Updates to our Terms of Use

We are updating our Terms of Use. Please carefully review the updated Terms before proceeding to our website.

Thursday, March 28, 2024 | Back issues
Courthouse News Service Courthouse News Service

Coke, Lust and Corruption Alleged Inside NY Pension

Crack-cocaine, prostitutes and cash were among the bribes received by an ex-portfolio manager at the third largest pension fund in the United States, an explosive indictment filed Wednesday says.

MANHATTAN (CN) — An ex-portfolio manager at the New York State Common Retirement Fund — the third largest pension fund in the United States — steered fixed-income business to broker-dealers who kept him flush with prostitutes, crack-cocaine and cash, federal prosecutors charged on Wednesday.

Navnoor Kang, who managed billions in the funds assets, appears on an indictment with Deborah Kelley, described in court papers as a managing director of institutional fixed income sales at a New York-based broker-dealer.

Financial-services firm INTL FCStone confirmed this afternoon that Kelley used to work for Sterne, Agee & Leach, a broker-dealer it acquired in July 2016.

“Sterne Agee’s Fixed Income Division was not part of that acquisition, and all activity giving rise to the indictment occurred prior to the acquisition,” INTL FCStone added.

Charged separately in a 9-page criminal information is Gregg Schoenhorn, a 45-year-old New Jersey resident who pleaded guilty this morning before a federal judge in Manhattan. Court papers describe Schonhorn as a vice president of fixed-income sales.

Like Kelley, Shonhorn had once been employed by MF Global, a global financial-derivatives broker that went bankrupt five years ago amid an inside-trading probe by the Securities and Exchange Commission.

The New York pension’s past is checkered as well. A corruption scandal at the fund in 2007 implicated a former New York state comptroller and his staff, leading to a series of reforms that did not prevent the sordid conduct alleged today.

At a noon press conference, Manhattan U.S. Attorney Preet Bharara described the latest charges as an “age-old and classic tale of quid-pro-quo corruption.”

“As spelled out in the indictment, the bribes took the form of travel expenses, hotels, sporting events, concerts, strip clubs, expensive meals, prostitutes, drugs, luxury watches, and of course, cold, hard cash,” Bharara said.

The pension fund at the center of the alleged conspiracy holds roughly $184 billion in assets for more than one million retirees and other beneficiaries. It paid out approximately $10.9 billion in benefits in 2015.

Prosecutors say Kang sent more than $2 billion in fixed-income business from that pool over to Kelley and Schonhorn between 2012 and September 2015, generating multimillion-dollar commissions for their employers.

When Kelley and Kang traveled to New Orleans in October 2014, according to the indictment, she covered Kang’s ticket to a Paul McCartney concert, tours, meals and other expenses.

Prosecutors say that Schonhorn’s expenditures were no less lavish.

“Schonhorn spent thousands of dollars on Kang at strip clubs, on dinners at upscale New York restaurants, hotel reservations, bottle service at nightclubs, concerts, tickets to the U.S. Open tennis tournament, Broadway shows, and other events, and cocaine and crack cocaine,” the indictment states. “Schonhorn also handed Kang thousands of dollars in cash for Kang to pay for prostitutes, strippers, and Kang’s personal expenses.”

A year later, Kelley allegedly paid for a long-weekend ski trip for Kang and his girlfriend in Park City, Utah.

Prosecutors say that Schonhorn and Kang tried to keep their bribe discussions private by using WhatsApp, an encrypted chat application that is a subsidiary of Facebook.

William Sweeney, the FBI’s special agent in charge for New York, shared a pun about the charge.

“They tried to hide their communications by using the smartphone application WhatsApp in the hopes that the authorities surrounding [them] didn’t wonder what’s up,” Sweeney said.

Bharara, a longtime opponent of personal encryption, declined to comment on whether Facebook cooperated with the government’s investigation. The Manhattan U.S. attorney's press conference marks Bharara's first since his announcement that he will keep his job under a Donald Trump administration.

New York Comptroller Thomas DiNapoli, who administered the state retirement fund throughout the time of the conspiracy, voiced outrage over what he called a "shocking betrayal” by Kang, whom the state dismissed in February 2016.

“As the criminal indictment says, he secretly circumvented our rigorous ethical standards and policies,” DiNapoli said in a statement. “When his misconduct was uncovered by federal authorities, our inspector general worked with law enforcement officials to uncover the extent of his scheme.”

Pressed by a reporter, Bharara corroborated this account of the comptroller's cooperation, and he did not fault DiNapoli for the alleged misconduct under his watch.

“We’re here to talk about the individuals who have been criminally charged,” the U.S. attorney emphasized.

Authorities arrested Kang, 38, in Portland, Ore., and Kelley, 58, this morning in Piedmont, Calif.

They each face five counts of securities fraud, wire fraud, and conspiracy charges related to the alleged frauds and obstructing an investigation. Kang faces an additional count of obstructing a grand jury investigation.

Categories / Criminal, Government, Regional

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Loading...