Thomas Weisel Partners Group (TWPG)

securities laws. Thomas Weisel Partners LLC, our wholly-owned subsidiary, is registered as a broker-dealer with the SEC and FINRA, the Financial Industry Regulatory Authority (successor to the National Association of Securities Dealers, Inc., or the NASD) and in all 50 states and the District of Columbia, and Thomas Weisel Partners (USA) Inc. (formerly Westwind Partners (USA) Inc.), our wholly-owned indirect subsidiary, is registered as a broker-dealer with the SEC and FINRA and in 15 states. Accordingly, each of Thomas Weisel Partners LLC and Thomas Weisel Partners (USA) Inc. is subject to regulation and oversight by the SEC and FINRA, a self-regulatory organization which is itself subject to oversight by the SEC and which adopts and enforces rules governing the conduct, and examines the activities, of its member firms, including Thomas Weisel Partners LLC and Thomas Weisel Partners (USA) Inc. In 2007, Thomas Weisel Partners LLC opened and registered branch offices in London, England, Zurich, Switzerland, Chicago, Illinois, Palo Alto, California, Independence, Ohio and Baltimore, Maryland. In 2008, Thomas Weisel Partners LLC opened and registered branch offices in Denver, Colorado, and Toronto, Ontario, Canada, and deregistered its branch office in Mumbai, India. State securities regulators also have regulatory or oversight authority over Thomas Weisel Partners LLC and Thomas Weisel Partners (USA) Inc. In addition, Thomas Weisel Partners LLC and several other wholly-owned subsidiaries of ours, including Thomas Weisel Capital Management LLC, Thomas Weisel Asset Management LLC, TW Asset Management LLC and Thomas Weisel Global Growth Partners LLC, are registered as investment advisers with the SEC and subject to regulation and oversight by the SEC. Thomas Weisel Partners LLC is also a member of, and is subject to regulation by, the New York Stock Exchange (the “NYSE”), and the American Stock Exchange. Thomas Weisel Partners LLC is also registered as an introducing broker with the Commodity Futures Trading Commission and is a member of the National Futures Association. In Canada, investment dealers are also subject to regulation by self-regulatory organizations which are responsible for the enforcement of and conformity with securities legislation for their members and have been granted the powers to prescribe their own rules of conduct and financial requirements of members.

 

Thomas Weisel Partners Canada, Inc. (formerly Westwind Partners Inc.), our registered Canadian broker-dealer subsidiary, is subject to regulation by the securities commissions of Ontario, Quebec, British Columbia, Manitoba, Saskatchewan and Nova Scotia, is a member of the Investment Dealers Association of Canada and is a participating organization of the Toronto Stock Exchange, the TSX Venture Exchange and Canada’s New Stock Exchange. Thomas Weisel Partners Canada, Inc., is required by the Investment Dealers Association to belong to the Canadian Investors Protection Fund (“CIPF”), whose primary role is investor protection. The CIPF may charge member firms assessments based on revenues and risk premiums. The CIPF provides protection for securities and cash held in client accounts up to CDN$1,000,000 per client with separate coverage of CDN$1,000,000 for certain types of accounts. This coverage does not protect against market fluctuations. Each of Thomas Weisel Partners International Limited and Thomas Weisel Partners (UK) Limited, each a registered U.K. broker-dealer subsidiary, is subject to regulation by the Financial Securities Authority in the United Kingdom. Thomas Weisel Partners (UK) Limited is a member of the London Stock Exchange. Thomas Weisel International Private Limited, our Indian subsidiary, is subject to the oversight of Indian regulatory authorities. Our broker-dealer branch office in Zurich, Switzerland is subject to the oversight of the Swiss Federal Banking Commission (SFBC).

