Former Portfolio Manager At The New York State Common Retirement Fund Charged In “Pay-For-Play” Bribery Scheme

Press Release Former Portfolio Manager At The New York State Common Retirement Fund Charged In “Pay-For-Play” Bribery Scheme Wednesday, December 21, 2016 Share FacebookLinks to other government and non-government sites will typically appear with the “external link” icon to indicate that you are leaving the Department of Justice website when you click the link. XLinks to other government and non-government sites will typically appear with the “external link” icon to indicate that you are leaving the Department of Justice website when you click the link. LinkedInLinks to other government and non-government sites will typically appear with the “external link” icon to indicate that you are leaving the Department of Justice website when you click the link. Email For Immediate Release U.S. Attorney's Office, Southern District of New York Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of an Indictment charging NAVNOOR KANG, the former Director of Fixed Income and Head of Portfolio Strategy at the New York State Common Retirement Fund (“NYSCRF”), and DEBORAH KELLEY, a managing director of institutional fixed income sales at a New York-based broker-dealer (“Broker-Dealer-1”), with participating in a “pay-for-play” bribery scheme involving the NYSCRF. KANG was arrested today in Portland, Oregon, and will be presented later today before a U.S. Magistrate Judge in Portland. KELLEY is expected to surrender today to authorities in San Francisco, California. The case is assigned to U.S. District Judge J. Paul Oetken. Mr. Bharara also announced today the unsealing of charges against GREGG SCHONHORN, a vice president of fixed income sales at a New York-based broker-dealer (“Broker-Dealer-2”), who pled guilty and admitted to his participation in the scheme. U.S. Attorney Preet Bharara said: “Today, we allege a classic, quid-pro-quo bribery scheme at the New York State Common Retirement Fund, the third largest pension fund in the country. Navnoor Kang, a former portfolio manager at the fund, allegedly steered billions of dollars of business to broker-dealers who bribed him with luxury vacations, high-priced watches, drugs, cash, and more. The hard-earned pension savings of New Yorkers should never serve as a vehicle for corrupt, personal enrichment. The intersection of public corruption and securities fraud appears to be a busy one, but it's one that we are committed to policing.” FBI Assistant Director-in-Charge William F. Sweeney Jr. said: “Instead of upholding his fiduciary duty, Kang was allegedly paid in bribes for diverting business to two separate brokerage firms. When it comes to retirement funds, fixed-income investments are often thought of as a reliable choice. Members of the New York State Common Retirement Fund likely also relied on the belief that the man directing their investments was an honest public servant. Unfortunately, as alleged, that is not the case here today.” According to the allegations in the Indictment[1]Links to other government and non-government sites will typically appear with the “external link” icon to indicate that you are leaving the Department of Justice website when you click the link. and Information, which were unsealed today in Manhattan federal court: The NYSCRF The NYSCRF was a pension fund administered for the benefit of public employees of the State of New York. The third largest pension fund in the United States, the NYSCRF held approximately $184 billion in assets in trust for a total of more than one million retirees and other beneficiaries. From January 2014 through February 2016, KANG served as Director of Fixed Income and Head of Portfolio Strategy for the NYSCRF. In that capacity, KANG was responsible for investing more than $53 billion in fixed-income securities and was entrusted with discretion to manage those investments on behalf of the NYSCRF. KANG owed a fiduciary duty to the NYSCRF and its members and beneficiaries, and was required to make investment decisions in their best interests and free of any conflict of interest. New York State law and NYSCRF policies prohibited KANG and other NYSCRF employees from receiving any bribes, gifts, benefits, or consideration of any kind. The Scheme to Steer NYSCRF Fixed-Income Business in Exchange for Secret Bribes From 2014 through 2016, KANG, KELLEY, and SCHONHORN participated in a scheme to defraud the NYSCRF and its members and beneficiaries, and to deprive