Rithm Capital Corp

Current report

The risk factors disclosed under Part I, Item 1A. “Risk Factors” of our Amended 2023 Form 10-K/A should be considered together with the information included in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, and should not be limited to those referenced herein or therein. The following risks and uncertainties supplement the risk factors found under Part I, Item 1A. “Risk Factors” of our Amended 2023 Form 10-K/A.

Current report

Rithm Capital’s subsidiaries Sculptor, is registered, and RCM Manager, recently registered, as an investment adviser, which could impose limits on Rithm Capital’s operations.

Current report

While Rithm Capital is currently not registered as an investment adviser under the Advisers Act, our wholly owned subsidiaries, Sculptor is registered, and RCM Manager, recently registered, as an investment adviser, which subjects Sculptor and RCM Manager to extensive regulation as investment advisers and could adversely affect our ability to manage our business and make investments. Sculptor and RCM Manager are subject to various requirements under the Advisers Act such as fiduciary duties to clients, anti-fraud provisions, substantive prohibitions and requirements, contractual and record-keeping requirements and administrative oversight by the SEC (primarily by inspection). In addition, Sculptor and RCM Manager must address potential conflicts between our interests and those of their clients. On June 11, 2024, RCM Manager entered into a management agreement with Great Ajax to become Great Ajax’s external manager and may in the future enter into additional management contracts, including with entities that may have investment strategies similar to Rithm Capital. RCM Manager has adopted an investment allocation policy which applies to investments which are in scope of the investment programs of both Great Ajax and Rithm Capital. RCM Manager has an obligation to seek to ensure that Great Ajax is receiving a fair and equitable investment allocation over time with respect to investment opportunities within the scope of Great Ajax’s investment program. In addition, Great Ajax may receive a favorable allocation of investment opportunities which are within its investment program in accordance with RCM Manager’s allocation policy. Furthermore, RCM Manager may adopt additional allocation policies in the future with respect to Great Ajax and Sculptor and as well as with respect to new funds managed by Sculptor or RCM Manager. These allocation policies could limit Rithm Capital’s ability to make certain investments.

Current report

In addition, certain of our officers and employees, including our Chief Executive Officer, President and Chairman, Michael Nierenberg, will provide investment advisory and related services to RCM Manager. Mr. Nierenberg currently serves as Great Ajax’s Interim Chief Executive Officer and other members of our senior management may in the future serve as other officers of Great Ajax. These individuals have or may in the future have fiduciary duties to Great Ajax and will have fiduciary duties to funds that RCM Manager may provide management services to in the future. Although we have established certain policies and procedures designed to mitigate conflicts of interest, there can be no assurance that these policies and procedures will be effective in doing so. It is possible that actual, potential or perceived conflicts of interest could give rise to investor dissatisfaction, litigation or regulatory enforcement actions. In addition, if Sculptor or RCM Management is deemed to be out of compliance with any such rules and regulations, Sculptor or RCM Management, as the case may be, may be subject to civil liability, criminal liability and/or regulatory sanctions.

Current report

Extensive regulation of certain of our subsidiaries’ business activities, including Sculptor and RCM Manager, affects our and our subsidiaries’ activities and creates the potential for significant liabilities and penalties. Our reputation, business, financial condition or results of operations could be materially affected by regulatory issues.

Current report

As investment advisers registered under the Advisers Act, Sculptor and RCM Manager are each subject to regulation and oversight by the SEC. Additionally, as a registered commodity pool operator and a registered commodity trading advisor, Sculptor is subject to regulation and oversight by the Commodity Futures Trading Commission and the National Futures Association. In the United Kingdom (“UK”), Sculptor’s UK subsidiaries are subject to regulation by the Financial Conduct Authority. Sculptor’s Asian operations, and its investment activities around the globe, are subject to a variety of other regulatory regimes that vary country by country, including the Securities and Futures Commission in Hong Kong.

Current report

A violation of any such regulations or a failure to maintain our funds’ and clients’ exemption from compliance with the Investment Company Act of 1940 could result in investigations, sanctions and reputational damage, which could adversely affect our business, financial condition or results of operations. Our funds and clients are involved regularly in trading activities that implicate a broad number of US and foreign securities law regimes, including laws governing trading on inside information, market manipulation, anti-corruption, including the Foreign Corrupt Practices Act, and a broad number of technical trading requirements that implicate fundamental market regulation policies.

