Knight ducks insolvency with $400 million investment

‘Confidence Inspiring’

“This is a confidence-inspiring group, so that’s a good thing to begin with,” Michael Holland, chairman of New York- based Holland & Co., said in a phone interview. His firm oversees $4 billion. “These businesses really fund overnight. If you don’t have the confidence, you don’t have the funding.”

The share decline brought the company’s market value to $253 million on Aug. 2, compared with a peak of $4.8 billion in 2000, data compiled by Bloomberg show.

Knight turned to Goldman Sachs Group Inc. on Aug. 1 to buy the firm out of trading positions acquired when a computer program malfunctioned, a person with knowledge of the matter said. It has until the close of business today to complete the transaction.

Knight’s computers flooded the market with unintended trades on Aug. 1, sending dozens of stocks into spasms. The fault caused shares to swing as much as 151 percent and left the firm with a “large error position,” Chief Executive Officer Thomas Joyce told Bloomberg Television’s “Market Makers” program with Erik Schatzker and Stephanie Ruhle last week.

Vito’s Deli

People trickled in and out of Knight’s Jersey City headquarters yesterday as the firm worked on the deal, with polo shirts and khakis outnumbering business suits. None would comment on the record to Bloomberg News. Around noon, platters of sandwiches and salads from Vito’s Italian Deli in Hoboken were delivered.

Knight made it to the weekend after receiving short-term financing for market making, according to a person familiar with the matter who requested anonymity.

TD Ameritrade, the third-largest U.S. retail brokerage by client assets, helped found Knight with a group of brokers as a way to get better order execution in 1995 with an investment of about $700,000 and held on to a 7 percent stake after Knight’s initial stock offering in 1998.

Company Founders

“I was curious to see whether it might be one of the original founders” that invested, Mike Shea, a managing partner at New York-based brokerage firm Direct Access Partners LLC, said in a telephone interview. Shea worked at Knight from 1995 to 2002 as an assistant market maker and sales trader. “Anybody that was able to make this deal with Knight is going to be pretty happy with it down the road.”

Before the trading error last week, Knight posted an 81 percent drop in second-quarter net income after saying it lost $35 million in Facebook Inc.’s initial public offering. Revenue from the market-making unit dropped 52 percent last quarter in the third straight decline, and even without the Facebook loss, sales from that business fell 4 percent to $139 million, Joyce said in a July 18 analyst call.

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