SEC v. John A. Paulsen, No. 1:18-cv-6718, Southern District of New York (Oct. 27, 2020) — Complaint

 
 
UNITED STATES DISTRICT COURT 
SOUTHERN DISTRICT OF NEW YORK 
___________________________________ 
      ) 
UNITED STATES SECURITIES    ) 
AND EXCHANGE COMMISSION, ) 
      )     
                                                Plaintiff,                        )            
          v.    )     Civil Action No. 1:18-cv-6718 
      )   
JOHN A. PAULSEN,    )     Jury Trial Demanded      
       ) 
   Defendant.  )     
___________________________________  ) 
 
COMPLAINT 
 
The United States Securities and Exchange Commission alleges as follows: 
Nature of the Action  
1. This action concerns Defendant John A. Paulsen, a former analyst at a broker-
dealer headquartered in Birmingham, Alabama (“Broker-Dealer”), who aided and abetted a pay-
to-play scheme involving the New York State Common Retirement Fund (the “NYSCRF” or the 
“Fund”), Deborah D. Kelley, and Navnoor S. Kang. 
2. From early 2014 until February 2016, Kang was the Director of Fixed Income and 
Head Portfolio Strategist of the NYSCRF, the third largest public pension fund in the United 
States, with investment responsibility for approximately $50 billion of the Fund’s assets.   
3. During the course of Kang’s employment, Kang solicited and received improper 
gifts and entertainment from Kelley, a former registered representative at the Broker-Dealer.  In 
exchange, Kang directed public pension trades to Kelley at the Broker-Dealer, and Kelley earned 
sizable commissions.   
4. Paulsen and Kelley were colleagues at the Broker-Dealer.  In February 2015, 
Paulsen and Kelley planned a ski trip in Park City, Utah for the purpose of entertaining Kang.  

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As part of the trip, Paulsen and Kelley incurred more than $11,000 in expenses entertaining 
Kang and Kang’s girlfriend.   
5. Paulsen and Kelley sought reimbursement of those expenses from the Broker-
Dealer, and intentionally hid the fact that Kang was on the trip by not including Kang’s name on 
their expense reports.   
6. Later, when the Broker-Dealer discovered inconsistencies in the reports and 
began an internal investigation, Kelley and Paulsen conspired to lie, and did lie, to the Broker-
Dealer’s internal investigators about Kang’s presence on the trip. 
7. Kang violated the antifraud provisions of the federal securities laws by directing 
Fund business to Kelley in exchange for gifts and entertainment, while failing to disclose his 
receipt of those improper benefits to the Fund.  Kelley violated the antifraud provisions by 
providing the undisclosed benefits to Kang as part of the fraudulent quid pro quo scheme with 
Kang.   
8. Paulsen knowingly provided substantial assistance to Kelley and Kang by 
participating in the entertainment of Kang, then hiding his and Kelley’s provision of benefits to 
Kang by submitting false expense reports, and lying to the internal investigators.  Paulsen also 
facilitated Kang’s and Kelley’s quid pro quo scheme by allowing it to go undetected by the 
Broker-Dealer and the Fund.  In doing so, Paulsen aided and abetted Kelley’s and Kang’s 
violations of Section 10(b) of the Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78j(b) ], 
Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5], and Sections 17(a)(1) and 17(a)(3) of the 
Securities Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77q(a)(1), (a)(3)].  
9. Unless Paulsen is permanently restrained and enjoined, he will again engage in 
the acts, practices, transactions, and courses of business set forth in this Complaint, and in acts, 

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practices, transactions, and courses of business of similar type and object. 
Jurisdiction and Venue 
 
10. The Commission brings this action pursuant to the authority conferred by Section 
20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(1) of the Exchange Act [15 
U.S.C. § 78u(d)(1)], seeking to restrain and enjoin permanently Defendant from engaging in the 
acts, practices, transactions, and courses of business alleged herein.  The Commission also seeks 
a final judgment ordering Defendant to pay disgorgement, prejudgment interest, and civil 
penalties pursuant to Section 20(d) of the Securities Act [at U.S.C. § 77t(d)] and Section 21(d)(3) 
of the Exchange Act [15 U.S.C. § 78u(d)(3)].  
11. This Court has jurisdiction over this action, and venue lies in this District, 
pursuant to Sections 20(d) and 22(a) of the Securities Act [15 U.S.C. §§ 77t(d) and 77v(a)] and 
Sections 20(d) and 27(a) of the Exchange Act [15 U.S.C.  §§ 78t(d) and 78aa(a)].  Defendant, 
directly or indirectly, singly or in concert, made use of the means or instruments of transportation 
or communication in, and the means or instrumentalities of, interstate commerce, or of the mails 
in connection with the acts, practices, transactions, and courses of business alleged herein.  Some 
of the acts, practices, transactions, and courses of business at issue occurred in the Southern 
District of New York.   
Defendant 
12.  John A. Paulsen, age 57, resides in Park Ridge, New Jersey.  From June 2013 
through March 2015, Paulsen was a Managing Director at the Broker-Dealer.  Prior to that, 
Paulsen worked at a number of registered broker-dealers dating back to 1993.  From April 2015 
through the present, Paulsen has been the Head of Research at a registered investment adviser 
based in Wilton, Connecticut.  

 
 
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Other Relevant Persons 
13. Navnoor S. Kang, age 38, resides in Saratoga Springs, New York.  From January 
2014 until his termination in February 2016, Kang was the Director of Fixed Income and Head 
Portfolio Strategist for the NYSCRF, a public pension fund managed by the New York State 
Comptroller.   
14. Deborah D. Kelley, age 60, resides in Piedmont, California.  From January 2012 
through August 2015, Kelley was a registered representative of the Broker-Dealer and its 
successor, a registered broker-dealer based in St. Louis, Missouri.  
The Facts 
15. Kelley met Kang while he was employed as a portfolio associate with a well-
known asset management firm, and she had a business relationship with him for a period of time 
while he was working as a vice president and fixed income trader with another prominent asset 
management firm (“Asset Manager”).   
16. Paulsen first met Kang when he worked at the Asset Manager, and they had 
occasional business interactions. 
17. At some point in or around 2012, Kang accepted an $8,000 Rolex watch from a 
registered representative of a broker-dealer, which Kang did not disclose to the Asset Manager. 
18. In late 2012, an internal investigation by the Asset Manager into Kang’s activities 
concluded that he had accepted Rolling Stones concert tickets valued at $1,200 from a registered 
representative of a broker-dealer doing business with the Asset Manager.     
19. In addition, the investigation determined that Kang failed to report at least 54 
additional instances where he received benefits and entertainment.  The Asset Manager 
terminated Kang in January 2013 for violations of its compliance and ethics policies based on his 

 
 