Current report

There may be conflicts related to RCM Manager’s, and members of our senior management’s, obligations to Great Ajax as its external manager under the Great Ajax Management Agreement.

Current report

Under the Great Ajax Management Agreement, our wholly-owned subsidiary, RCM Manager, has agreed to provide Great Ajax external management services, including managing it’s day-to-day activities and implementing its investment strategy.

Current report

As part of the external management services under the Great Ajax Management Agreement, our Chief Executive Officer, President and Chairman, Michael Nierenberg, currently serves as Great Ajax’s Interim Chief Executive Officer and other members of our senior management may in the future serve as other officers of Great Ajax. In addition, certain Rithm Capital employees may provide management services to Great Ajax through RCM Manager. In serving in these multiple capacities, these individuals have duties and obligations to Great Ajax and its stockholders, which may create conflicts of interests. Our investment objectives may overlap with the investment objectives of Great Ajax. We may also have economic or operational interests that are inconsistent with or adverse to the interests of Great Ajax. RCM Manager and Great Ajax have policies and procedures in place to address conflicts of interest, but there is no guarantee that such policies and procedures adopted by RCM Manager and Great Ajax or the terms and conditions of the Great Ajax Management Agreement will enable Rithm Capital and RCM Manager to identify, adequately address or mitigate all potential conflicts of interest. As a result of our external management activities, any Rithm Capital officers who may be Great Ajax officers or Rithm Capital employees who may provide management services to Great Ajax through RCM Manager in a non-officer capacity, may have conflicts in allocating their time, focus and attention between Rithm Capital and other activities in which they are or may become involved in under the Great Ajax Management Agreement and may not be able to devote all of their time to the day-to-day activities of Rithm Capital. These potential management distractions could materially and adversely affect our financial condition, results of operations, cash flow and per share market price of our common stock.

Current report

Rithm Capital and its affiliates may engage in transactions with Great Ajax or future entities managed by RCM Manager which may include, but are not limited to, financing arrangements, purchases of debt, co-investments in commercial real estate assets and other assets that present an actual, potential or perceived conflict of interest. It is possible that actual, potential or perceived conflicts could give rise to investor dissatisfaction, litigation or regulatory enforcement actions. Appropriately dealing with conflicts of interest is complex and difficult, and our reputation could be damaged if we fail, or appear to fail, to deal appropriately with one or more potential, actual or perceived conflicts of interest. Regulatory scrutiny of, or litigation in connection with, conflicts of interest could have a material adverse effect on our reputation, which could materially adversely affect our business in a number of ways, including causing an inability to raise additional funds, a reluctance of counterparties to do business with us, a decrease in the prices of our equity securities and a resulting increased risk of litigation and regulatory enforcement actions.

Current report

Our subsidiaries’ removal as the investment manager, or the liquidation, of one or more of Sculptor’s funds or Great Ajax could eliminate our management fees and incentive income derived from such entities.

Current report

The governing agreements of most of Sculptor’s funds and the Great Ajax Management Agreement provide that, subject to certain conditions, the agreements may be terminated by third-party investors in or independent directors of such entities without cause which would eliminate our management fees and incentive income derived from such entities. In addition to having a negative impact on our business, financial condition or results of operations, the occurrence of such an event would likely result in reputational damage to us. Termination of these agreements, or revisions to the terms that are detrimental to the manager, could affect the fees we earn from the relevant entities, which could have a material adverse effect on our results of operations.

Current report

In addition, because some of our subsidiaries are advisers registered under the Advisers Act, certain of our subsidiaries’ management agreements would be terminated upon an “assignment” of these agreements without investor consent, which assignment may be deemed to occur in the event these advisers were to experience a change of control. We cannot be certain that consents required to assignments of our investment management agreements will be obtained if a change of control occurs. “Assignment” of these agreements without investor consent could cause us to lose the fees we earn from such funds.

Previous report

For the three months ended March 31, 2024, there were no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.