the extent that such action shall include an increase or decrease in the number of Shares (or units of other property then available) subject to all outstanding Awards, the number of Shares (or units) available under Section 4 shall be increased or decreased, as the case may be, proportionately, as may be determined by the Committee in its discretion.

(b) Any Shares or other securities distributed to a Grantee with respect to Restricted Stock or otherwise issued in substitution of Restricted Stock shall be subject to the restrictions and requirements imposed by Section 6, including depositing the certificates therefor with the Company together with a stock power and bearing a legend as provided in Section 6.2(c).

(c) If the Company shall be consolidated or merged with another corporation or other entity, each Grantee who has received Restricted Stock that is then subject to restrictions imposed by Section 6.3 may be required to deposit with the successor corporation the certificates, if any, for the stock or securities, or the other property, that the Grantee is entitled to receive by reason of ownership of Restricted Stock in a manner consistent with Section 6.2(c), and such stock, securities or other property shall become subject to the restrictions and requirements imposed by Section 6.3, and the certificates therefor or other evidence thereof shall bear a legend similar in form and substance to the legend set forth in Section 6.2(c).

(d) If a Termination Event shall occur, then the Committee, as constituted immediately before the Termination Event, may make such adjustments as it, in its discretion, determines are necessary or appropriate in light of the Termination Event, provided that the Committee determines that such adjustments do not have an adverse economic impact on the Participant as determined at the time of the adjustments.

(e) The judgment of the Committee with respect to any matter referred to in this Section 14 shall be conclusive and binding upon each Participant without the need for any amendment to the Plan.

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(f) Other than as otherwise permitted under this Section 14, without the prior approval of the Company’s stockholders: (i) the Option Price, with respect to an Option, or grant price, with respect to a Stock Appreciation Right, may not be reduced below the price established at the time of grant thereof and (ii) an outstanding Option or Stock Appreciation Right may not be cancelled and replaced with a new Award with a lower exercise or grant price.

15. MISCELLANEOUS.

15.1 No Rights to Employment or Other Service.

Nothing in the Plan or in any grant made pursuant to the Plan shall confer on any individual any right to continue in the employ or other service of the Company, the Subsidiaries or Affiliates or interfere in any way with the right of the Company, the Subsidiaries or Affiliates and their stockholders to terminate the individual’s employment or other service at any time.

15.2 Right of First Refusal; Right of Repurchase.

At the time of grant, the Committee may provide in connection with any grant made under the Plan that Shares received hereunder shall be subject to a right of first refusal pursuant to which the Company shall be entitled to purchase such Shares in the event of a prospective sale of the Shares, subject to such terms and conditions as the Committee may specify at the time of grant or (if permitted by the Award Agreement) thereafter, and to a right of repurchase, pursuant to which the Company shall be entitled to purchase such Shares at a price determined by, or under a formula set by, the Committee at the time of grant or (if permitted by the Award Agreement) thereafter.

15.3 No Fiduciary Relationship.

Nothing contained in the Plan (including without limitation Sections 7.5(c) and 8.4), and no action taken pursuant to the provisions of the Plan, shall create or shall be construed to create a trust of any kind, or a fiduciary relationship between the Company or Subsidiaries, or their, officers or the Committee, on the one hand, and the Participant, the Company, Subsidiaries or any other person or entity, on the other.

15.4 Section 409A.

This Plan is intended to comply and shall be administered in a manner that is intended to comply with the requirement of Section 409A of the Code (including the Treasury Department guidance and regulations issued thereunder), and shall be construed and interpreted in accordance with such intent. If the Committee determines that an Award, Award document, payment, transaction or any other action or arrangement contemplated by the provisions of this Plan would, if undertaken, cause a Participant to become subject to any additional taxes or other penalties under Section 409A of the Code, then unless the Committee specifically provides otherwise, such Award, Award document, payment, transaction or other Award documents will be deemed modified or, if necessary, suspended in order to comply with the requirements of Section 409A of the Code to the extent determined appropriate by the Committee, in each case without the consent of the Participant.

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15.5 Claims Procedures.

(a) To the extent that the Plan is determined by the Committee to be subject to the Employee Retirement Income Security Act of 1974, as amended, the Grantee, or his beneficiary hereunder or authorized representative, may file a claim for payments with respect to RSUs under the Plan by written communication to the Committee or its designee. A claim is not considered filed until such communication is actually received. Within 90 days (or, if special circumstances require an extension of time for processing, 180 days, in which case notice of such special circumstances should be provided within the initial 90-day period) after the filing of the claim, the Committee will either:

(i) approve the claim and take appropriate steps for satisfaction of the claim; or

(ii) if the claim is wholly or partially denied, advise the claimant of such denial by furnishing to him a written notice of such denial setting forth (A) the specific reason or reasons for the denial; (B) specific reference to pertinent provisions of the Plan on which the denial is based and, if the denial is based in whole or in part on any rule of construction or interpretation adopted by the Committee, a reference to such rule, a copy of which shall be provided to the claimant; (C) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of the reasons why such material or information is necessary; and (D) a reference to this Section 15.5 as the provision setting forth the claims procedure under the Plan.

(b) The claimant may request a review of any denial of such claim by written application to the Committee within 60 days after receipt of the notice of denial of such claim. Within 60 days (or, if special circumstances require an extension of time for processing, 120 days, in which case notice of such special circumstances should be provided within the initial 60-day period) after receipt of written application for review, the Committee will provide the claimant with its decision in writing, including, if the claimant’s claim is not approved, specific reasons for the decision and specific references to the Plan provisions on which the decision is based.

15.6 No Fund Created.

Any and all payments hereunder to any Grantee shall be made from the general funds of the Company, no special or separate fund shall be established or other segregation of assets made to assure such payments, and the RSUs (including for purposes of this Section 15.6 any accounts established to facilitate the implementation of Section 7.4(c)) and any other similar devices issued hereunder to account for Plan obligations do not constitute Common Stock and shall not be treated as (or as giving rise to) property or as a trust fund of any kind; provided, however, that the Company may establish a mere bookkeeping reserve to meet its obligations hereunder or a trust or other funding vehicle that would not cause the Plan to be deemed to be funded for tax purposes or for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. The obligations of the Company under the Plan are unsecured and constitute a mere promise by the Company to make benefit payments in the future and, to the extent that any

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person acquires a right to receive payments under the Plan from the Company, such right shall be no greater than the right of a general unsecured creditor of the Company. (If any Affiliate is or is made responsible with respect to any Awards, the foregoing sentence shall apply with respect to such Affiliate.) Without limiting the foregoing, RSUs and any other similar devices issued hereunder to account for Plan obligations are solely a device for the measurement and determination of the amounts to be paid to a Grantee under the Plan, and each Grantee’s right in the RSUs and any such other devices is limited to the right to receive payment, if any, as may herein be provided.

15.7 Notices.

All notices under the Plan shall be in writing, and if to the Company, shall be delivered to the Board or mailed to its principal office, addressed to the attention of the Board; and if to the Participant, shall be delivered personally, sent by facsimile transmission or mailed to the Participant at the address appearing in the records of the Company. Such addresses may be changed at any time by written notice to the other party given in accordance with this Section 15.7.

15.8 Exculpation and Indemnification.

The Company shall indemnify and hold harmless the members of the Board and the members of the Committee from and against any and all liabilities, costs and expenses incurred by such persons as a result of any act or omission to act in connection with the performance of such person’s duties, responsibilities and obligations under the Plan, to the maximum extent permitted by law, other than such liabilities, costs and expenses as may result from the gross negligence, bad faith, willful misconduct or criminal acts of such persons.

15.9 Captions.

The use of captions in this Plan is for convenience. The captions are not intended to provide substantive rights.

15.10 Governing Law.

THE PLAN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND WITHOUT REGARD TO ANY PRINCIPLES OF CONFLICTS OF LAW WHICH COULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF MARYLAND.

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EXHIBIT A

PERFORMANCE CRITERIA

Performance-Based Awards intended to qualify as “performance based” compensation under Section 162(m) of the Code, may be payable upon the attainment of objective performance goals that are established by the Committee and relate to one or more Performance Criteria, in each case on specified date or over any period, up to 10 years, as determined by the Committee. Performance Criteria may (but need not) be based on the achievement of the specified levels of performance under one or more of the measures set out below relative to the performance of one or more other corporations or indices.

Performance Goals shall be based on one or more of the following business criteria (which may be determined for these purposes either by reference to the Company as a whole or by reference to any one or more of its subsidiaries, operating divisions or other operating units): stock price, revenues, pretax income, operating income, cash flow, earnings per share, return on equity, return on invested capital or assets, cost reductions and savings, return on revenues, productivity, level of managed assets and near or long-term earnings potential, or any variation or combination of the preceding business criteria.

The foregoing Performance Goals may be stated in absolute terms or may be expressed relative to performance in a specified prior period or to the performance of other specified enterprises. In addition, the Committee may utilize as an additional performance measure (to the extent consistent with the Performance-Based Compensation Rules (as defined below)) the attainment by a Participant of one or more personal objectives and/or goals that the Committee deems appropriate, including, but not limited to, implementation of Company policies, negotiation of significant corporate transactions, development of long-term business goals or strategic plans for the Company, or the exercise of specific areas of managerial responsibility. “Performance-Based Compensation Rules” shall mean those provisions of Section 162(m) of the Code and regulations promulgated thereunder that provide the rules pursuant to which compensation that is paid to executives on the basis of performance is exempt from the limitations on deductibility applicable to certain compensation paid to executives in excess of $1,000,000. The measurement of the Company’s or a Participant’s achievement of any of such goals must be objectively determinable and shall be determined, to the extent applicable, according to generally accepted accounting principles as in existence on the date on which the Performance Goals for the performance period is established. In all cases, the Committee shall establish the Performance Goal for each performance period no later than 90 days after the beginning of the performance period (or no later than the end of the first 25% of the performance period if the performance period is less than a full year), and shall establish such Performance Goals in a manner that is consistent with the Performance-Based Compensation Rules. In the event a Performance Goal is not established for a performance period for a Participant for whom a Performance Goal was in effect for the preceding performance period, the Performance Goal for such Participant for the preceding performance period shall be treated as the Performance Goal for such Participant for the current performance period. The use of a performance period that is less than a full year shall not require any reduction to the limitations on maximum permitted bonus payments under the Plan or require that less than a Participant’s full annual base salary be taken into account in determining bonuses payable or limits on payments. To the extent

26

specified by the Committee in an Award or by other action taken by the Committee at the time Performance Goals for a performance period are established, the measurement of specified performance goals may be subject to adjustment to exclude items of gain, loss or expense that are determined to be extraordinary or unusual in nature, infrequent in occurrence, related to a corporate transaction (including, without limitation, a disposition or acquisition) or related to a change in accounting principles, all as determined in accordance with standards published by the Financial Accounting Standards Board (or any predecessor or successor body) from time to time. In addition, equitable adjustments will be made to any performance goal related to Company stock (e.g., earnings per share) to reflect changes in corporate capitalization, including, without limitation, stock splits and reorganizations.

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1.	DEFINITIONS	1
2.	EFFECTIVE DATE AND TERMINATION OF PLAN	6
3.	ADMINISTRATION OF PLAN	6
4.	SHARES AND UNITS SUBJECT TO THE PLAN	7
5.	PROVISIONS APPLICABLE TO STOCK OPTIONS	8
6.	PROVISIONS APPLICABLE TO RESTRICTED STOCK	12
7.	PROVISIONS APPLICABLE TO RESTRICTED STOCK UNITS	14
8.	PROVISIONS APPLICABLE TO DIVIDEND EQUIVALENT RIGHTS	17
9.	OTHER EQUITY-BASED AWARDS	18
10.	PERFORMANCE GOALS	18
11.	TAX WITHHOLDING	18
12.	REGULATIONS AND APPROVALS	20
13.	INTERPRETATION AND AMENDMENTS; OTHER RULES	21
14.	CHANGES IN CAPITAL STRUCTURE	21
15.	MISCELLANEOUS	23
EXHIBIT A		26

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EX-10.2

Exhibit 10.2

CONFIDENTIAL AGREEMENT

This Confidential Agreement ( the “Agreement”) is entered into by and between Alesco Preferred Funding X, Ltd. (“Alesco”) and Cohen & Company Financial Management, LLC f/k/a Cohen Bros. Financial Management, LLC (“Cohen”).

WHEREAS, Alesco holds the Trust Preferred Securities of Leawood Bancshares Statutory Trust I in the original amount of $4,000,000.00 (the “TruPS”); and

WHEREAS, Leawood Bancshares, Inc. (“Leawood”) and Alesco entered into a letter agreement dated March 1, 2010 regarding a cash purchase by Leawood from Alesco of the TruPS (the “Leawood/Alesco Agreement”); and

WHEREAS, Cohen & Company Financial Management, LLC f/k/a Cohen Bros. Financial Management, LLC (“Cohen”) was the collateral manager for Alesco at the time Alesco entered into the Leawood/Alesco Agreement; and

WHEREAS, on or about July 23, 2010, Leawood and CrossFirst Holdings, LLC (“CrossFirst”) filed a lawsuit against Alesco in the United States District Court for the Southern District of New York, Civil Action No. 10-CV-5637(JSR) for breach of the Leawood/Alesco Agreement (the “Leawood/Alesco Litigation”);

WHEREAS, on or about December 6, 2011, the United States District Court for the Southern District of New York issued a judgment in favor of Leawood and against Alesco in the amount of $1,617,937.26 and in favor of CrossFirst and against Alesco in the amount of $1,840,402.19;

WHEREAS, on or about December 19, 2011, Alesco filed a notice of appeal with the United States Court of Appeals for the Second Circuit, Docket No. 11-5307 (the “Leawood/Alesco Appeal”); and

WHEREAS, Leawood, CrossFirst, and Alesco are in the process of negotiating a final settlement agreement (the “Leawood Settlement Agreement”), and related transaction documents, to finally settle and fully resolve the Leawood/Alesco Litigation and the Leawood/Alesco Appeal.

NOW THEREFORE, in consideration of the covenants contained herein, the obligations referenced below, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties agree as follows:

1. The parties agree and acknowledge that Alesco, having exercised its independent business judgment, is entering into the Leawood Settlement Agreement based, in part, upon Cohen’s commitment to pay the sum of two million, two hundred and fifty thousand dollars and no cents ($2,250,000.00) as part of the Leawood Settlement Agreement.

2. In connection with the Leawood Settlement Agreement, Cohen agrees and commits to pay all of Alesco’s legal fees, including attorneys’ fees, cost and expenses related in any way to the Leawood/Alesco Litigation, the Leawood/Alesco Appeal, and/or the Leawood

Settlement Agreement and other documents relating thereto (except Cohen only agrees to pay what the parties later determine to be the reasonable legal fees of Dechert LLP in connection with its work related to the Settlement and the Exchange Agreement) and agrees and commits to pay by wire transfer to the account designated in the Leawood Settlement Agreement the sum of two million, two hundred and fifty thousand dollars and no cents ($2,250,000.00) within two (2) business days of Alesco sending a copy of a fully-executed Leawood Settlement Agreement by email and Federal Express to the following:

Richard Hans

DLA Piper LLP (US)

1251 Avenue of the Americas

New York, New York 10020-1104

richard.hans@dlapiper.com

Cohen & Company Financial Management, LLC

c/o Rachael Fink

2929 Arch Street, 17th Floor

Philadelphia, PA 19104-2870

rfink@ifmi.com

3. Upon both the execution and delivery of this Agreement and Cohen’s payment by wire transfer to the account designated in the Leawood Settlement Agreement the sum of two million, two hundred and fifty thousand dollars and no cents ($2,250,000.00), Alesco, ATP Management LLC, and Fortress Investment Group, on their own behalf and on behalf of each of their past or present directors, officers, principals, employees, representatives, agents, attorneys, members, partners, shareholders, subsidiaries, affiliates, related entities, successors, predecessors, and assigns (the “Alesco Releasors”), hereby fully release and forever discharge Cohen and any of its past or present directors, officers, principals, employees, representatives, agents, attorneys, members, partners, shareholders, subsidiaries, affiliates, related entities, successors, predecessors, and assigns (collectively, the “Cohen Released Parties”) of and from any and all past, present and future claims (including, without limitation, any claims arising under common law contract, quasi contract, tort or equitable principles), causes of action, lawsuits, liabilities, debts, accounts, tax liabilities, dues, reckonings, bonds, bills, covenants, contracts, controversies, agreements, promises, variances, trespasses, extents, executions, sums of money, damages, judgments, and demands of any nature whatsoever, in law or in equity, both known and unknown, asserted or not asserted, foreseen or unforeseen, which the Alesco Releasors ever had or may presently have against the Cohen Released Parties, arising from the beginning of time up to and including the date of this Agreement, related in any way to the Leawood/Alesco Agreement and/or the transactions contemplated by the Leawood/Alesco Agreement, or any tortious activity or wrongdoing having any impact on the Leawood/Alesco Agreement and/or the transactions contemplated by the Leawood/Alesco Agreement; provided, however, that notwithstanding anything herein to the contrary, Cohen shall (i) indemnify and hold harmless Alesco for and against all out-of-pocket expenses, including legal fees and disbursements, incurred by Alesco to enforce Cohen’s obligations set forth in paragraph two (2) of this Agreement, and (ii) reimburse and/or pay all Alesco’s legal fees, including attorneys’ fees, cost and expenses related in any way to the Leawood/Alesco Litigation, the Leawood/Alesco Appeal, and/or the Leawood Settlement Agreement.

