A former employee of the New York State pension fund has been indicted for “participating in a ‘pay-for-play’ bribery scheme” involving the state pension fund.
That fund is formally known as the New York State Common Retirement Fund (NYSCRF).
Officials unsealed the indictment on Wednesday in a federal court in Manhattan.
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The indictment targets Navnoor Kang, former director of fixed income and head of portfolio strategy at the state pension fund, Preet Bharara, the U.S. Attorney for the Southern District of New York, said in a news release posted on the office’s website Wednesday.
The indictment also charges Deborah Kelley, a managing director of institutional fixed-income sales at a New York City–based broker-dealer, with participating in the “pay-for-play” bribery scheme.
Both Kang and Kelley are charged with conspiracy to commit securities fraud, securities fraud, conspiracy to commit honest services wire fraud, honest services wire fraud, conspiracy to obstruct justice in the SEC (U.S. Securities and Exchange Commission) investigation, and obstruction of justice in the grand-jury investigation, according to the news release.
Authorities on Wednesday arrested Kang in Portland, Oregon, while Kelley is also expected to surrender to authorities in San Francisco, California, according to the news release.
Bharara also announced the unsealing of charges against Gregg Schonhorn, a VP of fixed-income sales at another New York City–based broker-dealer, who has already pleaded guilty and admitted to his participation in the scheme.
Reaction
New York State Comptroller Thomas DiNapoli on Wednesday issued a statement in response to the “misconduct” of the former pension-fund employee.
“The New York State Common Retirement Fund has absolutely no tolerance for self-dealing, and we are outraged by Mr. Kang’s shocking betrayal of his responsibilities. In February 2016, he was dismissed. As the criminal indictment says, he secretly circumvented our rigorous ethical standards and policies. When his misconduct was uncovered by federal authorities, our inspector general worked with law-enforcement officials to uncover the extent of his scheme. We thank U.S. Attorney Preet Bharara, the Securities [and] Exchange Commission and the FBI for their immediate and professional approach to pursuing this wrongdoing. As U.S. Attorney Bharara states in the indictment, the CRF strictly forbids this conduct, and we will continue to assist federal authorities,” DiNapoli said.
Kang had served in the role from January 2014 through February 2016, according to the U.S. Attorney’s news release.
Bharara said he and his colleagues allege “a classic, quid-pro-quo bribery scheme at the New York State Common Retirement Fund, the third largest pension fund in the country.”
“Navnoor Kang, a former portfolio manager at the fund, allegedly steered billions of dollars of business to broker-dealers who bribed him with luxury vacations, high-priced watches, drugs, cash, and more. The hard-earned pension savings of New Yorkers should never serve as a vehicle for corrupt, personal enrichment. The intersection of public corruption and securities fraud appears to be a busy one, but it’s one that we are committed to policing,” Bharara said.
William Sweeney Jr., FBI assistant director-in-charge who assisted in the probe, also commented in the news release.
“Instead of upholding his fiduciary duty, Kang was allegedly paid in bribes for diverting business to two separate brokerage firms. When it comes to retirement funds, fixed-income investments are often thought of as a reliable choice. Members of the New York State Common Retirement Fund likely also relied on the belief that the man directing their investments was an honest public servant. Unfortunately, as alleged, that is not the case here today,” said Sweeney.
Case background
From 2014 through 2016, Kang, Kelley, and Schonhorn participated in a scheme to defraud the NYSCRF and its members and beneficiaries, and to “deprive the NYSCRF of its intangible right to Kang’s honest services.”
The scheme involved, among other things, an agreement among Kang, Kelley, and Schonhorn, and others to pay Kang bribes in the form of entertainment, travel, lavish meals, prostitutes, nightclub bottle service, narcotics, tickets to sports games and other events, luxury gifts, and cash payments for strippers and Kang’s personal expenses in exchange for fixed-income business from the NYSCRF.
Such bribes, which totaled more than $100,000, were “strictly forbidden” by the NYSCRF, and were paid “secretly and without any disclosure” to the NYSCRF and its members and beneficiaries concerning the “conflicts of interests inherent therein,” the news release stated.
In exchange for the bribes paid by Kelley, Schonhorn, and others, Kang used his position as director of fixed income and head of portfolio strategy at the NYSCRF to promote the interests of Kelley, Schonhorn, and their respective brokerage firms, it added.
Contact Reinhardt at ereinhardt@cnybj.com
