Investment Technology Group (ITG) in talks to settle SEC Probe and announces preliminary Second Quarter Earnings 

ITG announces Preliminary Second Quarter 2015 Earnings Guidance, including Reserve for Probable SEC Settlement

The firm informs that expects its results for the second quarter of 2015 to be a GAAP net loss of $10.2 million, or $0.30 per diluted share, including a reserve for a probable settlement with the Securities and Exchange Commission (“SEC”) and related fees totaling $22.6 million pre-tax and $21.6 million after taxes, or $0.62 per diluted share. Excluding the impact of these charges, adjusted net income is expected to be $11.4 million, or $0.32 per diluted share.

Probable SEC Settlement

During the second quarter of 2015, ITG commenced settlement discussions with the Staff of the Division of Enforcement of the SEC (the “SEC Enforcement Division”) in connection with the SEC’s investigation into a proprietary trading pilot operated within ITG’s AlterNet Securities, Inc. (“AlterNet”) subsidiary for sixteen months in 2010 through mid-2011. The investigation is focused on customer disclosures, Form ATS regulatory filings and customer information controls relating to the pilot’s trading activity, which included (a) crossing against sell-side clients in POSIT and (b) violations of ITG policy and procedures by a former employee.

These violations principally involved information breaches for a period of several months in 2010 regarding sell-side parent orders flowing into ITG’s algorithms and executions by all customers in non-POSIT markets that were not otherwise available to ITG clients. ITG has negotiated a potential settlement with the Staff of the SEC Enforcement Division. Based on the terms of the potential settlement, ITG would pay an aggregate amount of $20.3 million representing a civil penalty of $18 million, disgorgement of approximately $2.1 million in trading revenues and prejudgment interest of approximately $250,000. As a result, ITG reserved $20.3 million for a probable settlement with the SEC and incurred $2.3 million in legal and other related costs associated with this matter during the second quarter of 2015.

Final resolution of this matter is subject to preparation and negotiation of documentation satisfactory to all the parties, including approval by ITG’s Board of Directors and authorization by the SEC. ITG can provide no assurances that a satisfactory final agreement will be reached and that authorization by the SEC will be obtained or with respect to the timing or definitive terms of any such agreement or approvals.

Until this matter is fully resolved, ITG expects to continue to incur costs, primarily professional fees and expenses, which may be significant.

The discussion above includes guidance on adjusted net income and related per share amounts, which are non-GAAP financial measures that are described in the attached table along with a reconciliation of these non-GAAP financial measures to GAAP results.

Board Member Resignation

On July 23, 2015, Kevin J.P. O’Hara resigned from ITG’s Board of Directors effective immediately.

Second Quarter 2015 Earnings Call

ITG will issue a press release with final second quarter results before the market open on Wednesday, August 5, 2015, and will provide more details during an earnings call at 12:00 pm ET that day. Those wishing to listen to the call should dial 1-877-317-6789 (1-412-317-6789 outside the U.S.) at least 15 minutes prior to the start of the call to ensure connection. The webcast and accompanying slideshow presentation will be available on ITG’s website at investor.itg.com. For those unable to listen to the live broadcast of the call, a replay will be available for one week by dialing 1-877-344-7529 (1-412-317-0088 outside the U.S.) and entering conference number 10069526. The replay will be available starting approximately one hour after the completion of the conference call.

Source: ITG – ITG announces Preliminary Second Quarter 2015 Earnings Guidance, including Reserve for Probable SEC Settlement

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