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4. Upon the execution and delivery of this Agreement, Cohen, on behalf of itself and each of its past or present directors, officers, principals, employees, representatives, agents, attorneys, members, partners, shareholders, subsidiaries, affiliates, related entities, successors, predecessors, and assigns (the “Cohen Releasors”), hereby fully release and forever discharge Alesco, ATP Management LLC, Fortress Investment Group, or any of their past or present directors, officers, principals, employees, representatives, agents, attorneys, members, partners, shareholders, subsidiaries, affiliates, related entities, successors, predecessors, and assigns (collectively, the “Alesco Released Parties”) of and from any and all past, present and future claims (including, without limitation, any claims arising under common law contract, quasi contract, tort or equitable principles), causes of action, lawsuits, liabilities, debts, accounts, tax liabilities, dues, reckonings, bonds, bills, covenants, contracts, controversies, agreements, promises, variances, trespasses, extents, executions, sums of money, damages, judgments, and demands of any nature whatsoever, in law or in equity, both known and unknown, asserted or not asserted, foreseen or unforeseen, which the Cohen Releasors ever had or may presently have against the Alesco Released Parties, arising from the beginning of time up to and including the date of this Agreement, related in any way to the Leawood/Alesco Agreement and/or the transactions contemplated by the Leawood/Alesco Agreement, or any tortious activity or wrongdoing having any impact on the Leawood/Alesco Agreement and/or the transactions contemplated by the Leawood/Alesco Agreement.

5. The obligations described in paragraph two (2) of this Agreement are dependent upon the Leawood Settlement Agreement containing a release by Leawood and CrossFirst of any claims against the Cohen Released Parties of and from any and all past, present and future claims (including, without limitation, any claims arising under common law contract, quasi contract, tort or equitable principles), causes of action, lawsuits, liabilities related in any way to the Leawood/Alesco Agreement and/or the transactions contemplated by the Leawood/Alesco Agreement, or any tortious activity or wrongdoing having any impact on the Leawood/Alesco Agreement and/or the transactions contemplated by the Leawood/Alesco Agreement.

6. This Agreement, including, but not limited to, the fact of this Agreement and the amount of the payment by Cohen, is confidential and may only be used by the signatories hereto as evidence in a subsequent proceeding in which a breach of this Agreement is alleged, for financial or other reporting as required by law, or as required in any judicial or quasi-judicial proceeding. This Agreement may not be used for any other purpose.

7. If any provision of this Agreement, or the application thereof, shall for any reason or to any extent be construed by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Agreement, and application of such provision to other circumstances, shall remain in effect and be interpreted so as best to reasonably effect the intent of the parties.

8. This Agreement shall be governed by, interpreted under, and construed in accordance with the laws of the State of New York, without regard to its principles of conflicts of laws. Any suit, action or proceeding arising out of or relating to this Agreement shall be heard exclusively by a state or federal court located in the City, County and State of New York, and the parties to this Agreement hereby waive any objection to venue, forum non-conveniens, or personal jurisdiction in such courts.

3

9. This Agreement, and all obligations hereunder, shall be binding upon and shall inure to the benefit of the parties hereto, and their respective executors, heirs, legal representatives, predecessors, successors and/or assigns. Nothing in this Agreement, whether expressed or implied, is intended to confer upon any person other than the parties hereto, the Cohen Released Parties, the Alesco Released Parties, and their respective heirs, representatives, successors and assigns, any rights or remedies under or by reason of this Agreement.

10. This Agreement constitutes the entire agreement and understanding between Alesco and Cohen with respect to the Leawood Settlement Agreement, the payment of two million two hundred and fifty thousand dollars and no cents ($2,250,000.00) in connection with the Leawood Settlement Agreement, and the payment by Cohen of Alesco’s legal fees, including attorneys’ fees, cost and expenses related in any way to the Leawood/Alesco Litigation, the Leawood/Alesco Appeal, and/or the Leawood Settlement Agreement, and supersedes all prior agreements, arrangements, negotiations and understandings, whether written or oral, relating to the subject matter contained within this Agreement. The consideration recited in this Agreement is the sole and only consideration for it, and no representations, promises, or inducements have been made other than as appear in this Agreement. In furtherance thereof, each party to this Agreement acknowledges and agrees that no person has made any promise, representation or warranty, whether express or implied, written or oral, not contained herein concerning the subject matter hereof to induce such party to enter into this Agreement, and each of the parties acknowledges and agrees that such party has not entered into this Agreement in reliance upon any promise, representation or warranty not contained herein.

11. Each party to this Agreement acknowledges that he, she or it has been represented by independent legal counsel throughout the negotiations which culminated in the execution of this Agreement and that such party has executed this Agreement with the consent or advice of such independent legal counsel. Each of the parties further acknowledges that he, she or it has been fully advised by independent legal counsel with respect to his, her or its rights and obligations under this Agreement, that such party understands those rights and obligations, and that such party has had an adequate opportunity to make whatever investigation or inquiries it deemed necessary or desirable with respect to the subject matter of this Agreement.

12. The wording of this Agreement was jointly drafted, reviewed and accepted by legal counsel for Cohen and Alesco prior to its being executed by each of them, and no party shall be entitled to have any wording of this Agreement construed against any other party in the event of any dispute arising in connection with this Agreement.

13. Each party to this Agreement understands and agrees that, if the facts with respect to which this Agreement is executed are found hereafter to be different from the facts now believed to be true, such party expressly accepts and agrees that this Agreement shall be and remain effective notwithstanding any such difference in facts.

14. The undersigned individual(s) signing this Agreement on behalf of the parties represent and warrant that they are authorized to execute this Agreement on behalf of the party on whose behalf they are signing.

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15. This Agreement shall not terminated, modified, amended, supplemented, altered or varied except by written instrument executed by each of the parties to this Agreement.

16. This Agreement may be signed in counterparts which, when taken together, shall be deemed as one and the same document. A facsimile or other copy of a signature shall be treated for any and all purposes the same as an original.

17. The effective date of this Agreement shall be the date upon which all of the parties below have executed this Agreement.

IN WITNESS WHEREOF, and in agreement herewith, each of the parties has executed this Agreement as of the 30th day of March 2012.

COHEN & COMPANY FINANCIAL MANAGEMENT, LLC
By:	/s/ Joseph W. Pooler, Jr.
Name:	Joseph W. Pooler, Jr.
Title:	Chief Financial Officer
ALESCO PREFERRED FUNDING X, LTD.
By:	ATP Management LLC, its Collateral Manager
By:	/s/ Constantine M. Dakolias
Name:	Constantine M. Dakolias
Title:	President

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EX-31.1

Exhibit 31.1

SECTION 302 CEO CERTIFICATION

I, Daniel G. Cohen, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Institutional Financial Markets, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 4, 2012	Signed:	/s/ DANIEL G. COHEN
	Name:	Daniel G. Cohen
	Title:	Chief Executive Officer and Chief Investment Officer

2

EX-31.2

Exhibit 31.2

SECTION 302 CFO CERTIFICATION

I, Joseph W. Pooler, Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Institutional Financial Markets, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 4, 2012	Signed:	/s/ JOSEPH W. POOLER, JR.
	Name:	Joseph W. Pooler, Jr.
	Title:	Executive Vice President, Chief
		Financial Officer and Treasurer

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EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Institutional Financial Markets, Inc. (the “Company”) for the three months ended March 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel G. Cohen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 4, 2012	Signed:	/s/ DANIEL G. COHEN
	Name:	Daniel G. Cohen
	Title:	Chief Executive Officer and
		Chief Investment Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Institutional Financial Markets, Inc. (the “Company”) for the three months ended March 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph W. Pooler, Jr., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 4, 2012	Signed:	/s/ JOSEPH W. POOLER, JR.
	Name:	Joseph W. Pooler, Jr.
	Title:	Executive Vice President, Chief
		Financial Officer and Treasurer

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Segment And Geographic Information

3 Months Ended

Mar. 31, 2012

Segment And Geographic Information [Abstract]

Segment And Geographic Information

18. SEGMENT AND GEOGRAPHIC INFORMATION

Segment Information

The Company operates within three business segments: Capital Markets, Asset Management, and Principal Investing. See note 1.

The Company's business segment information for the three months ended March 31, 2012 and 2011 is prepared using the following methodologies and generally represents the information that is relied upon by management in its decision making processes:

(a) Revenues and expenses directly associated with each business segment are included in determining net income / (loss) by segment.

(b) Indirect expenses (such as general and administrative expenses including executive and indirect overhead costs) not directly associated with specific business segments are not allocated to the segments' statements of operations. Accordingly, the Company presents segment information consistent with internal management reporting. See note (1) in the table below for more detail on unallocated items. The following tables present the financial information for the Company's segments for the periods indicated. Effective with the second quarter of 2011, the Company modified its policy and began recording direct overhead costs that only benefit a particular segment in that segment. As a result of this policy change, the Company reclassified certain overhead costs for the three months ended March 31, 2011 that directly support its capital markets segment from its unallocated segment to its capital markets segment.

As of and for the three months ended March 31, 2012	Capital Markets			Asset Management		Principal Investing			Segment Total			Unallocated (1)			Total
Summary statement of operations
Net trading	$	17,691		$	—	$	—		$	17,691		$	—		$	17,691
Asset management		—			4,937		—			4,937			—			4,937
New issue and advisory		1,077			—		—			1,077			—			1,077
Principal transactions and other income		(27	)		160		(5,078	)		(4,945	)		—			(4,945	)
Total revenues		18,741			5,097		(5,078	)		18,760			—			18,760
Total operating expenses		18,870			1,080		81			20,031			3,932			23,963
Operating income / (loss)		(129	)		4,017		(5,159	)		(1,271	)		(3,932	)		(5,203	)
Income / (loss) from equity method affiliates		—			—		516			516			—			516
Other non operating income / (expense)		65			—		—			65			(1,277	)		(1,212	)
Income / (loss) before income taxes		(64	)		4,017		(4,643	)		(690	)		(5,209	)		(5,899	)
Income tax expense / (benefit)		—			—		—			—			(9	)		(9	)
Net income / (loss)		(64	)		4,017		(4,643	)		(690	)		(5,200	)		(5,890	)
Less: Net income / (loss) attributable to the non-controlling interest		(129	)		—		—			(129	)		(1,902	)		(2,031	)
Net income / (loss) attributable to IFMI	$	65		$	4,017	$	(4,643	)	$	(561	)	$	(3,298	)	$	(3,859	)
Other statement of operations data:
Depreciation and amortization (included in total operating expense)	$	229		$	4	$	—		$	233		$	158		$	391
Balance sheet data:
Total assets (2) (3)	$	427,004		$	6,315	$	43,364		$	476,683		$	13,395		$	490,078
Investment in equity method affiliates (included in total assets)	$	—		$	—	$	5,798		$	5,798		$	—		$	5,798

As of and for the three months ended March 31, 2011	Capital Markets		Asset Management		Principal Investing			Segment Total			Unallocated (1)			Total
Summary statement of operations
Net trading	$	27,274	$	—	$	—		$	27,274		$	—		$	27,274
Asset management		—		5,970		—			5,970			—			5,970
New issue and advisory		109		—		—			109			—			109
Principal transactions and other income		18		578		(1,635	)		(1,039	)		—			(1,039	)
Total revenues		27,401		6,548		(1,635	)		32,314			—			32,314
Total operating expenses		19,454		2,277		55			21,786			8,941			30,727
Operating income / (loss)		7,947		4,271		(1,690	)		10,528			(8,941	)		1,587
Income / (loss) from equity method affiliates		—		—		95			95			—			95
Other non operating income / (expense)		—		—		—			—			(1,482	)		(1,482	)
Income / (loss) before income taxes		7,947		4,271		(1,595	)		10,623			(10,423	)		200
Income tax expense / (benefit)		—		—		—			—			(213	)		(213	)
Net income / (loss)		7,947		4,271		(1,595	)		10,623			(10,210	)		413
Less: Net income / (loss) attributable to the non-controlling interest		—		—		—			—			38			38
Net income / (loss) attributable to IFMI	$	7,947	$	4,271	$	(1,595	)	$	10,623		$	(10,248	)	$	375
Other statement of operations data:
Depreciation and amortization (included in total operating expense)	$	29	$	4	$	—		$	33		$	437		$	470
Balance sheet data:
Total assets (2) (3)	$	333,350	$	18,307	$	46,910		$	398,567		$	43,221		$	441,788
Investment in equity method affiliates (included in total assets)	$	—	$	—	$	2,138		$	2,138		$	—		$	2,138

(1) Unallocated includes certain expenses incurred by indirect overhead and support departments (such as the executive, finance, legal, information technology, human resources, risk, compliance, and other similar overhead and support departments). Some of the items not allocated include: (1) operating expenses related to support departments excluding certain departments that directly support the capital markets segment; (2) interest expense on debt; and (3) income taxes. Management does not consider these items necessary for an understanding of the operating results of these segments and such amounts are excluded in segment reporting to the Chief Operating Decision Maker.

(2) Unallocated assets primarily include (1) amounts due from related parties; (2) furniture and equipment, net; and (3) other assets that are not considered necessary for an understanding of segment assets and such amounts are excluded in segment reporting to the Chief Operating Decision Maker.

(3) Goodwill and intangible assets as of March 31, 2012 and 2011 are allocated to the Capital Markets and Asset Management segments as indicated in the table listed below.

As of March 31, 2012:

	Capital Markets		Asset Management		Principal Investing		Segment Total		Unallocated		Total
Goodwill	$	8,030	$	3,176	$	—	$	11,206	$	—	$	11,206
Intangible assets (included in other assets)	$	538	$	—	$	—	$	538	$	—	$	538

As of March 31, 2011:

	Capital Markets		Asset Management		Principal Investing		Segment Total		Unallocated		Total
Goodwill	$	7,008	$	3,176	$	—	$	10,184		—	$	10,184
Intangible assets (included in other assets)	$	372	$	—	$	—	$	372		—	$	372

Geographic Information

The Company conducts its business activities through offices in the following locations: (1) United States and (2) United Kingdom and other. Total revenues by geographic area are summarized as follows:

GEOGRAPHIC INFORMATION

(Dollars in Thousands)

	Three months ended March 31,
	2012		2011
Total Revenues:
United States	$	17,113	$	28,190
United Kingdom & Other		1,647		4,124
Total	$	18,760	$	32,314

Long-lived assets attributable to an individual country, other than the United States, are not material.

XML

Basis Of Presentation

3 Months Ended

Mar. 31, 2012

Basis Of Presentation [Abstract]

Basis Of Presentation

2. BASIS OF PRESENTATION

The financial statements of the Company included herein were prepared in conformity with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim months periods. All intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three ended March 31, 2012 and 2011 are not necessarily indicative of the results for the entire year or any subsequent interim period. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

Capitalized terms used herein without definition have the meanings ascribed to them in the Annual Report on Form 10-K for the year ended December 31, 2011.

Certain prior period amounts have been reclassified to conform to the current period presentation

XML

Subsequent Events

3 Months Ended

Mar. 31, 2012

Subsequent Events [Abstract]

Subsequent Events

22. SUBSEQUENT EVENTS

Loan from PrinceRidge

In May 2012, the Operating LLC borrowed $8 million from PrinceRidge. The loan bears interest at 10% and is due in one year. PrinceRidge is a majority owned consolidated subsidiary of the Company.

Modification to Series B Preferred Stock

On April 26, 2012, the Company's board of directors authorized the Company's management to negotiate and execute an amendment to the Operating LLC's operating agreement such that the date upon which Daniel G. Cohen may exercise his right under the Operating LLC operating agreement to require the Company to redeem all or a portion of the Units (as defined in the Operating LLC operating agreement) held by Mr. Cohen is delayed by one year to December 31, 2013. Subject to the foregoing, the board of directors also authorized the Company's management to amend the Institutional Financial Markets, Inc. (formerly Alesco Financial Inc.) Articles Supplementary Series B Non-Voting Preferred Stock in order to amend the redemption date of the Company's Series B Voting Non-Convertible Preferred Stock from December 31, 2012 to December 31, 2013.

XML

Due From / Due To Related Parties

3 Months Ended

Mar. 31, 2012

Due From / Due To Related Parties [Abstract]

Due From / Due To Related Parties

21. DUE FROM / DUE TO RELATED PARTIES

The following table summarizes the outstanding due from / to related parties. These amounts may result from normal operating advances or from timing differences between the transactions disclosed in note 20 and final settlement of those transactions in cash. All amounts are non-interest bearing.

DUE FROM/DUE TO RELATED PARTIES

(Dollars in Thousands)

	March 31, 2012		December 31, 2011
Deep Value GP	$	42	$	29
Deep Value GP II		64		61
Star Asia Manager		51		50
Cohen Brothers Financial, LLC		92		306
Employees and other		513		233
Total Due from Related Parties	$	762	$	679

XML

Organization And Nature Of Operations

3 Months Ended

Mar. 31, 2012

Organization And Nature Of Operations [Abstract]

Organization And Nature Of Operations

1. ORGANIZATION AND NATURE OF OPERATIONS

The Formation Transaction

Cohen Brothers, LLC ("Cohen Brothers") was formed on October 7, 2004 by Cohen Bros. Financial, LLC ("CBF"). Cohen Brothers was formed to acquire the net assets of CBF's subsidiaries (the "Formation Transaction"): Cohen Bros. & Company, Inc.; Cohen Frères SAS; Dekania Investors, LLC; Emporia Capital Management, LLC; and the majority interest in Cohen Bros. & Tororian Investment Management, Inc. The Formation Transaction was accomplished through a series of transactions occurring between March 4, 2005 and May 31, 2005.

The Company

From its formation until December 16, 2009, Cohen Brothers operated as a privately owned limited liability company. On December 16, 2009, Cohen Brothers completed its merger (the "Merger") with a subsidiary of Alesco Financial Inc. ("AFN") a publicly traded real estate investment trust.