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improper receipt of, and failure to report, these benefits and entertainment.  The Asset Manager 
informed Kang that he was being terminated for these reasons. 
20. Between January 2013 and January 2014, Kang was unemployed and actively 
seeking work.  Kelley remained in contact with Kang and assisted him in his job search – all in 
an effort to maintain and cultivate their business relationship.   
Kang’s Employment By And Duties To The NYSCRF 
21. In January 2014, the NYSCRF hired Kang as its Director of Fixed Income and 
Head Portfolio Strategist.  During his job interview with the NYSCRF, Kang lied about the 
reason he was terminated by the Asset Manager.  Kelley provided a reference to the NYSCRF on 
Kang’s behalf. 
22. As the Director of Fixed Income at the Fund, Kang made investment decisions, 
supervised seven investment officers, and was responsible for approximately $50 billion of the 
Fund’s assets that were held in fixed-income securities.   
23. Under New York State Law, the New York State Comptroller, and anyone to 
whom he or she delegates powers of investment, is a fiduciary of the Fund.  Because Kang was 
delegated powers of investment by the Comptroller, he was a fiduciary to the Fund.  As a 
fiduciary, Kang was required to act solely in the interests of the members and beneficiaries of the 
Fund, and was prohibited from receiving any consideration from any party other than the Office 
of the State Comptroller in connection with a transaction involving the Fund. 
24. The NYSCRF maintains a “Code of Conduct” containing standards for the 
management of the Fund.  The Code of Conduct applies to all employees of the Office of the 
State Comptroller who have responsibility for matters relating to the Fund.  Among other things, 
the Code of Conduct mandates that the Fund shall “be managed in accordance with the highest 

 
 
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ethical, professional and conflict of interest standards,” and actions on behalf of the Fund “shall 
be for the sole benefit of the Retirement System’s members, retirees and beneficiaries.” 
25. Kang received training on the Fund’s policies and codes, as well as applicable 
New York State Law, and certified as to his understanding of the prohibitions contained therein 
regarding the receipt of gifts, meals, travel, and entertainment. 
26. Kang had an affirmative and continuing duty to disclose to the Fund his 
solicitation and acceptance of travel, entertainment, and benefits.  Kang was required to report 
the receipt of anything more than nominal value from interested parties.   
27. During his tenure with the Fund, Kang made no such disclosures.  Furthermore, 
Kang filed a certification with the Fund in which he represented that he had received no gifts in 
excess of $1000.  This certification was false. 
28. Shortly after Kang joined the Fund, Paulsen and Kang had an in-person meeting.  
At the meeting, Kang told Paulsen that the Fund had very strict rules which prohibited him from 
accepting anything from Paulsen.   
Kelley Corruptly Provides Kang With Undisclosed Gifts And Entertainment 
29. Kelley provided thousands of dollars’ worth of benefits and entertainment to 
Kang in exchange for access to NYSCRF business, despite the fact that her colleagues had 
warned her to avoid such behavior.   
30. Specifically, in a February 6, 2014 email (immediately prior to Kelley beginning 
her coverage of the NYSCRF account), another registered representative at the Broker-Dealer 
told Kelley to “remember these guys cannot be entertained as they are a state fund.”   
31. Nevertheless, Kelley soon thereafter planned a trip to New Orleans for herself, her 
husband, Kang, and Kang’s girlfriend, which took place in October 2014.   

 
 
7 
32. On this trip, Kelley spent, and then expensed to the Broker-Dealer, more than 
$8,000 for the four of them on meals, drinks, and entertainment, including $6,000 for four VIP 
tickets to a Paul McCartney concert.   
33. Kelley intentionally omitted the names of Kang and his girlfriend from her 
expense reports.  Instead, she falsely reported that clients from a private firm had attended the 
trip.   
Paulsen And Kelley Corruptly Provide Kang And  
His Girlfriend With Undisclosed Gifts And Entertainment On A Ski Trip 
 
34. On November 6, 2014, Kang called Paulsen and raised the idea of a ski trip.  
Paulsen mentioned the idea to Kelley, and Kelley then planned a ski trip to Park City, Utah, 
which took place in February 2015. 
35. The ski trip was originally scheduled to begin on Thursday, February 12, 2015, 
with Paulsen, Kelley, Kelley’s husband, Kang, and Kang’s girlfriend attending.  Kelley and 
Paulsen learned prior to the trip that Kang and his girlfriend would not arrive in Park City until 
Friday, February 13.  Paulsen asked Kelley via Bloomberg instant message whether they should 
adjust their arrival date “or just keep it :-).”  Kelley replied, “I’m still coming in Thurs :-).” 
36. Between them, Kelley and Paulsen spent and expensed more than $11,000 for 
skiing, hotel rooms, dinners, and drinks.  These expenses included the costs of limousine service, 
two lunches, two dinners, ski rentals, ski lessons, and three nights at the Hotel Park City (at more 
than $1,100 per night) for Kang and his girlfriend. 
Paulsen And Kelley Submit False Expense Reports To The Broker-Dealer 
37. After the trip, Paulsen and Kelley discussed how they would handle Kang’s 
attendance on the ski trip when they submitted their expense reports.  Kelley told Paulsen that 
Kang’s name, and Kang’s girlfriend’s name, could not appear on their expense reports.  Paulsen 

 
 
8 
and Kelley agreed that they would keep Kang’s attendance on the trip a secret.  Paulsen 
understood Kelley would not mention Kang or his girlfriend on her expense reports.  Paulsen 
planned to do the same thing. 
38. Kelley submitted false expense reports to the Broker-Dealer.  On her expense 
reports, she concealed from the Broker-Dealer the fact that Kang and his girlfriend were on the 
trip, listing other customers and personal acquaintances – none of whom were in Park City at the 
time. 
39. Paulsen also submitted false expense reports.  On February 19, 2015, Paulsen 
requested reimbursement from the Broker-Dealer for a $363 dinner that occurred on Thursday, 
February 12, 2015, prior to Kang’s arrival in Park City.  On his expense report, Paulsen 
represented that five people attended the dinner:  Paulsen, Kelley, Kelley’s husband, and two 
employees of a prominent asset management firm, a client of the Broker-Dealer.  In fact, these 
two individuals were not at the dinner, nor were they even in Park City at the time.   
40. Paulsen knew that, at the time he submitted the expense report, the Broker-Dealer 
would not ask questions if he listed client guests on the report.  Paulsen also knew that he needed 
to justify his and Kelley’s presence in Park City, because the real reason they were there – to 
entertain Kang – could not be disclosed. 
41. Paulsen also requested reimbursement from the Broker-Dealer for a $125 lunch 
that occurred on February 14, 2015.  On his expense report, he represented that the guests were 
himself, Kelley, Kelley’s husband, and an analyst at an investment advisory firm.  In truth, the 
analyst was neither at the lunch nor in Park City at the time.  The actual lunch receipt from the 
restaurant indicated that five guests attended the lunch.  The other two guests were Kang and his 
girlfriend.  Paulsen intentionally omitted Kang’s name from his expense report because he knew, 

 
 
9 
and had previously discussed and agreed with Kelley, that Kang could not be mentioned on his 
expense reports. 
42. When he submitted his expense report, Paulsen attached a printout of an email 
exchange he had on February 25, 2015 (after the trip) with the Broker-Dealer’s Head of Fixed 
Income Sales (and Kelley’s supervisor).  In the email exchange, Paulsen asked the Head of Fixed 
Income Sales to confirm, in writing, his preapproval of Paulsen’s February 2015 client trip 
(which included the ski trip).  Paulsen listed six customers that he saw during the trip.  The email 
did not mention Kang or the Fund. 
43. On February 26, 2015, Kelley and Paulsen engaged in the following conversation 
via Bloomberg instant message: 
DK: Lose[sic] lips sink ships! No talky re ski trip si vous plait 
JP: I have not said anything 
DK: Allen says he heard about it from you and that we were 
with Nav and “gorgeous” gf 
JP: I mentioned to Allen yes. sorry 
JP: Told him to stay quiet. He was talking about the energy 
trade you did yesterday 
DK: ah - xoxo - just need to be SO careful 
JP:       I       know.       
DK: let’s not mention to anyone else - AR, AO, and JW know. 
JP:       ok       
JP: I put my expenses in and did not mention them 
. . .  
JP: for the [February 12] dinner at Mustang I put down Yuri 
and Del Anderson 
JP: is that ok? 

