(Adds quotes from prosecutor and comptroller, further details
By Nate Raymond and David Ingram
NEW YORK Dec 21 U.S. prosecutors on Wednesday
accused a former portfolio manager at New York state's
retirement fund, the third largest in the United States, of
steering $2 billion in trades to two brokerage firms in exchange
for gifts such as cash, drugs and prostitutes.
Manhattan federal prosecutors announced charges centered on
the New York State Common Retirement Fund, which was shaken by
another pay-to-play scheme a decade ago that sent the state
comptroller to prison and sent shock waves through the pension
In the latest case, Navnoor Kang, the former director of
fixed income at the New York State Common Retirement Fund, was
charged in federal court in Manhattan along with Deborah Kelley,
a former Sterne Agee Group Inc managing director.
Both face charges that include securities fraud and wire
fraud and were also sued by the U.S. Securities and Exchange
Commission in a related civil lawsuit.
Kang was arrested on Wednesday morning at his home in
Portland, Oregon. Kelley surrendered to authorities in San
Francisco, prosecutors said.
Gregg Schonhorn, a broker-dealer at FTN Financial Securities
Corp, secretly pleaded guilty to paying bribes on Dec. 15,
authorities said. FTN fired him on Wednesday when the firm
learned of the allegations, a spokeswoman said.
Prosecutors said that Kelley and Schonhorn lavished Kang
with cash, entertainment, luxury gifts, prostitutes and drugs
valued at about $100,000 in exchange for fixed-income business.
"This was an age-old and classic tale of quid-pro-quo
corruption," Manhattan U.S. Attorney Preet Bharara told
On weekend trips to Montreal in 2014, Schonhorn paid for
cocaine, meals and travel expenses for Kang and another fund
employee, according to court papers. They communicated via the
WhatsApp smartphone app.
Kelley bought Kang a ticket to a Paul McCartney concert in
New Orleans in 2014, and a ski trip to Park City, Utah, for him
and a girlfriend in 2015, according to authorities.
In exchange, Kang steered $2 billion in fixed-income
business to FTN and Sterne Agee, from which Kelly, Schonhorn and
their employers earned millions of dollars in commissions,
New York state Comptroller Thomas DiNapoli denounced Kang's
alleged actions in a statement, saying the fund has "absolutely
no tolerance for self-dealing, and we are outraged by Mr. Kang's
shocking betrayal of his responsibilities."
Brian McEvoy, Kang's lawyer, declined to comment. Lawyers
for Kelley and Schonhorn, who is cooperating with the
prosecution, did not respond immediately to requests for
Kang worked at the $184.5 billion fund from January 2014 to
February 2016, when the state says he was dismissed, and was
responsible for investing over $55 billion in fixed income
assets, according to his LinkedIn profile.
He previously worked at Guggenheim Partners Asset Management
and Pacific Investment Management Co after beginning his career
at Goldman Sachs Group Inc, according to the profile.
Kelley worked as a managing director at Sterne Agee from
2012 to 2015, and left not long after Stifel Financial Corp
acquired the company, according to Financial Industry
Regulatory Authority records and LinkedIn.
In August 2015, Stifel said that Kelley had been discharged
for providing gifts or entertainment to an unnamed portfolio
manager at a public pension fund and misrepresenting the nature
of expenses she submitted for reimbursement.
FINRA disclosed in September 2015 that it was conducting an
inquiry into the matter. Kelley currently works at Seaport
Global in San Francisco, according to her LinkedIn profile page.
From 2003 to 2005, former New York state Comptroller Alan
Hevesi, who was the sole trustee of the fund, approved a $250
million pension investment in exchange for nearly $1 million in
benefits from a California businessman. Hevesi pleaded guilty to
corruption charges and went to prison for a year.
The wrongdoing revealed how politics and placement fees
resulted in favored treatment by pension funds nationwide, and
led to eight people pleading guilty.
The Common Retirement Fund is the investment arm of the New
York State and Local Employees' Retirement System and the New
York State and Local Police and Fire Retirement System.
The case is U.S. U.S. v. Kang et al, U.S. District Court,
Southern District of New York, No. 16-cr-837.
(Additional reporting by David Ingram; Editing by Jeffrey
Benkoe and Alan Crosby)