Getco Acquires Knight Capital: No Auditor Was Harmed In The Process

As much progress as some think I’ve made in the world of journalism, one big thing holds me back:

I hate giving away the goods in the lede.

(Yes, that’s “lede” not lead, a fancy journalism word I’ve learned. I typically bury it. Using fancy journalism and publishing terms signifies you’ve written for print, still a journalism status symbol.)

Maybe I’m just like my father, too Scottish. I like making you wait. I enjoy meandering along in a story giving you the impression I’ve lost my way or forgotten the point.

Never doubt I’ve got a point. Maybe you’ll get it. Maybe you won’t. But don’t count on me using the inverted pyramid structure to make it easy for you.

If I were a real print journalist, the title of my latest post at and here would be something like:

PwC Always Wins!

Instead, I’m going to tease you with the title, Getco Gets NYSE Listing Via Reverse Merger With Knight Capital. That title alludes to the fact Getco’s deal for Knight Capital was a good old reverse merger, just like the chop suey the Chinese have been using to perpetrate frauds right under the SEC’s nose. If you’ve been following my stories about Chinese reverse mergers you can guess what that means for the auditors of the companies involved.

I was asked recently by another journalist whether there’s ever a legitimate reason to use the reverse merger structure. Well, if you believe that bypassing the SEC’s S-1 review and approval process for new public offerings is legitimate, then yes. In my opinion, it’s a back door that gives the appearance, if not actual evidence, that transparency and scrutiny is unwelcome.

I’ve also been accused by a close friend of writing for my own amusement at times, rather than for my readers’ understanding. Guilty as charged. My favorite line from this one is:

PricewaterhouseCoopers must have missed the software migration to production information technology controls hole that allowed bad code – the bread and butter of a high frequency trading firm – to bring Knight Capital to its knees.

Say it out loud to hear the assonance.

Anyway, please read to the bottom. I don’t even have to make this stuff up anymore.

Knight Capital decided “to pursue a takeover.” That’s how one New York media organization portrayed the tie-up between Jersey City’s Knight Capital and Chicago-based Getco, both designated NYSE market makers.

That’s special.

It’s straight-up New York hubris to deny the fact that much smaller but much better capitalized Getco will swallow Knight Capital and probably make some Knight Capital staff “redundant”. Knight Capital is already listed on the New York Stock Exchange although it’s had some recent challenges. Privately held Getco, with about 400 employees, sealed the deal last night by offering existing Knight shareholders a choice between $3.75 in cash per Knight share or one share of common stock of the new holding company.

Knight used to be the acquirer. A couple of months before an inexcusable software error last August 1 caused Knight’s computers to purchase billions of dollars of stocks in error resulting in a $461.1m trading loss, Knight picked up Penson Futures, a subsidiary of Penson Worldwide, Inc.

Getco bailed Knight out of the liquidity crisis that resulted from the software “glitch” and received a 15.6% stake in Knight for its troubles. (It’s hilarious that an aversion to technical terms means many business journalists characterize an inexcusable major blow by Knight – a firm that uses sophisticated technology as a strategic and competitive advantage – as a pesky “glitch”. )

The rest is at