 
 
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DK:     perf     
44. Kang did not disclose his receipt of any of these meals, travel, or entertainment to 
the NYSCRF. 
Kang Corruptly Rewards Kelley With Lucrative Bond Trading Business 
45. In exchange for these benefits, Kang steered lucrative NYSCRF bond trading 
business to the Broker-Dealer, resulting in substantial personal gain for Kelley.   
46. When Kang first arrived at the NYSCRF, there were a very small number of 
brokers approved to execute fixed income trades directly for the Fund.   
47. Kang set out to expand the list of approved brokers under the guise of facilitating 
additional liquidity and obtaining best execution.   
48. On June 10, 2014, at Kang’s direction, the Fund initiated a fixed income broker 
search to select brokers for its internally managed assets.  Interested entities were required to 
submit applications, which were then reviewed internally by a group led by Kang.   
49. Kelley submitted an application on behalf of the Broker-Dealer.   
50. Several months later, on November 6, 2014, the same date Kang called Paulsen to 
suggest the ski trip, Kang sent a memorandum to the NYSCRF’s CIO recommending that eight 
brokers be added to the approved list.  The recommended brokers included the Broker-Dealer, 
and all eight brokers were approved.   
51. Although Kang indicated in his memorandum that the eight brokers would be 
required to submit to a “full due diligence process” conducted by an outside firm, no such 
process ever took place.  Accordingly, the eight brokers were approved based solely on the 
recommendation contained in Kang’s November 6, 2014 memorandum. 
52. Prior to the Broker-Dealer becoming an approved broker, Kang was directing 
trades to the Broker-Dealer through one of the Fund’s approved brokers (“Approved Broker-

 
 
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Dealer”).  
53. By using the Approved Broker-Dealer, Kang circumvented the Fund’s policy of 
only using approved brokers, thus allowing Kang to steer Fund business and commissions to 
Kelley’s firm even before Kang was able to engineer the placement of the firm on the Fund’s 
approved broker list. 
54. Kelley provided substantial personal benefits to Kang beginning shortly after the 
Fund solicited applications for additional brokers, as the timeline below illustrates: 
Date Event 
June 10, 2014 NYSCRF solicits applications for brokers via email. 
August 15, 2014 In an instant Bloomberg message between Kang and Kelley, Kang 
says he would like to see a Paul McCartney concert but “might have 
to sell a car to get [tickets].”  Kang says he wants to see the concert 
in New Orleans.  Kelley responds, “I’m in.” 
August 19, 2014 Kelley purchases four Paul McCartney tickets at a price of $6,005. 
October 9-13, 2014 Kelley and her husband spend a weekend in New Orleans with Kang 
and Kang’s girlfriend.  Kelley expenses more than $8,000 in meals 
and entertainment. 
November 6, 2014 In a memorandum to CIO of NYSCRF, Kang recommends the 
Broker-Dealer, Kelley’s firm. 
November 6, 2014 Kang calls Paulsen at the Broker-Dealer and mentions going on a ski 
trip. 
February 13-16, 2015    Park City ski trip takes place.  Paulsen and Kelley expense more 
than $11,000 in meals, hotel rooms, ski equipment and rentals, 
limousine service, and entertainment. 
 
55. Over the approximately two years that Kang worked at the NYSCRF, he directed 
a significant amount of trading to the Broker-Dealer, resulting in substantial personal gain for 
Kelley.   

 
 
12 
Paulsen, Kelley, And Kang Continue Their Attempts To Keep The Scheme A Secret 
56. At the end of March 2015, Paulsen left the Broker-Dealer to take a job at an 
investment adviser firm.  Shortly thereafter, the Broker-Dealer’s in-house counsel contacted 
Paulsen as part of its internal investigation into Kelley’s entertainment of Kang.  Paulsen was 
asked to consent to an interview by the Broker-Dealer’s outside counsel, and he agreed to do so.   
57. Shortly thereafter, Paulsen called Kelley and asked if she knew the purpose of the 
internal investigation.  Kelley said that she believed the Broker-Dealer was looking into the ski 
trip, and that the Broker-Dealer’s outside counsel had also scheduled an interview with her.  
Paulsen told Kelley that he would delay his interview until after Kelley’s so that they could 
speak again after Kelley’s interview and align their stories. 
58. The Broker-Dealer’s outside counsel interviewed Kelley on April 29, 2015.  
During the interview, Kelley repeatedly lied about Kang’s participation in the ski trip and her 
paying for Kang’s expenses.   
59. After Kelley’s interview, Kelley told Paulsen what she had been asked, and what 
she had said.  Paulsen agreed with Kelley to tell the Broker-Dealer’s outside counsel a story 
consistent with Kelley’s – in other words, Paulsen agreed to lie during his interview. 
60. When the Broker-Dealer’s outside counsel asked Paulsen about the February 14, 
2015 lunch, Paulsen attempted to line up his account of what happened with what Kelley had 
told the investigators.  Paulsen said that the investment analyst that he previously identified was 
not present at the lunch.  Instead, Paulsen claimed (as had Kelley) that some of Kelley’s friends 
joined them when, in fact, Kang and his girlfriend were there.   
61. Paulsen told other lies during the interview to attempt to corroborate Kelley’s 
false account.  Paulsen falsely told the Broker-Dealer’s outside counsel that, while Kang was in 

 
 
