Cocaine And Prostitutes Just A Few Of The Perks Of Managing New York State Pension Funds

Taking a job in the public sector doesn't mean giving up on the finer things in life.
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Top cats in the financial industry tend to talk about going into public service like it’s some grand sacrifice. Accepting a measly government salary after so many years of raking in riches is tantamount to swearing to a life of penury. Take Lloyd Blankfein’s recent farewell to departing Goldman President Gary Cohn: “The American people and president-elect are fortunate that he has chosen to serve his country.”

Albany.HedgeFund

But if U.S. Attorney Preet Bharara’s latest case holds, there’s apparently just as much sex and lucre to be had as a loyal public servant as there is as a high-rolling financier.

On Wednesday prosecutors filed a pay-to-play case against former New York state retirement fund bond manager Navnoor Kang, accusing him of taking in some $160,000 in gifts ranging from cash for cocaine to Paul McCartney concert tickets. In return, Kang allegedly directed billions of dollars in fixed-income trades to two broker dealers: Deborah Kelley, formerly of Sterne Agee, and Gregg Schonhorn of FTN Financial.

The scheme was pretty simple. Kang would mention over Bloomberg instant message that he wouldn’t particularly mind seeing a concert or going skiing. Soon afterward McCartney tickets or vacation plans would fall into his lap, courtesy of his broker-dealer buddies. In return they’d get lucrative state pension business.

Kang – whose LinkedIn profile lists job experience as a Goldman Sachs analyst, a portfolio associate at PIMCO and a “tennis professional” – met Schonhorn through a friend in Vegas, the criminal complaint says, and Kelley through professional connections.

In fact, it was these kinds of glad-handing personal connections that prosecutors say initially put Kang on the path to the New York Common Retirement Fund, a job he took only after being fired from his previous gig. While vice president in charge of fixed income at Guggenheim Partners, Kang allegedly received a gold Rolex from Schonhorn and Rolling Stones tickets from the guy who introduced the two. When Guggenheim found out about the gifts the terminated him, the complaint states.

Twelve months later – and with the aid of Kelley as his personal reference – Kang was managing $55 billion in public employee retirement assets for the state’s pension fund, overseen by state comptroller (and apparent Cuomo foe) Thomas DiNapoli. The bribes came soon after. Within a month of Kang starting the job, Schonhorn treated him to a “lavish trip to Montreal,” the complaint says, which included “$3,500 for meals and drinks, and cash for cocaine.”

Helpfully, Bharara provided us an itemized list of the loot Kang allegedly received for his services. The swag from Schonhorn includes:

  • more than $50,000 spent on hotel rooms in New York City, Montreal, Atlantic City, and Cleveland;
  • approximately $25,000 spent at bars and lounges and on bottle service;
  • approximately $25,000 spent at restaurants;
  • a $17,400 Panerai watch;
  • and a $4,200 Hermes bracelet, which was purchased for Kang’s girlfriend at Kang’s request.

Somewhere along the way there were also prostitutes, the complaint alleges, without any further elaboration. Kelley, meanwhile, doled out trips to Park City, Utah and New Orleans, complete with limo rides and those coveted $1,500 VIP tickets to see the aged Beatle.

To pay back the favors, the prosecutors allege, Kang did what any self-respecting fixed-income manager would do: He complained about bond market liquidity. “Defendant Kang set out to expand the list of approved brokers under the guise of facilitating additional liquidity and obtaining best execution,” the complaint states.

The new brokers he selected included Kelley and Schonhorn, who went from trading zilch for the state of New York to conducting at least $3 billion in transactions by the end of Kang’s time with the fund, netting them hundreds of thousands of dollars in commissions, prosecutors say.

But no gravy train that simple can chug along forever. Regulators got wise in early 2016, and the three tried to cover up their trails with frantic document shredding and, in Kang’s case, pleading calls to an ex-girlfriend that went sadly unanswered, prosecutors said. You have to wonder how those calls went. “Hey, I know we haven’t talked in awhile. We both said and did things we now regret. Anyway, do you mind being accomplice in a plot to conceal securities law violations?”

The coverup failed, and now all three have been charged with securities law violations. Part of Kang’s wrongdoing apparently stemmed from failing to disclose the receipt of his gifts. So if there’s any moral to the story – other than the obvious don’t-defraud-public-pensions one – is that if you’re going to accept recreational drugs and sex services from state contractors, be sure to properly disclose it all to the relevant authorities.

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