Knight will pay to settle claims

Nasdaq matchmaker says $79 million payout will affect its earnings

July 08, 2004|By BLOOMBERG NEWS

NEW YORK - Knight Trading Group Inc., the biggest matchmaker for buyers and sellers of Nasdaq stocks, reached a $79 million settlement of claims it overcharged customers. The company also said quarterly profit fell short of forecasts.

The agreement with the Securities and Exchange Commission and the National Association of Securities Dealers will lower earnings in the quarter that ended June 30, the company said. Not counting settlement costs and writedowns, Knight's profit was 6 cents to 11 cents a share, less than the 15-cent average analyst forecast.

The settlement costs may wipe out profit for the second quarter. The company had net income of $14.8 million, or 13 cents a share, a year earlier. Knight and other Wall Street stock trading firms have been hurt by a trading decline amid investor concerns about the Iraq war and rising interest rates and oil prices.

"The $79 million settlement is higher than we anticipated," said Michael Vinciquerra, an analyst at Raymond James Financial Inc. in Atlanta. "Hopefully, we're hitting a low point here for the stock and earnings."

Knight shares fell 49 cents yesterday to close at $8.74 on the Nasdaq stock market. The stock reached a high of $60.06 in March 2000 at the peak of the market for computer-related shares.

The slowdown in trading has contributed to a 41 percent decline in the shares this year. Daily trading on the Nasdaq totaled 1.8 billion shares yesterday, compared with a high this year of 2.7 billion on Jan. 8.

In the settlement, Knight said it will disgorge about $41 million in profit and pay $13 million in interest and $25 million in penalties. The SEC and NASD will determine how this money is distributed.

Knight said the agreement is subject to final approval by the SEC and NASD. Knight said it expects the proposed settlement to take the form of an administrative order, in which it would "neither admit nor deny the findings."

The agreement with regulators doesn't resolve the so-called Wells notices, which indicate that the SEC's Division of Enforcement is considering civil and administrative actions against four former employees, Knight said.

An estimated 32 percent of all over-the-counter stocks are traded through Knight's systems. Knight's closest competitor, Charles Schwab Corp., holds about 8 percent of the trading in over-the-counter shares.

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