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SEC Sues Former Executives of Two Firms

Markets | WALL ST. ROUNDUP

August 09, 2005|From Bloomberg News

The Securities and Exchange Commission on Monday sued Knight Trading Group Inc.'s former chief executive and its former head of institutional sales, saying some customers were overcharged.

Former CEO Kenneth Pasternak and sales chief John Leighton failed to supervise a trader who overcharged customers during a two-year period, the SEC said. The trader made $41 million at the expense of clients of Knight, the biggest matchmaker for buyers and sellers of Nasdaq shares, the SEC said.

Pasternak said he did nothing wrong, and Leighton didn't return a phone call for comment.

Knight's institutional clients believed their trading fees were based on the firm's costs, regulators said. In fact, Knight trader Joseph Leighton, John Leighton's brother, traded shares on his firm's behalf after he received clients' request and then filled the order when the price moved in Knight's favor, the SEC said.

Both John Leighton and Pasternak "were receiving millions of dollars in compensation directly generated from the lucrative trading," the SEC said.

Knight paid $79 million last year to settle civil claims tied to Joseph Leighton's trading.

Also Monday, the SEC accused two former executives at Citigroup Inc. of diverting to the bank tens of millions of dollars that should have gone to reduce costs for mutual fund investors.

Thomas W. Jones, 56, former chief executive of Citigroup Asset Management, and Lewis E. Daidone, 48, a former senior vice president of Smith Barney Management, were named in a complaint filed in U.S. District Court in Manhattan. Both defendants said they would fight the claims.

Jones and Daidone renegotiated a more favorable contract with First Data Investment Services Group and then kept the savings for Citigroup's asset management arm instead of passing the discount along to the mutual funds, the SEC said.

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