Cohen Milstein Sellers & Toll PLLC is conducting an investigation to determine whether Knight Capital Group, Inc. (“Knight Capital” or the “Company”) and certain of its officers and directors made false and misleading statements and/or omissions in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as state law.
A class action lawsuit was filed in the U.S. District Court for the Western District of Tennessee by another law firm on behalf of purchasers of the common stock of Knight Capital Group, Inc. (NYSE: KCG) between February 29, 2012 and August 1, 2012, inclusive (the “Class Period”).
The complaint alleges that Knight Capital and certain of its officers and directors (“Defendants”) misrepresented and/or failed to disclose that: (1) “[m]otivated by changes to NYSE Rules taking effect on August 1, 2012, Knight Capital knowingly introduced unproven electronic trading software packages into the NYSE that destabilized the global equity markets”; (2) Knight Capital knew or should have known that its new electronic trading technology had the potential to engage in large-volume erroneous trading because massive amounts of trades could be placed in seconds; and (3) as a result, when the technology was implemented, Knight Capital erroneously acquired a large volume of stock at unfavorable prices.
On August 1, the price of Knight Capital shares fell from $10.33 to $6.94 after it was reported that the Company had sent an e-mail advising its clients to route orders elsewhere, explaining that it had “experienced a technology issue” in its market-making unit “related to the routing of shares of approximately 150 stocks to the NYSE.” The following day, the Company publicly confirmed the “technology issue” which it said had resulted in a $440 million loss, stating in a press release:
This issue was related to Knight’s installation of trading software and resulted in Knight sending numerous erroneous orders in NYSE-listed securities into the market…Knight has traded out of its entire erroneous trade position, which has resulted in a realized pre-tax loss of approximately $440 million. Although the company’s capital base has been severely impacted, the company’s broker/dealer subsidiaries are in full compliance with their net capital requirements. Knight will continue its trading and market making activities at the commencement of trading today. The company is actively pursuing its strategic and financing alternatives to strengthen its capital base.
The price of Knight Capital stock dropped from $6.94 to $2.58 on August 2 amid fears that the Company could be headed for bankruptcy.