 

Broker-dealers are subject to regulations that cover all aspects of the securities business, including sales methods, trade practices among broker-dealers, use and safekeeping of customers’ funds and securities, capital structure, record-keeping, the financing of customers’ purchases and the conduct and qualifications of directors, officers and employees. In particular, as a registered broker-dealer and member of various self-regulatory organizations, each of Thomas Weisel Partners LLC and Thomas Weisel Partners (USA) Inc. is subject to the SEC’s uniform net capital rule, Rule 15c3-1. Rule 15c3-1 specifies the minimum level of net capital a broker-dealer must maintain and also requires that a significant part of its assets be kept in relatively liquid form. The SEC and various self-regulatory organizations impose rules that require notification when net capital falls below certain predefined criteria, that limit the ratio of subordinated debt to equity in the regulatory capital composition of a broker-dealer and that constrain the ability of a broker-dealer to expand its business under certain circumstances. Additionally, the SEC’s

uniform net capital rule imposes certain requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing capital and requiring prior notice to the SEC for certain withdrawals of capital. The SEC has adopted rule amendments that establish alternative net capital requirements for broker-dealers that are part of a consolidated supervised entity. As a condition to its use of the alternative method, a broker-dealer’s ultimate holding company and affiliates (referred to collectively as a consolidated supervised entity) must consent to group-wide supervision and examination by the SEC. If we elect to become subject to the SEC’s group-wide supervision, we will be required to report to the SEC computations of our capital adequacy. Thomas Weisel Partners Canada, Inc. is subject to the Minimum Capital Rule (By-Law No. 17 of the Investment Dealers Association) and the Early Warning System (By-Law No. 30 of the Investment Dealers Association). The Minimum Capital Rule requires that every member shall have and maintain at all times Risk Adjusted Capital greater than zero calculated in accordance with Form 1 (Joint Regulatory Financial Questionnaire and Report) and with such requirements as the Board of Directors of the Investment Dealers Association may from time to time prescribe. Insufficient Risk Adjusted Capital may result in suspension from membership of the Investment Dealers Association. The Early Warning System is designed to provide advance warning that a member firm is encountering financial difficulties. This system imposes certain sanctions on any member who is designated in Early Warning Level 1 or Level 2 according to its capital, profitability, liquidity position, frequency of designation or at the discretion of the Investment Dealers Association. Restrictions on business activities and capital transactions, early filing requirements, and mandated corrective measures are sanctions that may be imposed as part of the Early Warning System. Thomas Weisel Partners Canada, Inc. was not in Early Warning Level 1 or Level 2 during fiscal 2007 or 2006.

 

The research areas of investment banks have been and remain the subject of increased regulatory scrutiny. In 2002 and 2003, acting in part pursuant to a mandate contained in the Sarbanes-Oxley Act of 2002, the SEC, the NYSE and the NASD adopted rules imposing heightened restrictions on the interaction between equity research analysts and investment banking personnel at member securities firms. In addition, in 2003 and 2004, several securities firms in the United States, including Thomas Weisel Partners LLC, reached a settlement with certain federal and state securities regulators and self-regulatory organizations to resolve investigations into their equity research analysts’ alleged conflicts of interest. Under this settlement, the firms have been subject to certain restrictions and undertakings. As part of this settlement, restrictions have been imposed on the interaction between research and investment banking departments, and these securities firms are required to fund the provision of independent research to their customers. In connection with the research settlement, the firm has also subscribed to a voluntary initiative imposing restrictions on the allocation of shares in initial public offerings to executives and directors of public companies.

 

The effort to combat money laundering and terrorist financing is a priority in governmental policy with respect to financial institutions. The USA PATRIOT Act of 2001 contains anti-money laundering and financial transparency laws and mandates the implementation of various new regulations applicable to broker-dealers and other financial services companies, including standards for verifying client identification at account opening and obligations to monitor client transactions and report suspicious activities. Anti-money laundering laws outside the United States contain some similar provisions. The obligation of financial institutions, including us, to identify their customers, watch for and report suspicious transactions, respond to requests for information by regulatory authorities and law enforcement agencies, and share information with other financial institutions, has required the implementation and maintenance of internal practices, procedures and controls which have increased, and may continue to increase, our costs, and any failure with respect to our programs in this area could subject us to regulatory consequences, including substantial fines and potentially other liabilities.