As a result of the Merger, AFN received 10,343,347 or 66.2% of the membership interests in Cohen Brothers. Of the 66.2% of Cohen Brothers received by AFN in connection with the Merger, 38.5% was received in the form of units issued directly by Cohen Brothers. The remaining 27.7% was acquired by AFN from Cohen Brothers members in exchange for the issuance of AFN common stock to those members. The remaining 5,283,556 membership interests or 33.8% of Cohen Brothers was held by Daniel Cohen (31.9% or 4,983,557 membership interests) and other members (1.9% or 299,999 membership interests). Each of Mr. Cohen's membership units is redeemable at Mr. Cohen's option, at any time on or after January 1, 2013, for (i) cash in amount equal to the average of the per share closing prices of the Company's Common Stock for the ten consecutive trading days immediately preceding the date the Company receives Mr. Cohen's redemption notice, or (ii) at the Company's option, one share of the Company's Common Stock, subject, in each case, to appropriate adjustment upon the occurrence of the issuance of additional shares of the Company's Common Stock as a dividend or other distribution on the Company's outstanding Common Stock, or a further subdivision or combination of the outstanding shares of the Company's Common Stock. The membership units held by the other members have the same redemption rights as described for Mr. Cohen except that the members holding these units may elect to redeem their shares at any time.

Therefore, the members of Cohen Brothers at the time of the Merger received 61.5% of the total ownership interests in the combined entity (33.8% remained as members of Cohen Brothers and 27.7% exchanged their interest in Cohen Brothers for AFN stock). In accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), the Merger was accounted for as a reverse acquisition, and Cohen Brothers was deemed to be the accounting acquirer primarily because the owners of Cohen Brothers at the time of the Merger received the majority interest in the merged entity as previously described. As a result, all of AFN's assets and liabilities were required to be revalued at fair value as of the acquisition date. The financial statements presented herein include the operations of the merged entity.

Subsequent to the Merger, AFN was renamed Cohen & Company Inc. In January 2011, it was renamed again as Institutional Financial Markets, Inc. ("IFMI"). As used in these consolidated financial statements, the term "the Company" refers to the combined operations of the merged company and its consolidated subsidiaries subsequent to December 17, 2009. "AFN" refers to the historical operations of Alesco Financial Inc. through the December 16, 2009 Merger Date. When the term "IFMI" is used, it is referring to the parent company itself, Institutional Financial Markets, Inc. Subsequent to the Merger, Cohen Brothers changed its name to IFMI, LLC and functions as the main operating majority-owned subsidiary of the Company, and in these statements it is referred to as the "Operating LLC."

Effective January 1, 2010, the Company ceased to qualify as a real estate investment trust, or a REIT. The Company trades on the NYSE Amex LLC under the ticker symbol "IFMI." The Company is an investment firm specializing in credit related fixed income investments. As of March 31, 2012, the Company had $7.8 billion in assets under management ("AUM") of which 98%, or $7.6 billion, was in collateralized debt obligations ("CDOs").

The Company's business is organized into the following three business segments:

Capital Markets: The Company's Capital Markets segment consists of credit-related fixed income securities sales, trading, and financing, as well as new issue placements in corporate and securitized products and advisory services revenue. The Company's fixed income sales and trading group provides trade execution to corporate and institutional investors and other broker-dealers. The Company specializes in the following products: corporate bonds and loans, asset backed securities ("ABS"), mortgage backed securities ("MBS"), collateralized loan obligations ("CLOs"), CDOs, collateralized bond obligations, collateralized mortgage obligations ("CMOs"), commercial mortgage backed securities ("CMBS"), residential mortgage backed securities ("RMBS"), Small Business Administration ("SBA") loans, municipal bonds, U.S. government bonds, U.S. government agency securities, brokered deposits and CDs for small banks, hybrid capital of financial institutions including trust preferred securities ("TruPS"), whole loans, and other structured financial instruments. The Company also offers execution and brokerage services for cash equity and derivative products. The Company carries out its capital market activities primarily through its subsidiaries: JVB, PrinceRidge Holdings, and EDML.

Asset Management: Historically, the Company has served the needs of client investors by managing assets within investment funds, managed accounts, permanent capital vehicles, and CDOs (collectively referred to as "Investment Vehicles"). A CDO is a form of secured borrowing. The borrowing is secured by different types of fixed income assets such as corporate or mortgage loans or bonds. The borrowing is in the form of a securitization which means that the lenders are actually investing in notes backed by the assets. The lender will have recourse only to the assets securing the loan. The Company's Asset Management segment includes its fee based asset management operations which include ongoing base and incentive management fees.

Principal Investing: The Company's Principal Investing segment is comprised primarily of its investments in certain Investment Vehicles it manages.

The Company generates its revenue by segment primarily through the following activities:

Capital Markets:

• trading activities of the Company which include execution and brokerage services, securities lending activities, riskless trading activities as well as gains and losses (unrealized and realized) and income and expense earned on securities classified as trading;

• new issue and advisory revenue comprised primarily of (i) origination fees for corporate debt issues originated by the Company; (ii) revenue from advisory services; and (iii) new issue revenue associated with arranging the issuance of newly created debt, equity, and hybrid financial instruments;

Asset Management:

• asset management fees for the Company's on-going services as asset manager charged and earned by managing Investment Vehicles, which may include fees both senior and subordinated to the securities in the Investment Vehicle;

• incentive management fees earned based on the performance of the various Investment Vehicles;

Principal Investing:

• gains and losses (unrealized and realized) and income and expense earned on securities (primarily seed capital investments in certain Investment Vehicles which Company manages) classified as other investments, at fair value; and

• income or loss from equity method affiliates.

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Assets
Cash and cash equivalents	$ 14,070	$ 18,221
Receivables from brokers, dealers, and clearing agencies	22,007	70,963
Due from related parties	762	679
Other receivables	6,075	5,531
Investments-trading	166,400	124,546
Other investments, at fair value	37,569	42,772
Receivables under resale agreements	215,985	129,978
Goodwill	11,206	11,206
Other assets	16,004	16,694
Total assets	490,078	420,590
Liabilities
Payables to brokers, dealers, and clearing agencies	25,586	24,633
Accounts payable and other liabilities	12,791	13,567
Accrued compensation	6,480	8,657
Trading securities sold, not yet purchased	91,017	99,613
Securities sold under agreement to repurchase	220,312	134,870
Deferred income taxes	7,964	7,500
Debt	36,928	37,167
Mandatorily redeemable equity interests	8,970	3,149
Total liabilities	410,048	329,156
Commitments and contingencies (See Note 17)
Temporary Equity:
Redeemable non-controlling interest	8,129	14,026
Permanent Equity:
Common Stock, $0.001 par value per share, 100,000,000 shares authorized, 13,009,350 and 12,730,117 shares issued, respectively; 12,958,950 and 12,679,717 shares outstanding, respectively, including 2,584,428 and 2,597,620 unvested restricted share awards, respectively	10	10
Additional paid-in capital	63,957	63,032
Accumulated deficit	(9,194)	(5,121)
Accumulated other comprehensive loss	(522)	(626)
Treasury stock, at cost (50,400 shares of Common Stock)	(328)	(328)
Total stockholders' equity	53,928	56,972
Non-controlling interest	17,973	20,436
Total permanent equity	71,901	77,408
Total liabilities and equity	490,078	420,590
Series A Voting Convertible Preferred Stock [Member]
Permanent Equity:
Preferred Stock, Value, Issued
Series B Voting Non-Convertible Preferred Stock [Member]
Permanent Equity:
Preferred Stock, Value, Issued	5	5
Series C Junior Participating Preferred Stock [Member]
Permanent Equity:
Preferred Stock, Value, Issued

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Consolidated Statement Of Changes In Equity (USD $) In Thousands	Preferred Stock [Member] Preferred Class A [Member]		Preferred Stock [Member] Preferred Class B [Member]		Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings/ (Accumulated Deficit) [Member]	Accumulated Other Comprehensive Income (Loss) [Member]		Treasury Stock [Member]	Total Stockholders' Equity [Member]		Non-Controlling Interest [Member]		Total Permanent Equity [Member]		Redeemable Non-Controlling Interest (Temporary Equity) [Member]	Total
Balance at Dec. 31, 2011			$ 5		$ 10	$ 63,032	$ (5,121)	$ (626)		$ (328)	$ 56,972		$ 20,436		$ 77,408		$ 14,026	$ 77,408
Net income / (loss)							(3,859)				(3,859)		(1,902)		(5,761)		(129)	(5,890)
Other comprehensive income / (loss)		[1]		[1]				126	[1]		126	[1]	63	[1]	189	[1]		189
Acquisition /(surrender) of additional units of consolidated subsidiary, net						664		(22)			642		(642)
Equity-based compensation and vesting of shares						263					263		124		387		161
Shares withheld for employee taxes						(2)					(2)		(1)		(3)
Redemption of non-controlling interest																	(5,929)
Dividends/Distributions							(214)				(214)		(105)		(319)
Balance at Mar. 31, 2012			$ 5		$ 10	$ 63,957	$ (9,194)	$ (522)		$ (328)	$ 53,928		$ 17,973		$ 71,901		$ 8,129	$ 71,901

[1] Represents foreign currency translation adjustment.

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Net Capital Requirements

3 Months Ended

Mar. 31, 2012

Net Capital Requirements [Abstract]

Net Capital Requirements

15 . NET CAPITAL REQUIREMENTS

The U.S. broker-dealer subsidiaries of the Company are subject to the net capital provision of Rule 15c3-1 under the Exchange Act, which requires the maintenance of minimum net capital, as defined therein. As of March 31, 2012, the Company had the following three U.S. broker-dealers: Cohen & Company Securities, LLC ("CCS"), JVB, and the PrinceRidge Group LLC ("TPRG"). In February 2012, PrinceRidge merged its broker dealer subsidiary, Cohen & Company Capital Markets, LLC ("CCCM") into TPRG.

As of March 31, 2012, CCS' adjusted net capital was $3,826, which exceeded the minimum requirement by $3,726. As of March 31, 2012, JVB's adjusted net capital was $10,324, which exceeded the minimum requirements by $10,197. As of March 31, 2012, TPRG had net capital of $20,032, which exceeded the minimum requirements by $19,782

EDML, a subsidiary of the Company regulated by the Financial Services Authority in the United Kingdom, is subject to the net liquid capital provision of the Financial Services and Markets Act 2000, GENPRU 2.140R to 2.1.57R, relating to financial prudence with regards to the European Investment Services Directive and the European Capital Adequacy Directive, which requires the maintenance of minimum liquid capital, as defined therein. As of March 31, 2012, the total minimum required net liquid capital was $1,429, and net liquid capital in EuroDekania Management Limited was $4,065 which exceeded the minimum requirements by $2,636 and was in compliance with the net liquid capital provisions.

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Commitments And Contingencies

3 Months Ended

Mar. 31, 2012

Commitments And Contingencies [Abstract]

Commitments And Contingencies

17. COMMITMENTS AND CONTINGENCIES

Legal and Regulatory Proceedings

One of the Company's U.S. broker-dealer subsidiaries, CCS, is a party to litigation commenced on January 12, 2009 in the United States District Court for the Northern District of Illinois (the "Illinois Court") under the caption Frederick J. Grede, not individually, but as Liquidation Trustee and Representative of the Estate of Sentinel Management Group, Inc. v. Delores E. Rodriguez, Barry C. Mohr, Jr., Jacques de Saint Phalle, Keefe, Bruyette & Woods, Inc., and Cohen & Company Securities, LLC. The plaintiff in this case is the Liquidation Trustee (the "Liquidation Trustee") for the Estate of Sentinel Management Group, Inc. ("Sentinel"), which filed a bankruptcy petition in August 2007. The Liquidation Trustee alleges that CCS sold Sentinel securities, mainly CDOs that the Liquidation Trustee contends were unsuitable for Sentinel and that CCS violated Section 10(b) of the Exchange Act and Rule 10b-5. The Liquidation Trustee also seeks relief under the Illinois Blue Sky Law, the Illinois Consumer Fraud Act, the United States Bankruptcy Code, and under common law theories of negligence and unjust enrichment. The relief sought by the Liquidation Trustee under these various legal theories includes damages, rescission, disgorgement, and recovery of allegedly voidable transactions under the Bankruptcy Code, as well as costs and attorneys' fees. The Company is vigorously defending the claims. By order dated July 8, 2009, the Illinois Court dismissed the Liquidation Trustee's Illinois Consumer Fraud Act claim. Discovery is ongoing with respect to the remaining claims. No contingent liability was recorded in the Company's consolidated financial statements related to this litigation.

CCS is also party to litigation commenced on May 21, 2009 in the Illinois Court under the caption Frederick J. Grede, not individually, but as Liquidation Trustee of the Sentinel Liquidation Trust, Assignee of certain claims v. Keefe, Bruyette & Woods, Inc., Cohen & Company Securities, LLC., Delores E. Rodriguez, Barry C. Mohr, Jr., and Jacques de Saint Phalle. The plaintiff in this case is the Liquidation Trustee of the Sentinel Liquidation Trust, which emerged from the bankruptcy of Sentinel, filed in August 2007. The Liquidation Trustee, purportedly as the assignee of claims of Sentinel's customers, alleges that, by recommending that Sentinel purchase securities, mainly CDOs, that the trustee deems to have been unsuitable for Sentinel's customer accounts, CCS aided and abetted breaches of fiduciary duties purportedly owed by Sentinel and its head trader to Sentinel's customers, in violation of Illinois common law. The complaint also alleges claims under common law theories of negligence and unjust enrichment. The relief sought by the Liquidation Trustee under these various legal theories includes damages, disgorgement, costs, and attorneys' fees. The Company is vigorously defending all claims. CCS filed a motion to dismiss the Liquidation Trustee's complaint on July 21, 2009; that motion was dismissed "as moot" on March 29, 2011. Neither the court nor the Liquidation Trustee has taken any action since that time. No contingent liability was recorded in the Company's consolidated financial statements related to this litigation.

In addition to the matters set forth above, the Company is a party to various routine legal proceedings and regulatory inquiries arising out of the ordinary course of the Company's business. Management believes that the results of these routine legal proceedings and regulatory matters will not have a material adverse effect on the Company's financial condition, or on the Company's operations and cash flows. However, the Company cannot estimate the legal fees and expenses to be incurred in connection with these routine matters and, therefore, is unable to determine whether these future legal fees and expenses will have a material impact on the Company's operations and cash flows. It is the Company's policy to expense legal and other fees as incurred.

Non-Profit Preferred Funding I ("NPPF I") Arrangement with Merrill Lynch Portfolio Management, Inc.

On December 27, 2007, Merrill Lynch Portfolio Management, Inc. (the "NPPF I Trustor") and the trustee of the NPPF I CDO entered into a loan agreement whereby the NPPF I Trustor made an initial $3,000 advance to the NPPF I CDO so that additional funds would be available for the most junior CDO certificate holders in future distributions of CDO waterfall payments. At each waterfall payment date, the advance is repaid in full and the NPPF I Trustor re-advances a scheduled amount to the collateralized debt obligation trust. The advance does not bear interest. The Company is not a party to this agreement and is not obligated to provide reimbursement for any outstanding advances to NPPF I Trustor. As of March 31, 2012, the outstanding advance between NPPF I Trustor and Merrill Lynch Portfolio Management, Inc. was $600.

As an accommodation to the NPPF I Trustor, the Company agreed to pay 6% simple interest on the advance via a side letter agreement entered into on December 27, 2007 between the Company and the NPPF I Trustor. The Company is only obligated to pay interest on outstanding advances. The side letter will terminate on the earlier of the payment in full of all advances and December 2014. The Company accounts for the interest on the outstanding advances as a reduction to revenue since these interest payments are deemed a direct reduction of the Company's on-going revenue that otherwise would have been earned for the duration of the trust. The reduction in revenue earned by the Company for the three months ended March 31, 2012 and 2011 was $9 and $17, respectively. The potential additional liability the Company would have, assuming the $600 advance (as of March 31, 2012) to the NPPF I Trust remained outstanding through December 2014 would be approximately $99.

The Company sold the NPPF I management contract during the first quarter of 2009. However, the Company retained this obligation.

Alesco XIV Guarantee

AFN invested in a CDO (Alesco XIV) in which Assured Guaranty ("Assured") was providing credit support to the senior interests in securitizations. Alesco XIV made a loan (the "Guaranteed Loan") to a particular borrower and AFN entered into an arrangement with Assured whereby AFN agreed to make payments to Assured upon the occurrence of both (i) a loss on the Guaranteed Loan; and (ii) a loss suffered by Assured on its overall credit support arrangement to Alesco XIV security holders. This arrangement is accounted for as a guarantee by the Company. At the Merger Date, the Company recorded a liability of $1,084 related to this arrangement which is included in accounts payable and other liabilities in the Company's consolidated balance sheet. This amount does not represent the expected loss; rather it represents the Company's estimate of the fair value of its guarantee (i.e. the amount it would have to pay a third party to assume this obligation). This arrangement is being accounted for as a guarantee. The value will be adjusted under certain limited circumstances such as: (i) when the guarantee is extinguished or (ii) if payment of amounts under the guarantee become probable and estimable. The maximum potential loss to the Company on this arrangement is $8,750. Under certain circumstances, Assured can require the Company to post liquid collateral.

Contribution to Alesco Preferred Funding X Legal Settlement

Alesco Preferred Funding X, Ltd. ("Alesco X") is a CDO that was managed by Cohen & Company Financial Management, LLC ("CCFM"). Alesco X owned $4,000 of Trust Preferred Securities issued by Leawood Bancshares Statutory Trust I (the "Leawood TruPS"). Leawood Bancshares, Inc. ("Leawood"), and Alesco X entered into a letter agreement dated March 1, 2010 (the "Leawood/Alesco Agreement") regarding the sale back to Leawood of the Leawood TruPS in exchange for $1,000 upon the occurrence of certain conditions related to the sale of Leawood to CrossFirst Holdings, LLC ("CrossFirst"). The proposed transaction contemplated by the Leawood/Alesco Agreement never closed as a result of the objections of investors in Alesco X, but the ultimate transaction between Leawood and CrossFirst did close.

