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Knight Capital Rises: Investors Rescue Brokerage Through $400 Million Stock Sale

Knight Capital Group Inc. (NYSE:KCG) has settled on a plan—selling $400 million worth of stock to investors—to save the brokerage after a technical glitch with its trading software caused it to lose $440 million last week.

The Jersey City, N.J.-based firm, which owns Urban Financial, the largest reverse mortgage business, said in an 8-K filing on Monday that it had entered into a securities purchase agreement with investors on Aug. 6 to issue $400 million worth of 2% convertible preferred stock. The stock could be converted into about 267 million shares of common stock in the company, valued at about $1.50 per share.

Blackstone Group LP, Getco, and TD Ameritrade Holding Corp, Stifel Nicolas, Jefferies Group Inc and Stephens Inc. purchased the shares for a 73% stake in the company, according to a Knight statement.

“We are grateful for the support of these leading Wall Street firms that came together to invest in Knight,” Tom Joyce, the firm’s chairman and chief executive officer, said in the statement. “The array of participants in this capital infusion underscores Knight’s critical role in the capital markets.”

The brokerage has previously confirmed that its reverse mortgage business, Urban Financial Group, would continue operations despite Knight’s losses and that its capital base had not been impacted.

Knight’s financial position and capital base are now restored to a level that “more than offsets” last week’s loss, according to Joyce.

Sandler O’Neill + Partners, L.P. and Wachtell, Lipton, Rosen & Katz advised Knight on the transaction. The 8-K filing can be accessed here.

Written by Alyssa Gerace