Mail Stop 0408
June 6, 2006
Mark E. Kaplan, Esquire
General Counsel
Cowen Group, Inc.
1221 Avenue of the Americas
New York, New York 10020
Re: Cowen Group, Inc.
Amendment No., 1 to Registration Statement on Form S-1
File No. 333-132602
Filed May 17, 2006
Dear Mr. Kaplan:
We have reviewed your filings and have the following
comments.
Where indicated, we think you should revise your documents in
response
to these comments. If you disagree, we will consider your
explanation
as to why our comment is inapplicable or a revision is
unnecessary.
Please be as detailed as necessary in your explanation. In some
of
our comments, we may ask you to provide us with information so we
may
better understand your disclosure. After reviewing this
information,
we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We
look forward to working with you in these respects. We welcome
any
questions you may have about our comments or any other aspect of
our
review. Feel free to call us at the telephone numbers listed at
the
end of this letter.
General
1. Please supplement your various references to Societe Generale`s
indemnification of you for litigation expenses with disclosure of
the
following information:
* your agreement to pay Societe Generale $79 million;
* $79 million is the amount of your reserves for litigation that
you,
Societe Generale and auditors for both companies have determined
is
adequate for pending litigation; and
* under your agreement with Societe Generale, should the actual
litigation expenses be higher than $79 million, Societe Generale
will
pay the remainder and should the actual litigation expenses be
lower
than $79 million, Societe Generale will receive the remainder of
the
$79 million.
Overview, page 1
2. As we requested in comment 2 of our letter to you dated April
18,
2006, please revise the section entitled "Overview" to disclose
the
following information:
* the aggregate value and aggregate percentage of the shares that
you
are giving your Chairman and President, three other executive
officers
and certain senior employees (disclose the number of employees);
and
* the aggregate value and aggregate number and percentage of the
shares that you are giving in the form of stock options to the
same
three executive officers and certain senior employees (disclose
the
number of employees).
3. Please disclose the aggregate range of the amount of benefits,
including cash, that Societe Generale will receive in connection
with
the offering and separation including, but not limited to,
* the proceeds that Societe Generale will receive from this
offering;
* the amount of cash you will pay to Societe Generale as return of
capital;
* the $98 million net operating loss carryforwards;
* your assumption of various obligations of Societe Generale
including
obligations to employees of $19 million; and
* the payment of $79 million to fund Societe Generale`s contingent
liabilities the balance of which will be paid to Societe Generale.
4. Please revise the section entitled "Overview" as follows:
* revise your claim in the first sentence that your clients are in
"key growth areas of the economy" to disclose that these sectors
have
suffered declines, not growth, including a 23 percent decline in
the
number of public equity capital transactions and a 29 percent
decline
in the aggregate amount of capital raised and that your revenues
from
investment banking has grown significantly less than most of your
competitors;
* revise your claim in the second sentence regarding your
"success" to
disclose that in three of the five past years you suffered losses
of
over $74 million in 2003, over $229 million in 2002 and over $107
million in 2001 and disclose the number of quarters in 2004, 2005
and
2006 in which you suffered losses;
* revise your claim, on the seventh line, that you have "a high
level
of repeat... investment banking business" to reflect your
disclosure
on page 12 that "our investment banking clients generally retain
us on
a short term , engagement by engagement basis...rather than on a
recurring basis under long term contracts;"
* revise your claim, on the eighth line, that you have "strong
sales
and trading relationships with our investor clients" to disclose
that
your revenues from trading has declined each year for the past
five
years from over $176 million in 2001 to over $93 million in 2005;
* revise your claim in the second to last sentence that you will
be "a
well capitalized entity with sufficient financial resources" to
disclose that you are will be paying Societe Generale
approximately
$179 million as a return of capital, paying Societe Generale $79
million for litigation expenses, allocating your $98 million tax
benefit to Societe Generale thereby increasing your tax rate from
0 to
45 percent reducing your capital in connection with the separation
by
from $387 million to $207 million and disclose the extent to which
you
relied upon capital contributions from Societe Generale over the
past
eight years that you were owned by Societe Generale; and
* revise your last sentence in which you disclose data for 2005 to
also disclose this data for the previous two years.