the NYSCRF of its intangible right to KANG’s honest services. The scheme involved, among other things, an agreement among KANG, KELLEY, SCHONHORN, and others to pay KANG bribes – in the form of entertainment, travel, lavish meals, prostitutes, nightclub bottle service, narcotics, tickets to sports games and other events, luxury gifts, and cash payments for strippers and KANG’s personal expenses – in exchange for fixed-income business from the NYSCRF. Such bribes – which totaled more than $100,000 – were strictly forbidden by the NYSCRF, and were paid secretly and without any disclosure to the NYSCRF and its members and beneficiaries concerning the conflicts of interests inherent therein. In exchange for the bribes paid by KELLEY, SCHONHORN, and others, KANG used his position as Director of Fixed Income and Head of Portfolio Strategy at the NYSCRF to promote the interests of KELLEY, SCHONHORN, and their respective brokerage firms. KANG, in exchange for the bribes he received, agreed to steer fixed-income business to Broker-Dealer-1 and Broker-Dealer-2. In fact, KANG steered more than $2 billion in fixed-income business to Broker-Dealer-1 and Broker-Dealer-2, from which KELLEY, SCHONHORN, and their respective employers earned millions of dollars in commissions from the NYSCRF. In so doing, KANG, with the knowledge and approval of KELLEY and SCHONHORN, breached his fiduciary duty to make investment decisions in the best interest of the NYSCRF and its members and beneficiaries, and free of conflict, and deprived the NYSCRF of its intangible right to KANG’s honest services. As the bribes paid by SCHONHORN to KANG increased, so too did Broker-Dealer-2’s fixed-income business with the NYSCRF. The value of the NYSCRF’s domestic bond transactions with Broker-Dealer-2 skyrocketed from zero in the fiscal year ending March 31, 2013, to approximately $1.5 million in the fiscal year ending March 31, 2014, to approximately $858 million in the fiscal year ending March 31, 2015, and to approximately $2.378 billion in the fiscal year ending March 31, 2016. Broker-Dealer-2 became the third largest broker-dealer with which the NYSRCF executed domestic bonds transactions for the fiscal year ending March 31, 2016, having not even been on the approved list in the fiscal year ending March 31, 2013. As the NYSCRF’s third largest broker-dealer in this asset class, Broker-Dealer-2 brokered approximately eight percent of the total value of the NYSCRF’s domestic bond transactions – a figure greater than that of all but two of the major international banks and brokerage houses on the list. Similarly, the value of NYSCRF’s domestic bond transactions with Broker-Dealer-1 increased from zero in the fiscal year ending March 1, 2014 to approximately $156 million in the fiscal year ending March 1, 2015, and to approximately $179 million in the fiscal year ending March 1, 2016. KANG’s trades resulted in the payment of millions of dollars in commissions to Broker-Dealer-1 and Broker-Dealer-2, of which KELLEY and SCHONHORN personally earned approximately 35 to 40 percent. The Obstruction of Justice In late 2015, the Securities and Exchange Commission (“SEC”) opened an investigation into the entertainment and benefits that KELLEY had provided KANG, and the SEC subpoenaed both KANG and KELLEY for their testimony. In advance of their testimony, KANG and KELLEY agreed to align their stories and testify falsely before the SEC in order to conceal their scheme. In late 2015 and early 2016, KANG and KELLEY each falsely testified under oath before the SEC about expenses KELLEY had paid for KANG. Moreover, after a federal grand jury investigation was opened, KANG instructed SCHONHORN to testify falsely before the grand jury, and KANG admitted that he had hidden relevant evidence. * * * KANG, 38, of Portland, Oregon, and KELLEY, 58, of Piedmont, California, are charged with the offenses set forth in the chart attached to this release. On December 15, 2016, SCHONHORN, 45, of Short Hills, New Jersey, pled guilty in Manhattan federal court before Judge Paul G. Gardephe to six counts: conspiracy to commit securities fraud; securities fraud; conspiracy to commit honest services wire fraud; honest services wire fraud; bank fraud; and conspiracy to obstruct justice in the SEC investigation. Count One carries a maximum sentence of five years in prison. Counts Two, Three, Four, and Six each carry a maximum sentence of 20 years in prison. Count Five carries a maximum sentence of 30 years in