Knight Capital Fined $12M For a Software Bug That Cost $460M 192
Mark Gibbs writes "Knight Capital monumentally fouled up a software update. According to the SEC, 'Knight did not have supervisory procedures to guide its relevant personnel when significant issues developed.' In other words, not only was Knight's code management inadequate but their human management processes were just as bad. The fine for what could have been a biblical financial disaster? A measly $12 million."
The Fine was $12 M, but, (Score:5, Insightful)
The cost to them was $472 M. I *think* that will discourage them.
What, nobody going to jail for gross negligence??? (Score:1, Insightful)
What they did was criminal negligence, plain and simple. And they did it out of greed. As long as mismanagement this severe has no personal consequences for the perpetrators, nothing will change.
This works out to a 3% fine (Score:1, Insightful)
This isn't a slap on the wrist. This is a pat on the back for inflicting harm with egregious negligence.
Therefore this was probably engineered as an assault.
Businessweek weighs in [businessweek.com].
Re:The Fine was $12 M, but, (Score:0, Insightful)
That 472 million didn't come out of their pocket..
It came out of their CUSTOMERS...
You know.. People. All those investors who handed over cash and said make it grow... They got boned.
They lost their own money (Score:5, Insightful)
As a proprietary trading firm, they were working entirely with their own money. They had no external investors or whatnot (like hedge funds do). So, they made a mistake and they paid for it dearly. It's not clear to me that they should have paid any fine.
The article's whole argument seems to be made by comparing the size of the trading loss to the size of the fine, but no logical reasoning is given for why the one should have any relation to the other.
TFA sucks.
Not joking with this... (Score:4, Insightful)
And I wouldn't have done this one server at a time it would have been all the servers at the same time. I suspect they would lose money by not having the servers up but not at the firehose rate that they were losing money as they were.
The worst part is that the admins were probably following some procedure in their book and were refusing to just pull the plug in some vain attempt for 99.9 percent up time or other admin related metric instead of the clear "Don't Lose $48 Million a minute!!!!" metric. So probably another clear case of IT's priorities getting way out of sync with the company's actual priorities.
Re:The Fine was $12 M, but, (Score:2, Insightful)
The IRS has issued $13.6 billion in bogus EIC checks last year, and over $132 billion in bogus checks over the last decade.
The money comes out of our pockets, you know, the governments 'customers.'
You know, People. All those citizens who handed over cash under threat of force and said here take it don't hurt me. They get boned.
http://www.washingtontimes.com/news/2013/oct/22/irs-paid-132B-bogus-tax-credits-over-last-decade/
I don't see the point of a $12M fine. (Score:2, Insightful)
It's a bad thing...
Just make sure they suffer all the pain caused by the $450 Million loss
In other words: don't allow them to pass any of this loss on to their customers by drawing funds from their accounts.
Re:Not joking with this... (Score:5, Insightful)
The problem with this is that they didn't know they were losing money.
The trading had gone haywire and they didn't understand why it was doing what it was doing but at the time it was happening they couldn't say if they were making or losing money.
They built up positions of billions of dollars and only once it was all unwound and settled were the losses finally known.
I can feel for the programmers and sysadmins. Maybe this was right - maybe pulling the plug out would prevent the unwinding of positions that would then make money for the firm.
I wouldn't be surprised if there weren't previous problems where programmers and admins had been criticized by management for "doing the wrong thing with hindsight" when they didn't understand what was going on. If you have that sort of management culture then the natural inclination becomes to do nothing and push the responsibility up the chain.
Similar disasters have happened in the past - one that springs to mind was Piper Alpha where the other nearby rigs continued to pump gas to it even when they could see it was on fire - because if you stop pumping it takes days and costs a fortune to get things back up and running and it might just have been an easily controllable fire.
There's a very fine line to be drawn between reacting to the unknown too soon and reacting too late. There's also a fine line between making a reasonable best guess with the facts available and just making a random guess.
http://en.wikipedia.org/wiki/Piper_Alpha [wikipedia.org]
The fire would have burnt out were it not being fed with oil from both Tartan and the Claymore platforms, the resulting back pressure forcing fresh fuel out of ruptured pipework on Piper, directly into the heart of the fire. The Claymore platform continued pumping until the second explosion because the manager had no permission from the Occidental control centre to shut down. Also, the connecting pipeline to Tartan continued to pump, as its manager had been directed by his superior. The reason for this procedure was the huge cost of such a shut down. It would have taken several days to restart production after a stop, with substantial financial consequences.
Wall St systems in general are bad (Score:5, Insightful)
Re:The Fine was $12 M, but, (Score:5, Insightful)
Re:The Fine was $12 M, but, (Score:5, Insightful)
That 472 million didn't come out of their pocket..
It came out of their CUSTOMERS...
You know.. People. All those investors who handed over cash and said make it grow... They got boned.
Oh, so you mean the same pockets that the $12M fine comes out of?
Re:The Fine was $12 M, but, (Score:2, Insightful)
If board members and directors are found "personally liable" then why bother incorporating in the first place?
Are you telling me that all I have to do to get away with murder is form "Murder Inc." -- sorry, I meant "Loving Hands, Inc."? And then as chairman I can just hire a hit man and shield myself from liability? Shweet!!
Re:The Fine was $12 M, but, (Score:5, Insightful)
The purpose of a corporation is to shield the shareholders from liability beyond the value of their shares. Directors can be held liable if they are particularly negligent or criminal.
Re:The Fine was $12 M, but, (Score:3, Insightful)
Re:The Fine was $12 M, but, (Score:5, Insightful)
Are you telling me that all I have to do to get away with murder is form "Murder Inc." -- sorry, I meant "Loving Hands, Inc."? And then as chairman I can just hire a hit man and shield myself from liability? Shweet!!
Executives and board members can still be charged with actual crimes they personally committed or are an accessory to. But being bad at your job is not a crime. If they can show that executives or board members intentionally defrauded someone, then they can go to prison like anyone else. But if it was just their negligence, arrogance, lack of caring, gaming the system, etc. that caused the problem, they didn't commit any crimes.
Re:The fine wasn't all of the punishment (Score:5, Insightful)
What if you were an investor in that stock who had set a stop-loss at $10? Knight's wild selling would have triggered the stop-loss, and you'd lose money because of Knight's actions.
No, you'd lose money because you sold at the wrong time based on an automated trading rule rather than your own informed judgement. That is the risk you take when you enter a stop-loss order: if the drop in price is temporary, you're going to lose money. It makes no difference why the price moved. Knight's inadvertent trades are not to blame here. No one who payed attention to the fundamentals lost anything. Only those who panicked took a loss, and deservedly so.