Types Of SEC Cases: Public Pension Fraud
SEC Accuses New York Plan Official And Registered Reps Of Public Pension FraudThe U.S. Securities and Exchange Commission (“SEC”) charged a former official of the New York State Common Retirement Fund (“NYSCRF” or the“Fund”) with conducting a public pension fraud. The Commission also charged two registered representatives at different broker-dealers with participating in the public pension fraud scheme and assisting in its concealment.
Billions Awarded In Public Pension Fraud SchemeAccording to the SEC’s court Complaint, during the period from January 2014 to February 2016, Navnoor Kang used his position as the Director of Fixed Income for the New York State Common Retirement Fund to illegally award almost $3.5 billion in securities trades to registered representatives Gregg Schonhorn and Deborah Kelley. Neither Schonhorn nor Kelley had previously been on the NYSCRF’s approved broker-dealer list or executed any transactions for the Fund. In exchange for receiving the execution allocations, Schonhorn and Kelley allegedly lavished Kang with expensive gifts and services worth hundreds of thousands of dollars. Among the illegal gifts to Kang were:
- A luxury watch worth $17,400;
- A $4,200 Hermes bracelet for Kangʼs girlfriend;
- Hotels and ski vacations worth over $50,000;
- Roughly $50,000 on tabs for strip clubs, restaurants, bars, and lounges; and
- VIP tickets for a Paul McCartney concert ($6,400).
We allege that rather than compete fairly for business from the New York State Common Retirement Fundʼs $50 billion fixed income portfolio, Schonhorn and Kelley bribed their way in, lining their pockets with millions in commissions along the way … Moreover, they allegedly assisted Kang in covering up his misdeeds, with Kelley going so far as to help Kang obstruct the SECʼs investigation.
The Public Pension Fraud Violated Securities LawsThe SEC charged that, as a fiduciary of the NYSCRF, Kang was required to disclose his solicitation of Schonhorn and Kelley, as well as the gifts and benefits that they provided to him. The SEC asserted that by not doing so, Kang violated the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. Due to their participation in the public pension fraud scheme, and their actions to hide it from their employers and the NYSCRF, the SEC also charged Kelley and Schonhorn with committing fraud. In the press release, the Director of the SEC’s Enforcement Division made clear the SEC’s position:
Kang owed a duty not only to the New York State Common Retirement Fund but to the more than one million public servants and beneficiaries that are served by the fund, including police and fire personnel who count on their pensions to take care of them and their families … This action demonstrates that the SEC will not tolerate public officials who abuse public pension funds to satisfy their own greedy and wanton desires.