Commitments and Contingencies

Lease Obligations

The Company has entered into non-cancellable leases for office space and equipment. These leases contain rent escalation clauses. The Company records rent expense on a straight-line basis over the lease term, including any rent holiday periods. Net rent expense was $16.7 million, $10.5 million, and $9.7 million, for the year ended December 31, 2011, 2010, and 2009, respectively.

On August 20, 2010, the Company entered into an amendment to the Company's original lease for offices located at 1221 Avenue of Americas, New York, to surrender a portion of the office space. As of January 1, 2011, the Company surrendered a portion of the space. As of December 31, 2011, the Company vacated the remaining portion of the leased premises located at 1221 Avenue of Americas. As a result, the Company recognized a liability in the amount of $5.7 million relating to future rent payments and other monthly amounts associated with the lease through its expiration in September 2013. Additionally, the Company reversed a previously recorded unfavorable lease liability in the amount of $2.1 million related to this lease. The net impact of $3.6 million has been included within occupancy and equipment expense in the accompanying consolidated statements of operations.

On August 20, 2010, the Company entered into an amendment to the Company's original lease for offices located at 599 Lexington Avenue, New York, to lease approximately 18,500 square feet of additional office space through August 2022.

During the fourth quarter of 2011, the Company entered into an agreement to sublease the premises located at 33 Whitehall Street (acquired through the LaBranche transaction during the second quarter of 2011). This sublease extends through February 2017, the end of the lease term under the lease for the premises located at 33 Whitehall Street.

As of December 31, 2011, future minimum annual lease and service payments for the Company were as follows:



	Equipment Leases(a)		Service Payments (b)		Facility Leases (c)
	(dollars in thousands)
2012	$	3,301	$	11,582	$	16,779
2013	3,301		9,151		16,052
2014	1,548		8,109		14,174
2015	1,051		3,032		11,582
2016	194		193		10,775
Thereafter	—		—		52,495
	$	9,395	$	32,067	$	121,857


(a)	Equipment Leases include the Company's commitments relating to operating and capital leases. See Note 20 for further information on capital lease minimum payments.


(b)	The Company is contractually committed to future cash payments for various service agreements but the Company has accelerated $0.8 million of expense during the fourth quarter of 2011 since these services were discontinued prior to December 31, 2011.


(c)	The Company has entered into various agreements to sublease certain of its premises on a month-to-month basis. The Company recorded sublease income related to these leases of $0.3 million and $0.8 million for the year ended December 31, 2011 and 2010, respectively.

Clawback Obligations

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

The actual clawback liability, however, does not become realized until the end of a fund's life. The life of the real estate funds with a potential clawback obligation, including available contemplated extensions, are currently anticipated to expire at the end of 2013. Further extensions of such terms may be implemented under certain circumstances. As of December 31, 2011, the clawback obligations were $6.2 million. (See Note 25).

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

Unfunded Commitments

As of December 31, 2011, the Company had unfunded commitments of $6.4 million pertaining to capital commitments in three real estate investments held by the Company, all of which pertain to related party investments. Such commitments can be called at any time, subject to advance notice. The Company also has committed to invest $42.2 million in the funds managed by Cowen Healthcare Royalty Partners (the “CHRP Funds”) as a limited partner of the CHRP Funds and also as a member of CHRP GP, the general partner of the CHRP Funds. This commitment is expected to be called over a two to five year period. The Company will make its pro-rata investment in the CHRP Funds along with the other limited partners. Through December 31, 2011, the Company has funded $23.9 million towards these commitments. In April 2011, the Company committed $15.0 million to Starboard Value and Opportunity Fund LP, which may increase or decrease over time with the performance of Starboard Value and Opportunity Fund LP. As of December 31, 2011, the Company's unfunded commitment to Starboard Value and Opportunity Fund LP is $2.9 million.

Litigation

In the ordinary course of business, the Company and its affiliates and subsidiaries and current and former officers, directors and employees (the "Company and Related Parties") are named as defendants in, or as parties to, various legal actions and proceedings. Certain of these actions and proceedings assert claims or seek relief in connection with alleged violations of securities, banking, anti-fraud, anti-money laundering, employment and other statutory and common laws. Certain of these actual or threatened legal actions and proceedings include claims for substantial or indeterminate compensatory or punitive damages, or for injunctive relief.

In the ordinary course of business, the Company and Related Parties are also subject to governmental and regulatory examinations, information gathering requests (both formal and informal), certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. Certain affiliates and subsidiaries of the Company are investment banks, registered broker-dealers, futures commission merchants, investment advisers or other regulated entities and, in those capacities, are subject to regulation by various U.S., state and foreign securities, commodity futures and other regulators. In connection with formal and informal inquiries by these regulators, the Company and such affiliates and subsidiaries receive requests, and orders seeking documents and other information in connection with various aspects of their regulated activities.