prison. The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge. Mr. Bharara praised the investigative work of the FBI and noted that the investigation is continuing. He also thanked the SEC, which filed civil charges against KANG, KELLEY, and SCHONHORN in a separate civil action today, and the Office of Inspector General for the Office of the New York State Comptroller. The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.govLinks to other government and non-government sites will typically appear with the “external link” icon to indicate that you are leaving the Department of Justice website when you click the link.. This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Edward A. Imperatore and Joshua A. Naftalis are in charge of the prosecution. The allegations contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty. Count Charge Defendant Maximum Penalties 1 Conspiracy to Commit Securities Fraud (18 U.S.C. § 371) NAVNOOR KANG DEBORAH KELLEY 5 years in prison and a $250,000 fine or twice the gross gain or loss from the offense 2 Securities Fraud (15 U.S.C. §§ 78j(b) & 78ff; 17 C.F.R. § 240.10b-5; 18 U.S.C. § 2) NAVNOOR KANG DEBORAH KELLEY 20 years in prison and a $5,000,000 fine or twice the gross gain or loss from the offense 3 Conspiracy to Commit Honest Services Wire Fraud (18 U.S.C. § 1349) NAVNOOR KANG DEBORAH KELELY 20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense 4 Honest Services Wire Fraud (18 U.S.C. §§ 1343 and 1346) NAVNOOR KANG DEBORAH KELLEY 20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense 5 Conspiracy to Obstruct Justice in the SEC Investigation (18 U.S.C. § 1512(k) NAVNOOR KANG DEBORAH KELLY 20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense 6 Obstruction of Justice in the Grand Jury Investigation (18 U.S.C. § 1512(c)(2)) NAVNOOR KANG 20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense [1]Links to other government and non-government sites will typically appear with the “external link” icon to indicate that you are leaving the Department of Justice website when you click the link. As the introductory phrase signifies, the entirety of the text of the Indictment, and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation. Updated December 21, 2016 Topic Financial Fraud Component USAO - New York, Southern Press Release Number: 16-346

Press Release Former Portfolio Manager At The New York State Common Retirement Fund Charged In “Pay-For-Play” Bribery Scheme Wednesday, December 21, 2016 Share FacebookLinks to other government and non-government sites will typically appear with the “external link” icon to indicate that you are leaving the Department of Justice website when you click the link. XLinks to other government and non-government sites will typically appear with the “external link” icon to indicate that you are leaving the Department of Justice website when you click the link. LinkedInLinks to other government and non-government sites will typically appear with the “external link” icon to indicate that you are leaving the Department of Justice website when you click the link. Email For Immediate Release U.S. Attorney's Office, Southern District of New York Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of an Indictment charging NAVNOOR KANG, the former Director of Fixed Income and Head of Portfolio Strategy at the New York State Common Retirement Fund (“NYSCRF”), and DEBORAH KELLEY, a managing director of institutional fixed income sales at a New York-based broker-dealer (“Broker-Dealer-1”), with participating in a “pay-for-play” bribery scheme involving the NYSCRF. KANG was arrested today in Portland, Oregon, and will be presented later today before a U.S. Magistrate Judge in Portland. KELLEY is expected to surrender today to authorities in San Francisco, California. The case is assigned to U.S. District Judge J. Paul Oetken. Mr. Bharara also announced today the unsealing of charges against GREGG SCHONHORN, a vice president of fixed income sales at a New York-based broker-dealer (“Broker-Dealer-2”), who pled guilty and admitted to his participation in the scheme. U.S. Attorney Preet Bharara said: “Today, we allege a classic, quid-pro-quo bribery scheme at the New York State Common Retirement Fund, the third largest pension fund in the country. Navnoor Kang, a former portfolio manager at the fund, allegedly steered billions of dollars of business to broker-dealers who bribed him with luxury vacations, high-priced watches, drugs, cash, and more. The hard-earned pension savings of New Yorkers