13 
Park City during the weekend of the ski trip, he was there on his own and did not go out with 
Paulsen and Kelley.  Paulsen also said that Kang was not staying at the same hotel as Kelley, 
when, in fact, Paulsen knew that Kang and Kelley stayed at the same hotel.  Paulsen also said 
that he saw Kang for the first time in Park City on February 15, 2015, when in fact Paulsen, 
Kelley, and Kelley’s husband had had lunch and dinner with Kang and his girlfriend the previous 
day.  
62. During the interview, Paulsen also said that Kang paid for food and drinks for the 
group after skiing on February 15, 2015.  While Paulsen claimed that he did not remember why 
Kang insisted on paying, he posited that maybe Kelley had paid for something earlier in the day 
and Kang needed to offset it.  This was the false narrative that Paulsen and Kelley had agreed to 
tell the investigators.  In fact, Kang did not pay for food and drinks, and the concept of Kang 
attempting to repay Kelley was a fabrication. 
63. Paulsen then said that he had dinner that night with Kelley, Kelley’s husband, and 
Kelley’s two friends.  This was another part of the false narrative that Paulsen and Kelley 
conspired to tell the investigators.  In fact, Kang and his girlfriend were at that dinner; Kelley’s 
friends were not.   
64. At the end of his interview, Paulsen lied again, saying that he never witnessed 
Kang being entertained on the ski trip. 
65. On August 10, 2015, the Broker-Dealer terminated Kelley and, on February 22, 
2016, the NYSCRF terminated Kang. 
66. On May 30, 2017, based in part on the conduct described in this Complaint, 
Kelley pleaded guilty to conspiracy to commit securities fraud and conspiracy to commit honest 
services wire fraud, each of which Kelley committed while she was a registered representative of 

 
 
14 
the Broker-Dealer and its successor.  United States v. Kelley, 16-CR-837 (S.D.N.Y.).  Kelley was 
sentenced to three years’ probation, with 6 months’ home confinement and one thousand hours 
of community service, and was ordered to pay a $50,000 fine and $242,724.17 in restitution to 
the NYSCRF.   
67. On November 8, 2017, based in part on the conduct described herein, Kang 
pleaded guilty to conspiracy to commit securities fraud and conspiracy to commit honest services 
wire fraud in the matter of United States v. Kang, 16-CR-837 (S.D.N.Y.).  Kang was sentenced 
to 21 months’ imprisonment and three years’ supervised release, and ordered to pay $242,724.17 
in restitution to the NYSCRF and to forfeit $78,716.00. 
Claims for Relief 
 
Count I 
 
Aiding and Abetting Violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act 
 
68. The Commission realleges and incorporates by reference paragraphs 1 through 67 
as if fully set forth herein. 
69. Kelley, in the offer or sale of securities, by use of the means or instruments of 
transportation or communication in interstate commerce or by the use of the mails, directly or 
indirectly, acting intentionally, knowingly, recklessly, or negligently: (a) employed devices, 
schemes, or artifices to defraud; and/or (b) engaged in transactions, practices, or courses of 
business which operated or would operate as a fraud or deceit upon purchasers of securities. 
70. Defendant Paulsen knowingly or recklessly provided substantial assistance to 
Kelley in her violation of Sections 17(a)(1) and 17(a)(3) of the Securities Act. 

 
 
15 
71. By engaging in the conduct described above, Defendant Paulsen aided and abetted 
violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(1) and 
77q(a)(3)]. 
Count II 
 
Aiding and Abetting Violations of Sections 10(b) of the Exchange Act  
and Rule 10b-5(a) and (c) Thereunder 
 
72. The Commission realleges and incorporates by reference paragraphs 1 through 67 
as if fully set forth herein. 
73. Kelley, in connection with the purchase or sale of securities, by use of the means 
or instrumentalities of interstate commerce or the mails, directly or indirectly, acting 
intentionally, knowingly, or recklessly: (a) used or employed devices, schemes, or artifices to 
defraud; and/or (b) engaged in acts, practices, or courses of business which operated or would 
operate as a fraud and deceit upon other persons, including current and prospective purchasers of 
securities. 
74. Defendant Paulsen knowingly or recklessly provided substantial assistance to 
Kelley in her violation of Sections 10(b) of the Exchange Act and Rule 10b-5(a) and (c) 
thereunder. 
75. By engaging in the conduct described above, Defendant Paulsen aided and abetted 
violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5(a) and (c) 
thereunder [17 C.F.R. § 240.10b-5(a) and (c)]. 
Count III 
Aiding and Abetting Violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act 
76. The Commission realleges and incorporates by reference paragraphs 1 through 67 
as if fully set forth herein.  

 
 
16 
77. Kang, in the offer or sale of securities, by use of the means or instruments of 
transportation or communication in interstate commerce or by the use of the mails, directly or 
indirectly, acting intentionally, knowingly, recklessly, or negligently: (a) employed devices, 
schemes, or artifices to defraud; and/or (b) engaged in transactions, practices, or courses of 
business which operated or would operate as a fraud or deceit upon purchasers of securities. 
78. Defendant Paulsen knowingly or recklessly provided substantial assistance to 
Kang in his violation of Sections 17(a)(1) and 17(a)(3) of the Securities Act. 
79. By engaging in the conduct described above, Defendant Paulsen aided and abetted 
violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(1) and 
77q(a)(3)]. 
Count IV 
 
Aiding and Abetting Violations of Sections 10(b) of the Exchange Act  
and Rule 10b-5 Thereunder 
 
80. The Commission realleges and incorporates by reference paragraphs 1 through 67 
as if fully set forth herein. 
81. Kang, in connection with the purchase or sale of securities, by use of the means or 
instrumentalities of interstate commerce or the mails, directly or indirectly, acting intentionally, 
knowingly, or recklessly: (a) used or employed devices, schemes, or artifices to defraud; (b) 
made untrue statements of material fact or omitted to state material facts necessary to make 
statements made, in light of the circumstances under which they were made, not misleading; 
and/or (c) engaged in acts, practices, or courses of business which operated or would operate as a 
fraud and deceit upon other persons, including current and prospective purchasers of securities. 
82. Defendant Paulsen knowingly or recklessly provided substantial assistance to 
Kang in his violation of Sections 10(b) of the Exchange Act and Rule 10b-5 thereunder. 

 
 
17 
83. By engaging in the conduct described above, Defendant Paulsen aided and abetted 
violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5 thereunder 
[17 C.F.R. § 240.10b]. 
Prayer for Relief 
         WHEREFORE, the Commission respectfully requests that the Court: 
I. 
Permanently enjoin Defendant from violating or aiding and abetting violations of Section 
10(b) of the Exchange Act [15 U.S.C. § 78j(b)], Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5], 
and Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]; 
II. 
Order Defendant to disgorge the ill-gotten gains they received from the violations alleged 
herein, including prejudgment interest thereon;  
III. 
Order Defendant to pay civil penalties pursuant to Section 20 of the Securities Act [15 
U.S.C. § 77t], and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)]; and 
IV. 
 
Grant such other and further relief as the Court deems just and proper. 
Jury Demand 
 
Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiff demands that 
this case be tried to a jury on all issues so triable. 
  

