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Knight’s Founder Pasternak Purchased Shares Before 57% Rebound

Traders work at a Knight Capital Group Inc. post on the floor of the New York Stock Exchange on Aug. 3, 2012. Photographer: Jin Lee/Bloomberg
Traders work at a Knight Capital Group Inc. post on the floor of the New York Stock Exchange on Aug. 3, 2012. Photographer: Jin Lee/Bloomberg

Aug. 4 (Bloomberg) -- Kenneth Pasternak bought Knight Capital Group Inc. shares during the two-day plunge this week on speculation the company he co-founded in 1995 will survive the $440 million loss that some analysts say may bankrupt it. The stock soared 57 percent yesterday.

“I seriously doubt they will go out of business,” said Pasternak in a telephone interview from Ridgefield Park, New Jersey, yesterday. “They are a market leader when it comes to evolving best practices and best functionality.”

Knight’s shares rallied after it secured a funding lifeline and more customers resumed routing orders to the market maker. Pasternak, who ran Knight until 2002 when he retired, said computer breakdowns are part of the electronic trading business and that the company has “really good technology and a good track record.”

Knight is fighting to preserve its business amid concern about its solvency. Analysts at CLSA Credit Agricole Securities said bankruptcy was a possibility if it failed to get financing. The trading fault, which caused stocks to swing as much as 151 percent, left the firm with a “large error position,” Knight Chief Executive Officer Thomas Joyce told Bloomberg Television’s “Market Makers” program with Erik Schatzker and Stephanie Ruhle.

TD Ameritrade Holding Corp. and Scottrade Inc., which sent trades elsewhere for execution after Knight’s software bug on Aug. 1 roiled markets, said they were routing orders to the firm again. Knight told brokers it received short-term financing, according to a person familiar with the matter who requested anonymity because the conversations were private.

As the company opened its books to potential saviors, people with knowledge of the matter said KKR & Co., TPG Capital and Silver Lake were among buyout firms that had an initial interest -- though one said chances of a private-equity deal are small. Knight shares jumped $1.47 to $4.05 today. They traded as high as $13.53 this year.

The market maker has until Aug. 6 to complete a transaction in which Goldman Sachs Group Inc. will take over trades that saddled Knight with a $440 million loss, a person familiar with the matter said. U.S. stock trades settle three sessions after they are made.

The Jersey City, New Jersey-based company hired Joyce as chief executive officer in May 2002 after annual revenue plunged 46 percent during the prior year. It had 1,423 employees at the end of 2011, according to a regulatory filing, growing through more than 15 mergers and acquisitions since 2000.

Pasternak is now chairman and founder of Kabr Real Estate Investment, a private equity firm, and heads family office Chestnut Ridge Capital.

To contact the reporter on this story: Steve Chambers in New York at schambers18@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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