The SEC lodged fraud charges against Navnoor Kang, former director of fixed income for the New York State Common Retirement Fund, over alleged orchestration of a pay-to-play scheme that also involved brokers Gregg Schonhorn and Deborah Kelley.
The agency claims that Kang abused his position in the public pension fund to direct up to $2.5 billion in state business to Schonhorn and Kelley in exchange for thousands of dollars of benefits that included hotel accommodations, luxury items and extravagant vacations. The commission also said Schonhorn and Kelley, who were registered representatives at two different broker/dealers, knew Kang was not disclosing the activities to the fund and took steps to keep the benefits a secret, thereby aiding and abetting the fraud Kang allegedly committed.
"We allege that rather than compete fairly for business from the New York State Common Retirement Fund's $50 billion fixed income portfolio, Schonhorn and Kelley bribed their way in, lining their pockets with millions in commissions along the way," LeeAnn Gaunt, chief of the SEC enforcement division's public finance abuse unit, said in a news release. "Moreover, they allegedly assisted Kang in covering up his misdeeds, with Kelley going so far as to help Kang obstruct the SEC's investigation."
The U.S. Attorney's Office for the Southern District of New York also announced criminal charges against Kang, Schonhorn and Kelley.
The SEC is seeking an order of permanent injunction and disgorgement plus interest and penalties. It is also seeking a conduct-based injunction against Kang that would permanently enjoin him from participating in any decisions involving investments in securities by public pensions as a trustee, officer, employee or agent.