Pasternak Looks Ahead

Earlier this year, Kenny Pasternak, former chief executive of Knight Trading Group, now Knight Capital Group, was found not guilty of charges brought by the Securities and Exchange Commission that he took part in fraudulent trading practices and failed to perform his supervisory duties when he was Knight’s CEO. Last year, he was found guilty of supervisory violations related to the fraud charges by an NASD hearing panel.

Pasternak has run the Chestnut Ridge Capital hedge fund from his office in northern New Jersey for the past five years. He also owns about 25 percent of wholesaler Hudson Securities. He spoke with Traders Magazine about the trials and his public statement that he was “re-engaging in the industry.”

On his win in federal court

I feel vindicated. Unfortunately, it takes five years and millions of dollars to deal with the strong-arm tactics of the SEC.

On his loss before a NASD hearing panel last year

I am under appeal and am confident I will prevail. The preponderance of evidence supports my innocence.

On the difference between the two venues

The NASD panel is not held to the same burden of proof and preponderance of evidence as a judge is in a court of law. Also, in a court of law, the case is heard by a trained fact finder. He is a trained fact finder held to a preponderance of evidence. That’s not the case with an NASD hearing.

On fighting the SEC and NASD

Of the thousands of SEC cases, only a handful are brought to trial? Why? Because the process is so extortional. They strong-arm you into settlement. If you look at the hill you are climbing from a time-and-money point of view, most people are unable to fight it. They don’t have the resources I have. So you have to have the resources and the ability to make a living outside the securities industry. The issue is one of reputation. At the end of the day, that’s all that matters. Reputationally, this will always be a black eye.

On “re-engaging in the industry”

I don’t anticipate that it would be at Hudson. I don’t anticipate taking a job in the nine-to-five sense. For the near term, I will continue to run Chestnut Ridge Capital. But there are some interesting possibilities on the board level for somebody who understands risk management. There’s not a lot of literacy at the board level on portfolio construction. I could see where I would have a very senior board appointment at a quite large financial services company.

(c) 2008 Traders Magazine and SourceMedia, Inc. All Rights Reserved.

http://www.tradersmagazine.com http://www.sourcemedia.com/