FINRA Body Dismisses Charges Against Former Knight Executives
March 4, 2010
An appeals body belonging to the Financial Industry Regulatory Authority (FINRA) Thursday dismissed charges that Kenneth Pasternak, co-founder of Knight Trading Group and former CEO of Knight Securities, L.P., and John Leighton, former head of the its Institutional Sales Desk, failed to properly supervise sales to institutional customers that allegedly were fraudulent.
The National Adjudicatory Council (NAC) of FINRA reversed an earlier FINRA Hearing Panel decision that found that Pasternak and Leighton had violated FINRA's supervision rule in their roles as supervisors of Knight Securities' leading institutional sales trader.
The Hearing Panel's decision fined each respondent $100,000. Leighton was barred from all supervisory capacities. Paternak was suspended for two years from all supervisory work.
The NAC’s ruling vacates those sanctions.
In 2008, a federal judge ruled that the U.S. Securities and Exchange Commission failed to prove its fraud case against Pasternak and Leighton, as well.
The NAC concluded that FINRA failed to satisfy its burden of proof concerning allegations set forth in a March 4, 2005, complaint.
In that complaint, the industry’s self-regulating body alleged that Pasternak and Leighton did not take reasonable steps to ensure that Knight Securities' leading institutional sales trader adhered to "industry standards" when executing orders for institutional customers.
The NAC found that FINRA staff did not establish that the sales trader contravened any market or regulatory standards when providing execution services to institutional customers.
The NAC said evidence did not support the allegation that Pasternak and Leighton failed to reasonably supervise reasonably the sales trader's practices.
