Ex-New York Pension Director Gets 21 Months for Pay-to-Play

(Bloomberg) -- A former portfolio manager for New York’s main pension fund must serve 21 months in prison for accepting gifts including concert tickets, drugs and luxury watches from brokers in exchange for steering billions of dollars in business to their firms.

Navnoor Kang, 38, who managed fixed income at the New York State Common Retirement Fund, was arrested in December 2016 and accused of taking thousands of dollars in bribes from brokers.

"I want to express my regret and deeply apologize to the court and to the government for the mistakes I made," a tearful Kang told the judge. "I accept responsibility for my actions."

Prosecutors had urged U.S. District Judge J. Paul Oetken to sentence Kang, who pleaded guilty, to at least 10 years in prison. They called his actions a “flagrant abuse of his position of public trust."

His actions were “accomplished through exploitation of his trusted position and his willingness to lie and deceive at every turn," prosecutors said in a sentencing memorandum.

House Arrest

Kang, the Houston-born son of immigrants from India, had sought a sentence of house arrest, saying his trading decisions were focused only on the value of the securities to the fund and that his fixed income investments were monitored closely. Kang said neither the state nor the fund had lost money due to his conduct, which he said was a "departure from his otherwise law-abiding life."

According to prosecutors, Kang started working for the fund, the third-largest public U.S. pension fund, in early 2014 following stints at Goldman Sachs Group Inc., Guggenheim Partners and Pacific Investment Management Co., and was responsible for investing more than $53 billion in fixed-income securities.

Kang accepted bribes from Deborah Kelley, a managing director at Sterne Agee & Leach, and Gregg Schonhorn, who previously served as vice president of fixed income sales at FTN Financial. Kang knew Schonhorn and Kelley before he arrived at the pension fund, and had accepted an $8,000 Rolex from Schonhorn in 2012 and gifts from another broker in exchange for business from Guggenheim, prosecutors said.

Steered Business

After moving to the New York fund, prosecutors say Kang almost immediately began accepting bribes in exchange for steering business, which resulted in millions of dollars in commissions for the firms and the brokers.

The brokers’ firms weren’t on the list of those allowed to do business with the state pension fund when Kang started working there, but he soon got them approved. The value of transactions from New York pension business soared to more than $150 million a year at Sterne Agee, and about $2.4 billion at Schonhorn’s firm, prosecutors said.

Schonhorn took Kang on weekend trips to Montreal, where he paid for airfare, hotel, meals, bottle service at a nightclub and cocaine, and lavished the portfolio manager with cash for prostitutes -- even buying him a $17,000 Panerai wristwatch, according to prosecutors.

Kelley bought Kang and his girlfriend VIP tickets to a Paul McCartney concert in New Orleans as well as meals, drinks and tours in the city, and also paid for a weekend ski trip to Park City, Utah, prosecutors said.

Schonhorn pleaded guilty and cooperated with authorities. He’s yet to be sentenced. Kelley was sentenced to three years’ probation after pleading guilty.

Stifel Financial Corp. agreed to buy Sterne Agee Group in February 2015 in a $150 million cash-and-stock deal merging two of the biggest U.S. brokerages outside of New York.

The case is U.S. v. Kang, 16-cr-837, U.S. District Court, Southern District of New York (Manhattan).

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