 

In addition to U.S. federal regulations, certain of our businesses are subject to compliance with laws and regulations of U.S. state governments, non-U.S. governments, their respective agencies and/or various self-regulatory organizations or exchanges relating to the privacy of client information. Any failure to comply with these regulations could expose us to liability and/or reputational damage.

Additional legislation, changes in rules promulgated by the SEC and self-regulatory organizations or changes in the interpretation or enforcement of existing laws and rules, either in the United States or elsewhere, may directly affect the mode of our operations and profitability.

 

U.S. and non-U.S. government agencies and self-regulatory organizations, as well as state securities commissions in the United States, are empowered to conduct administrative proceedings that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer or its directors, officers or employees. Occasionally, our subsidiaries have been subject to investigations and proceedings, and sanctions have been imposed for infractions of various regulations relating to our activities.

 

 

Our business, as well as the financial services industry in
general, is subject to extensive regulation in the United States
and elsewhere. As a matter of public policy, regulatory bodies
in the United States and the rest of the world are charged with
safeguarding the integrity of the securities and other financial
markets and with protecting the interests of customers
participating in those markets. These regulatory bodies adopt
and amend rules (which are subject to approval by government
agencies) for regulating the industry and conduct periodic
examinations of members. In the United States, the Securities
and Exchange Commission (the “SEC”) is the federal
agency responsible for the administration of the federal

securities laws. Thomas Weisel Partners LLC, our wholly-owned
subsidiary, is registered as a
broker-dealer
with the SEC and FINRA, the Financial Industry Regulatory
Authority (successor to the National Association of Securities
Dealers, Inc., or the NASD) and in all 50 states and the
District of Columbia, and Thomas Weisel Partners (USA) Inc.
(formerly Westwind Partners (USA) Inc.), our
wholly-owned
indirect subsidiary, is registered as a broker-dealer with the
SEC and FINRA and in 15 states. Accordingly, each of Thomas
Weisel Partners LLC and Thomas Weisel Partners (USA) Inc. is
subject to regulation and oversight by the SEC and FINRA, a
self-regulatory organization which is itself subject to
oversight by the SEC and which adopts and enforces rules
governing the conduct, and examines the activities, of its
member firms, including Thomas Weisel Partners LLC and Thomas
Weisel Partners (USA) Inc. In 2007, Thomas Weisel Partners LLC
opened and registered branch offices in London, England, Zurich,
Switzerland, Chicago, Illinois, Palo Alto, California,
Independence, Ohio and Baltimore, Maryland. In 2008, Thomas
Weisel Partners LLC opened and registered branch offices in
Denver, Colorado, and Toronto, Ontario, Canada, and deregistered
its branch office in Mumbai, India. State securities regulators
also have regulatory or oversight authority over Thomas Weisel
Partners LLC and Thomas Weisel Partners (USA) Inc. In addition,
Thomas Weisel Partners LLC and several other wholly-owned
subsidiaries of ours, including Thomas Weisel Capital Management
LLC, Thomas Weisel Asset Management LLC, TW Asset Management LLC
and Thomas Weisel Global Growth Partners LLC, are registered as
investment advisers with the SEC and subject to regulation and
oversight by the SEC. Thomas Weisel Partners LLC is also a
member of, and is subject to regulation by, the New York Stock
Exchange (the “NYSE”), and the American Stock
Exchange. Thomas Weisel Partners LLC is also registered as an
introducing broker with the Commodity Futures Trading Commission
and is a member of the National Futures Association. In Canada,
investment dealers are also subject to regulation by
self-regulatory organizations which are responsible for the
enforcement of and conformity with securities legislation for
their members and have been granted the powers to prescribe
their own rules of conduct and financial requirements of members.