Due to the global scope of the Company's operations, and its presence in countries around the world, the Company and Related Parties may be subject to litigation, and governmental and regulatory examinations, information gathering requests, investigations and proceedings (both formal and informal), in multiple jurisdictions with legal and regulatory regimes that may differ substantially, and present substantially different risks, from those the Company and Related Parties are subject to in the United States.

The Company seeks to resolve all litigation and regulatory matters in the manner management believes is in the best interests of the Company and its shareholders, and contests liability, allegations of wrongdoing and, where applicable, the amount of damages or scope of any penalties or other relief sought as appropriate in each pending matter.

In accordance with the US GAAP, the Company establishes reserves for contingencies when the Company believes that it is probable that a loss has been incurred and the amount of loss can be reasonably estimated. The Company discloses a contingency if there is at lease a reasonable possibility that a loss may have been incurred and there is no reserve for the loss because the conditions above are not met. The Company's disclosure includes an estimate of the reasonably possible loss or range of loss for those matters, for which an estimate can be made. Neither reserve nor disclosure is required for losses that are deemed remote.

The Company appropriately reserves for certain matters where, in the opinion of management, the likelihood of liability is probable and the extent of such liability is reasonably estimable. Such amounts are included within accounts payable, accrued expenses and other liabilities in the consolidated statements of financial condition. Estimates, by their nature, are based on judgment and currently available information and involve a variety of factors, including, but not limited to, the type and nature of the litigation, claim or proceeding, the progress of the matter, the advice of legal counsel, the Company's defenses and its experience in similar cases or proceedings as well as its assessment of matters, including settlements, involving other defendants in similar or related cases or proceedings. The Company may increase or decrease its legal reserves in the future, on a matter-by-matter basis, to account for developments in such matters.

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

In view of the inherent difficulty of predicting the outcome of various claims against the Company, particularly where the matters are in early stages of discovery or claimants seek indeterminate damages, the Company cannot reasonably determine the possible outcome, the timing of ultimate resolution or estimate a range of possible loss, or impact related to each currently pending matter. Based on information currently available, the Company believes that the amount of reasonably possible losses will not have a material adverse effect on the Company's consolidated statements of financial condition or cash flows. However, in light of the uncertainties involved in such proceedings, losses may be material to the Company's operating results in a future period, depending in part, on the operating results for such period and the size of the loss or liability imposed.

Except for the matters described below, based on the Company's currently available information, the Company does not believe that any matter will have a material adverse effect on the Company's financial condition.

LaBranche Litigation

On February 22, 2011, a putative class action, captioned Moskal v. LaBranche & Co., et. al., was filed in the Supreme Court of the State of New York, County of New York, naming as defendants the Company, LaBranche & Co. and members of the board of directors of LaBranche & Co. (collectively, “LaBranche”), and Louisiana Merger Sub, Inc. On February 26, 2011, a separate lawsuit was filed, captioned Borowka v. LaBranche & Co., et al., in the Supreme Court of the State of New York, County of New York naming as defendants the same parties. The lawsuits challenged LaBranche's decision to sell all of its outstanding shares of common stock to the Company for $192.8 million. The complaints alleged, among other things, that the Company aided and abetted the LaBranche defendants in breaching their fiduciary duties to shareholders by failing to maximize the sale price for LaBranche.

On May 2, 2011, the parties to the consolidated lawsuit reached an agreement in principle to settle the consolidated lawsuit. On October 25, 2011, the parties executed a stipulation of settlement, which was filed with the Supreme Court on October 26, 2011. A hearing was held on February 1, 2012, at which the Supreme Court approved the settlement, which resolved all of the claims that were or could have been brought in the actions being settled, including all claims relating to the acquisition, the Merger Agreement and any disclosure made in connection therewith.

In re NYSE Specialists Securities Litigation

On or about October 16, 2003 through December 16, 2003, four purported class action lawsuits were filed in the SDNY by persons or entities who purchased and/or sold shares of stocks of NYSE listed companies, including Pirelli v. LaBranche & Co Inc., et al., No. 03 CV 8264, Marcus v. LaBranche & Co Inc., et al., No. 03 CV 8521, Empire v. LaBranche & Co Inc., et al., No. 03 CV 8935, and California Public Employees' Retirement System (CalPERS) v. New York Stock Exchange, Inc., et al., No. 03 CV 9968. On March 11, 2004, a fifth action asserting similar claims, Rosenbaum Partners, LP v. New York Stock Exchange, Inc., et al., No. 04 CV 2038, was also filed in the SDNY by an individual plaintiff who does not allege to represent a class.

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

On December 5, 2011, CalPERS and defendants entered into a Memorandum of Understanding (MOU) reflecting an agreement in principle to settle the action. The portion of the settlement amount allocated to LaBranche & Co Inc., LaBranche & Co. LLC and Mr. LaBranche pursuant to a confidential allocation agreement entered into by the defendants will be paid by the Company with amounts to be received from one of the Company's insurers, we do not beleive that this matter will have a material effect on the Company's operating results for the year ended December 31, 2011. The MOU contemplates the negotiation and execution of a final settlement agreement, and the settlement is subject to notice to the class and approval by the Court.