should never serve as a vehicle for corrupt, personal enrichment. The intersection of public corruption and securities fraud appears to be a busy one, but it's one that we are committed to policing.” FBI Assistant Director-in-Charge William F. Sweeney Jr. said: “Instead of upholding his fiduciary duty, Kang was allegedly paid in bribes for diverting business to two separate brokerage firms. When it comes to retirement funds, fixed-income investments are often thought of as a reliable choice. Members of the New York State Common Retirement Fund likely also relied on the belief that the man directing their investments was an honest public servant. Unfortunately, as alleged, that is not the case here today.” According to the allegations in the Indictment[1]Links to other government and non-government sites will typically appear with the “external link” icon to indicate that you are leaving the Department of Justice website when you click the link. and Information, which were unsealed today in Manhattan federal court: The NYSCRF The NYSCRF was a pension fund administered for the benefit of public employees of the State of New York. The third largest pension fund in the United States, the NYSCRF held approximately $184 billion in assets in trust for a total of more than one million retirees and other beneficiaries. From January 2014 through February 2016, KANG served as Director of Fixed Income and Head of Portfolio Strategy for the NYSCRF. In that capacity, KANG was responsible for investing more than $53 billion in fixed-income securities and was entrusted with discretion to manage those investments on behalf of the NYSCRF. KANG owed a fiduciary duty to the NYSCRF and its members and beneficiaries, and was required to make investment decisions in their best interests and free of any conflict of interest. New York State law and NYSCRF policies prohibited KANG and other NYSCRF employees from receiving any bribes, gifts, benefits, or consideration of any kind. The Scheme to Steer NYSCRF Fixed-Income Business in Exchange for Secret Bribes From 2014 through 2016, KANG, KELLEY, and SCHONHORN participated in a scheme to defraud the NYSCRF and its members and beneficiaries, and to deprive the NYSCRF of its intangible right to KANG’s honest services. The scheme involved, among other things, an agreement among KANG, KELLEY, SCHONHORN, and others to pay KANG bribes – in the form of entertainment, travel, lavish meals, prostitutes, nightclub bottle service, narcotics, tickets to sports games and other events, luxury gifts, and cash payments for strippers and KANG’s personal expenses – in exchange for fixed-income business from the NYSCRF. Such bribes – which totaled more than $100,000 – were strictly forbidden by the NYSCRF, and were paid secretly and without any disclosure to the NYSCRF and its members and beneficiaries concerning the conflicts of interests inherent therein. In exchange for the bribes paid by KELLEY, SCHONHORN, and others, KANG used his position as Director of Fixed Income and Head of Portfolio Strategy at the NYSCRF to promote the interests of KELLEY, SCHONHORN, and their respective brokerage firms. KANG, in exchange for the bribes he received, agreed to steer fixed-income business to Broker-Dealer-1 and Broker-Dealer-2. In fact, KANG steered more than $2 billion in fixed-income business to Broker-Dealer-1 and Broker-Dealer-2, from which KELLEY, SCHONHORN, and their respective employers earned millions of dollars in commissions from the NYSCRF. In so doing, KANG, with the knowledge and approval of KELLEY and SCHONHORN, breached his fiduciary duty to make investment decisions in the best interest of the NYSCRF and its members and beneficiaries, and free of conflict, and deprived the NYSCRF of its intangible right to KANG’s honest services. As the bribes paid by SCHONHORN to KANG increased, so too did Broker-Dealer-2’s fixed-income business with the NYSCRF. The value of the NYSCRF’s domestic bond transactions with Broker-Dealer-2 skyrocketed from zero in the fiscal year ending March 31, 2013, to approximately $1.5 million in the fiscal year ending March 31, 2014, to approximately $858 million in the fiscal year ending March 31, 2015, and to approximately $2.378 billion in the fiscal year ending March 31, 2016. Broker-Dealer-2 became the third largest broker-dealer with which the NYSRCF executed domestic bonds transactions for the fiscal year ending March 31, 2016, having not even been on the approved list in the fiscal year ending March 31, 2013. As the