Knight Capital Drops 9.5% on Fee Refund Warning

Shares of Knight Capital fell 9.5% to $13.09 on Tuesday, following the company's filing of SEC Form 8-K in which it said if any of its Deephaven funds incurred a second-half loss, Deephaven will refund all or a portion of the $68.4 million in incentive fees it earned in the first-half of 2007. Knight subsequently released a statement on its website detailing preliminary unaudited month-to-date performance of four Deephaven funds through August 24: Two Global Multi-Strategy funds had estimated losses of 2.23%-2.24% (+6.68% to +6.80% YTD), and two Event-driven funds are down an estimated 4.16%-4.18% (+2.99% to +3.58% YTD). Banc of America Securities analyst Christopher Allen commented, "In discussions with management after the 8-K was released, the company stressed that Deephaven was not blowing up, but that the 8-K was to clarify the clawback provision given current market conditions." Allen lowered his share price target to $16.50 from $18.50, saying he believes "only a portion" of the $68.4M of incentive fees is at risk.

Sources: Press release, NITE SEC Form 8-K [pdf], Reuters
Commentary: Knight Capital Should Drop, Bounce Following 8-K Filing • Knight Capital Group: A Cash Heavy, Unleveraged Financial Play
Stocks/ETFs to watch: NITE

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