Washington, DC — The National Adjudicatory Council (NAC) of the Financial Industry Regulatory Authority (FINRA) issued a ruling today dismissing charges that Kenneth Pasternak, former CEO of Knight Securities, L.P., and John Leighton, former head of the firm's Institutional Sales Desk, were responsible for supervisory failures in connection with alleged fraudulent sales to institutional customers.
The ruling by the NAC — FINRA's appellate body — reverses 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, barred John Leighton in all supervisory capacities and suspended Pasternak in all supervisory capacities for two years. Those sanctions are vacated by the NAC's ruling.
The NAC concluded that FINRA failed to satisfy its burden of proof concerning allegations set forth in a March 4, 2005, complaint, which 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 further found that the preponderance of the evidence did not support the allegation that Pasternak and Leighton failed to supervise reasonably the sales trader's practices. Finally, the NAC decided that the evidence did not support allegations that Pasternak failed to respond appropriately to certain "red flags" that were raised concerning the manner in which the leading institutional sales trader executed institutional customer orders.
The NAC is a 14-person committee composed of seven industry and seven non-industry members that decides appeals from disciplinary, membership and exemptions decisions, and rules on statutory disqualification applications. The NAC decision is the final decision of FINRA.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through comprehensive regulation. FINRA touches virtually every aspect of the securities business — from registering and educating industry participants to examining securities firms, writing and enforcing rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and firms.
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