09-08-2003 -- Delaney, Brian -- Guilty Plea -- News Release

Knight Securities Equity Trader Pleads Guilty to $1.4 Million Fraud Against the Company

NEWARK - A former equity trader at Knight Securities in Jersey City pleaded guilty today to conspiracy and wire fraud, in connection with a scheme that defrauded the company of more than $1.4 million in 11 months, U.S. Attorney Christopher J. Christie announced.

Brian Delaney, 31, of Morris Plains, admitted before U.S. District Judge Katharine S. Hayden that he concocted a scheme to buy and sell securities in a manner that effectively guaranteed that he would gain a substantial profit at Knights' expense. The scheme began in March 2001 and ended in February 2002.

Delaney pleaded guilty to an Information charging him with wire fraud and conspiracy to commit wire fraud. He faces a maximum penalty of five years in prison for wire fraud and 20 years for conspiracy, with a $250,000 fine on each count. Judge Hayden set sentencing for Jan. 5, and Delaney remains free on $20,000 unsecured bond pending sentencing. Delaney has also agreed to cooperate with the government's investigation, and he has already made restitution to Knight Securities, which cooperated in the investigation.

Knight Securities, a registered broker dealer, is a subsidiary of Knight Trading Group, Inc., a market maker of NASDAQ securities.

Also today, the New Jersey Bureau of Securities (which referred the case to the federal government for prosecution) and the Securities and Exchange Commission both filed separate actions against Delaney and others allegedly involved in the scheme - the SEC for securities fraud and the Bureau of Securities to bar Delaney and others from the securities business in New Jersey.

The scheme was accomplished in two stages, according to the Information. Using his position as an equity trader at Knight and using nominee accounts he established, Delaney would first cause Knight to sell him specific thinly traded securities at the same wholesale price (or "bid" price) that Knight would ordinarily pay for them when purchasing those securities on its own behalf. Then, Delaney would cause Knight to buy those same securities back at the retail price (or "ask" price) that Knight would ordinarily charge third parties buying those securities from Knight. In effect, this allowed Delaney to buy securities from Knight at prices below their value on the open market, and sell those same securities to Knight at prices above their value on the open market, according to the Information.

Delaney admitted that he bought and sold securities in this manner beginning in March 2001 and ending in February 2002. He also described some of the trades. In one instance, for example, Delaney caused Knight to sell 7,000 shares of a stock to one of his nominee accounts at a price of $8.25 per share, which was Knight's approximate bid price at the time, and 75 cents less than its ask price. In other words, the price was 75 cents less than the price at which Knight would have sold that security on the open market.

One day later, Delaney caused Knight to buy back those same 7,000 shares at prices of $9.90 and $9.95 per share, which at the time approximated Knight's ask price for the security. These prices were also $1.65 and $1.70 more than Knight's bid price, and thus, between $1.65 and $1.70 more than the price at which Knight would have paid for the securities on the open market.

Delaney admitted that as a result of such trades, he locked in a large profit for his nominee accounts and caused Knight to sustain a substantial loss. Specifically, Delaney admitted that, during the 11 months in which he executed the scheme, he generated profits of approximately $1.4 million from the trades.

Christie credited Special Agents of the FBI, under the direction of Special Agent in Charge Louie F. Allen, for conducting the criminal investigation against Delaney; and the New Jersey Bureau of Securities, under the direction of Chief Franklin Widman, and the Securities and Exchange Commission, under the direction of Paul Berger, Associate Director of Enforcement for the SEC in Washington, for their respective roles in the case.

The government is represented by Assistant U.S. Attorneys John M. Fietkiewicz and Andrew Leven, of the U.S. Attorney's Office in Newark.

Defense Attorney: Lawrence S. Horn, Esq., Newark.

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