 

Thomas Weisel Partners Canada, Inc. (formerly Westwind Partners
Inc.), our registered Canadian broker-dealer subsidiary, is
subject to regulation by the securities commissions of Ontario,
Quebec, British Columbia, Manitoba, Saskatchewan and Nova
Scotia, is a member of the Investment Dealers Association of
Canada and is a participating organization of the Toronto Stock
Exchange, the TSX Venture Exchange and Canada’s New Stock
Exchange. Thomas Weisel Partners Canada, Inc., is required by
the Investment Dealers Association to belong to the Canadian
Investors Protection Fund (“CIPF”), whose primary role
is investor protection. The CIPF may charge member firms
assessments based on revenues and risk premiums. The CIPF
provides protection for securities and cash held in client
accounts up to CDN$1,000,000 per client with separate coverage
of CDN$1,000,000 for certain types of accounts. This coverage
does not protect against market fluctuations. Each of Thomas
Weisel Partners International Limited and Thomas Weisel Partners
(UK) Limited, each a registered U.K. broker-dealer subsidiary,
is subject to regulation by the Financial Securities Authority
in the United Kingdom. Thomas Weisel Partners (UK) Limited is a
member of the London Stock Exchange. Thomas Weisel International
Private Limited, our Indian subsidiary, is subject to the
oversight of Indian regulatory authorities. Our broker-dealer
branch office in Zurich, Switzerland is subject to the oversight
of the Swiss Federal Banking Commission (SFBC).

 

Broker-dealers are subject to regulations that cover all aspects
of the securities business, including sales methods, trade
practices among broker-dealers, use and safekeeping of
customers’ funds and securities, capital structure,
record-keeping, the financing of customers’ purchases and
the conduct and qualifications of directors, officers and
employees. In particular, as a registered broker-dealer and
member of various self-regulatory organizations, each of Thomas
Weisel Partners LLC and Thomas Weisel Partners (USA) Inc. is
subject to the SEC’s uniform net capital rule,
Rule 15c3-1.
Rule 15c3-1
specifies the minimum level of net capital a broker-dealer must
maintain and also requires that a significant part of its assets
be kept in relatively liquid form. The SEC and various
self-regulatory organizations impose rules that require
notification when net capital falls below certain predefined
criteria, that limit the ratio of subordinated debt to equity in
the regulatory capital composition of a broker-dealer and that
constrain the ability of a broker-dealer to expand its business
under certain circumstances. Additionally, the SEC’s

uniform net capital rule imposes certain requirements that may
have the effect of prohibiting a broker-dealer from distributing
or withdrawing capital and requiring prior notice to the SEC for
certain withdrawals of capital. The SEC has adopted rule
amendments that establish alternative net capital requirements
for broker-dealers that are part of a consolidated supervised
entity. As a condition to its use of the alternative method, a
broker-dealer’s ultimate holding company and affiliates
(referred to collectively as a consolidated supervised entity)
must consent to group-wide supervision and examination by the
SEC. If we elect to become subject to the SEC’s group-wide
supervision, we will be required to report to the SEC
computations of our capital adequacy. Thomas Weisel Partners
Canada, Inc. is subject to the Minimum Capital Rule (By-Law
No. 17 of the Investment Dealers Association) and the Early
Warning System (By-Law No. 30 of the Investment Dealers
Association). The Minimum Capital Rule requires that every
member shall have and maintain at all times Risk Adjusted
Capital greater than zero calculated in accordance with
Form 1 (Joint Regulatory Financial Questionnaire and
Report) and with such requirements as the Board of Directors of
the Investment Dealers Association may from time to time
prescribe. Insufficient Risk Adjusted Capital may result in
suspension from membership of the Investment Dealers
Association. The Early Warning System is designed to provide
advance warning that a member firm is encountering financial
difficulties. This system imposes certain sanctions on any
member who is designated in Early Warning Level 1 or
Level 2 according to its capital, profitability, liquidity
position, frequency of designation or at the discretion of the
Investment Dealers Association. Restrictions on business
activities and capital transactions, early filing requirements,
and mandated corrective measures are sanctions that may be
imposed as part of the Early Warning System. Thomas Weisel
Partners Canada, Inc. was not in Early Warning Level 1 or
Level 2 during fiscal 2007 or 2006.

