Securities regulators are poised to file civil charges against Knight Trading ( NITE) and its former chief executive over allegations that the big Nasdaq market maker engaged in an illicit trading strategy called front-running. Knight, based in Jersey City, N.J., said in a regulatory filing that it was informed that Securities and Exchange Commission and the NASD intend to file charges against the firm's Knight Securities subsidiary and against former CEO Kenneth Pasternak, who left the trading firm two years ago. In its filing, the firm said the investigations focus on "specific trade activity, conduct, supervision and record-keeping." Front-running usually occurs when a trader has advance knowledge that an investor intends to move a big block of shares and seeks to capitalize on that information advantage by making his own trades. Knight, in disclosing the potential charges, tried to spin the matter in a positive light. "Knight believes these actions by the SEC and NASD are important next steps toward resolving the outstanding regulatory inquiries and overcoming these legacy issues inherited by new management in May of 2002," said Thomas M. Joyce, the firm's chief executive and president, in the regulatory filing. Pasternak, who could not be reached for comment, briefly considered running for Congress from New Jersey after leaving Knight. The impending charges stem from a nearly two-year-old investigation that began shortly after Robert Stellato, a former Knight executive, filed an arbitration claim against his former employer. Stellato, whose arbitration claim is still pending before the NASD, contends that he was forced out of his job in July 2001 because he complained about an "elaborate front-running scheme" that he says he discovered on Knight's institutional trading desk. Stellato's complaint identifies two former Knight traders as being at the center of the alleged front-running scheme. They are brothers, and according to the complaint, they left Knight in November 2000 -- a few months after he took his concerns to Knight management.