On or about July 23, 2010, Leawood and CrossFirst Holdings, LLC filed a lawsuit against Alesco X in the United States District Court for the Southern District of New York, Civil Action No. 10-CV-5637 (JSR) alleging that there was a breach of the Leawood/Alesco Agreement. CCFM was not named in the lawsuit. ATP Management LLC, as purchaser of the management rights of Alesco X from CCFM, took over the defense of the action. In late October 2011, the Court issued a summary judgment decision against Alesco X and in favor of Leawood and CrossFirst. On or about December 6, 2011, the United States District Court for the Southern District of New York issued a judgment in favor of Leawood and against Alesco in the amount of $1,618 and in favor of CrossFirst and against Alesco X in the amount of $1,840. In exchange for a full release from Leawood, CrossFirst and Alesco X, the Company agreed to contribute $2,250 to Alesco X's settlement of the judgment. This amount was included as a component of professional services and other operating expense in the consolidated statement of operations in the fourth quarter of 2011. The Company made the payment of $2,250 in April 2011.

Accumulated Dividends and Dividend Equivalents on Restricted Stock and Restricted Units

From time to time, the Company has granted restricted stock and restricted units which are entitled to receive dividends or dividend equivalents as and when such dividends or dividend equivalents are declared and paid by the Company; provided, however, that the cash dividends or dividend equivalents on such restricted stock or restricted units are held by the Company until the period of forfeiture lapses and forfeited if the underlying restricted shares or restricted units are forfeited. The Company's potential liability, assuming the restricted stock or restricted units were to vest as of March 31, 2012, is approximately $350.

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Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Operating activities
Net income / (loss)	$ (5,890)	$ 413
Adjustments to reconcile net income / (loss) to net cash provided by (used in) operating activities:
Gain on repurchase of debt	(3)
Equity-based compensation	548	2,189
Realized loss / (gain) on other investments, at fair value		23
Change in unrealized (gain) / loss on other investments, at fair value	5,174	1,517
Depreciation and amortization	391	470
(Income) / loss from equity method affiliates	(516)	(95)
Change in operating assets and liabilities, net:
(Increase) decrease in other receivables	(508)	530
(Increase) decrease in investments-trading	(41,854)	(95,444)
(Increase) decrease in other assets	63	3,518
(Increase) decrease in receivables under resale agreement	(86,007)
Change in receivables from / payables to related parties, net	(67)	296
Increase (decrease) in accrued compensation	(2,196)	(8,854)
Increase (decrease) in accounts payable and other liabilities	(889)	(140)
Increase (decrease) in trading securities sold, not yet purchased	(8,596)	32,034
Change in receivables from / payables to brokers, dealers, and clearing agencies, net	49,932	50,761
Increase (decrease) in securities sold under agreement to repurchase	85,442	35,674
Increase (decrease) in deferred income taxes	464	(250)
Change in mandatorily redeemable equity interests	(65)
Net cash provided by (used in) operating activities	(4,577)	22,642
Investing activities
Cash paid for acquisition of JVB, net of cash acquired		(14,956)
Purchase of investments-other investments, at fair value		(342)
Sales and return of principal of other investments, at fair value	11	111
Investment in equity method affiliates	(6)	(172)
Return from equity method affiliates	800	465
Purchase of furniture, equipment, and leasehold improvements	(17)	(166)
Net cash provided by (used in) investing activities	788	(15,060)
Financing activities
Repayment and repurchase of debt	(147)	(1,458)
Cash used to net share settle equity awards	(3)	(3)
Redemption of redeemable non-controlling interest	(43)
Distributions to non-controlling interest	(105)	(264)
Dividends	(214)	(545)
Net cash used in financing activities	(512)	(2,270)
Effect of exchange rate on cash	150	290
Net increase (decrease) in cash and cash equivalents	(4,151)	5,602
Cash and cash equivalents, beginning of period	18,221	43,946
Cash and cash equivalents, end of period	$ 14,070	$ 49,548

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Consolidated Balance Sheets (Parenthetical) (USD $)	Mar. 31, 2012	Dec. 31, 2011
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	50,000,000	50,000,000
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	13,009,350	12,730,117
Common stock, shares outstanding	12,958,950	12,679,717
Common stock, unvested restricted share awards	2,584,428	2,597,620
Treasury stock, shares	50,400	50,400
Series A Voting Convertible Preferred Stock [Member]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	1	1
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Series B Voting Non-Convertible Preferred Stock [Member]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	4,983,557	4,983,557
Preferred stock, shares issued	4,983,557	4,983,557
Preferred stock, shares outstanding	4,983,557	4,983,557
Series C Junior Participating Preferred Stock [Member]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000	10,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0

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Other Assets And Accounts Payable And Other Liabilities

3 Months Ended

Mar. 31, 2012

Other Assets And Accounts Payable And Other Liabilities [Abstract]

Other Assets And Accounts Payable And Other Liabilities

10. OTHER ASSETS AND ACCOUNTS PAYABLE AND OTHER LIABILITIES

Other assets include prepaid expenses; security deposits; miscellaneous other assets; cost method investments; furniture, equipment and leasehold improvements, net; intangible assets; and investments in private partnerships and limited liability companies that are valued using the equity method of accounting.

Other assets at March 31, 2012 and December 31, 2011 included:

	March 31, 2012		December 31, 2011
Prepaid expenses	$	3,401	$	3,819
Security deposits		2,547		2,541
Miscellaneous other assets		461		97
Cost method investment		250		250
Furniture, equipment and leasehold improvements, net		3,009		3,373
Intangible assets		538		538
Equity method affiliates		5,798		6,076
Other assets	$	16,004	$	16,694

Accounts payable and other liabilities include accounts payable, rent payable, payroll tax liabilities, accrued interest payable, accrued income taxes, guarantee liabilities related to Alesco XIV (see note 17), deferred income, and other general accrued expenses.

Accounts payable and other liabilities at March 31, 2012 and December 31, 2011 included:

	March 31, 2012		December 31, 2011
Accounts payable	$	1,230	$	1,181
Rent payable		1,204		1,289
Accrued interest payable		1,106		662
Income and payroll taxes payable		1,608		1,947
Guarantee liability		1,084		1,084
Deferred income		1,257		1,761
Other general accrued expenses		5,302		5,643
Accounts payable and other liabilities	$	12,791	$	13,567

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Document And Entity Information	3 Months Ended
	Mar. 31, 2012	Apr. 30, 2012
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Entity Registrant Name	INSTITUTIONAL FINANCIAL MARKETS, INC.
Entity Central Index Key	0001270436
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		12,733,660

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Variable Interest Entities

3 Months Ended

Mar. 31, 2012

Variable Interest Entities [Abstract]

Variable Interest Entities

11. VARIABLE INTEREST ENTITIES

FASB ASC 810, Consolidation ("FASB ASC 810") contains the guidance surrounding the definition of variable interest entities ("VIEs"), the definition of variable interests, and the consolidation rules surrounding VIEs. In general, VIEs are entities in which equity investors lack the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. The Company has variable interests in VIEs through its management contracts and investments in various securitization entities including CLOs and CDOs.

Once it is determined that the Company holds a variable interest in a VIE, FASB ASC 810 requires that the Company perform a qualitative analysis to determine (i) which entity has the power to direct the matters that most significantly impact the VIEs financial performance and (ii) if the Company has the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive the benefits of the VIE that could potentially be significant to the VIE. The entity that has both of these characteristics is deemed to be the primary beneficiary and required to consolidate the VIE. This assessment must be done on an ongoing basis.

The Company classifies the VIEs it is involved with into two groups: (i) VIEs managed by the Company and (ii) VIEs managed by third parties. In the case of the VIEs that the Company has been involved with, the Company has generally concluded that the entity that manages the VIE has the power to direct the matters that most significantly impact the VIEs financial performance. This is not a blanket conclusion as it is possible for an entity other than the manager to have the power to direct such matters. However, for all the VIEs the Company is involved with as of March 31, 2012, the Company has drawn this conclusion.

In the case where the Company has an interest in a VIE managed by a third party, the Company has concluded that it is not the primary beneficiary because the Company does not have the power to direct its activities. In the case of an interest in a VIE managed by the Company, the Company will perform an additional qualitative analysis to determine if its interest (including any investment as well as any management fees that qualify as variable interests) could absorb losses or receive benefits that could potentially be significant to the VIE. This analysis considers the most optimistic and pessimistic scenarios of potential economic results that could reasonably be experienced by the VIE. Then, the Company compares the benefits it would receive (in the optimistic scenario) or the losses it would absorb (in the pessimistic scenario) as compared to all benefits and losses absorbed by the VIE in total. If the benefits or losses absorbed by the Company were significant as compared to total benefits and losses absorbed by all variable interest holders, then the Company would conclude it is the primary beneficiary.

As of March 31, 2012, the Company has variable interests in various securitizations but it has determined that it is not the primary beneficiary and, therefore, is not consolidating the securitization VIEs. The maximum potential financial statement loss the Company would incur if the securitization vehicles were to default on all of their obligations would be (i) the loss of value of the interests in securitizations that the Company holds in its inventory at the time and (ii) any management fee receivables in the case of managed VIEs. The Company has not provided financial support to these VIEs during the three months ended March 31, 2012 and 2011 and had no liabilities, contingent liabilities, or guarantees (implicit or explicit) related to these VIEs at March 31, 2012 and December 31, 2011.

The following table presents the carrying amounts of the assets in the Company's consolidated balance sheets that relate to the Company's variable interest in identified VIEs with the exception of the two trust VIEs that hold the Company's junior subordinated notes (see note 12) and the Company's maximum exposure to loss associated with these identified nonconsolidated VIEs in which it holds variable interests at March 31, 2012 and December 31, 2011.

NON-CONSOLIDATED VARIABLE INTEREST ENTITIES

(Dollars in Thousands)

	March 31, 2012
	Carrying Amount				Maximum Exposure to loss in non- consolidated VIEs
	Other Receivables		Other Investments, at Fair Value
Managed VIEs	$	1,456	$	—	$	1,456
Third party managed VIEs		19		97		116
Total	$	1,475	$	97	$	1,572

	December 31, 2011
	Carrying Amount				Maximum Exposure to loss in non- consolidated VIEs
	Other Receivables		Other Investments, at Fair Value
Managed VIEs	$	1,830	$	—	$	1,830
Third party managed VIEs		175		88		263
Total	$	2,005	$	88	$	2,093

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Consolidated Statements Of Operations And Comprehensive Income / (Loss) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Revenues
Net trading	$ 17,691	$ 27,274
Asset management	4,937	5,970
New issue and advisory	1,077	109
Principal transactions and other income	(4,945)	(1,039)
Total revenues	18,760	32,314
Operating expenses
Compensation and benefits	16,274	21,988
Business development, occupancy, equipment	1,174	1,439
Subscriptions, clearing, and execution	3,073	2,815
Professional fees and other operating	3,051	4,015
Depreciation and amortization	391	470
Total operating expenses	23,963	30,727
Operating income / (loss)	(5,203)	1,587
Non operating income / (expense)
Interest expense, net	(1,215)	(1,482)
Gain on repurchase of debt	3
Income / (loss) from equity method affiliates	516	95
Income / (loss) before income tax expense / (benefit)	(5,899)	200
Income tax expense / (benefit)	(9)	(213)
Net income / (loss)	(5,890)	413
Less: Net income/(loss) attributable to the non-controlling interest	(2,031)	38
Net income / (loss) attributable to IFMI	(3,859)	375
Income / (loss) per share data (see Note 16):
Income / (loss) per common share	$ (0.37)	$ 0.03
Weighted average shares outstanding - basic	10,443,752	10,819,955
Income / (loss) per common share - diluted:
Income / (loss) per common share	$ (0.37)	$ 0.03
Weighted average shares outstanding - diluted	15,695,754	16,125,155
Dividends declared per common share	$ 0.02	$ 0.05
Comprehensive income / (loss):
Net income / (loss) (from above)	(5,890)	413
Other comprehensive income / (loss) item:
Foreign currency translation adjustments, net of tax of $0	189	362
Other comprehensive income / (loss), net of tax of $0	189	362
Comprehensive income	(5,701)	775
Less: comprehensive income (loss) attributable to the non-controlling interest	(1,968)	160
Comprehensive income / (loss) attributable to IFMI	$ (3,733)	$ 615

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Financial Instruments

3 Months Ended

Mar. 31, 2012

Financial Instruments [Abstract]

Financial Instruments

5. FINANCIAL INSTRUMENTS

Investments — Trading

The following table displays the carrying value of all investments classified as investments-trading as of the periods indicated:

INVESTMENTS — TRADING

(Dollars in Thousands)

Security Type	March 31, 2012		December 31, 2011
U.S. government agency MBS and CMOs (1)	$	17,134	$	7,563
U.S. government agency debt securities		18,237		14,600
RMBS		491		7,108
CMBS		—		1,587
U.S. Treasury securities		5,366		8,524
Interests in securitizations (2)		2,665		608
SBA loans		10,786		9,049
Corporate bonds and redeemable preferred stock		90,016		65,445
Foreign government bonds		49		67
Municipal bonds		15,142		9,225
Certificates of deposit		2,580		710
Equity securities		3,934		60
Investments-trading	$	166,400	$	124,546

(1) Includes TBAs. See note 7.

(2) Primarily comprised of CDOs, CLOs, and ABS.

Trading Securities Sold, Not Yet Purchased

The following table displays the carrying value of all trading securities sold, not yet purchased as of the periods indicated:

TRADING SECURITIES SOLD, NOT YET PURCHASED

(Dollars in Thousands)

Security Type	March 31, 2012		December 31, 2011
U.S. government agency MBS (1)	$	22	$	16
U.S. Treasury securities		12,950		11,755
Corporate bonds and redeemable preferred stock		73,830		87,537
Foreign government bonds		16		158
Municipal bonds		143		143
Exchange traded funds		4,056		—
Certificates of deposit		—		4
Total	$	91,017	$	99,613

(1) Represents TBAs. See note 7.

The Company tries to manage its exposure to changes in interest rates for the interest rate sensitive securities it holds by entering into offsetting short positions for similar fixed rate securities.

The Company included the change in unrealized losses in the amount of $52 for the three months ended March 31, 2012 and the change in unrealized gains in the amount $1,264 for the three months ended March 31, 2011 in net trading revenue in the Company's consolidated statements of operations.

Other Investments, at fair value

The following table provides detail of the investments included within other investments, at fair value:

OTHER INVESTMENTS, AT FAIR VALUE

(Dollars in Thousands)

	March 31, 2012
Security Type	Cost		Carrying Value		Unrealized Gain / (Loss)
Interests in securitizations (1)	$	217	$	97	$	(120	)
Equity Securities:
EuroDekania		7,792		2,348		(5,444	)
Star Asia		23,219		32,118		8,899
Tiptree Financial Partners, L.P.		5,561		2,650		(2,911	)
Other securities		232		103		(129	)
Total equity securities		36,804		37,219		415
Residential loans		267		253		(14	)
Other investments, at fair value	$	37,288	$	37,569	$	281

	December 31, 2011
Security Type	Cost		Carrying Value		Unrealized Gain / (Loss)
Interests in securitizations (1)	$	217	$	88	$	(129	)
Equity Securities:
EuroDekania		7,792		2,370		(5,422	)
Star Asia		23,219		37,358		14,139
Tiptree Financial Partners, L.P.		5,561		2,533		(3,028	)
Other securities		232		156		(76	)
Total equity securities		36,804		42,417		5,613
Residential loans		278		267		(11	)
Other investments, at fair value	$	37,299	$	42,772	$	5,473

(1) Represents an interest in a CDO.

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Receivables From And Payables To Brokers, Dealers, And Clearing Agencies

3 Months Ended

Mar. 31, 2012

Receivables From And Payables To Brokers, Dealers, And Clearing Agencies [Abstract]

Receivables From And Payables To Brokers, Dealers, And Clearing Agencies

4. RECEIVABLES FROM AND PAYABLES TO BROKERS, DEALERS, AND CLEARING AGENCIES

Amounts receivable from brokers, dealers and clearing agencies consist of the following at March 31, 2012 and December 31, 2011.

RECEIVABLES FROM BROKERS, DEALERS, AND CLEARING AGENCIES

(Dollars in Thousands)

	March 31, 2012		December 31, 2011
Receivable from clearing organizations	$	20,345	$	51,619
Unsettled regular way trades, net		—		17,232
Deposits with clearing organizations		1,662		2,112
Receivables from brokers, dealers, and clearing agencies	$	22,007	$	70,963

Receivable from clearing organizations represents un-invested cash held by the clearing organization which includes cash proceeds from short sales.

Amounts payable to brokers, dealers and clearing agencies consists of the following at March 31, 2012 and December 31, 2011.

PAYABLES TO BROKERS, DEALERS, AND CLEARING AGENCIES

(Dollars in Thousands)

	March 31, 2012		December 31, 2011
Unsettled regular way trades, net	$	6,320	$	—
Margin payable		19,266		24,633
Payables to brokers, dealers, and clearing agencies	$	25,586	$	24,633

Securities transactions are recorded on a trade date, as if they had settled. The related amounts receivable and payable for unsettled securities transactions are recorded net in receivables from or payables to brokers, dealers, and clearing agencies on the Company's consolidated balance sheets. The Company incurred interest on margin payable of $887 and $625 for the three months ended March 31, 2012 and 2011, respectively.