 

The research areas of investment banks have been and remain the
subject of increased regulatory scrutiny. In 2002 and 2003,
acting in part pursuant to a mandate contained in the
Sarbanes-Oxley Act of 2002, the SEC, the NYSE and the NASD
adopted rules imposing heightened restrictions on the
interaction between equity research analysts and investment
banking personnel at member securities firms. In addition, in
2003 and 2004, several securities firms in the United States,
including Thomas Weisel Partners LLC, reached a settlement with
certain federal and state securities regulators and
self-regulatory organizations to resolve investigations into
their equity research analysts’ alleged conflicts of
interest. Under this settlement, the firms have been subject to
certain restrictions and undertakings. As part of this
settlement, restrictions have been imposed on the interaction
between research and investment banking departments, and these
securities firms are required to fund the provision of
independent research to their customers. In connection with the
research settlement, the firm has also subscribed to a voluntary
initiative imposing restrictions on the allocation of shares in
initial public offerings to executives and directors of public
companies.

 

The effort to combat money laundering and terrorist financing is
a priority in governmental policy with respect to financial
institutions. The USA PATRIOT Act of 2001 contains anti-money
laundering and financial transparency laws and mandates the
implementation of various new regulations applicable to
broker-dealers and other financial services companies, including
standards for verifying client identification at account opening
and obligations to monitor client transactions and report
suspicious activities. Anti-money laundering laws outside the
United States contain some similar provisions. The obligation of
financial institutions, including us, to identify their
customers, watch for and report suspicious transactions, respond
to requests for information by regulatory authorities and law
enforcement agencies, and share information with other financial
institutions, has required the implementation and maintenance of
internal practices, procedures and controls which have
increased, and may continue to increase, our costs, and any
failure with respect to our programs in this area could subject
us to regulatory consequences, including substantial fines and
potentially other liabilities.

 

In addition to U.S. federal regulations, certain of our
businesses are subject to compliance with laws and regulations
of U.S. state governments,
non-U.S. governments,
their respective agencies
and/or
various self-regulatory organizations or exchanges relating to
the privacy of client information. Any failure to comply with
these regulations could expose us to liability
and/or
reputational damage.

Additional legislation, changes in rules promulgated by the SEC
and self-regulatory organizations or changes in the
interpretation or enforcement of existing laws and rules, either
in the United States or elsewhere, may directly affect the mode
of our operations and profitability.

 

U.S. and
non-U.S. government
agencies and self-regulatory organizations, as well as state
securities commissions in the United States, are empowered to
conduct administrative proceedings that can result in censure,
fine, the issuance of
cease-and-desist
orders or the suspension or expulsion of a broker-dealer or its
directors, officers or employees. Occasionally, our subsidiaries
have been subject to investigations and proceedings, and
sanctions have been imposed for infractions of various
regulations relating to our activities.

 

 

Broker-dealers are subject to regulations that cover all aspects of the securities business, including sales methods, trade practices among broker-dealers, use and safekeeping of customers’ funds and securities, capital structure, record-keeping, the financing of customers’ purchases and the conduct and qualifications of directors, officers and employees. In particular, as a registered broker-dealer and member of various self-regulatory organizations, Thomas Weisel Partners LLC is subject to the SEC’s uniform net capital rule, Rule 15c3-1. Rule 15c3-1 specifies the minimum level of net capital a broker-dealer must maintain and also requires that a significant part of its assets be kept in relatively liquid form. The SEC and various self-regulatory organizations impose rules that require notification when net capital falls below certain predefined criteria, that limit the ratio of subordinated debt to equity in the regulatory capital composition of a broker-dealer and that constrain the ability of a broker-dealer to expand its business under certain circumstances. Additionally, the SEC’s uniform net capital rule imposes certain requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing capital and requiring prior notice to the SEC for certain withdrawals of capital. The SEC has adopted rule amendments that establish alternative net capital requirements for broker-dealers that are part of a consolidated supervised entity. As a condition to its use of the alternative method, a broker-dealer’s ultimate holding company and affiliates (referred to collectively as a consolidated supervised entity) must consent to group-wide supervision and examination by the SEC. If we elect to become subject to the SEC’s group-wide supervision, we will be required to report to the SEC computations of our capital adequacy.