 
 
18 
Date:    July 26, 2018     Respectfully submitted, 
 
UNITED STATES SECURITIES AND 
EXCHANGE COMMISSION 
              
      /s/ Alyssa A. Qualls                                               
           Alyssa A. Qualls (AQ-4247) 
John E. Birkenheier, Illinois Bar No. 6270993  
Brian D. Fagel, Illinois Bar No. 6224886 
Eric A. Celauro, Illinois Bar No. 6274684 
     Attorneys for Plaintiff 
          United States Securities and Exchange Commission 
           Chicago Regional Office     
          175 West Jackson Blvd., Suite 1450 
          Chicago, Illinois 60604 
          (312) 353-7390 
          (312) 353-7398 (facsimile)      
      [email protected] 
                                                                        [email protected]            
      [email protected]  
      [email protected] 
 
   
                        

UNITED STATES DISTRICT COURT 
SOUTHERN DISTRICT OF NEW YORK 
___________________________________ 
      ) 
UNITED STATES SECURITIES  ) 
AND EXCHANGE COMMISSION, ) 
      )     
    Plaintiff,  ) 
          v.    )     Civil Action No. 1:18-cv-6718 
      )   
JOHN A. PAULSEN,    )     Jury Trial Demanded   
       ) 
   Defendant.  )     
___________________________________  ) 
 

COMPLAINT 
 

The United States Securities and Exchange Commission alleges as follows: 

Nature of the Action  

1. This action concerns Defendant John A. Paulsen, a former analyst at a broker-

dealer headquartered in Birmingham, Alabama (“Broker-Dealer”), who aided and abetted a pay-

to-play scheme involving the New York State Common Retirement Fund (the “NYSCRF” or the 

“Fund”), Deborah D. Kelley, and Navnoor S. Kang. 

2. From early 2014 until February 2016, Kang was the Director of Fixed Income and 

Head Portfolio Strategist of the NYSCRF, the third largest public pension fund in the United 

States, with investment responsibility for approximately $50 billion of the Fund’s assets.   

3. During the course of Kang’s employment, Kang solicited and received improper 

gifts and entertainment from Kelley, a former registered representative at the Broker-Dealer.  In 

exchange, Kang directed public pension trades to Kelley at the Broker-Dealer, and Kelley earned 

sizable commissions.   

4. Paulsen and Kelley were colleagues at the Broker-Dealer.  In February 2015, 

Paulsen and Kelley planned a ski trip in Park City, Utah for the purpose of entertaining Kang.  



2 

As part of the trip, Paulsen and Kelley incurred more than $11,000 in expenses entertaining 

Kang and Kang’s girlfriend.   

5. Paulsen and Kelley sought reimbursement of those expenses from the Broker-

Dealer, and intentionally hid the fact that Kang was on the trip by not including Kang’s name on 

their expense reports.   

6. Later, when the Broker-Dealer discovered inconsistencies in the reports and 

began an internal investigation, Kelley and Paulsen conspired to lie, and did lie, to the Broker-

Dealer’s internal investigators about Kang’s presence on the trip. 

7. Kang violated the antifraud provisions of the federal securities laws by directing 

Fund business to Kelley in exchange for gifts and entertainment, while failing to disclose his 

receipt of those improper benefits to the Fund.  Kelley violated the antifraud provisions by 

providing the undisclosed benefits to Kang as part of the fraudulent quid pro quo scheme with 

Kang.   

8. Paulsen knowingly provided substantial assistance to Kelley and Kang by 

participating in the entertainment of Kang, then hiding his and Kelley’s provision of benefits to 

Kang by submitting false expense reports, and lying to the internal investigators.  Paulsen also 

facilitated Kang’s and Kelley’s quid pro quo scheme by allowing it to go undetected by the 

Broker-Dealer and the Fund.  In doing so, Paulsen aided and abetted Kelley’s and Kang’s 

violations of Section 10(b) of the Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78j(b) ], 

Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5], and Sections 17(a)(1) and 17(a)(3) of the 

Securities Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77q(a)(1), (a)(3)].  

9. Unless Paulsen is permanently restrained and enjoined, he will again engage in 

the acts, practices, transactions, and courses of business set forth in this Complaint, and in acts, 



3 

practices, transactions, and courses of business of similar type and object. 

Jurisdiction and Venue 
 

10. The Commission brings this action pursuant to the authority conferred by Section 

20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(1) of the Exchange Act [15 

U.S.C. § 78u(d)(1)], seeking to restrain and enjoin permanently Defendant from engaging in the 

acts, practices, transactions, and courses of business alleged herein.  The Commission also seeks 

a final judgment ordering Defendant to pay disgorgement, prejudgment interest, and civil 

penalties pursuant to Section 20(d) of the Securities Act [at U.S.C. § 77t(d)] and Section 21(d)(3) 

of the Exchange Act [15 U.S.C. § 78u(d)(3)].  

11. This Court has jurisdiction over this action, and venue lies in this District, 

pursuant to Sections 20(d) and 22(a) of the Securities Act [15 U.S.C. §§ 77t(d) and 77v(a)] and 

Sections 20(d) and 27(a) of the Exchange Act [15 U.S.C.  §§ 78t(d) and 78aa(a)].  Defendant, 

directly or indirectly, singly or in concert, made use of the means or instruments of transportation 

or communication in, and the means or instrumentalities of, interstate commerce, or of the mails 

in connection with the acts, practices, transactions, and courses of business alleged herein.  Some 

of the acts, practices, transactions, and courses of business at issue occurred in the Southern 

District of New York.   

Defendant 

12.  John A. Paulsen, age 57, resides in Park Ridge, New Jersey.  From June 2013 

through March 2015, Paulsen was a Managing Director at the Broker-Dealer.  Prior to that, 

Paulsen worked at a number of registered broker-dealers dating back to 1993.  From April 2015 

through the present, Paulsen has been the Head of Research at a registered investment adviser 

based in Wilton, Connecticut.  



  
4 

Other Relevant Persons 

13. Navnoor S. Kang, age 38, resides in Saratoga Springs, New York.  From January 

2014 until his termination in February 2016, Kang was the Director of Fixed Income and Head 

Portfolio Strategist for the NYSCRF, a public pension fund managed by the New York State 

Comptroller.   

14. Deborah D. Kelley, age 60, resides in Piedmont, California.  From January 2012 

through August 2015, Kelley was a registered representative of the Broker-Dealer and its 

successor, a registered broker-dealer based in St. Louis, Missouri.  

The Facts 

15. Kelley met Kang while he was employed as a portfolio associate with a well-

known asset management firm, and she had a business relationship with him for a period of time 

while he was working as a vice president and fixed income trader with another prominent asset 

management firm (“Asset Manager”).   

16. Paulsen first met Kang when he worked at the Asset Manager, and they had 

occasional business interactions. 

17. At some point in or around 2012, Kang accepted an $8,000 Rolex watch from a 

registered representative of a broker-dealer, which Kang did not disclose to the Asset Manager. 

18. In late 2012, an internal investigation by the Asset Manager into Kang’s activities 

concluded that he had accepted Rolling Stones concert tickets valued at $1,200 from a registered 

representative of a broker-dealer doing business with the Asset Manager.     

19. In addition, the investigation determined that Kang failed to report at least 54 

additional instances where he received benefits and entertainment.  The Asset Manager 

terminated Kang in January 2013 for violations of its compliance and ethics policies based on his 



  
5 

improper receipt of, and failure to report, these benefits and entertainment.  The Asset Manager 

informed Kang that he was being terminated for these reasons. 

20. Between January 2013 and January 2014, Kang was unemployed and actively 

seeking work.  Kelley remained in contact with Kang and assisted him in his job search – all in 

an effort to maintain and cultivate their business relationship.   