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Earnings / (Loss) Per Common Share

3 Months Ended

Mar. 31, 2012

Earnings / (Loss) Per Common Share [Abstract]

Earnings / (Loss) Per Common Share

16. EARNINGS / (LOSS) PER COMMON SHARE

The following table presents a reconciliation of basic and diluted earnings / (loss) per common share for the periods indicated. Membership units that may be issued in connection with the vesting of a restricted unit issued pursuant to the Amended and Restated Cohen Brothers, LLC 2009 Equity Award Plan (the "2009 Equity Award Plan") have been excluded from the diluted weighted average shares outstanding calculations because of the obligations of Mr. Daniel G. Cohen, the Company's Chairman and Chief Executive Officer, under the Equity Plan Funding Agreement to transfer to (1) the Operating LLC the number of Operating LLC membership units or shares of the Company's Common Stock equal to the number of Operating LLC membership units to be issued by the Operating LLC to the participants in the 2009 Equity Award Plan in connection with vesting of an Operating LLC restricted unit, or (2) the Company the number of shares of the Company's Common Stock equal to the number of Operating LLC membership units to be issued by the Operating LLC to the participants in the 2009 Equity Award Plan in connection with the vesting of an Operating LLC restricted unit. See note 22 to the Company's consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

EARNINGS / (LOSS) PER COMMON SHARE

(Dollars in Thousands, except share or per share information)

	Three months ended March 31,
	2012			2011
Net income / (loss) attributable to IFMI	$	(3,859	)	$	375
Add / (deduct): Income / (loss) attributable to the non-controlling interest attributable to Operating LLC membership units exchangeable into IFMI shares (1)		(1,902	)		38
Add /(deduct): Adjustment for income tax benefit / (expense) (2)		(26	)		145
Net income / (loss) on a fully converted basis	$	(5,787	)	$	558
Weighted average common shares outstanding — Basic		10,443,752			10,819,955
Unrestricted Operating LLC membership units exchangeable into IFMI shares (1)		5,252,002			5,283,556
Restricted Operating LLC membership units exchangeable into IFMI shares (3)		—			7,227
Restricted stock of IFMI shares (4)		—			14,417
Weighted average common shares outstanding — Diluted (5)		15,695,754			16,125,155
Net income / (loss) per common share — Basic	$	(0.37	)	$	0.03
Net income / (loss) per common share — Diluted	$	(0.37	)	$	0.03

(1) The Operating LLC membership units not held by IFMI (that is, those held by the non-controlling interest for the three months ended March 31, 2012 and 2011) may be redeemed and exchanged into shares of the Company on a one-to-one basis. These units are not included in the computation of basic earnings per share. These units enter into the computation of diluted net income / (loss) per common share when the effect is dilutive using the if-converted method.

(2) If the Operating LLC membership units had been converted at the beginning of the period, the Company would have incurred a higher income tax expense or realized a higher income tax benefit, as applicable.

(3) Restricted Operating LLC membership units do not participate in the earnings of the Company until the restricted Operating LLC membership units vest, therefore, such restricted Operating LLC membership units are included as incremental shares in the diluted calculation pursuant to the treasury stock method as long as the effect is dilutive.

(4) Excludes shares of restricted stock that are considered participating securities since such shares participate in all of the earnings of the Company in the computation of basic earnings per share, and therefore, such shares of restricted stock are not included as incremental shares in the diluted calculation.

(5) Due to the net loss for the three months ended March 31, 2012, the weighted average shares calculation excluded (i) 23,256 restricted Operating LLC membership units; (ii) 12,945 restricted shares of IFMI Common Stock; and (iii) 5,107 restricted units of the Company's Common Stock.

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Debt

3 Months Ended

Mar. 31, 2012

Debt [Abstract]

Debt

12. DEBT

The Company had the following debt outstanding as of March 31, 2012 and December 31, 2011, respectively:

DETAIL OF DEBT

(Dollars in Thousands)

Description	Current Outstanding Par			March 31, 2012		December 31, 2011		Interest Rate Terms			Weighted Average Interest Rate at 03/31/2012			Weighted Average Maturity
Contingent convertible senior notes:
7.625% Contingent convertible senior notes (the "Old Notes")	$	10,210		$	10,187	$	10,303		7.63	%		7.63	%	May 2012 (1)
10.50% Contingent convertible senior notes (the "New Notes")		8,121			8,040		8,030		10.50	%		10.50	%	May 2014(1)
	$	18,331		$	18,227	$	18,333
Junior subordinated notes	$	48,125	(2)		17,210		17,343		7.47	%		7.47	%	August 2036
Subordinated notes payable	$	1,491			1,491		1,491		12.00	%(3)		12.00	%	June 2013
Total				$	36,928	$	37,167

(1) Represents the weighted average put date maturity. The weighted average contractual maturity for the Old Notes and the New Notes is May 2027.

The Company may redeem all or part of the $10,210 aggregate principal amount of the Old Notes for cash on or after May 20, 2012, at a redemption price equal to 100% of the principal amount of the Old Notes, plus accrued and unpaid interest and additional interest, if any, to, but excluding, the redemption date. The holders of the Old Notes may require the Company to repurchase all or a portion of the Old Notes for cash on May 15, 2012; May 15, 2017; and May 15, 2022 for a repurchase price equal to 100% of the principal amount of the Old Notes, plus accrued and unpaid interest and additional interest, if any, to, but excluding, the repurchase date. The holders of the Old Notes are required to provide notice to the Company of their plan to redeem the Old Notes at any time during the 30 days prior to May 15, 2012; May 15, 2017; and May 15, 2022.

The Company may redeem all or part of the $8,121 aggregate principal amount of the New Notes for cash on or after May 20, 2014, at a redemption price equal to 100% of the principal amount of the New Notes, plus accrued and unpaid interest and additional interest, if any, to, but excluding the repurchase date. The holders of the New Notes may require the Company to repurchase all or a portion of the New Notes for cash on May 15, 2014; May 15, 2017; and May 15, 2022 for a repurchase price equal to 100% of the principal amount of the New Notes, plus accrued and unpaid interest and additional interest, if any, to, but excluding, the repurchase date. The holders of the New Notes are required to provide notice to the Company of their plan to redeem the New Notes at any time during the 30 days prior to May 15, 2014; May 15, 2017; and May 15, 2022.

(2) The outstanding par represents the total par amount of the junior subordinated notes held by two separate VIE trusts. The Company does not consolidate these trusts. The Company holds $1,489 par value of these junior subordinated notes. These notes held by the Company have a carrying value of $0. Therefore, the net par value held by third parties is $48,125.

(3) Comprised of 9% paid currently and 3% paid in kind.

Refer to note 19 to the Company's consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 for a discussion of the Company's debt.

In March 2012, the Company repurchased $150 aggregate principal amount of the Old Notes from an unrelated third party for $147 excluding accrued interest. The Company recognized a gain from repurchase of debt of $3 which was included as a separate component of non-operating income / (expense) in the Company's consolidated statements of operations.

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Collateralized Securities Transactions

3 Months Ended

Mar. 31, 2012

Collateralized Securities Transactions [Abstract]

Collateralized Securities Transactions

8. COLLATERALIZED SECURITIES TRANSACTIONS

Securities purchased under agreements to resell ("reverse repurchase agreements" or "receivables under resale agreements") or sales of securities under agreements to repurchase ("repurchase agreements"), principally U.S. government and federal agency obligations, SBA loans and mortgage-backed securities, are treated as collateralized financing transactions and are recorded at their contracted resale or repurchase amounts plus accrued interest. Resulting interest income and expense are included in net trading in the consolidated statements of operations.

In the case of reverse repurchase agreements, the Company generally takes possession of securities as collateral. Likewise, in the case of repurchase agreements, the Company is required to provide the counterparty with securities.

In certain cases a repurchase agreement and a reverse repurchase agreement may be entered into with the same counterparty. If certain requirements are met, the offsetting provisions included in FASB ASC 210, Balance Sheet ("FASB ASC 210"), allow (but do not require) the reporting entity to net the asset and liability on the balance sheet. It is the Company's policy to present the assets and liabilities on a gross basis even if the conditions described in offsetting provisions included in FASB ASC 210 are met. The Company classifies reverse repurchase agreements as a separate line item within the assets section of the Company's consolidated balance sheets. The Company classifies repurchase agreements as a separate line item within the liabilities section of the Company's consolidated balance sheets.

In the case of reverse repurchase agreements, if the counterparty does not meet its contractual obligation to return securities used as collateral, or does not deposit additional securities or cash for margin when required, the Company may be exposed to the risk of reacquiring the securities or selling the securities at unfavorable market prices in order to satisfy its obligations to its customers or counterparties. The Company's policy to control this risk is monitoring the market value of securities pledged or used as collateral on a daily basis and requiring adjustments in the event of excess market exposure.

In the case of repurchase agreements, if the counterparty makes a margin call and the Company is unable or unwilling to meet the margin call, the counterparty can sell the securities to repay the obligation. The Company is at risk that the counterparty may sell the securities at unfavorable market prices and the Company may sustain significant loss. The Company controls this risk by monitoring its liquidity position to ensure it has sufficient cash or liquid securities to meet margin calls.

In the normal course of doing business, the Company enters into reverse repurchase agreements that permit it to re-pledge or resell the securities to others.

The Company enters into reverse repurchase agreements to acquire securities to cover short positions or as an investment. The Company enters into repurchase agreements to finance the Company's securities positions held in inventory or to finance reverse repurchase agreements entered into as an investment.

At March 31, 2012 and December 31, 2011, the Company held reverse repurchase agreements of $215,985 and $129,978, respectively, and the fair value of securities received as collateral under reverse repurchase agreements was $230,275 and $137,829, respectively. Substantially all of the collateral for reverse repurchase agreements was re-pledged as collateral for repurchase agreements.

At March 31, 2012 and December 31, 2011, the Company had repurchase agreements of $220,312 and $134,870, respectively, and the fair value of securities pledged as collateral under repurchase agreements was $233,357 and $142,295, respectively. These amounts include collateral for reverse repurchase agreements that were re-pledged as collateral for repurchase agreements.

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Fair Value Disclosures

3 Months Ended

Mar. 31, 2012

Fair Value Disclosures [Abstract]

Fair Value Disclosures

6. FAIR VALUE DISCLOSURES

Fair Value Option

The Company has elected to account for certain of its other financial assets at fair value under the fair value option provisions of FASB ASC 825, Financial Instruments ("FASB ASC 825"). The primary reason for electing the fair value option when it first became available in 2008, was to reduce the burden of monitoring the differences between the cost and the fair value of the Company's investments, previously classified as available for sale securities, including the assessment as to whether the declines are temporary in nature and to further remove an element of management judgment. In addition, the election was made for certain investments that were previously required to be accounted for under the equity method because their fair value measurements were readily obtainable.

Such financial assets accounted for at fair value include:

• in general, securities that would otherwise qualify for available for sale treatment;

• in general, investments in equity method affiliates where the affiliate has all of the attributes in FASB ASC 946-10-15-2 (commonly referred to as investment companies); and

• in general, investments in residential loans.

The changes in fair value (realized and unrealized gains and losses) of these instruments for which the Company has elected the fair value option are recorded in principal transactions and other income in the consolidated statements of operations. All of the investments for which the Company has elected the fair value option are included as a component of other investments, at fair value in the consolidated balance sheets. The Company recognized net losses of $5,174 and $1,540 related to changes in fair value of investments that are included as a component of other investments, at fair value during the three months ended March 31, 2012 and 2011, respectively.

Fair Value Measurements

In accordance with FASB ASC 820, Fair Value Measurements and Disclosures ("FASB ASC 820"), the Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. 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 hierarchy under FASB ASC 820 are described below:

Level 1	Financial assets and liabilities whose values are based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2	Financial assets and liabilities whose values are based on one or more of the following:
1.	Quoted prices for similar assets or liabilities in active markets;
2.	Quoted prices for identical or similar assets or liabilities in non-active markets;
3.	Pricing models whose inputs other than quoted prices are observable for substantially the full term of the asset or liability; or
4.	Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.
Level 3	Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable. These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing the asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the level 3 category. As a result, the unrealized gains and losses for assets and liabilities within the level 3 category presented in the tables below may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain financial assets or liabilities. There were not transfers between level 1 and level 2 of the fair value hierarchy during the three months ended March 31, 2012 and 2011. Reclassifications impacting level 3 of the fair value hierarchy are reported as transfers in or transfers out of the level 3 category as of the beginning of the quarter in which reclassifications occur.

The following table presents information about the Company's assets and liabilities measured at fair value on a recurring basis as of March 31, 2012 and December 31, 2011, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.

FAIR VALUE MEASUREMENTS ON A RECURRING BASIS

(Dollars in Thousands)

	March 31, 2012 Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Investments-trading:
U.S. government agency MBS and CMOs	$	17,134	$	—	$	17,134	$	—
U.S. government agency debt securities		18,237		—		18,237		—
RMBS		491		—		491		—
U.S. Treasury securities		5,366		5,366		—		—
Interests in securitizations (1)		2,665		—		256		2,409
SBA loans		10,786		—		10,786		—
Corporate bonds and redeemable preferred stock		90,016		2,280		87,736		—
Foreign government bonds		49		—		49		—
Municipal bonds		15,142		—		15,142		—
Certificates of deposit		2,580		—		2,580		—
Equity securities		3,934		3,767		—		167
Total investments-trading	$	166,400	$	11,413	$	152,411	$	2,576
Other investments, at fair value:
Equity Securities:
Other Investment Vehicles
EuroDekania (2)		2,348		—		—		2,348
Star Asia (3)		32,118		—		—		32,118
Tiptree Financial Partners L.P. (4)		2,650		—		—		2,650
		37,116		—		—		37,116
Other		103		21		—		82
Total equity securities		37,219		21		—		37,198
Interests in securitizations (1)		97		—		—		97
Residential loans		253		—		253		—
Total other investments, at fair value	$	37,569	$	21	$	253	$	37,295
Liabilities:
Trading securities sold, not yet purchased:
U.S. government agency MBS	$	22	$	—	$	22	$	—
U.S. Treasury securities		12,950		12,950		—		—
Corporate bonds and redeemable preferred stock		73,830		—		73,830		—
Foreign government bonds		16		—		16		—
Municipal bonds		143		—		143		—
Exchange traded funds		4,056		4,056		—		—
Total trading securities sold, not yet purchased	$	91,017	$	17,006	$	74,011	$	—

(1) Primarily comprised of CDOs, CLOs, and ABS.

(2) Hybrid Securities Fund — European.

(3) Real Estate Fund — Asian.

(4) Diversified Fund.

FAIR VALUE MEASUREMENTS ON A RECURRING BASIS

(Dollars in Thousands)

	December 31, 2011 Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Investments-trading:
U.S. government agency MBS and CMOs	$	7,563	$	—	$	7,563	$	—
U.S. government agency debt securities		14,600		144		14,456		—
RMBS		7,108		—		2,176		4,932
CMBS		1,587		—		1,587		—
U.S. Treasury securities		8,524		8,524		—		—
Interests in securitizations (1)		608		—		387		221
SBA loans		9,049		—		9,049		—
Corporate bonds and redeemable preferred stock		65,445		779		64,666		—
Foreign government bonds		67		—		67		—
Municipal bonds		9,225		—		9,225		—
Certificates of deposit		710		—		710		—
Equity securities		60		25		—		35
Total investments-trading	$	124,546	$	9,472	$	109,886	$	5,188
Other investments, at fair value:
Equity Securities:
Other Investment Vehicles
EuroDekania (2)		2,370		—		—		2,370
Star Asia (3)		37,358		—		—		37,358
Tiptree Financial Partners L.P. (4)		2,533		—		—		2,533
		42,261		—		—		42,261
Other		156		24		—		132
Total equity securities		42,417		24		—		42,393
Interests in securitizations (1)		88		—		—		88
Residential loans		267		—		—		267
Total other investments, at fair value	$	42,772	$	24	$	—	$	42,748
Liabilities:
Trading securities sold, not yet purchased:
U.S. government agency MBS	$	16	$	—	$	16	$	—
U.S. Treasury securities		11,755		11,755		—		—
Corporate bonds and redeemable preferred stock		87,537		1,084		86,453		—
Foreign government bonds		158		—		158		—
Municipal bonds		143		—		143		—
Certificates of deposit		4		—		4		—
Total trading securities sold, not yet purchased	$	99,613	$	12,839	$	86,774	$	—

(1) Primarily comprised of CDOs, CLOs, and ABS.

(2) Hybrid Securities Fund — European.

(3) Real Estate Fund — Asian.

(4) Diversified Fund.

The following provides a brief description of the types of financial instruments the Company holds, the methodology for estimating fair value, and the level within the hierarchy of the estimate.

U.S. Government Agency MBS and CMOs: These are securities which are generally traded over-the-counter. The Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices or market price quotations from third party pricing services. These valuations are based on a market approach. This is considered a level 2 valuation in the hierarchy.

In instances where the securities are either new issuances or experience illiquidity, such as CMOs and, more specifically, agency inverse interest-only securities, principal only, and fixed interest only among others, the Company may use its own internal valuation models which are based on an income approach. In some cases, new issuances are senior in nature or fairly liquid, however, due to the fact that it is a new issuance, it is difficult to obtain third party pricing and the Company uses internal models to determine fair value. In these cases, the Company will classify such an issuance as level 3 within the hierarchy until it is able to obtain third party pricing. Fair values based on internal valuation models prepared by the Company's management are generally classified within level 3 of the valuation hierarchy. In general, the fair values of U.S. government agency and MBS and CMOs which are classified as level 3 are determined primarily using discounted cash flow and option adjusted spread methodologies. Key inputs to these models are interest rates and prepayment rates. Attributes of the underlying mortgage loans, in the case of CMOs, that affect the pricing inputs include, but are not limited to, weighted average coupon; average and maximum loan size; loan-to-value ratios; credit scores; documentation type; geographic location; weighted average loan age; originator; servicer; and historical prepayment. Yield curves used in the discounted cash flow models are based on observed market prices for comparable securities and published interest rate data to estimate market yields. The level 3 classification of the fair value measurements of certain CMOs was applicable during the 2011 period.

U.S. Government Agency Debt Securities: Callable and non-callable U.S. government agency debt securities are measured primarily based on quoted market prices obtained from third party pricing services. Non-callable U.S. government agency debt securities are generally classified within level 1 and callable U.S. government agency debt securities are classified within level 2 of the valuation hierarchy.

RMBS and CMBS: The Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices or market price quotations from third party pricing services. These valuations are based on a market approach. The Company generally classifies the fair value of these securities based on third party quotations within level 2 of the valuation hierarchy.