NYSCRF’s third largest broker-dealer in this asset class, Broker-Dealer-2 brokered approximately eight percent of the total value of the NYSCRF’s domestic bond transactions – a figure greater than that of all but two of the major international banks and brokerage houses on the list. Similarly, the value of NYSCRF’s domestic bond transactions with Broker-Dealer-1 increased from zero in the fiscal year ending March 1, 2014 to approximately $156 million in the fiscal year ending March 1, 2015, and to approximately $179 million in the fiscal year ending March 1, 2016. KANG’s trades resulted in the payment of millions of dollars in commissions to Broker-Dealer-1 and Broker-Dealer-2, of which KELLEY and SCHONHORN personally earned approximately 35 to 40 percent. The Obstruction of Justice In late 2015, the Securities and Exchange Commission (“SEC”) opened an investigation into the entertainment and benefits that KELLEY had provided KANG, and the SEC subpoenaed both KANG and KELLEY for their testimony. In advance of their testimony, KANG and KELLEY agreed to align their stories and testify falsely before the SEC in order to conceal their scheme. In late 2015 and early 2016, KANG and KELLEY each falsely testified under oath before the SEC about expenses KELLEY had paid for KANG. Moreover, after a federal grand jury investigation was opened, KANG instructed SCHONHORN to testify falsely before the grand jury, and KANG admitted that he had hidden relevant evidence. * * * KANG, 38, of Portland, Oregon, and KELLEY, 58, of Piedmont, California, are charged with the offenses set forth in the chart attached to this release. On December 15, 2016, SCHONHORN, 45, of Short Hills, New Jersey, pled guilty in Manhattan federal court before Judge Paul G. Gardephe to six counts: conspiracy to commit securities fraud; securities fraud; conspiracy to commit honest services wire fraud; honest services wire fraud; bank fraud; and conspiracy to obstruct justice in the SEC investigation. Count One carries a maximum sentence of five years in prison. Counts Two, Three, Four, and Six each carry a maximum sentence of 20 years in prison. Count Five carries a maximum sentence of 30 years in prison. The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge. Mr. Bharara praised the investigative work of the FBI and noted that the investigation is continuing. He also thanked the SEC, which filed civil charges against KANG, KELLEY, and SCHONHORN in a separate civil action today, and the Office of Inspector General for the Office of the New York State Comptroller. The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.govLinks to other government and non-government sites will typically appear with the “external link” icon to indicate that you are leaving the Department of Justice website when you click the link.. This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Edward A. Imperatore and Joshua A. Naftalis are in charge of the prosecution. The allegations contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty. Count Charge Defendant Maximum Penalties 1 Conspiracy to Commit Securities Fraud (18 U.S.C. § 371) NAVNOOR KANG DEBORAH KELLEY 5 years in prison and a $250,000 fine or twice the gross gain or loss from the offense 2 Securities Fraud (15 U.S.C. §§ 78j(b) & 78ff; 17 C.F.R. § 240.10b-5; 18 U.S.C. § 2) NAVNOOR KANG DEBORAH KELLEY 20 years in prison and a $5,000,000 fine or twice the gross gain or loss from the offense 3 Conspiracy to Commit Honest Services Wire Fraud (18 U.S.C. § 1349) NAVNOOR KANG DEBORAH KELELY 20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense 4 Honest Services Wire Fraud (18 U.S.C. §§ 1343 and 1346) NAVNOOR KANG DEBORAH KELLEY 20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense 5 Conspiracy to Obstruct Justice in the SEC Investigation (18 U.S.C. § 1512(k) NAVNOOR KANG DEBORAH KELLY 20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense 6 Obstruction of Justice in the Grand Jury Investigation (18 U.S.C. § 1512(c)(2)) NAVNOOR KANG 20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense [1]Links to other government and non-government sites will typically appear with the “external link” icon to indicate that you are leaving the Department of Justice website when you click the link. As the introductory phrase signifies, the entirety of the text of the Indictment, and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation. Updated December 21, 2016 Topic Financial Fraud Component USAO - New York, Southern Press Release Number: 16-346