Kang’s Employment By And Duties To The NYSCRF 

21. In January 2014, the NYSCRF hired Kang as its Director of Fixed Income and 

Head Portfolio Strategist.  During his job interview with the NYSCRF, Kang lied about the 

reason he was terminated by the Asset Manager.  Kelley provided a reference to the NYSCRF on 

Kang’s behalf. 

22. As the Director of Fixed Income at the Fund, Kang made investment decisions, 

supervised seven investment officers, and was responsible for approximately $50 billion of the 

Fund’s assets that were held in fixed-income securities.   

23. Under New York State Law, the New York State Comptroller, and anyone to 

whom he or she delegates powers of investment, is a fiduciary of the Fund.  Because Kang was 

delegated powers of investment by the Comptroller, he was a fiduciary to the Fund.  As a 

fiduciary, Kang was required to act solely in the interests of the members and beneficiaries of the 

Fund, and was prohibited from receiving any consideration from any party other than the Office 

of the State Comptroller in connection with a transaction involving the Fund. 

24. The NYSCRF maintains a “Code of Conduct” containing standards for the 

management of the Fund.  The Code of Conduct applies to all employees of the Office of the 

State Comptroller who have responsibility for matters relating to the Fund.  Among other things, 

the Code of Conduct mandates that the Fund shall “be managed in accordance with the highest 



  
6 

ethical, professional and conflict of interest standards,” and actions on behalf of the Fund “shall 

be for the sole benefit of the Retirement System’s members, retirees and beneficiaries.” 

25. Kang received training on the Fund’s policies and codes, as well as applicable 

New York State Law, and certified as to his understanding of the prohibitions contained therein 

regarding the receipt of gifts, meals, travel, and entertainment. 

26. Kang had an affirmative and continuing duty to disclose to the Fund his 

solicitation and acceptance of travel, entertainment, and benefits.  Kang was required to report 

the receipt of anything more than nominal value from interested parties.   

27. During his tenure with the Fund, Kang made no such disclosures.  Furthermore, 

Kang filed a certification with the Fund in which he represented that he had received no gifts in 

excess of $1000.  This certification was false. 

28. Shortly after Kang joined the Fund, Paulsen and Kang had an in-person meeting.  

At the meeting, Kang told Paulsen that the Fund had very strict rules which prohibited him from 

accepting anything from Paulsen.   

Kelley Corruptly Provides Kang With Undisclosed Gifts And Entertainment 

29. Kelley provided thousands of dollars’ worth of benefits and entertainment to 

Kang in exchange for access to NYSCRF business, despite the fact that her colleagues had 

warned her to avoid such behavior.   

30. Specifically, in a February 6, 2014 email (immediately prior to Kelley beginning 

her coverage of the NYSCRF account), another registered representative at the Broker-Dealer 

told Kelley to “remember these guys cannot be entertained as they are a state fund.”   

31. Nevertheless, Kelley soon thereafter planned a trip to New Orleans for herself, her 

husband, Kang, and Kang’s girlfriend, which took place in October 2014.   



  
7 

32. On this trip, Kelley spent, and then expensed to the Broker-Dealer, more than 

$8,000 for the four of them on meals, drinks, and entertainment, including $6,000 for four VIP 

tickets to a Paul McCartney concert.   

33. Kelley intentionally omitted the names of Kang and his girlfriend from her 

expense reports.  Instead, she falsely reported that clients from a private firm had attended the 

trip.   

Paulsen And Kelley Corruptly Provide Kang And  
His Girlfriend With Undisclosed Gifts And Entertainment On A Ski Trip 

 
34. On November 6, 2014, Kang called Paulsen and raised the idea of a ski trip.  

Paulsen mentioned the idea to Kelley, and Kelley then planned a ski trip to Park City, Utah, 

which took place in February 2015. 

35. The ski trip was originally scheduled to begin on Thursday, February 12, 2015, 

with Paulsen, Kelley, Kelley’s husband, Kang, and Kang’s girlfriend attending.  Kelley and 

Paulsen learned prior to the trip that Kang and his girlfriend would not arrive in Park City until 

Friday, February 13.  Paulsen asked Kelley via Bloomberg instant message whether they should 

adjust their arrival date “or just keep it :-).”  Kelley replied, “I’m still coming in Thurs :-).” 

36. Between them, Kelley and Paulsen spent and expensed more than $11,000 for 

skiing, hotel rooms, dinners, and drinks.  These expenses included the costs of limousine service, 

two lunches, two dinners, ski rentals, ski lessons, and three nights at the Hotel Park City (at more 

than $1,100 per night) for Kang and his girlfriend. 

Paulsen And Kelley Submit False Expense Reports To The Broker-Dealer 

37. After the trip, Paulsen and Kelley discussed how they would handle Kang’s 

attendance on the ski trip when they submitted their expense reports.  Kelley told Paulsen that 

Kang’s name, and Kang’s girlfriend’s name, could not appear on their expense reports.  Paulsen 



  
8 

and Kelley agreed that they would keep Kang’s attendance on the trip a secret.  Paulsen 

understood Kelley would not mention Kang or his girlfriend on her expense reports.  Paulsen 

planned to do the same thing. 

38. Kelley submitted false expense reports to the Broker-Dealer.  On her expense 

reports, she concealed from the Broker-Dealer the fact that Kang and his girlfriend were on the 

trip, listing other customers and personal acquaintances – none of whom were in Park City at the 

time. 

39. Paulsen also submitted false expense reports.  On February 19, 2015, Paulsen 

requested reimbursement from the Broker-Dealer for a $363 dinner that occurred on Thursday, 

February 12, 2015, prior to Kang’s arrival in Park City.  On his expense report, Paulsen 

represented that five people attended the dinner:  Paulsen, Kelley, Kelley’s husband, and two 

employees of a prominent asset management firm, a client of the Broker-Dealer.  In fact, these 

two individuals were not at the dinner, nor were they even in Park City at the time.   

40. Paulsen knew that, at the time he submitted the expense report, the Broker-Dealer 

would not ask questions if he listed client guests on the report.  Paulsen also knew that he needed 

to justify his and Kelley’s presence in Park City, because the real reason they were there – to 

entertain Kang – could not be disclosed. 

41. Paulsen also requested reimbursement from the Broker-Dealer for a $125 lunch 

that occurred on February 14, 2015.  On his expense report, he represented that the guests were 

himself, Kelley, Kelley’s husband, and an analyst at an investment advisory firm.  In truth, the 

analyst was neither at the lunch nor in Park City at the time.  The actual lunch receipt from the 

restaurant indicated that five guests attended the lunch.  The other two guests were Kang and his 

girlfriend.  Paulsen intentionally omitted Kang’s name from his expense report because he knew, 



  
9 

and had previously discussed and agreed with Kelley, that Kang could not be mentioned on his 

expense reports. 

42. When he submitted his expense report, Paulsen attached a printout of an email 

exchange he had on February 25, 2015 (after the trip) with the Broker-Dealer’s Head of Fixed 

Income Sales (and Kelley’s supervisor).  In the email exchange, Paulsen asked the Head of Fixed 

Income Sales to confirm, in writing, his preapproval of Paulsen’s February 2015 client trip 

(which included the ski trip).  Paulsen listed six customers that he saw during the trip.  The email 

did not mention Kang or the Fund. 