Competitive Strengths, page 2
5. We note your response to comment 6 of our letter to you dated
April
18, 2006. Please revise the section as follows:
* disclose that your claim that you have a "leading position" in
your
target sectors is based upon the number of public offerings of
companies in these sectors which you managed or co-managed not the
aggregate dollar amount of these offerings; and
* disclose that your claim that you are the "leading franchise"
focused on your target growth sectors is based upon the number of
public offerings of companies in these sectors which you managed
or
co-managed not the aggregate dollar amount of these offerings.
We note that the data you provide from Keefe Bruyette and Woods
does
not support your claim that you have "equity research leadership"
since you are not among the top twenty firms in terms of the
number of
stocks covered. The other data is limited to two other firms and
is
not attributable to any named source. Accordingly, please delete
this claim.
Market Opportunity and Focus, page 2
6. In comment 7 of our letter to you dated April 18, 2006, we
asked
you to reconcile your claims that your focus on three particular
sectors is a benefit with your statement on page 20 that your
dependence on these same sectors "caused our year over year
investment
banking results to diverge somewhat from broader market trends and
volumes." You added disclosure on page 33. Please revise this
section to balance the disclosure.
Our Relationship with Societe Generale, page 4
7. We note your response, on pages 4 and 5, to comment 3 of our
letter
to you dated April 18, 2006. Please provide more detail
including,
but not limited to, the following:
* as we requested, please summarize, in a separate paragraph , the
terms of the separation including, using bullet points, the
benefits
and detriments to you of these terms including agreements to pay
$179
million to Societe Generale for return of capital, to pay $79
million
to Societe Generale for litigation expenses, to assume $19 million
compensation costs of Societe Generale and to allocate $98 million
of
tax benefits to Societe Generale; and
* please disclose, in a separately captioned paragraph, the
benefits
of the separation and the IPO to your executive officers.
Why we are going public, page 4
8. Please revise this section to balance the disclosure to clarify
that you did not decide unilaterally to go public but Societe
Generale
decided to liquidate its entire investment in you and to disclose
the
reasons why Societe Generale made this decision consistent with
public
disclosures by Societe Generale and statements by its directors,
officers and representatives, including Mr. Mustier. In addition,
identify those businesses that Societe Generale previously
prevented
you from entering that you will enter after the separation.
Effects of the separation, page 4
9. Please revise this section to disclose whether you believe the
separation will have any material effect on you beyond those two
areas
that you believe will not be materially affected.
Cash distribution to Societe Generale, page 4
10. Please revise this section to clarify that this return of
capital
is in addition to all of the proceeds from the offering that
Societe
Generale will receive and the other payments, allocations and
assumptions of liabilities that you will make to Societe Generale.
Please explain in easily understandable terms how you will fund
this
payment.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 33
Overview, page 33
11. As we requested in comment 17 of our letter to you dated April
18,
2006, please provide an overview (using bullet points) of the
consequences, both positive and negative, of your separation from
Societe Generale, under the terms you negotiated, including how
your
financial condition and operating results will be affected by the
cash
payments, tax benefits and assumptions of liabilities you will be
allocating to Societe Generale.
12. We note your response to comment 19 of our letter to you dated
April 18, 2006. Please revise your discussion on pages 33 and 34
as
follows:
* revise your discussion, in the first paragraph on page 34, to
clarify that the decline in commission revenues was primarily due
to
lower trading volumes not lower commission rates;
* revise your discussion, in the first paragraph on page 34, that
you
experienced a decline in commission rates "steadily over the past
five
years ...in line with this industry trend " to disclose the extent
to
which your decline in commission revenues over the past five years
was
also "in line with this industry trend;"
* as we requested, provide analysis, in the second paragraph on
page
34, of the role of cost cutting since 2003 in your profits in
2005
and 2004 and in reducing your losses in 2003; and
* supplement your discussion, in the second paragraph on page 34,
of
your lowering your non-compensation expense with a discussion of
your
recent increases in employee compensation and benefits and the
extent
those expenses will be further increased in the future due to your
plans to issue bonuses, restricted stock , and stock options.
