Federal Prosecutors in Manhattan have filed criminal charges against Navnoor Kang, a former investment manager at the New York State Common Retirement Fund, and broker Deborah Kelley. The two of them are accused of directing over $2B in business to two broker-dealers in return for bribes, including money, expensive jewelry, cocaine, Paul McCartney concert tickets, prostitutes, and other lavish expenses. This is the latest “pay-to-play” scam involving the state’s pension fund, which is the third largest in the US.
Kang, who previously served as managing director at Sterne Agee Group Inc., allegedly accepted over $100K in bribes for purportedly leveraging his role as director of fixed income for the pension fund to send up to $2.5B in state business to Kelley and another broker, Gregg Schonhorn of FTN Financial Securities Corp. As a result of Kang sending this business their way, Kelley and Schonhorn made millions of dollars in commissions.
Schonhorn has already pleaded guilty to his involvement in the pay-to-play scam. According to prosecutors, in 2014, Schonhorn’s firm did $1.5M in business with the NY pension fund. By 2016, that figure was at over $2.3B. Kelly’s broker-dealer, meantime, went from having no business with the New York pension fund in 2014 to $179M in business this year.
Kang and Kelley face multiple criminal charges, including securities fraud and wire fraud.
Meantime, the U.S. Securities and Exchange Commission has filed charges against Kang, Schonhorn, and Kelley. The regulator said that as a pension fund fiduciary, Kang was obligated to disclose his receipt of any gifts he received from the two brokers but he did not submit any such reports. The regulator is accusing Kang of violating the Securities Act and the Exchange Act’s antifraud provisions. The SEC claims that the two brokers not only participated in Kang’s fraud, but also they aided and abetted it. As a result they also violated the anti-fraud provisions.
Before working at the fund, say authorities, Kang was fired from his job as a fixed-income trader and asset management firm VP for allegedly violated the company’s ethics and compliance policies. The SEC’s complaint contends that when the New York State fund hired Kang in 2014, he lied during his job interview about why the firm let him go.
Prosecutors Charge NY Pension Fund Employee in Sex and Drugs Pay-to-Play Scheme, Forbes, December 21, 2016
The SEC Complaint (PDF)