43. On February 26, 2015, Kelley and Paulsen engaged in the following conversation 

via Bloomberg instant message: 

DK: Lose[sic] lips sink ships! No talky re ski trip si vous plait 

JP: I have not said anything 

DK: Allen says he heard about it from you and that we were 
with Nav and “gorgeous” gf 

JP: I mentioned to Allen yes. sorry 

JP: Told him to stay quiet. He was talking about the energy 
trade you did yesterday 

DK: ah - xoxo - just need to be SO careful 

JP: I know. 

DK: let’s not mention to anyone else - AR, AO, and JW know. 

JP: ok 

JP: I put my expenses in and did not mention them 

. . .  

JP: for the [February 12] dinner at Mustang I put down Yuri 
and Del Anderson 

JP: is that ok? 



  
10 

DK: perf 

44. Kang did not disclose his receipt of any of these meals, travel, or entertainment to 

the NYSCRF. 

Kang Corruptly Rewards Kelley With Lucrative Bond Trading Business 

45. In exchange for these benefits, Kang steered lucrative NYSCRF bond trading 

business to the Broker-Dealer, resulting in substantial personal gain for Kelley.   

46. When Kang first arrived at the NYSCRF, there were a very small number of 

brokers approved to execute fixed income trades directly for the Fund.   

47. Kang set out to expand the list of approved brokers under the guise of facilitating 

additional liquidity and obtaining best execution.   

48. On June 10, 2014, at Kang’s direction, the Fund initiated a fixed income broker 

search to select brokers for its internally managed assets.  Interested entities were required to 

submit applications, which were then reviewed internally by a group led by Kang.   

49. Kelley submitted an application on behalf of the Broker-Dealer.   

50. Several months later, on November 6, 2014, the same date Kang called Paulsen to 

suggest the ski trip, Kang sent a memorandum to the NYSCRF’s CIO recommending that eight 

brokers be added to the approved list.  The recommended brokers included the Broker-Dealer, 

and all eight brokers were approved.   

51. Although Kang indicated in his memorandum that the eight brokers would be 

required to submit to a “full due diligence process” conducted by an outside firm, no such 

process ever took place.  Accordingly, the eight brokers were approved based solely on the 

recommendation contained in Kang’s November 6, 2014 memorandum. 

52. Prior to the Broker-Dealer becoming an approved broker, Kang was directing 

trades to the Broker-Dealer through one of the Fund’s approved brokers (“Approved Broker-



  
11 

Dealer”).  

53. By using the Approved Broker-Dealer, Kang circumvented the Fund’s policy of 

only using approved brokers, thus allowing Kang to steer Fund business and commissions to 

Kelley’s firm even before Kang was able to engineer the placement of the firm on the Fund’s 

approved broker list. 

54. Kelley provided substantial personal benefits to Kang beginning shortly after the 

Fund solicited applications for additional brokers, as the timeline below illustrates: 

Date Event 

June 10, 2014 NYSCRF solicits applications for brokers via email. 

August 15, 2014 In an instant Bloomberg message between Kang and Kelley, Kang 
says he would like to see a Paul McCartney concert but “might have 
to sell a car to get [tickets].”  Kang says he wants to see the concert 
in New Orleans.  Kelley responds, “I’m in.” 

August 19, 2014 Kelley purchases four Paul McCartney tickets at a price of $6,005. 

October 9-13, 2014 Kelley and her husband spend a weekend in New Orleans with Kang 
and Kang’s girlfriend.  Kelley expenses more than $8,000 in meals 
and entertainment. 

November 6, 2014 In a memorandum to CIO of NYSCRF, Kang recommends the 
Broker-Dealer, Kelley’s firm. 

November 6, 2014 Kang calls Paulsen at the Broker-Dealer and mentions going on a ski 
trip. 

February 13-16, 2015 Park City ski trip takes place.  Paulsen and Kelley expense more 
than $11,000 in meals, hotel rooms, ski equipment and rentals, 
limousine service, and entertainment. 

 

55. Over the approximately two years that Kang worked at the NYSCRF, he directed 

a significant amount of trading to the Broker-Dealer, resulting in substantial personal gain for 

Kelley.   



  
12 

Paulsen, Kelley, And Kang Continue Their Attempts To Keep The Scheme A Secret 

56. At the end of March 2015, Paulsen left the Broker-Dealer to take a job at an 

investment adviser firm.  Shortly thereafter, the Broker-Dealer’s in-house counsel contacted 

Paulsen as part of its internal investigation into Kelley’s entertainment of Kang.  Paulsen was 

asked to consent to an interview by the Broker-Dealer’s outside counsel, and he agreed to do so.   

57. Shortly thereafter, Paulsen called Kelley and asked if she knew the purpose of the 

internal investigation.  Kelley said that she believed the Broker-Dealer was looking into the ski 

trip, and that the Broker-Dealer’s outside counsel had also scheduled an interview with her.  

Paulsen told Kelley that he would delay his interview until after Kelley’s so that they could 

speak again after Kelley’s interview and align their stories. 

58. The Broker-Dealer’s outside counsel interviewed Kelley on April 29, 2015.  

During the interview, Kelley repeatedly lied about Kang’s participation in the ski trip and her 

paying for Kang’s expenses.   

59. After Kelley’s interview, Kelley told Paulsen what she had been asked, and what 

she had said.  Paulsen agreed with Kelley to tell the Broker-Dealer’s outside counsel a story 

consistent with Kelley’s – in other words, Paulsen agreed to lie during his interview. 

60. When the Broker-Dealer’s outside counsel asked Paulsen about the February 14, 

2015 lunch, Paulsen attempted to line up his account of what happened with what Kelley had 

told the investigators.  Paulsen said that the investment analyst that he previously identified was 

not present at the lunch.  Instead, Paulsen claimed (as had Kelley) that some of Kelley’s friends 

joined them when, in fact, Kang and his girlfriend were there.   

61. Paulsen told other lies during the interview to attempt to corroborate Kelley’s 

false account.  Paulsen falsely told the Broker-Dealer’s outside counsel that, while Kang was in 



  
13 

Park City during the weekend of the ski trip, he was there on his own and did not go out with 

Paulsen and Kelley.  Paulsen also said that Kang was not staying at the same hotel as Kelley, 

when, in fact, Paulsen knew that Kang and Kelley stayed at the same hotel.  Paulsen also said 

that he saw Kang for the first time in Park City on February 15, 2015, when in fact Paulsen, 

Kelley, and Kelley’s husband had had lunch and dinner with Kang and his girlfriend the previous 

day.  

62. During the interview, Paulsen also said that Kang paid for food and drinks for the 

group after skiing on February 15, 2015.  While Paulsen claimed that he did not remember why 

Kang insisted on paying, he posited that maybe Kelley had paid for something earlier in the day 

and Kang needed to offset it.  This was the false narrative that Paulsen and Kelley had agreed to 

tell the investigators.  In fact, Kang did not pay for food and drinks, and the concept of Kang 

attempting to repay Kelley was a fabrication. 

