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Conflict of Interest Lessons From Financial Services

Harvey L. Pitt | February 22, 2005

In the final analysis, it’s really up to the business community, not government, to restore investor confidence. After all, the problems we’ve seen emanated from the private sector, and should be solved there. More importantly, companies that wait for the government to tell them what they can or can’t do, have only themselves to blame if they don’t like what they’re told.

In that vein, a recent enforcement action raises concerns for the financial services industry. In December, the Securities and Exchange Commission and the National Association of Securities Dealers settled cases with Knight Securities, alleging that Knight defrauded certain of its institutional customers. Instead of dutifully executing every trade order, the SEC and NASD alleged, Knight took advantage of orders from institutional investors to improve the positions in its own proprietary accounts. Upon receipt of large purchase orders, Knight was accused of first ascertaining...

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