A man entrusted to manage investments for New York’s Common Retirement Fund put his own payday before state employee pensions. Prosecutors say his on-the-job decisions were fueled by bribes of drugs, sex, and a $17,420 luxury wristwatch.
Navnoor Kang funneled investment of the billions of dollars in retirement assets he managed to two brokerage dealers who paid him off with personal bribes, according to a complaint filed Wednesday in federal court.
The NYS Common Retirement Fund is one of the largest pension funds in the United States. It holds more than $184 billion in trust for a million beneficiaries who work for state and local governments, including firefighters and police.
But prosecutors say Kang was a far cry from the dedicated civil servants whose pensions he managed. They allege that he used his position as Director of Fixed Income and Head of Portfolio Strategy at the NYSCRF to give business to Deborah Kelley and Gregg Schonhorn. (The alleged bribes offered were also in violation of policies at the firms they worked for.) Altogether, they got $2 billion in business from Kang, the complaint says, and earned millions in commissions.
And because Kelley and Schonhorn’s firms weren’t on an approved broker-dealer’s list for the NYSCRF, prosecutors say Kang even arranged for the business to be funnelled through an approved broker, who got a share of their commission. “At times, these ‘step-out’ trades resulted in the NYSCRF paying more in commissions than it would have if it had trader directly with an approved broker,” according to the complaint.
Prosecutors say the scheme defrauded the fund “of its intangible right to Kang’s honest services,” and that Kang lived large while abdicating his responsibilities to New York’s employees.
Kelley and Schonhorn allegedly paid him off with prostitutes, drugs, and bottle service at nightclubs. They also allegedly hooked Kang up with travel, cash, and lavish meals, for a total of about $100,000.
Specific alleged bribes detailed in court documents include weekend trips Kang took with Schonhorn to Montreal, where the latter spent thousands of dollars on bottle service, travel, and cocaine. Kelley also took Kang on an out-of-town trip to New Orleans, where she paid for his Paul McCartney concert tickets, and covered a ski vacation to Park City, Utah for Kang and his then-girlfriend.
And by the time Kang formally recommended that their firms be placed on the NYSCRF approved list in November 2014, Schonhorn had allegedly bought him thousands of dollars worth of cocaine, Broadway tickets, and strip club visits.
By 2015, Kang allegedly had the gall to ask Schonhorn for a little gift: a $17,420 Panerai wristwatch that the pair picked out at a Madison Avenue store. (Kang was fired from his previous employer after failing to disclose a similar treat from Schonhorn, according to the complaint.)
It paid off. Schonhorn’s firm went from having no business with the NYSCRF one year to overseeing $2.378 billion in bond transactions three years later. It was the “third largest broker-dealer with which the NYSRCF executed transactions in domestic bonds for the fiscal year ending March 31, 2016.” It handled eight percent of the fund’s domestic bond transactions, and received up to $1 million per month in payment from the fund.
Kelley’s firm wound up handling $179 million in domestic bond transactions that same year.
This wasn’t the NYSCRF’s first pay-for-play scandal. Former state comptroller Alan Hevesi was sentenced to up to four years in prison in 2011 for a similar scandal in which he accepted nearly $1 million in bribes. And the NYSCRF added a code of conduct that prohibited employees from “receiv[ing] any consideration from [a] party ... in connection with a transaction involving the [NYSCRF],” according to the complaint. That dovetails with the other New York regulations that say state officers can’t “solicit, accept or receive any gift having more than a nominal value,” the complaint added.
Kang moved to San Francisco after his tenure with at the Fund, according to Linkedin, where he became the chief strategy officer for a news site called the Fair Observer. He calls himself a “seasoned portfolio manager” who has “outperformed his peers year after year because of his astute investment strategies and sound judgment for value.”
Kang and Kelley were charged with securities fraud and other charges. Schonhorn cooperated with the investigation and pleaded guilty to related charges, a spokesperson to the U.S. Attorney’s Office told The Daily Beast.