63. Paulsen then said that he had dinner that night with Kelley, Kelley’s husband, and 

Kelley’s two friends.  This was another part of the false narrative that Paulsen and Kelley 

conspired to tell the investigators.  In fact, Kang and his girlfriend were at that dinner; Kelley’s 

friends were not.   

64. At the end of his interview, Paulsen lied again, saying that he never witnessed 

Kang being entertained on the ski trip. 

65. On August 10, 2015, the Broker-Dealer terminated Kelley and, on February 22, 

2016, the NYSCRF terminated Kang. 

66. On May 30, 2017, based in part on the conduct described in this Complaint, 

Kelley pleaded guilty to conspiracy to commit securities fraud and conspiracy to commit honest 

services wire fraud, each of which Kelley committed while she was a registered representative of 



  
14 

the Broker-Dealer and its successor.  United States v. Kelley, 16-CR-837 (S.D.N.Y.).  Kelley was 

sentenced to three years’ probation, with 6 months’ home confinement and one thousand hours 

of community service, and was ordered to pay a $50,000 fine and $242,724.17 in restitution to 

the NYSCRF.   

67. On November 8, 2017, based in part on the conduct described herein, Kang 

pleaded guilty to conspiracy to commit securities fraud and conspiracy to commit honest services 

wire fraud in the matter of United States v. Kang, 16-CR-837 (S.D.N.Y.).  Kang was sentenced 

to 21 months’ imprisonment and three years’ supervised release, and ordered to pay $242,724.17 

in restitution to the NYSCRF and to forfeit $78,716.00. 

Claims for Relief 
 

Count I 
 

Aiding and Abetting Violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act 
 

68. The Commission realleges and incorporates by reference paragraphs 1 through 67 

as if fully set forth herein. 

69. Kelley, in the offer or sale of securities, by use of the means or instruments of 

transportation or communication in interstate commerce or by the use of the mails, directly or 

indirectly, acting intentionally, knowingly, recklessly, or negligently: (a) employed devices, 

schemes, or artifices to defraud; and/or (b) engaged in transactions, practices, or courses of 

business which operated or would operate as a fraud or deceit upon purchasers of securities. 

70. Defendant Paulsen knowingly or recklessly provided substantial assistance to 

Kelley in her violation of Sections 17(a)(1) and 17(a)(3) of the Securities Act. 



  
15 

71. By engaging in the conduct described above, Defendant Paulsen aided and abetted 

violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(1) and 

77q(a)(3)]. 

Count II 
 

Aiding and Abetting Violations of Sections 10(b) of the Exchange Act  
and Rule 10b-5(a) and (c) Thereunder 

 
72. The Commission realleges and incorporates by reference paragraphs 1 through 67 

as if fully set forth herein. 

73. Kelley, in connection with the purchase or sale of securities, by use of the means 

or instrumentalities of interstate commerce or the mails, directly or indirectly, acting 

intentionally, knowingly, or recklessly: (a) used or employed devices, schemes, or artifices to 

defraud; and/or (b) engaged in acts, practices, or courses of business which operated or would 

operate as a fraud and deceit upon other persons, including current and prospective purchasers of 

securities. 

74. Defendant Paulsen knowingly or recklessly provided substantial assistance to 

Kelley in her violation of Sections 10(b) of the Exchange Act and Rule 10b-5(a) and (c) 

thereunder. 

75. By engaging in the conduct described above, Defendant Paulsen aided and abetted 

violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5(a) and (c) 

thereunder [17 C.F.R. § 240.10b-5(a) and (c)]. 

Count III 

Aiding and Abetting Violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act 

76. The Commission realleges and incorporates by reference paragraphs 1 through 67 

as if fully set forth herein.  



  
16 

77. Kang, in the offer or sale of securities, by use of the means or instruments of 

transportation or communication in interstate commerce or by the use of the mails, directly or 

indirectly, acting intentionally, knowingly, recklessly, or negligently: (a) employed devices, 

schemes, or artifices to defraud; and/or (b) engaged in transactions, practices, or courses of 

business which operated or would operate as a fraud or deceit upon purchasers of securities. 

78. Defendant Paulsen knowingly or recklessly provided substantial assistance to 

Kang in his violation of Sections 17(a)(1) and 17(a)(3) of the Securities Act. 

79. By engaging in the conduct described above, Defendant Paulsen aided and abetted 

violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(1) and 

77q(a)(3)]. 

Count IV 
 

Aiding and Abetting Violations of Sections 10(b) of the Exchange Act  
and Rule 10b-5 Thereunder 

 
80. The Commission realleges and incorporates by reference paragraphs 1 through 67 

as if fully set forth herein. 

81. Kang, in connection with the purchase or sale of securities, by use of the means or 

instrumentalities of interstate commerce or the mails, directly or indirectly, acting intentionally, 

knowingly, or recklessly: (a) used or employed devices, schemes, or artifices to defraud; (b) 

made untrue statements of material fact or omitted to state material facts necessary to make 

statements made, in light of the circumstances under which they were made, not misleading; 

and/or (c) engaged in acts, practices, or courses of business which operated or would operate as a 

fraud and deceit upon other persons, including current and prospective purchasers of securities. 

82. Defendant Paulsen knowingly or recklessly provided substantial assistance to 

Kang in his violation of Sections 10(b) of the Exchange Act and Rule 10b-5 thereunder. 



  
17 

83. By engaging in the conduct described above, Defendant Paulsen aided and abetted 

violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5 thereunder 

[17 C.F.R. § 240.10b]. 

Prayer for Relief 

         WHEREFORE, the Commission respectfully requests that the Court: 

I. 

Permanently enjoin Defendant from violating or aiding and abetting violations of Section 

10(b) of the Exchange Act [15 U.S.C. § 78j(b)], Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5], 

and Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]; 

II. 

Order Defendant to disgorge the ill-gotten gains they received from the violations alleged 

herein, including prejudgment interest thereon;  

III. 

Order Defendant to pay civil penalties pursuant to Section 20 of the Securities Act [15 

U.S.C. § 77t], and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)]; and 

IV. 
 

Grant such other and further relief as the Court deems just and proper. 

Jury Demand 
 

Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiff demands that 

this case be tried to a jury on all issues so triable. 

  



  
18 

Date:   July 26, 2018    Respectfully submitted, 
 

UNITED STATES SECURITIES AND 
EXCHANGE COMMISSION 

              
      /s/ Alyssa A. Qualls                                               

           Alyssa A. Qualls (AQ-4247) 
John E. Birkenheier, Illinois Bar No. 6270993  
Brian D. Fagel, Illinois Bar No. 6224886 
Eric A. Celauro, Illinois Bar No. 6274684 

     Attorneys for Plaintiff 
          United States Securities and Exchange Commission 
           Chicago Regional Office     

          175 West Jackson Blvd., Suite 1450 
          Chicago, Illinois 60604 
          (312) 353-7390 
          (312) 353-7398 (facsimile)   

      [email protected] 
      [email protected] 
      [email protected]  
      [email protected]