In instances where the Company is unable to obtain a reliable market price quotation from third party pricing services and there are no substantially similar securities that trade frequently as the securities held in trading inventory, the Company may determine the fair value of those securities using its own internal valuation models, which are based on an income approach. Fair values based on internal valuation models prepared by the Company's management are generally classified within level 3 of the valuation hierarchy. Information utilized in the Company's internal valuation models may include the security's credit rating, coupon rate, estimated prepayment speeds, expected weighted average life, collateral composition, estimated future interest rates, expected credit losses, credit enhancement, and recently executed transactions. The level 3 classification of the fair value measurements of certain residential mortgage-backed securities and commercial mortgage-backed securities was applicable during the 2011 period.

U.S. Treasury Securities: U.S. Treasury securities include U.S. Treasury bonds and notes and the fair values of the U.S. Treasury securities are based on quoted prices in active markets. Valuation adjustments are not applied. The Company classifies the fair value of these securities within level 1 of the valuation hierarchy.

Interests in Securitizations: Interests in securitizations may be comprised of CDOs, CLOs and ABS, which may include, but are not limited to, securities backed by auto loans, credit card receivables or student loans. Where the Company is able to obtain independent market quotations from at least two broker-dealers and where a price within the range of at least two broker-dealers is used or market price quotations from third party pricing services is used, interests in securitizations will generally be classified as level 2 of the valuation hierarchy. These valuations are based on a market approach. The independent market quotations from broker-dealers are generally nonbinding. The Company seeks quotations from broker-dealers that historically have actively traded, monitored, issued, and been knowledgeable about interests in securitizations. The Company generally believes that to the extent that (1) it receives two quotations in a similar range from broker-dealers knowledgeable about interests in securitizations, and (2) the Company believes the broker-dealers gather and utilize observable market information such as new issue activity in the primary market, trading activity in the secondary market, credit spreads versus historical levels, bid-ask spreads, and price consensus among market participants and sources, then classification as level 2 of the valuation hierarchy is appropriate. In the absence of two broker-dealer market quotations, a single broker-dealer market quotation may be used without corroboration of the quote in which case the Company generally classifies the fair value within level 3 of the valuation hierarchy.

If quotations are unavailable, prices observed by the Company for recently executed market transactions may be used or valuation models prepared by the Company's management may be used, which are based on an income approach. The models prepared by the Company's management include estimates and the valuations derived from them could differ materially from amounts realizable in an open market exchange. Fair values based on internal valuation models prepared by the Company's management are generally classified within level 3 of the valuation hierarchy.

Establishing fair value is inherently subjective given the volatile and sometimes illiquid markets for certain interests in securitizations and requires management to make a number of assumptions, including assumptions about the future of interest rates, discount rates and the timing of cash flows. The assumptions the Company applies are specific to each security. Although the Company may rely on internal calculations to compute the fair value of certain interest in securitizations, the Company requests and considers indications of fair value from third party pricing services to assist in the valuation process.

SBA Loans: The Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices or market price quotations from third party pricing services. The Company generally classifies these investments within level 2 of the valuation hierarchy. These valuations are based on a market approach.

Corporate Bonds, Redeemable Preferred Stock, and Foreign Government Bonds: The Company uses recently executed transactions, or third party quotations from independent pricing services to arrive at the fair value of its investments in corporate bonds, redeemable preferred stock and foreign government bonds. These valuations are based on a market approach. The Company generally classifies the fair value of these bonds within level 2 of the valuation hierarchy. In instances, where the fair values of securities are based on quoted prices in active markets (for example with redeemable preferred stock), the Company classifies the fair value of these securities within level 1 of the valuation hierarchy.

Municipal Bonds: Municipal bonds which include obligations of U.S. states, municipalities and political subdivisions primarily include bonds or notes issued by U.S. municipalities. The Company generally values these securities using third party quotations such as market price quotations from third party pricing services. The Company generally classifies the fair value of these bonds within level 2 of the valuation hierarchy. The valuations are based on a market approach. In instances where the Company is unable to obtain reliable market price quotations from third party pricing services, the Company will use its own internal valuation models. In these cases, the Company will classify such securities as level 3 within the hierarchy until it is able to obtain third party pricing.

Equity Securities: The fair value of equity securities that represent investments in publicly traded companies (common or preferred shares, options, warrants, and other equity investments) are determined using the closing price of the security as of the reporting date. These are securities which are traded on a recognized liquid exchange. This is considered a level 1 value in the valuation hierarchy. In some cases, the Company owns options or warrants in publicly traded companies when the option or warrant itself is not publicly traded. In those cases, the Company uses an internal valuation model and classifies the investment within level 3 of the valuation hierarchy. The non-exchange traded equity options and warrants are measured using the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. Other equity securities represent investments in investment funds and other non-publicly traded entities. Substantially all of these other entities have the attributes of investment companies as described in FASB ASC 946-15-2. The Company estimates the fair value of these entities using the reported net asset value per share as of the reporting date in accordance with the "practical expedient" provisions related to investments in certain entities that calculate net asset value per share (or its equivalent) included in FASB ASC 820 for all entities except Star Asia. The Company generally classifies these estimates within either level 2 of the valuation hierarchy if its investment in the entity is currently redeemable or level 3 if its investment is not currently redeemable.

In the case of Star Asia, the Company utilizes a series of valuation models to determine fair value, which use both market and income based approaches and generally classifies its investment within level 3 of the valuation hierarchy. Star Asia accounts for itself as an investment company as described in ASC 946, Financial Services—Investment Companies. As an investment company, Star Asia carries its assets at fair value and reports NAV per share to its investors. However, Star Asia issued subordinated debt securities in 2009 at a significant discount to par. Upon issuance, Star Asia did not elect the fair value option for these liabilities and was not required to do so under ASC 946. Over time, it is the Company's assessment that the fair value of the subordinated debt securities has diverged from its carrying value. Because Star Asia's published NAV is calculated using the amortized cost of these subordinated debt securities, the Company has concluded it would be appropriate to adjust Star Asia's reported NAV to recalculate it as if Star Asia's subordinated debt were recorded at fair value as opposed to its historical amortized cost. The Company estimates the fair value of Star Asia's subordinated debt securities by projecting the remaining debt cash outflows and discounting them at an estimated market rate as of the reporting date, for similar non-investment grade long term subordinated debt issuances.

The Company used discount rates of 7.50% and 7.25% as of December 31, 2011 and March 31, 2012, respectively, in determining the fair value of Star Asia's subordinated debt securities. If the Company had used Star Asia's unadjusted NAV, rather than the Company's financial model described above in determining the fair value of the Company's investment in Star Asia, the Company would have recorded its investment in Star Asia at a value of $46,031 and $41,333 as of December 31, 2011 and March 31, 2012, respectively, as compared to the fair value as determined by the Company's internal valuation model of $37,358, and $32,118 as of December 31, 2011 and March 31, 2012, respectively.

Residential Loans: Management utilizes home price indices to value the residential loans. Previously management had considered adjustments to these indices but has elected going forward to not adjust the indices. Adjustments to the index implied a level 3 valuation. The new methodology uses an unadjusted index, which is considered an observable input and moves these investments into level 2.

Certificates of Deposit: The fair value of certificates of deposit is estimated using valuations provided by third party pricing services. Certificates of deposit are generally categorized in level 2 of the valuation hierarchy. However, in instances where the certificates of deposit are new issuances, or the payments of certificate of deposit are linked to an index, it may be difficult to obtain third party pricing and, in these cases, the Company uses internal models to determine fair value and the fair value is generally classified within level 3 of the valuation hierarchy. The level 3 classification of the fair value measurements of certain certificates of deposit was applicable during the 2011 period.

Derivatives:

TBAs

The Company generally values these securities using third party quotations such as unadjusted broker-dealer quoted prices or market price quotations from third party pricing services. TBAs are generally classified within level 2 of the fair value hierarchy. If there is limited transaction activity or less transparency to observe market based inputs to valuation models, TBAs are classified in level 3 of the fair value hierarchy. U.S. government agency MBS and CMOs include TBAs. Unrealized gains on TBAs are included in investments-trading on the Company's consolidated balance sheets and unrealized losses on TBAs are included in trading securities sold, not yet purchased on the Company's consolidated balance sheets. See note 7.

Trading Securities Sold, Not Yet Purchased: The securities are valued using quoted active market prices of the securities sold and are generally categorized within level 1 or 2 of the valuation hierarchy depending on the type of investment sold.

For a discussion of the valuation methodology used for U.S. government agency MBS, refer to "U.S. Government Agency MBS and CMOs."

For a discussion of the valuation methodology used for U.S. Treasury securities, refer to "U.S. Treasury Securities."

For a discussion of the valuation methodology for corporate bonds, redeemable preferred stock and foreign government bonds, refer to "Corporate Bonds, Redeemable Preferred Stock and Foreign Government Bonds."

For a discussion of the valuation methodology for municipal bonds, refer to "Municipal Bonds."

For a discussion of the valuation methodology for certificates of deposit, refer to "Certificates of Deposit."

For a discussion of the valuation methodology for TBAs, refer to "Derivatives-TBAs."

Exchange traded funds are investment funds that trade in active markets, similar to public company stocks. The fair values of exchange traded funds are based on quoted prices in active markets. Valuation adjustments are not applied. The Company classifies the fair value of these securities within level 1 of the valuation hierarchy.

Level 3 Financial Assets and Liabilities

Financial Instruments Measured at Fair Value on a Recurring Basis

The following table presents additional information about assets and liabilities measured at fair value on a recurring basis and for which the Company has utilized level 3 inputs to determine fair value for the three months ended March 31, 2012 and 2011.

LEVEL 3 INPUTS

Three Months Ended March 31, 2012

(Dollars in Thousands)

	January 1, 2012		Total gains and losses included in earnings									Purchases		Sales			March 31, 2012		Change in unrealized gains/(losses) for the period included in earnings (1)
			Net trading			Principal transactions and other income			Transfers out of Level 3
Assets:
Investments-trading:
RMBS	$	4,932	$	17		$	—		$	—		$	171	$	(5,120	)	$	—	$	—
Interests in securitizations (2)		221		(37	)		—			—			2,225		—			2,409		(37	)
Equity securities		35		6			—			—			126		—			167		6
Total investments-trading	$	5,188	$	(14	)	$	—			—		$	2,522	$	(5,120	)	$	2,576	$	(31	)
Other investments, at fair value:
Equity Securities:
Other Investment Vehicles
EuroDekania (3)	$	2,370	$	—		$	(22	)		—		$	—	$	—		$	2,348	$	(22	)
Star Asia (4)		37,358		—			(5,240	)		—			—		—			32,118		(5,240	)
Tiptree Financial Partners, L.P. (5)		2,533		—			117			—			—		—			2,650		117
		42,261		—			(5,145	)		—			—		—			37,116		(5,145	)
Other		132		—			(50	)		—			—		—			82		(50	)
Total equity securities		42,393		—			(5,195	)		—			—		—			37,198		(5,195	)
Interests in securitizations (2)		88		—			9			—			—		—			97		9
Residential loans		267		—			—			(267	)		—		—			—		—
Total other investments, at fair value	$	42,748	$	—		$	(5,186	)	$	(267	)	$	—	$	—		$	37,295	$	(5,186	)

(1) Represents the change in unrealized gains and losses for the period included in earnings for assets held at the end of the reporting period.

(2) Primarily comprised of CDOs, CLOs, and ABS.

(3) Hybrid Securities Funds — European.

(4) Real Estate Funds — Asian.

(5) Diversified Fund.

LEVEL 3 INPUTS

Three Months Ended March 31, 2011

(Dollars in Thousands)

	January 1, 2011		Total gains and losses included in earnings						Transfers into Level 3		Purchases		Sales (1)			March 31, 2011		Change in unrealized gains/(losses) for the period included in earnings (2)
			Net trading			Principal transactions and other income
Assets:
Investments-trading:
U.S. government agency MBS and CMOs	$	68,885	$	(572	)	$	—		$	4,332	$	13,316	$	(73,755	)	$	12,206	$	(232	)
Interests in securitizations (3)		4,500		5,238			—			—		1,085		(8,966	)		1,857		516
Certificates of deposit		—		3			—			—		761		(371	)		393		3
Equity securities		—		76			—			—		—		(2	)		74		76
Total investments-trading	$	73,385	$	4,745		$	—		$	4,332	$	15,162	$	(83,094	)	$	14,530	$	363
Other investments, at fair value:
Equity Securities:
Other Investment Vehicles
EuroDekania (4)	$	1,258	$	—		$	775		$	—	$	—	$	—		$	2,033	$	775
Star Asia (5)		38,025		—			(2,681	)		—		226		(476	)		35,094		(2,681	)
MFCA (6)		2,480		—			31			—		—		—			2,511		31
		41,763		—			(1,875	)		—		226		(476	)		39,638		(1,875	)
Investment Funds
Deep Value (7)		28		—			—			—		—		—			28		—
		28		—			—			—		—		—			28		—
Other		500		—			53			—		—		—			553		53
Total equity securities		42,291		—			(1,822	)		—		226		(476	)		40,219		(1,822	)
Interests in securitizations (3)		105		—			—			—		—		—			105		—
Residential loans		303		—			2			—		—		(18	)		287		2
Total other investments, at fair value	$	42,699	$	—		$	(1,820	)	$	—	$	226	$	(494	)	$	40,611	$	(1,820	)

(1) Includes return of principal/capital of interests in U.S. government agency MBS and CMOs, securitizations, investment funds and residential loans. The sale of $476 attributable to Star Asia represents the transfer of 54,452 shares of Star Asia to an employee for services rendered during 2010.

(2) Represents the change in unrealized gains and losses for the period included in earnings for assets held at the end of the reporting period.

(3) Primarily comprised of CDOs and CLOs.

(4) Hybrid Securities Funds — European.

(5) Real Estate Funds — Asian.

(6) Diversified Fund.

(7) Real Estate Funds.

The circumstances that would result in transferring certain financial instruments from level 2 to level 3 of the valuation hierarchy would typically include what the Company believes to be a decrease in the availability, utility, and reliability of observable market information such as new issue activity in the primary market, trading activity in the secondary market, credit spreads versus historical levels, bid-ask spreads, and price consensus among market participants and sources.

During 2009, the liquidity and transparency surrounding structured credit products, such as interests in securitizations, continued to diminish. The absence of new issue activity in the primary market led to a continually decreasing level of transparency, as seasoned secondary issuances could not be analyzed on a comparative basis relative to new issuances. In addition, diminished trading activity in the secondary market also led the Company to believe that broker-dealer quotations may not be based on observable and reliable market information. The Company has maintained this assessment during 2012 and has not transferred any of these assets out of level 3 of the valuation hierarchy.

Investments-trading: During the three months ended March 31, 2012, there were not any transfers into or out of level 3 of the valuation hierarchy.

During the three months ended March 31, 2011, there were no transfers out of level 3 and there was one transfer of $4,332 into level 3 of the valuation hierarchy related to one security. In this case, as of December 31, 2010, the Company was able to obtain a reliable quote from a third party pricing service. As of March 31, 2011, the Company was unable to obtain a reliable quote and relied upon an internal valuation model.

Other investments, at fair value: During the three months ended March 31, 2012, the Company transferred $267 in residential loans from level 3 to level 2 of the valuation hierarchy. During the three months ended March 31, 2011, there were not any transfers into or out of level 3 of the valuation hierarchy.

The following table provides the quantitative information about level 3 fair value measurements as of March 31, 2012:

QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS

(Dollars in Thousands)

	Fair Value at March 31, 2012		Valuation Technique	Significant Unobservable Inputs	Weighted average	Range of Significant Inputs
Assets:
Investments-trading:
Equity securities	$	167	Black Scholes	Expected Life Volatility Dividend Yield	5 years 25% 0%	5 years 25% 0%
Other investments, at fair value:
Equity Securities:
Other Investment Vehicles
Star Asia	$	32,118	Adjusted NAV	Discount rate on debt	7.25%	7.25%
Other	$	82	Black Scholes	Expected Life Volatility Dividend Yield	5.2 years 25% 0%	5-10 years 25% 0%

Investments in Certain Entities That Calculate Net Asset Value Per Share (Or Its Equivalent)

The following table presents additional information about investments in certain entities that calculate net asset value per share (regardless of whether the "practical expedient" provisions of FASB ASC 820 have been applied) which are measured at fair value on a recurring basis at March 31, 2012 and December 31, 2011.

FAIR VALUE MEASUREMENTS OF INVESTMENTS IN CERTAIN ENTITIES

THAT CALCULATE NET ASSET VALUE PER SHARE (OR ITS EQUIVALENT)

		0000000000000		0000000000000		0000000000000		0000000000000
	Fair Value at March 31, 2012 (dollars in thousands)		Unfunded Commitments		Redemption Frequency (if Currently Eligible)		Redemption Notice Period
Other Investment Vehicles:
EuroDekania (a)	$	2,348		N/A		N/A		N/A
Star Asia (b)		32,118		N/A		N/A		N/A
Tiptree Financial Partners, L.P. (c)		2,650		N/A		N/A		N/A
	$	37,116

		0000000000000		0000000000000		0000000000000		0000000000000
	Fair Value at December 31, 2011 (dollars in thousands)		Unfunded Commitments		Redemption Frequency (if Currently Eligible)		Redemption Notice Period
Other Investment Vehicles:
EuroDekania (a)	$	2,370		N/A		N/A		N/A
Star Asia (b)		37,358		N/A		N/A		N/A
Tiptree Financial Partners, L.P. (c)		2,533		N/A		N/A		N/A
	$	42,261

N/A — Not applicable.

