Shares of Knight Trading Fall After Web Postings

Knight Trading Group Inc.’s shares tumbled 14% Friday after postings on Internet message boards said one of the firm’s traders had been arrested. The company said that no arrest took place and that it was under investigation by neither the Securities and Exchange Commission nor the FBI.

One individual posted messages on message boards operated by Yahoo Inc. and Raging Bull at about 1:30 p.m. New York time, Knight said in a statement on its Web site.

The postings are “totally untrue,” Knight spokeswoman Margaret Wyrwas said.

Knight, based in Jersey City, N.J., and the biggest market maker on the Nasdaq Stock Market, said it was working with Yahoo and Raging Bull to remove the messages. The company said it was working “throughout the marketplace to quash further distribution of this false information.”

Knight stock plunged $1.11 to $6.85 in Nasdaq trading, its lowest level since November 1998. More than 12.5 million shares changed hands, about 12 times the three-month daily average for the stock.

CIBC World Markets Kenneth Worthington downgraded Knight’s stock Friday to “hold” from “buy.” Worthington said he had been planning to downgrade the stock because he didn’t see “a catalyst” for the company’s earnings to improve. He said his downgrade wasn’t a result of the rumor.

In January, Knight agreed to pay $1.5 million to settle regulatory charges that it repeatedly violated trading rules. The firm neither admitted nor denied any wrongdoing. Among the shortcomings cited in the settlement order were inadequate supervisory procedures at the firm.