The agreement was reached between Knight Trading andthe Securities and Exchange Commission (SEC) and the National Association of Securities Dealers (NASD) to settle investigations in connection with specific institutional trade activity, conduct and supervision that occurred in 1999 through 2001, the Jersey City, New Jersey-based firm said in a news release. Regulators began investigating Knight after a former employee accused the company of “front running,” placing the firm’s orders ahead of customer orders to take advantage of the inside trade knowledge.
Knight said it received a Wells Notice in March related to trading activity, conduct, supervision and record-keeping. Under the terms of the settlement agreement, Knight Trading wholly-owned subsidiary, Knight Securities, LP (KSLP), will disgorge approximately $41 million in institutional trading profits, and pay $13 million in interest and $25 million in penalties, KSLP expects the proposed settlement to take the form of an administrative order, in which KSLP would neither admit nor deny the findings. Knight will take a pre-tax charge of approximately $79 million in the second quarter, which ended June 30, 2004, relating to the agreement.
The agreement in principle is subject to the drafting of settlement papers and final approval by the SEC and NASD. Once final approval is granted, the SEC and NASD will determine how the funds would be distributed, Knight said.