The Wall Street profit slump’s latest victim appears to be hedge fund impresario Ken Griffin’s nascent securities business, Citadel Securities, FOX Business has learned.

The securities firm unit of Griffin’s investment empire, launched during the banking crisis of 2008, barely broke even in 2009, according to regulatory filings, producing a meager $81 million profit.

People at the firm tell FOX Business that ,despite recent layoffs in the firm’s sales and trading operation, Citadel will be lucky to turn a profit in 2010. If it does, it will probably be less than last year’s earnings, they say.

The main reason: Lower trading volume that has squeezed profits across Wall Street but has taken a particularly big bite out of the earnings of small and mid-sized brokerage firms. Even as the Dow Jones Industrial Average remains well above the 11,000 mark, stock trading volumes have declined around 42% over the past 6 months, meaning that fees from customer order flow have declined sharply. Meanwhile, with bond prices at record highs, traders are having difficulty finding profitable bets in the fixed income markets.

But the recent profit drought has hit mid-sized firms like Citadel particularly hard because large investors are directing those trades that are being done to the big Wall Street banks that have access to initial public offerings and other deals.

A spokeswoman for Citadel denied market speculation that Citadel’s problems stemmed from a large trading loss. But she confirmed that weak market conditions have contributed to the firm’s woes. She also said Citadel has taken a hit because it has expanded in some areas, such as research.

But market participants aren’t necessarily buying the firm’s story. They point to several high-profile departures from the firm, and recently announced layoffs of 5% of Citadel’s sales and trading operations, as proof that the securities firm is struggling.

“Most of their business is in sales and trading and it’s just difficult to make it in that business without access to new issues (of stock),” said one trader.

To be sure, Citadel isn’t alone. FOX Business was first to report that Knight Securities was slashing its workforce by as much as 8% because of declining profits. The spokeswoman for Citadel says the firm isn’t planning additional layoffs.