Drugs, prostitutes, nightclub bottle service and lots of cash. That’s what authorities allege two brokerage firms used as bribes to lure lucrative business from a powerful New York State retirement fund manager.
Navnoor Kang, a former portfolio manager at the vast New York State Common Retirement Fund, was charged on Wednesday with conspiracy to commit securities fraud as part of the “pay-for-play” scheme.
Preet Bharara, the U.S. Attorney for the Southern District of New York, also charged Deborah Kelley and Gregg Schonhorn, the two broker-dealers who allegedly paid the secret bribes.
The bribery and alleged fraud took place between 2014 and 2016 and involved one of the largest institutional fund managers in the world. With $179 billion in assets, the NY State Common Retirement Fund is the third-largest pension fund in the U.S. and manages retirement assets for more than 1 million people, including firemen and police officers.
The indictment alleges that Kelley, Schonhorn and “others” paid Kang bribes in the form of “entertainment, travel, lavish meals, prostitutes, nightclub bottle service, narcotics, luxury gifts and cash payments, among other things.”
Kang used his position as director of fixed income and head of portfolio strategy to steer more than $2 billion in fixed-income business to the broker dealer firms he accepted secret bribes from, according to the indictment.
In exchange, Kelley and Schonhorn secured the NY retirement fund’s business and in the process earned “millions of dollars in commissions,” authorities say.
The pension fund’s domestic bond business with Schonhorn’s firm skyrocketed from zero in the fiscal year ending March 2013 to about $2.4 billion in the most recent fiscal year, the indictment alleges.
Kelley and Schonhorn were both charged with conspiracy to commit securities fraud. Schonhorn faces additional charges, including securities and wire fraud and conspiracy to obstruct justice.
It’s not clear what firms Kelley and Schonhorn worked at. The indictment refers to the firms as simply “Broker-Dealer-1” and “Broker-Dealer-2.”
The New York State Common Retirement Fund did not immediately respond to a request for comment.
Bharara is holding a 12 p.m. ET press conference on Wednesday to detail the investigation.