 

The research areas of investment banks have been and remain the subject of increased regulatory scrutiny. In 2002 and 2003, acting in part pursuant to a mandate contained in the Sarbanes-Oxley Act of 2002, the SEC, the NYSE, and the NASD adopted rules imposing heightened restrictions on the interaction between equity research analysts and investment banking personnel at member securities firms. In addition, in 2003 and 2004, several securities firms in the United States, including Thomas Weisel Partners LLC, reached a settlement with certain federal and state securities regulators and self-regulatory organizations to resolve investigations into their equity research analysts’ alleged conflicts of interest. Under this settlement, the firms have been subject to certain restrictions and undertakings. As part of this settlement, restrictions have been imposed on the interaction between research and investment banking departments, and these securities firms are required to fund the provision of independent research to their customers. In connection with the research settlement, the firm has also subscribed to a voluntary initiative imposing restrictions on the allocation of shares in initial public offerings to executives and directors of public companies.

 

The SEC staff has conducted studies with respect to soft dollar practices in the brokerage and asset management industries. In July 2006, the SEC published interpretive guidance regarding the scope of permitted brokerage and research services in connection with soft dollar practices and solicited further public comment regarding soft dollar practices involving third party providers of research. The July 2006 SEC interpretive guidance may affect our brokerage business and future changes in laws or regulations may prompt brokerage customers to revisit or alter the manner in which they pay for research or brokerage services.

 

The effort to combat money laundering and terrorist financing is a priority in governmental policy with respect to financial institutions. The USA PATRIOT Act of 2001 contains anti-money laundering and financial transparency laws and mandates the implementation of various new regulations applicable to broker-dealers and other financial services companies, including standards for verifying client identification at account opening, and obligations to monitor client transactions and report suspicious activities. Anti-money laundering laws outside the United States contain some similar provisions. The obligation of financial institutions, including us, to identify their customers, watch for and report suspicious transactions, respond to requests for information by regulatory authorities and law enforcement agencies, and share information with other financial institutions, has required the implementation and maintenance of internal practices, procedures and controls which have increased, and may continue to increase, our costs, and any failure with respect to our programs in this area could subject us to regulatory consequences, including substantial fines and potentially other liabilities.

 

In addition to U.S. federal regulations, certain of our businesses are subject to compliance with laws and regulations of U.S. state governments, non-U.S. governments, their respective agencies and/or various self-regulatory organizations or exchanges relating to the privacy of client information. Any failure to comply with these regulations could expose us to liability and/or reputational damage.

 

Additional legislation, changes in rules promulgated by the SEC and self-regulatory organizations or changes in the interpretation or enforcement of existing laws and rules, either in the United States or elsewhere, may directly affect the mode of our operations and profitability.

 

U.S. and non-U.S. government agencies and self-regulatory organizations, as well as state securities commissions in the United States, are empowered to conduct administrative proceedings that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer or its directors, officers or employees. Occasionally, our subsidiaries have been subject to investigations and proceedings, and sanctions have been imposed for infractions of various regulations relating to our activities. For example, in 2004, we agreed to pay a total of $12.5 million as part of the global settlement to resolve investigations into equity research analysts’ alleged conflicts of interest. More recently, in March 2005, we agreed to pay a total of $1.75 million to settle charges by the NASD regarding alleged improper allocation practices in initial public offerings and alleged failure to retain emails.