COMMITMENTS AND CONTINGENCIES

Leases

The Company leases office space in various states expiring at various dates through October 2026, and as of December 31, 2018, is committed under operating leases for future minimum lease payments as shown in the table below.

In October 2018, the Company entered into an agreement to lease equipment under a capital lease for 24 months. The equipment under the lease are collateral for the lease obligation and are included within fixed assets in the condensed consolidated statements of financial condition. The leased equipment is amortized on a straight line basis over 7 years. The interest rate related to the lease obligation is 5.6 percent and the maturity date is September 2020. The capital lease obligation is included within other liabilities in the condensed consolidated statements of financial condition.



Fiscal Year Ending September 30,	Operating Leases		Capital Lease
Nine months ending September 30, 2019	$	2,224,000	$	184,000
2020	2,812,000		297,000
2021	2,381,000		—
2022	1,588,000		—
2023	1,450,000		—
Thereafter	3,239,000		—
Total minimum lease payments	$	13,694,000	$	481,000
Less: Amounts representing interest not yet incurred			26,000
Present value of capital lease obligations			$	455,000

The total amount of rent payable under the leases is recognized on a straight line basis over the term of the leases. Rental expense under all operating leases, excluding sublease income, for the three months ended December 31, 2018 and 2017 was $951,000 and $1,040,000, respectively. Sublease income under all operating subleases for the three months ended December 31, 2018 and 2017 was approximately $51,000 and $133,000, respectively.

As of December 31, 2018, the Company and its subsidiaries had two outstanding letters of credit, which have been issued in the maximum amount of $1,354,000 as security for property leases, and which are collateralized by the restricted cash as reflected in the condensed consolidated statements of financial condition.

Litigation and Regulatory Matters

The Company and its subsidiaries are defendants or respondents in various pending and threatened arbitrations, administrative proceedings and lawsuits seeking compensatory damages. Several cases have no stated alleged damages. Claim amounts are infrequently indicative of the actual amounts the Company will be liable for, if any. Further, the Company has a history of collecting amounts awarded in these types of matters from its registered representatives that are still affiliated, as well as from those that are no longer affiliated. Many of these claimants also seek, in addition to compensatory damages, punitive or treble damages, and all seek interest, costs and fees. These matters arise in the normal course of business. The Company intends to vigorously defend itself in these actions, and the ultimate outcome of these matters cannot be determined at this time.

Liabilities for potential losses from complaints, legal actions, government investigations and proceedings are established where management believes that it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. In making these decisions, management bases its judgments on its knowledge of the situations, consultations with legal counsel and its historical experience in resolving similar matters. In many lawsuits, arbitrations and regulatory proceedings, it is not possible to determine whether a liability has been incurred or to estimate the amount of that liability until the matter is close to resolution. However, accruals are reviewed regularly and are adjusted to reflect the Company’s estimates of the impact of developments, rulings, advice of counsel and any other information pertinent to a particular matter. Because of the inherent difficulty in predicting the ultimate outcome of legal and regulatory actions, management cannot predict with certainty the eventual loss or range of loss related to such matters. At December 31, 2018 and September 30, 2018, the Company accrued approximately $1,095,000 and $825,000, respectively. These amounts are included in accounts payable and accrued expenses in the condensed consolidated statements of financial condition. Amounts charged to operations for settlements and potential losses during the three months ended December 31, 2018 and 2017 were $523,000 and $246,000, respectively, which is included in other administrative expenses. The Company has included in professional fees litigation and arbitration related expenses of $471,000 and $351,000 for the three months ended December 31, 2018 and 2017, respectively.