(a) EuroDekania's investment strategy is to make investments in hybrid capital securities that have attributes of debt and equity, primarily in the form of subordinated debt issued by insurance companies, banks and bank holding companies based primarily in Western Europe ("EuroTruPS"); widely syndicated leveraged loans issued by European corporations CMBS, including subordinated interests in first mortgage real estate loans ("B-Notes"); and RMBS and other ABS backed by consumer and commercial receivables. The majority of the assets are denominated in Euros and U.K. Pounds Sterling. The fair value of the investment in this category has been estimated using the net asset value per share of the investment in accordance with the "practical expedient" provisions of FASB ASC 820.

(b) Star Asia's investment strategy is to make investments in Asian real estate structured finance investments, including CMBS, corporate debt of REITs and real estate operating companies, whole loans, mezzanine loans and other commercial real estate fixed income investments. The fair value of the investment in this category has been estimated using a series of internal valuation models that use both the market and income approach. If the Company had used Star Asia's unadjusted reported net asset value to determine its fair value, the carrying value of its investment in Star Asia would have been $41,333 as of March 31, 2012 and $46,031 as of December 31, 2011.

(c) The investment strategy of Tiptree Financial Partners, L.P. ("Tiptree") is currently focused on investing in (a) specialty finance companies; (b) alternative asset management companies, and (c) diversified credit assets and related equity interests. Tiptree primarily seeks to acquire majority ownership interests in its investees. The fair value of the investment in this category has been estimated using the net asset value per share of the investment in accordance with the "practical expedient" provisions of FASB ASC 820. The Company uses the latest reported net asset value from Tiptree. From time to time, the net asset value may be one quarter in arrears.

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Derivative Financial Instruments

3 Months Ended

Mar. 31, 2012

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

7. DERIVATIVE FINANCIAL INSTRUMENTS

FASB ASC 815, Derivatives and Hedging ("FASB ASC 815"), provides for optional hedge accounting. When a derivative is deemed to be a hedge and certain documentation and effectiveness testing requirements are met, reporting entities are allowed to record all or a portion of the change in the fair value of a designated hedge as an adjustment to other comprehensive income ("OCI") rather than as a gain or loss in the statements of operations. To date, the Company has not designated any derivatives as hedges under the provisions included in FASB ASC 815.

Derivative financial instruments are recorded at fair value in the consolidated statements of operations and are included within investments-trading; other investments, at fair value; and trading securities sold, not yet purchased.

The Company may, from time to time, enter into derivatives to manage its risk exposures (i) arising from fluctuations in foreign currency rates with respect to the Company's investments in foreign currency denominated investments; (ii) arising from the Company's investments in floating rate investments; and (iii) arising from the Company's facilitation of mortgage-backed trading. Derivatives entered into by the Company, from time to time, may include (i) foreign currency forward contracts; (ii) EuroDollar futures; and (iii) purchase and sale agreements of TBAs. TBAs are forward mortgage-backed securities whose collateral remain "to be announced" until just prior to the trade settlement. TBAs are accounted for as derivatives under FASB ASC 815 when either of the following conditions exists: (i) when settlement of the TBA trade is not expected to occur at the next regular settlement date (which is typically the next month); or (ii) a mechanism exists to settle the contract on a net basis. Otherwise, TBAs are recorded as a standard security trade. The settlement of these transactions is not expected to have a material effect on the Company's consolidated financial statements.

Derivatives involve varying degrees of off-balance sheet risk, whereby changes in the level or volatility of interest rates or market values of the underlying financial instruments may result in changes in the value of a particular financial instrument in excess of its carrying amount. Depending on the Company's investment strategy, realized and unrealized gains and losses are recognized in principal transactions and other income or in net trading in the Company's consolidated statements of operations on a trade date basis.

The Company may, from time to time, enter into the following derivative instruments:

Foreign Currency Forward Contracts

The Company invests in foreign currency denominated investments that expose it to fluctuations in foreign currency rates and, therefore, the Company may, from time to time, hedge such exposure by using foreign currency forward contracts. The Company carries the foreign currency forward contracts at fair value and includes them as a component of other investments, at fair value in the Company's consolidated balance sheets. As of March 31, 2012 and December 31, 2011, the Company did not have any outstanding foreign currency forward contracts.

EuroDollar Futures

The Company invests in floating rate investments that expose it to fluctuations in interest and, therefore, the Company may, from time to time, hedge such exposure using EuroDollar futures. The Company carries the EuroDollar futures contracts at fair value and includes them as a component of investments-trading in the Company's consolidated balance sheets. As of March 31, 2012 and December 31, 2011, the Company did not have any outstanding EuroDollar futures contracts.

TBAs

The Company trades U.S. Government agency obligations. In connection with these activities, the Company may be required to maintain inventory in order to facilitate customer transactions. In order to mitigate exposure to market risk, the Company enters in to the purchase and sale of TBAs. The Company carries the TBAs at fair value and includes them as a component of investments–trading or trading securities sold, not yet purchased in the Company's consolidated balance sheets. At March 31, 2012, the Company had entered into four open TBA sale agreements in the notional amount of $11,500, and five open TBA purchase agreements in the notional amount of $5,023. At December 31, 2011, the Company had entered into seven open TBA sale agreements in the notional amount of $4,325.

The following table presents the Company's derivative financial instruments and the amount and location of the fair value recognized in the consolidated balance sheets as of March 31, 2012 and December 31, 2011, respectively.

DERIVATIVE FINANCIAL INSTRUMENTS-BALANCE SHEET INFORMATION

(Dollars in Thousands)

Derivative Financial Instruments Not Designated as Hedging Instruments under FASB ASC 815	Balance Sheet Classification	Unrealized Gain / (Loss) as of March 31, 2012			Unrealized Gain / (Loss) as of December 31, 2011
TBAs	Trading securities sold, not yet purchased	$	(22	)	$	(16	)
		$	(22	)	$	(16	)

The following table presents the Company's derivative financial instruments and the amount and location of the net gain (loss) recognized in the consolidated statement of operations for the three months ended March 31, 2012 and 2011:

DERIVATIVE FINANCIAL INSTRUMENTS-STATEMENT OF OPERATIONS INFORMATION

(Dollars in Thousands)

Derivative Financial Instruments Not Designated as Hedging Instruments under FASB ASC 815	Income Statement Classification	Three Months Ended March 31, 2012			Three Months Ended March 31, 2011
Foreign currency forward contracts	Revenues — principal transactions and other income	$	—		$	703
EuroDollar futures contracts	Revenues — net trading		—			62
TBAs	Revenues — net trading		(30	)		143
		$	(30	)	$	908

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Investments In Equity Method Affiliates

3 Months Ended

Mar. 31, 2012

Investments In Equity Method Affiliates [Abstract]

Investments In Equity Method Affiliates

9. INVESTMENTS IN EQUITY METHOD AFFILIATES

The Company has several investments that are accounted for under the equity method. Equity method accounting requires that the Company record its investment on the consolidated balance sheets and recognize its share of the affiliate's net income as earnings each year. Investment in equity method affiliates is included as a component of other assets on the Company's consolidated balance sheets.

The Company has certain equity method affiliates for which it has elected the fair value option. The Company elected the fair value option for its investments in MFCA effective January 1, 2008 and effective with the ownership increase in Star Asia in March 2010, which qualified it for equity method treatment, the Company continued its fair value election regarding Star Asia. See notes 5 and 6. Prior to this increase, Star Asia had been treated as an available for sale security for which the fair value option had been elected.

During the three months ended March 31,2012, the Company had the following equity method investees (excluding equity method affiliates for which it had adopted the fair value option): (i) Star Asia Manager; (ii) Deep Value GP; (iii) Deep Value GP II; (iv) Star Asia SPV; (v) Star Asia Opportunity; (vi) Star Asia Capital Management; and (vii) Duart Capital. The following table summarizes the activity and the earnings of the Company's equity method affiliates.

INVESTMENT IN EQUITY METHOD AFFILIATES

(Dollars in Thousands)

	Investment in
	Star Asia Manager			Deep Value GP		Deep Value GP II		Star Asia SPV		Star Asia Opportunity			Star Asia Capital Management		Duart Capital and Other		Total
Balance at January 1, 2012	$	1,046		$	21	$	33	$	466	$	4,460		$	50	$	—	$	6,076
Investments / advances		—			—		—		—		—			6		—		6
Distributions/repayments		(800	)		—		—		—		—			—		—		(800	)
Earnings / (loss) realized		274			—		1		479		(304	)		66		—		516
Balance at March 31, 2012	$	520		$	21	$	34	$	945	$	4,156		$	122	$	—	$	5,798

The following table summarizes the combined financial information for all equity method investees, including equity method investees for which the fair value option was elected. This aggregated summarized financial data does not represent the Company's proportionate share of equity method investees' assets or earnings.

SUMMARY DATA OF EQUITY METHOD INVESTEES

(unaudited)

(Dollars in Thousands)

	March 31, 2012		December 31, 2011
Total Assets	$	264,655	$	257,735
Liabilities	$	93,916	$	68,530
Equity attributable to the investees		170,019		188,170
Non-controlling interest		720		1,035
Liabilities & Equity	$	264,655	$	257,735

	Three Months Ended March 31,
	2012			2011
Net income / (loss)	$	(15,885	)	$	(19,163	)
Net income / (loss) attributable to the investees	$	(15,570	)	$	(18,873	)

See note 20 for information regarding transactions with the Company's equity method investees.

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Permanent Equity

3 Months Ended

Mar. 31, 2012

Permanent Equity [Abstract]

Permanent Equity

14. PERMANENT EQUITY

Stockholders' Equity

Common Equity: The following table reflects the activity for the three months ended March 31, 2012 related to the number of shares of unrestricted common stock that the Company had issued as of March 31, 2012:

	Common Stock Shares
Balance at December 31, 2011 (1)		10,132,497
Shares issued in connection with the redemption of Operating LLC units		186,339
Vesting of shares		107,176
Shares withheld for employee taxes		(1,090	)
Balance at March 31, 2012 (1)		10,424,922

(1) Includes 50,400 shares of the Company's common stock held as treasury stock.

In connection with the acquisition of JVB in January 2011, the Company issued 559,020 restricted units of the Operating LLC to certain of the former owners of JVB that remained employees of JVB following the acquisition. These units include a service requirement and vest over a three year period and are treated as compensation for future service rather than as part of the purchase price to acquire JVB. In January 2012, 186,339 restricted units of the Operating LLC vested, and the holders of these vested Operating LLC membership units elected to redeem these units. The Company, at its discretion, issued 186,339 shares of IFMI common stock to the JVB sellers in exchange for the 186,339 vested membership units.

Acquisition and Surrender of Additional Units of the Operating LLC, net: Effective January 1, 2011, IFMI and the Operating LLC entered into a Unit Issuance and Surrender Agreement (the "UIS Agreement") which was approved by IFMI's Board of Directors and the board of managers of the Operating LLC. In an effort to maintain a 1:1 ratio of IFMI's common stock to the number of membership units IFMI holds in the Operating LLC, the UIS Agreement calls for the issuance of additional membership units of the Operating LLC to IFMI when IFMI issues its common stock to employees under existing equity compensation plans. In certain cases, the UIS Agreement calls for IFMI to surrender units to the Operating LLC when certain restricted shares are forfeited by the employee or repurchased. During the three months ended March 31, 2012, the Operating LLC issued to IFMI 335,636 units related to the UIS Agreement.

In January 2012, IFMI received 186,339 vested membership units from certain former owners of JVB in exchange for the Company's issuance of 186,339 shares of IFMI common stock to the same former owners.

In summary, during the three months ended March 31, 2012, IFMI received (net of surrenders) 521,975 units of the Operating LLC pursuant to the UIS Agreement, as a result of the vesting and redemption of membership units of the Operating LLC by certain former owners of JVB for IFMI common stock. The Company recognized a net increase in additional paid in capital of $664 and a net increase in accumulated other comprehensive loss of $22 with an offsetting decrease in non-controlling interest of $642 in connection with the acquisition and surrender of additional units of Operating LLC.

The following schedule presents the effects of changes in IFMI's ownership interest in the Operating LLC on the equity attributable to IFMI:

	March 31, 2012			March 31, 2011
Net income / (loss) attributable to IFMI	$	(3,859	)	$	375
Transfers (to) from the non-controlling interest:
Increase in IFMI's paid in capital for the acquisition / (surrender) of additional units of consolidated subsidiary, net		664			807
Changes from net income / (loss) attributable to IFMI and transfers (to) from non-controlling interest	$	(3,195	)	$	1,182

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Supplemental Cash Flow Disclosure

3 Months Ended

Mar. 31, 2012

Supplemental Cash Flow Disclosure [Abstract]

Supplemental Cash Flow Disclosure

19. SUPPLEMENTAL CASH FLOW DISCLOSURE

Interest paid by the Company on its debt was $914 and $1,015 for the three months ended March 31, 2012 and 2011, respectively.

The Company paid income taxes of $6 and $120 for the three months ended March 31, 2012 and 2011, respectively, and received no income tax refunds for the three months ended March 31, 2012 and 2011, respectively.

In the three months ended March 31, 2012, the Company had the following significant non-cash transactions which are not reflected on the statement of cash flows:

• During the first quarter of 2012, the Company acquired additional units of the Operating LLC pursuant to the UIS Agreement. In an effort to maintain a 1:1 ratio of the Company's Common Stock to the number of membership units the Company holds in the Operating LLC, the UIS Agreement calls for the issuance of additional membership units of the Operating LLC to the Company when the Company issues its Common Stock to employees under existing equity compensation plans. In certain cases, the UIS Agreement calls for the Company to surrender units to the Operating LLC when certain restricted shares are forfeited by the employee or repurchased. In addition, the Company acquired additional units of the Operating LLC from certain former owners of JVB in exchange for the Company's issuance of 186,339 shares of the Company's Common Stock to them in January 2012. The Company recognized a net increase in additional paid-in capital of $664, a net increase of $22 in accumulated other comprehensive loss and a decrease of $642 in non-controlling interest. See note 14.

In the three months ended March 31, 2011, the Company had the following significant non-cash transactions which are not reflected on the statement of cash flows:

• Effective January 1, 2011, the Company acquired additional units of the Operating LLC pursuant to the UIS Agreement. In addition, the Company acquired additional units of the Operating LLC in connection with the JVB acquisition. The Company recognized an increase in additional paid-in capital of $807, an increase of $23 in accumulated other comprehensive loss and a decrease of $784 in non-controlling interest.

• During the first quarter of 2011, the Company transferred 54,452 shares of Star Asia in the amount of $476 to an employee for services rendered during 2010.

• In connection with the consummation of the JVB acquisition on January 2011: The Company acquired the net assets of JVB for approximately $16,813, consisting of $14,956 in cash and 313,051 shares of the Company's Common Stock for stock consideration of $1,531 and contingent payments due of $326.

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Consolidated Statements Of Operations And Comprehensive Income / (Loss) (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Consolidated Statements Of Operations And Comprehensive Income / (Loss) [Abstract]
Foreign currency translation adjustments, tax	$ 0	$ 0
Other comprehensive income (loss), tax	$ 0	$ 0

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Summary Of Significant Accounting Policies

3 Months Ended

Mar. 31, 2012

Summary Of Significant Accounting Policies [Abstract]

Summary Of Significant Accounting Policies

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Adoption of New Accounting Standards

In April 2011, the FASB issued ASU No. 2011-03, Reconsideration of Effective Control for Repurchase Agreements ("ASU 2011-03"), which revises the criteria for assessing effective control for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The determination of whether the transfer of a financial asset subject to a repurchase agreement is a sale is based, in part, on whether the entity maintains effective control over the financial asset. ASU 2011-03 removes from the assessment of effective control: the criterion requiring the transferor to have the ability to repurchase or redeem the financial asset on substantially the agreed terms, even in the event of default by the transferee, and the related requirement to demonstrate that the transferor possesses adequate control to fund substantially all the cost of purchasing replacement financial assets. The amendments in ASU 2011-03 will be effective for interim and annual reporting periods beginning on or after December 15, 2011, early adoption is prohibited, and the amendments will be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. The Company's adoption of the provisions of ASU 2011-03 effective January 1, 2012 did not have an effect on the Company's consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs ("ASU 2011-04"), which amends FASB Accounting Standards Codification ("ASC") 820, Fair Value Measurements. The amended guidance changes the wording used to describe many requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additional disclosure requirements include transfers between levels 1 and 2; and for level 3 fair value measurements, a description of the Company's valuation processes and additional information about unobservable inputs impacting level 3 measurements. Additionally, the amendments clarify the FASB's intent about the application of existing fair value measurement requirements. The amendments result in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. The guidance provided in ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively. The Company's adoption of the provisions of ASU 2011-04 effective January 1, 2012 did not have a material effect on the Company's consolidated financial position and results of operations.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income, ("ASU 2011-05") which requires companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. The standard does not change the items that must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011. In December 2011, the FASB issued ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 ("ASU 2011-12"). ASU 2011-12 defers the requirement that companies present reclassification adjustments and the effect of those reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. The effective dates for ASU 2011-12 are consistent with the effective dates for ASU 2011-05. Effective January 1, 2012, the Company adopted the provisions of ASU 2011-05 and ASU 2011-12, which resulted in the Company presenting the components of comprehensive income (loss) within the consolidated statements of operations and comprehensive income (loss). The Company's adoption of the new guidance did not have an effect on the Company's financial condition, results of operations or cash flows.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment ("ASU 2011-08"), which permits companies 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 whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles-Goodwill and Other. The more likely than not threshold is defined as having a likelihood of more than 50%. Under this option, a company would no longer be required to calculate the fair value of the reporting unit unless the company determines, based on that qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. A company has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment tests. A company may resume performing the qualitative assessment in any subsequent period. The guidance also includes examples of the types of events and circumstances to consider in conducting the qualitative assessment. These examples of events and circumstances supersede (1) the previous examples included in Topic 350 of event and circumstances that a company should consider when testing goodwill for impairment between annual tests and (2) the previous examples of events and circumstances that a company having a reporting unit with a zero or negative carrying amount should consider in determining whether to perform the second step of the impairment test, used to measure the amount of the loss, if any. The guidance provided in ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company's adoption of the provisions of ASU 2011-08 effective January 1, 2012 did not have an effect on the Company's consolidated financial statements.

B. Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments. These determinations were based on available market information and appropriate valuation methodologies. Considerable judgment is required to interpret market data to develop the estimates and, therefore, these estimates may not necessarily be indicative of the amount the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Refer to note 6 for a discussion of the fair value hierarchy with respect to investments-trading, other investments, at fair value and the derivatives held by the Company.

Cash and cash equivalents and restricted cash: Both restricted and unrestricted cash are carried at historical cost which is assumed to approximate fair value. The estimated fair value measurements of cash and cash equivalents and restricted cash are generally classified within level 1 of the valuation hierarchy.

Investments-trading: These amounts are carried at fair value. The fair value is based on either quoted market prices of an active exchange, independent broker market quotations, market price quotations from third party pricing services, or valuation models when quotations are not available. See note 6 for disclosures about the categorization of the fair value measurements of investments-trading within the three level fair value hierarchy.

Other investments, at fair value: These amounts are carried at fair value. The fair value is based on quoted market prices of an active exchange, independent broker market quotations, or valuation models when quotations are not available. In the case of investments in alternative investment funds, fair value is generally based on the reported net asset value of the underlying fund. See note 6 for disclosures concerning the categorization of the fair value measurements of other investments, at fair value within the three level fair value hierarchy.

Receivables under resale agreements: Receivables under resale agreements are carried at their contracted resale price, have short-term maturities (one year or less), and are repriced frequently or bear market interest rates and, accordingly, these contracts are at amounts that approximate fair value. The estimated fair value measurements of receivables under resale agreements are based on observations of actual market activity and are generally classified within level 2 of the fair value hierarchy.

Trading securities sold, not yet purchased: These amounts are carried at fair value. The fair value is based on quoted market prices of an active exchange, independent market quotations, market price quotations from third party pricing services, or valuation models when quotations are not available. See note 6 for disclosures concerning the categorization of the fair value measurements of trading securities sold, not yet purchased within the three level fair value hierarchy.

Securities sold under agreement to repurchase: The liability for securities sold under agreement to repurchase are carried at their contracted repurchase price, and are very short-term in nature, and are repriced frequently with amounts normally due in one month or less and, accordingly, these contracts are at amounts that approximate fair value. The estimated fair value measurements of securities sold under agreement to repurchase are based on observations of actual market activity and are generally classified within level 2 of the fair value hierarchy.

Debt: These amounts are carried at outstanding principal less unamortized discount. However, a substantial portion of the debt was assumed in the Merger and recorded at fair value as of that date. As of March 31, 2012 and December 31, 2011, the fair value of the Company's debt was estimated to be $43.5 million. The estimated fair value measurements of the debt are generally based on discounted cash flow models prepared by the Company's management primarily using discount rates for similar instruments issued to companies with similar credit risks to the Company and are generally classified within level 3 of the fair value hierarchy.

Derivatives: These amounts are carried at fair value. Derivatives may be included as a component of investments-trading, trading securities sold, not yet purchased, and other investments, at fair value. See notes 6 and 7. The fair value is generally based on quoted market prices on an exchange that is deemed to be active for derivative instruments such as foreign currency forward contracts and EuroDollar futures. For derivative instruments, such as "to-be-announced" securities ("TBAs"), the fair value is generally based on market price quotations from third party pricing services. See note 6 for disclosures concerning the categorization of the fair value measurements within the three level fair value hierarchy.

C. Recent Accounting Developments

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities ("ASU 2011-11"), which requires companies to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on a company's financial position. The amendments require enhanced disclosures by requiring improved information about financial statements and derivative instruments that are either (1) offset in accordance with current literature, or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with current literature. ASU 2011-11 is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013, and interim periods within those annual periods. The disclosures required by ASU 2011-11 will be applied retrospectively for all comparative periods presented. The Company is currently evaluating the impact of ASU 2011-11 on its disclosures about offsetting assets and liabilities

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Related Party Transactions

3 Months Ended

Mar. 31, 2012

Related Party Transactions [Abstract]

Related Party Transactions

20. RELATED PARTY TRANSACTIONS

The Company has identified the following related party transactions for the three months ended March 31, 2012 and 2011. The transactions are listed by related party and, unless otherwise noted in the text of the description, the amounts are disclosed in the tables at the end of this section.

A. Cohen Bros. Financial, LLC ("CBF")

CBF has been identified as a related party because (i) CBF is a noncontrolling interest of the Company and (ii) CBF is wholly owned by the chairman and chief executive officer of the Company.

Beginning in October 2008, the Company began receiving a monthly advisory fee for consulting services provided by the Company to CBF. The fee is recognized as a component of asset management revenue in the consolidated statements of operations. This fee is disclosed as management fee revenue in the tables at the end of this section.

B. The Bancorp, Inc.

The Bancorp, Inc. ("TBBK") is identified as a related party because TBBK's chairman is the Company chairman and chief executive officer.

TBBK maintained deposits for the Company in the amount of $53 and $91 as of March 31, 2012 and December 31, 2011, respectively.

As part of the Company's broker-dealer operations, the Company from time to time purchases securities from third parties and sells those securities to TBBK. The Company may purchase securities from TBBK and ultimately sell those securities to a third party. In either of the cases listed above, the Company includes the trading revenue earned (i.e. the gain or loss realized) by the Company for the entire transaction in the amounts disclosed as part of net trading in the table at the end of this section.

C. Investment Vehicles and Other

The following are identified as related parties. Amounts with respect to the transactions identified below are summarized in a table at the end of this section.

1. Star Asia invests primarily in Asian commercial real estate structured finance products, including CMBS, corporate debt of REITs and real estate operating companies, B notes, mezzanine loans and other commercial real estate fixed income investments. As of March 31, 2012 and December 31, 2011, the Company directly owned approximately 28% of Star Asia's outstanding shares. Star Asia has been identified as a related party because in the absence of the fair value option of FASB ASC 825, Star Asia would be treated as an equity method affiliate, and because the chairman and chief executive officer of the Company is a member of Star Asia's board of directors. The Company has an investment in Star Asia. Dividends received on that investment are disclosed as part of dividend income in the tables at the end of this section. Gains or losses recognized from its investment are disclosed as part of gain / (loss) in the tables at the end of this section.

2. EuroDekania invests primarily in hybrid capital securities of European bank and insurance companies, CMBS, RMBS and widely syndicated leverage loans. As of March 31, 2012 and December 31, 2011, the Company directly owned approximately 10% of EuroDekania's outstanding shares. EuroDekania has been identified as a related party because the chairman and chief executive officer of the Company is a member of EuroDekania's board of directors. The Company has a management contract with and an investment in EuroDekania. Dividends received on that investment are disclosed as part of dividend income in the tables at the end of this section. Gains or losses recognized from its investment are disclosed as part of the gain / (loss) in the tables at the end of this section. Amounts earned from its management contract are disclosed as part of management fee revenue in the tables at the end of this section.

As part of the Company's broker-dealer operations, the Company from time to time purchases securities from third parties and sell those securities to EuroDekania. Or, the Company may purchase securities from EuroDekania and ultimately sell those securities to third parties. In either case, the Company includes the trading revenue earned (i.e. the gain or loss realized) by the Company for the entire transaction in the amounts disclosed as part of net trading in the table at the end of this section.

3. Star Asia Manager serves as external manager of Star Asia and Star Asia SPV (see C-8. listed below) and the Company owns 50% of Star Asia Manager. Star Asia Manager has been identified as a related party because it is an equity method investee of the Company. The Company recognizes its share of the income or loss of Star Asia Manager as income or loss from equity method affiliates in the consolidated statements of operations. Income or loss recognized under the equity method is disclosed in the table at the end of this section.

4. Prior to June 23, 2011 the Company owned approximately 3% of MFCA's outstanding shares. On June 23, 2011, MFCA became a wholly owned subsidiary of Tiptree. As part of that transaction, the Company exchanged its 1,000,200 shares of MFCA for 111,133 shares of Tiptree. As of March 31, 2012 and December 31, 2011, the Company owned approximately 1% of Tiptree. Prior to MFCA's merger with Tiptree, MFCA had been identified as a related party because: (i) in the absence of the fair value option of FASB ASC 825, MFCA would have been treated as an equity method affiliate of the Company; (ii) the chairman and chief executive officer of the Company was the former chairman of MFCA's board and served as a member of the board until June 22, 2011; and (iii) the former president of the Company served as vice chairman of MFCA's board until March 18, 2009. In March 2009, the board of directors of MFCA assigned the management contract to an unrelated third party. The Company had a management contract with MFCA. The Company had an investment in MFCA and had a shared services arrangement with MFCA. Dividends received on that investment are disclosed as part of dividend income in the tables at the end of this section. Gains or losses recognized from its investment are disclosed as part of gain / (loss) in the tables at the end of this section. Amounts earned from its management contract are disclosed as part of management fee revenue in the tables at the end of this section. Payments received under the shared services arrangement are disclosed as part of shared services (paid) / received in the tables at the end of this section. In June 2011, MFCA was merged into Tiptree. No employees of the Company serve on the board of Tiptree and Tiptree is not an equity method investee of the Company. Therefore, Tiptree is not a related party.

5. Cohen Financial Group, Inc. ("CFG") had been identified as a related party because it was a member of the Company prior to the Merger. CFG filed a Certificate of Dissolution with the Secretary of State of the State of Delaware on December 16, 2009, and is in process of completing the liquidation process. From time to time, the Company advanced CFG funds for normal operating purposes; these amounts were treated as due from related party in the consolidated balance sheets.

6. The Deep Value GP serves as the general partner for the feeder funds of Strategos Deep Value Funds (in the case of the first master fund) and as the general partner of the master fund itself (in the case of a second master fund). The Deep Value GP II serves as the general partner for the offshore feeder fund (in the case of a third master fund). The Deep Value GP and the Deep Value GP II are collectively referred to as the "Deep Value GPs." The Company owns 50% of the Deep Value GP and 40% of the Deep Value GP II. The Deep Value GP and the Deep Value GP II have been identified as related parties because the Deep Value GPs are equity method affiliates of the Company. Income or loss recognized under the equity method is disclosed in the table at the end of this section. The Company previously served as the investment advisor to these funds and sold these advisory contracts in March 2011.

7. Deep Value is a series of closed-end distressed debt funds. Deep Value raises capital from investors, and earns investment returns by investing in a diversified portfolio of asset backed securities consisting primarily of RMBS and other real estate related securities, as well as other U.S. real estate related assets and related securities. As of June 30, 2011, the first Deep Value fund was completely liquidated. Deep Value (as a group) had been identified as a related party because in the absence of the fair value option of FASB ASC 825, the onshore and offshore feeders in which the Company had an investment would be treated as equity method affiliates of the Company. The Company had a management contract with and an investment in Deep Value. Amounts earned from its management contract are disclosed as part of management fee revenue in the tables at the end of this section. Gains or losses recognized from its investment are disclosed as part of gain / (loss) in the tables at the end of this section. The Company previously served as the investment advisor to these funds and sold these advisory contracts in March 2011.

8. Star Asia SPV is a Delaware limited liability company formed in 2010. It was formed to create a pool of assets that would provide collateral to investors who participated in Star Asia's 2010 rights offering. The investors in Star Asia's rights offering also received equity interests in Star Asia SPV. Star Asia SPV purchased certain assets from Star Asia and the equity interest holders of Star Asia SPV receive investment returns on the assets held in the SPV up to an agreed upon maximum. Returns above that agreed upon maximum are remitted back to Star Asia. The Company directly owned approximately 31% of Star Asia SPV's outstanding shares as of March 31, 2012 and December 31, 2011. Star Asia SPV has been identified as a related party because it is an equity method investee of the Company. Income or loss recognized under the equity method is disclosed in the table at the end of this section.

9. Duart Capital is a Delaware limited liability company formed in 2010. The Company directly owned 20% of Duart Capital's outstanding equity interests as of March 31, 2012 and December 31, 2011. Duart Capital has been identified as a related party because it is an equity method investee of the Company. Duart Capital also serves as the investment manager of the Duart Fund (see below). The Company did not elect the fair value option for its investment in Duart Capital. Income or loss recognized under the equity method is disclosed in the table at the end of this section.

10. The Duart Fund is a specialized deep value and special situations opportunity fund that was formed in September 2010. The Duart Fund's investment objective is to provide superior absolute returns by investing primarily in a portfolio of long and short positions in public and private real estate equity securities, equity-linked securities, or debt securities (including, but not limited to, convertible debt, debt with warrants, warrants, and credit default swaps that related to real estate securities) and partnership or fund interests in the real estate markets. Effective December 31, 2010, the Company submitted a redemption notice to the Duart Fund to redeem 100% of its capital. The Company received its redemption in April 2011. The Duart Fund had been identified as a related party because in the absence of the fair value option of FASB ASC 825, the onshore feeder fund in which the Company had an investment was treated as an equity method affiliate of the Company. Gains or losses recognized from its investment are disclosed as part of the gain / (loss) in the tables at the end of this section.

11. Star Asia Opportunity is a Delaware limited liability company formed in July 2011 to partially finance the acquisition of seven real estate properties in Japan. As of March 31, 2012 and December 31, 2011, the Company directly owned approximately 28% of Star Asia Opportunity's outstanding equity interests. Star Asia Opportunity has been identified as a related party because it is an equity method investee of the Company. The Company recognizes its share of the income or loss of Star Asia Opportunity as income or loss from equity method affiliates in the consolidated statements of operations. Income or loss recognized under the equity method is disclosed in the table at the end of this section.

12. Star Asia Capital Management serves as external manager of Star Asia Opportunity (see C-11 listed above) and the Company owns 33% of Star Asia Capital Management. Star Asia Capital Management has been identified as a related party because it is an equity method investee of the Company. The Company recognizes its share of the income or loss of Star Asia Capital Management as income or loss from equity method affiliates in the consolidated statements of operations. Income or loss recognized under the equity method is disclosed in the table at the end of this section.

The following tables display the routine intercompany transactions recognized in the statements of operations from the identified related parties during the three months ended March 31, 2012 and 2011, respectively, which are described above. Amounts shown as shared services (paid) / received are included as a component of operating expense in the Company's consolidated statements of operations:

RELATED PARTY TRANSACTIONS

Three months ended March 31, 2012

(Dollars in Thousands)

					Principal transactions and other income					Income / (loss)			Shared
	Management fee revenue		Net trading		Dividend income and other		Gain/ (Loss)			from equity method affiliates			Services (Paid) / Received
CBF	$	64	$	—	$	—	$	—		$	—		$	—
TBBK		—		35		—		—			—			—
Star Asia		—		—		—		(5,240	)		—			—
Star Asia Manager		—		—		—		—			274			—
Star Asia SPV		—		—		—		—			479			—
Star Asia Opportunity		—		—		—		—			(304	)		—
Star Asia Capital		—		—		—		—			66			—
EuroDekania		139		—		94		(22	)		—			—
Deep Value		—		—		—		—			1			—
Total	$	203	$	35	$	94	$	(5,262	)	$	516		$	—

RELATED PARTY TRANSACTIONS

Three months ended March 31, 2011

(Dollars in Thousands)

						Principal transactions and other income					Income /  (loss) from equity method affiliates			Shared Services (Paid) / Received
	Management fee revenue		Net trading			Dividend income and other		Gain/ (Loss)
CBF	$	67	$	—		$	—	$	—		$	—		$	—
Star Asia		—		—			—		(2,680	)		—			—
Star Asia Manager		—		—			—		—			220			—
Star Asia SPV		—		—			—		—			273			—
EuroDekania		167		(101	)		—		775			—			—
MFCA		—		—			32		30			—			5
Deep Value		452		—			—		—			1			—
Duart Fund		—		—			—		(455	)		—			—
Duart Capital		—		—			—		—			(399	)		—
Total	$	686	$	(101	)	$	32	$	(2,330	)	$	95		$	5

The following related party transactions are non-routine and are not included in the tables above.

D. Directors and Employees

In addition to the employment agreements the Company has entered into with its chairman and its chief financial officer, the Company has entered into its standard indemnification agreement with each of its directors and executive officers.

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Redeemable Non-Controlling Interest (Temporary Equity)

3 Months Ended

Mar. 31, 2012

Redeemable Non-Controlling Interest (Temporary Equity) [Abstract]

Redeemable Non-Controlling Interest (Temporary Equity)

13. REDEEMABLE NON-CONTROLLING INTEREST (TEMPORARY EQUITY)

The redeemable non-controlling interest represents the equity interests of PrinceRidge which are not owned by the Company. The members of PrinceRidge have the right to withdraw from PrinceRidge and require PrinceRidge to redeem the interests for cash over a contractual payment period. The Company has concluded these interests should be treated as temporary equity under Accounting Series Release 268 ("ASR 268"). These interests are shown outside of the permanent equity of IFMI in its consolidated balance sheet as redeemable non-controlling interests.

In June 2011, one partner withdrew from PrinceRidge and, therefore, the Company reclassified $3,536 from redeemable non-controlling interest to mandatorily redeemable equity interests on its consolidated balance sheets. During the first quarter of 2012, two partners withdrew from PrinceRidge, and the Company reclassified $5,886 from redeemable non-controlling interest to mandatorily redeemable equity interests in its consolidated balance sheets. In addition, the Company also distributed cash of $43 during the first quarter of 2012 to another withdrawing partner. Per the terms of the operating agreement, PrinceRidge may redeem the partner's equity interests over a five year period. The amount actually due to the withdrawing partner will fluctuate over time based on the operating results of PrinceRidge. The carrying value of the liability owed to the withdrawing partner will be recorded at the amount owed as of each balance sheet date. Any increases or decreases in the amount owed will be recorded as interest income or expense and will be included in the non operating section of the consolidated statement of operations. As of March 31, 2012 and December 31, 2011, the mandatorily redeemable equity interests totaled $8,970 and $3,149, respectively.