Former NY Pension Official Took Bribes in Pay-to-Play Scheme: SEC

The Securities and Exchange Commission on Wednesday levied fraud charges against a former New York pension official and two brokers.

Navnoor Kang, who was head of fixed income for the New York State Common Retirement Fund from January 2014 to February 2016, allegedly accepted bribes — included cocaine and prostitutes — in exchange for steering billions of dollars of business to two different broker-dealers.

Details, from the SEC:

Kang allegedly used his position to direct up to $2.5 billion in state business to Gregg Schonhorn and Deborah Kelley, who were registered representatives at two different broker-dealers.  In exchange for this lucrative business, which netted Schonhorn and Kelley millions of dollars in commissions, the brokers provided Kang with tens of thousands of dollars in benefits, including:

* More than $50,000 spent on hotel rooms in New York City, Montreal, Atlantic City, and Cleveland.

* Approximately $50,000 spent at restaurants, bars, lounges, and on bottle service.

* $17,400 on a luxury watch for Kang.

* $4,200 on a Hermes bracelet for Kang’s girlfriend, at Kang’s request.

* $6,000 on four VIP tickets to a Paul McCartney concert in New Orleans.

* An extravagant ski vacation in Park City, Utah, including a $1,000 per night guest suite.

The scheme was costly for the pension fund: not only did two broker-dealers win billions of dollars in commitments without having to prove merit, but those broker-dealers weren’t initially on the pension fund’s approved list of dealers.

That means the pension fund used “step-out trades”, in which the fund payed higher commissions for transactions.

From Bloomberg:

At the start of the scheme, Kelley’s and Schonhorn’s employers weren’t on the approved list to do business with the pension fund. Kang arranged for “step-out” trades that were routed through approved brokers, but shared with the duo’s employers, which resulted in the pension fund paying higher commissions, the U.S. said.

Kang later arranged for Kelley’s and Schonhorn’s employers to be approved to do business directly with the pension fund, at which time the bribes “escalated,” prosecutors said. At the same time, the value of business to the two firms skyrocketed, they said. Schonhorn’s firm became the third largest broker dealer with which the pension fund executed transactions in domestic bonds.

Featured image by Dave Rutt via Flickr CC License

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One Response to “Former NY Pension Official Took Bribes in Pay-to-Play Scheme: SEC”

  1. […] who oversaw the $50+ billion bond portfolio for the New York State Common Retirement Fund, was arrested last week and charged with accepting bribes — included cocaine and prostitutes — in exchange for steering […]

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