Knight Securities LP's former Chief Executive Officer Kenneth Pasternak and the firm's former sales head John Leighton were each fined $100,000 by the NASD for not preventing a scheme to overcharge customers from 1999 and 2000.
Pasternak also was suspended from handling supervisory duties for two years, the NASD said in a statement today. Leighton was barred from taking on a supervisory role.
The penalties stem from an NASD complaint filed in March 2005, claiming the executives failed to oversee trading at Knight, which at the time was the largest matchmaker for buyers and sellers of Nasdaq Stock Market-listed equities. The NASD and the U.S. Securities and Exchange Commission have said Knight earned $41 million in profit over the two-year period from improper trades completed by Joseph Leighton, John's brother.
``For all intents and purposes, Joseph Leighton ran the Institutional Sales department as he saw fit,'' said the 2-1 disciplinary panel decision, according to the statement by the NASD, the largest private regulator of brokerages. ``Pasternak, John Leighton, and Joseph Leighton each concluded that as long as the customers did not learn of the extraordinary profits Knight earned on their orders, there was no limit to the amount the firm could make on an institutional order.''
Pasternak said he plans to appeal the NASD findings. The decision's minority opinion concluded that there's little evidence to support the claim of inadequate oversight of trading, Pasternak said.
``I've become a victim of prosecutorial zeal, that is not supported by evidence and testimony and I intend to fully avail myself of appeals,'' Pasternak said today. ``I am optimistic that I will be vindicated.''
John Leighton's lawyer, Joel Davidson at the firm Davidson & Grannum LLP, couldn't be reached for comment.
Knight paid more than $79 million to settle the SEC and NASD allegations in 2004, without admitting or denying wrongdoing. More than $66 million of that settlement was placed in a fund to compensate investors affected by the trading, the NASD said today.
To settle the probe in 2005, Joseph Leighton agreed to pay more than $4 million in penalties and undergo a permanent bar from the securities industry. Between January 1999 and September 2000, he generated almost $135 million, representing 30 percent of the desk's profits, regulators said.
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