Separation from Societe Generale, page 34
13. We note your response to comment 18 of our letter to you dated
April 18, 2006. Please provide more analysis, consistent with
Release
No. 33-8350, of the opportunities, challenges, risks and
uncertainties, of the separation on which the company`s executives
are
most focused for both the short and long term, as well as the
actions
they are taking to address these opportunities, challenges risks
and
uncertainties. For instance, please provide additional
disclosure, in
the first paragraph in this section, regarding your plans to grow
through adding the following:
* new products
* additional professionals
* new sectors
* "new complementary business lines."
Explain what financial resources you will use to fund this
growth.
14. We note your response to comment 20 of our letter to you dated
April 18, 2006. As we requested, please discuss in greater detail
the
ramifications of your separation from Societe Generale under the
terms
of the various agreements. Please comply with Instruction 3 to
Item
303(a) which provides that "the discussion and analysis shall
focus
specifically on material events and uncertainties known to
management
that would cause reported financial information not to be
necessarily
indicative of future operating results or of future financial
condition." Please include in this section analysis of the
anticipated impact of the following:
* costs of the increase in change of federal income taxes from 0
paid
in 2005 to a rate of 45 percent due to the allocation of the net
operating loss carryforwards to Societe Generale;
* costs of being a public company;
* costs of issuing the stock options;
* costs of issuing the restricted stock;
* payment of $79 million into escrow to pay liabilities of Societe
Generale with the balance to be to paid to Societe Generale; and
* reduction of capital and associated liquidation of securities.
Litigation and Related Costs, Page 40
15. We note your changes to this section. Please revise this
section
as follows:
* disclose, in the first paragraph, that you will be paying $79
million into an escrow account for these purposes and that any
remaining balance in the escrow will be paid to Societe Generale;
and
* revise your disclosure in the second paragraph to disclose the
effect of the $79 million payment and to clarify the effect with
and
without the exercise of the over allotment option.
Employee Compensation and Benefits, page 43
16. We note that you have added disclosure for the first quarter
of
2006 and that your compensation has increased by over 43 percent.
Please disclose the extent to which this additional compensation
was
paid to your executive officers.
Competitive Strengths, page 52
17. We note your response to comment 26 of our letter to you dated
April 18, 2006. Please revise this section consist with our
comment 4
above.
Legal Proceedings, page 61
18. We note your response to our comment 27 of our letter to you
dated
April 18, 2006. Please revise this section as follows:
* clarify, in the second full paragraph on page 73, whether the
indemnification agreement applies to all litigation or only some
and
if so please identify which ones Societe Generale will indemnify
and
which ones it will not; and
* name the firm, on page 73 that has threatened to sue you
regarding
the Gruttadauria case.
Separation Overview, page 85
19. We note your response to our comment 31 of our letter to you
dated
April 18, 2006. Please disclose, in the third paragraph, using
bullet
points, each of the benefits and liabilities, including cash,
being
allocated to Societe Generale and each of the benefits and
liabilities, being allocated to you.
Pre-Closing Distribution and Initial Equity, page 98
20. We note your response to our comment 33 of our letter to you
dated
April 18, 2006. Please revise this section by disclosing the
following information:
* who will serve as arbitrator and who selected the arbitrator;
* your rights under arbitration including any right to appeal.
No Business Restrictions, page 99
21. We note your response to our comment 35 of our letter to you
dated
April 18, 2006. Please revise this section by disclosing the
following information:
* clarify that Societe Generale plans to continue and expand its
presence in the U.S. in the investment banking business; and
* disclose those "other businesses" in which you plan to compete
with
Societe Generale.
Clearing Agreement, page 105
22. We note your response, in this section and in your cover
letter,
to our comment 40 of our letter to you dated April 18, 2006.
