A pay-to-play scheme is when a broker bribes a fund manager, who is usually in charge of a sizable government pension funds, so they can use the money for trading to earn huge amounts of commission.
Navnoor Kang, a former director of a $53bn fixed income portfolio at the New York State Common Retirement Fund – the third largest pension fund in the US – allegedly received bribes for steering more than $2bn in fixed income business to two broker-dealers.
The bribes included “entertainment, travel, lavish meals, prostitutes, nightclub bottle service, narcotics, luxury gifts, and cash payments,” according to the indictment, filed by a US federal court earlier this week.
Pay-to-play bribes
The broker-dealers, Deborah Kelley and Gregg Schonhorn, were also charged alongside Kang for executing fixed income trades on behalf of the pension fund, which earned them millions of dollars in commissions.
Meanwhile, the SEC has accused Kang of directing business to Schonhorn and Kelley, who then took steps to keep the gifts a secret despite Kang’s fiduciary duty to disclose such details.
The regulator wants Kang to be permanently banned from any investment activities for public pensions as a trustee, officer, employee, or agent.
Kang received training about New York’s policies against receiving gifts and signed a certificate stating that he would comply, according to the court papers.
Yet, Kang received a myriad of bribes from the brokers over a two year stretch, including a $17,000 luxury watch, an extravagant ski trip to Utah and $6,000 on VIP tickets to watch Paul McCartney in concert. Cocaine, strippers and prostitutes are also referenced several times in the court papers.
Andrew J Ceresney, director of the SEC enforcement division, says the fraud was particularly disturbing given that more than one million public servants, including police and firemen, rely on the fund for their retirement.
“This action demonstrates that the SEC will not tolerate public officials who abuse public pension funds to satisfy their own greedy and wanton desires,” he said.
