Kenneth D. Pasternak Cleared of All Alleged Wrongdoing

TRENTON, N.J., March 4 /PRNewswire/ -- The National Adjudicatory Council ("NAC") of the Financial Industry Regulatory Authority ("FINRA") yesterday issued an unprecedented reversal vacating an erroneous April 11, 2007 FINRA Hearing Panel decision and dismissing all claims against Kenneth D. Pasternak, the former CEO and Chairman of Knight Trading Group.

Mr. Pasternak's counsel is Howard Schiffman, a partner in Schulte Roth & Zabel LLP's Litigation Department.  "Mr. Pasternak has now been fully cleared of any wrongdoing by both the federal court that dismissed the SEC action against him, and now again by the NAC, which yesterday dismissed all claims against him.  This decision once again confirms that Mr. Pasternak at all times acted as a diligent and responsible CEO of one of Wall Street's leading firms and finally brings to a close Mr. Pasternak's 7-year ordeal.  It was only Mr. Pasternak's tenacity and unique ability to fight FINRA's and the SEC's baseless allegations that enabled him to obtain this welcome, although long overdue, exoneration.  During that time, Mr. Pasternak, while an active private investor, has been effectively and unjustly precluded from fully participating in the public arena despite his now confirmed innocence," said Mr. Schiffman. 

FINRA's Department of Market Regulation first filed its Complaint on March 4, 2005. Following a 12-day hearing, a FINRA Hearing Panel issued a 2-1 decision on April 11, 2007, holding Mr. Pasternak liable for failure to supervise in violation of FINRA Rules 3010 and 2110.  The Decision included a vociferous dissent that noted, among other things, that there was not a "scintilla of evidence" to support a finding of liability against Respondents, and that "Mr. Pasternak fulfilled his supervisory obligations." Mr. Pasternak filed an immediate appeal from the Decision on May 3, 2007.

In August 2005, the Securities and Exchange Commission brought a parallel proceeding against Mr. Pasternak and John Leighton in the United States District Court in New Jersey.  That case, was heard by the Honorable Joel A. Pisano in the United States District Court for the District of New Jersey.  After a 14-day bench trial, on June 24, 2008, Judge Pisano issued an Opinion finding overwhelmingly in favor of Defendants and completely clearing Mr. Pasternak of any wrongdoing, noting that "[the evidence] utterly, utterly refute[d] the SEC's theory of the case."

Yesterday, the NAC likewise issued a lengthy decision completely exonerating Mr. Pasternak.  The NAC decision rejected "each of [FINRA's] fraud theories" and found that none of Joseph Leighton's trading activities  "were in any manner undertaken in bad faith or exhibited unethical conduct." The NAC further found that Mr. Pasternak reasonably supervised Joseph Leighton and did not engage in any wrongdoing.  Instead, the NAC concluded that "Pasternak relied justifiably upon a comprehensive supervisory infrastructure that was designed and regularly overseen by Knight's compliance and legal departments.  The firm, with the support of Pasternak, maintained compliance protocols and written supervisory procedures reasonably designed to monitor and detect wrongdoing by the firm's market makers and institutional sales traders" and found that "Pasternak at all times also sought to require Joseph Leighton and all other institutional sales traders to act in compliance with the federal securities laws and FINRA rules."  In sum, the NAC found that Mr. Pasternak's conduct  "was reasonable and did not constitute a violation."

"I am relieved that this matter has finally been resolved and my name cleared after so many years," Mr. Pasternak said.  "I look forward to reengaging fully with the industry and carrying on my career uninhibited by these false and unwarranted accusations."

SOURCE Schulte Roth & Zabel LLP