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Pastimes : Investment Chat Board Lawsuits -- Ignore unavailable to you. Want to Upgrade?

To: PartyTime who wrote (3245)	6/4/2002 8:42:27 AM
From: Jeffrey S. Mitchell	Respond to of 12465

Re: 6/3/02 - [NITE] TheStreet.com: Knight Trading Blames Stock Decline on Software Glitch; WSJ: Knight Trading Faces Allegations That It Violated Rules Knight Trading Blames Stock Decline on Software Glitch By Kristen French Staff Reporter 06/03/2002 03:14 PM EDT Updated from 11:57 a.m. EDT Shares of market maker Knight Trading (NITE:Nasdaq - news - commentary - research - analysis) recovered much of the ground they lost in the premarket session once trading resumed Monday. After plunging below a dollar on heavy volume in the premarket session, Knight's shares were lately trading at $5.97, down 6% from Friday's closing price of $6.35. The company said the erratic activity in its shares before the open was caused by a software glitch in its trading system. Traders and analysts initially attributed the premarket decline to rumors that the company was being investigated by the Securities and Exchange Commission. In a press release, Knight said the problem generated a large series of sell limit orders in its own stock, which were routed to various destinations and disrupted trading in the security. "This was isolated to Knight's stock and had no bearing on client business," the company said. "Knight is operating under normal operating conditions, without interruptions. We are working with various execution centers to correct these erroneous orders in Knight's stock." Knight doesn't make a market in its own stock. The company also said its "strategy is sound, our balance sheet is strong, and we're looking forward to building the business going forward." According to Putnam Lovell analyst Richard Repetto, Knight traded 2.8 million shares at an average price of $1.86 before the stock was halted. The Nasdaq Stock Market plans to cancel all trades in Knight shares that were executed from 8:23 a.m. EDT to 8:48 a.m. EDT. "This is consistent with actions taken by other exchanges," the Nasdaq said. Knight's board recently named Thomas Joyce its new president and chief executive, a position it had been trying to fill for months. The company has been hurt by new trading rules that reduce the spreads the company earns on trades and by a sluggish market. As a result, Knight has been plagued by plunging profits and a slew of executive departures. Last month, the company said it planned to slash $30 million in costs by the third quarter. thestreet.com ===== Tuesday June 4, 12:50 am Eastern Time WSJ: Knight Trading Faces Allegations That It Violated Rules The Securities and Exchange Commission and the National Association of Securities Dealers are investigating Knight Trading Group Inc. following allegations from a former senior executive that the company engaged in improper trading during the tech market's heyday, people familiar with the matter told The Wall Street Journal. Though Knight isn't well known outside of Wall Street, the scope of the probes nevertheless could raise eyebrows among investors throughout the country. At one point during the market's peak two years ago, New Jersey -based Knight handled more than 11% of all the buy and sell orders for Nasdaq-listed stocks, meaning it was more than likely that individual orders for companies ranging from Microsoft Corp. (NasdaqNM: MSFT - News) to eBay Inc. (NasdaqNM: EBAY - News) eventually went through Knight. The allegations play on some investors' fears about what happened during the Internet-stock craze -- that instead of looking out for investors' welfare, traders on Wall Street were instead protecting their own profits, even if their investor clients suffered. The government inquiry stems from a sealed arbitration complaint filed late last year by Robert Stellato, the former head of Knight's institutional trading desk. In the complaint, filed with the NASD, Mr. Stellato alleges an elaborate system of trading-rule violations at the company that cost investors millions of dollars. The alleged violations involve so-called front running, in which Knight traders are accused of placing their own orders for stock before placing the same orders for customers of the firm -- meaning Knight and its employees profited in advance from customer orders they knew would push the stock of a company up or down. If proved true, Mr. Stellato's allegations go well beyond the findings of an earlier NASD investigation, which culminated in January in a $1.5 million fine against Knight for trading-rule violations. The latest allegations against Knight also are apparently unrelated to a three-hour interruption of trading in Knight's own stock on the Nasdaq Stock Market Monday. Less than an hour before the markets' morning open, Nasdaq officials halted the trading of Knight shares in anticipation of company news. Knight later announced a glitch in its trading software had generated a large number of false sell orders in its own stock -- which drove down Knight's share price in premarket trading. Nasdaq intends to cancel the affected trades. In a written response to the NASD, the company disputes Mr. Stellato's allegations, asserting there was no illegal trading at Knight. In fact, the company says Mr. Stellato drummed up the front-running stories in order to mask his own failings as a manager, which led ultimately to his termination. While Knight acknowledges it asked two senior traders whom Mr. Stellato accused of front-running to resign, the company claims those departures weren't the result of unlawful activity, but rather personality clashes between the traders and Mr. Stellato. Neither Mr. Stellato nor his attorney would comment on his complaint, and the SEC and NASD declined to discuss the matter. Wall Street Journal Staff Reporters Kate Kelly and Michael Schroeder contributed to this article. biz.yahoo.com