Please
revise this section as follows:
* revise your claim, in the first paragraph, that the agreement
will
be "an arms length agreement" since it does not appear to us that
this
will be "at arms length" because you are negotiating with the
company
that owns 100 percent of your stock;
* as we requested, disclose the differences between your current
agreement and the new agreement; and
* as we requested, disclose in this section, the extent to which
you
considered other sources for these services and whether they
offered
better prices.
Unaudited Pro Forma Combined Financial Information
Notes, pages 29-31
23. Expand the notes to the unaudited pro form combined financial
information to clearly indicate the numerical components of the
adjustments for the periods presented.
Combined Statements of Operations
Revenues, Other Revenues, and Expenses, page F-4
24. Provide a note to the financial statements to state the
components
of other revenues and provide the related accounting policy for
each
component of other revenues.
25. Your line item Other Revenues includes amounts for exchange
memberships which should be classified as nonoperating income or
nonoperating gains but not as revenues from services. It may
include
other amounts which should be reclassified. Please consider the
guidance in FASB Concepts Statement 6 and revise the financial
statements accordingly. To the extent that you do not reclassify
any
items, please explain to us for each the basis for your
classification.
26. Please delete the line item Net Revenues. It is inconsistent
with
Article 5 of Regulation S-X.
27. Your presentation shows interest expense as the only cost of
services. You present other expenses in your general expenses
starting with compensation and benefits which would appear to be
costs
of services to customers which should be included with interest in
your costs of services. Please tell us how you compile your cost
information for those expenses and how you would allocate those
costs
between cost of services and general and administrative expenses.
If
to allocate these costs would present an undue burden, please
present
your estimate of cost and time required to determine such
allocations
in support of your argument.
Notes 2 and 7 - Goodwill Impairment Tests, pages F-9-F-10 & F-15-
F-16
28. Please provide us with a summary of your December 31, 2004 and
2005 goodwill impairment tests. Clearly describe how you
determined
each of the amounts shown and clearly describe your assumptions.
29. Please tell us the range of price you expect for this
offering,
and respond to our previous comment #49 from our letter dated
April
18, 2006 based upon the limits of that range.
Unaudited Condensed Combined Statements of Financial Condition,
page
F-38
Prior Comment #44
30. The staff has considered the company`s response and requests
that
the company provide pro forma disclosure on the face of the
condensed
combined statement of financial condition for the capital
distribution
to SG Americas Securities Holdings, Inc. Include any other asset
and
liability distributions as a result of the separation and other
agreements, as applicable. Refer to Staff Accounting Bulletin
Topic
1-B.3.
Exhibit 4.2 - Form of Stockholders Agreement between SG Americas
Holdings, Inc. and Cowen Group, Inc.
31. Tell us if the registration rights agreement contains a damage
assessment clause that specifies that if the stock is not
registered
by a specific date, the holder of the security would have the
right to
"put" the unregistered stock to the company at a specified price.
Under Rule 5-02 of Regulation S-X any such amount is required to
be
separately classified on the balance sheet outside of
stockholders`
equity. See also EITF Abstracts, Topic No. D-98.
* * * * * * * * * * * * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have
made.
In connection with responding to our comments, please
provide, in
writing, a statement from the company and each filing person
acknowledging that:
* the company or filing person is responsible for the adequacy and
accuracy of the disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company or filing person may not assert staff comments as a
defense in any proceeding initiated by the Commission or any
person
under the federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division
of Corporation Finance in our review of your filing or in response
to
our comments on your filing.
You may contact Christina M. Harley at (202) 551-3695 or
Donald
A. Walker, Jr. at 202-551-3490 if you have questions regarding
comments on the financial statements and related matters. Please
contact either Jonathan E. Gottlieb at (202) 551-3416 or me at
(202)
551-3491 with any other questions.
Sincerely,
Todd K. Schiffman
Assistant Director
cc. Phyllis G. Korff, Esquire
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Mark E. Kaplan, Esquire
Cowen Group, Inc.
June 6, 2006
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