Compliance

Former N.Y. Retirement Fund Official Charged for Pay-to-Play

The Securities and Exchange Commission also charged two broker/dealers in the scheme.

By Rebecca Moore editors@plansponsor.com | December 21, 2016
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The Securities and Exchange Commission (SEC) announced fraud charges against a former official of the New York State Common Retirement Fund and two brokers accused of orchestrating a pay-to-play scheme to steer billions of dollars to certain firms in exchange for luxury gifts, lavish vacations, and tens of thousands of dollars spent in unethical ways.

Navnoor Kang, who served as the director of fixed income for the retirement fund from January 2014 to February 2016, 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 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; and
  • An extravagant ski vacation in Park City, Utah, including a $1,000 per night guest suite.

According to the SEC’s complaint, Kang, as a fiduciary to the fund, had a duty to disclose his solicitation and receipt of the gifts and entertainment he received from Schonhorn and Kelley but failed to do so. Schonhorn and Kelley knew Kang was not disclosing his activities to the fund, and they took steps to keep the benefits a secret. Kang, in soliciting and accepting the benefits without any disclosure, violated the antifraud provisions of the Securities Act and the Exchange Act. Schonhorn and Kelley participated in the fraudulent scheme and provided substantial assistance to Kang in concealing the scheme from the fund, thereby violating the antifraud provisions and aiding and abetting Kang’s fraud.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Kang, Schonhorn, and Kelley.

NEXT: State fund has a history of pay-to-play

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