Broker who defrauded retirement fund ordered to pay $242,724
WASHINGTON - Deborah Kelley, a former broker convicted of participating in a scheme to defraud the New York State Common Retirement Fund, must pay $242,724.17 of restitution, a federal judge ruled.
Judge J. Paul Oetken, who sits on the U.S. District Court for the Southern District of New York, issued the order March 14, nearly a year after Kelley pleaded guilty to fraud and conspiracy for bribing the NYSCRF's former fixed income director Navnoor Kang to steer business to her firm. Oetken issued the order just a couple of weeks after Kelley’s attorney argued that she should not have to pay restitution.
Kelley’s conviction stems from conduct stretching from 2014 to 2016, involving not only Kang but also another broker, Gregg Schonhorn. Financial Industry Regulatory Authority documents show that Kelley worked at Birmingham, Ala.-based Sterne, Agee & Leach, Inc., and St. Louis-based Stifel Nicolaus & Co. during the period covered by the complaint. Schonhorn worked for Memphis-based FTN Financial Securities Corp.
The restitution ordered by the court is not the first penalty Kelley will pay for her role in the plot. She was already sentenced to three years of probation with six months of house arrest, and ordered to pay a $50,000 fine and forfeit $188,000 of commissions that she earned.
In a letter filed with the court in February, Kelley’s attorney Robert Gage of New York City-based Gage Spencer & Fleming cited those previous payments as part of the reason why his client should not have to pony up any additional cash.
But Gage also argued that Kelley’s conduct didn’t warren paying restitution. The NYSCR didn’t incur any losses due to trades made by Kelley, Gage told the court, and the trades between Kelley’s firm and the NYSCR were “trades within market context,” he wrote.
Further, Gage wrote that the court had the authority to place liability for the victims’ losses on Kelley’s co-conspirators and that his client was not the proper target. It was Schonhorn who reaped most of the benefit from prices less favorable than market rates in his deals with the NYSCR, Gage argued, and Schonhorn who behaved most egregiously in his bribery activity.
“He was the one who was spending money on cocaine and strippers as alleged and maybe prostitutes, the really high-profile stuff,” Gage quoted from the court’s own reasoning during sentencing. “Whereas, with Ms. Kelley it is two weekend trips, which from the look of it seems a lot more like entertaining a client.”
Further, Kang was the one with the fiduciary responsibility to the retirement fund, which he failed to uphold, Gage noted.
“Mr. Kang is the undisputed hub at the center of the conduct in this matter, Gage wrote.
Lastly, there was no evidence that the NYSCR had to incur expenses to “advance the investigation or prosecution” of his client, Gage argued.
Despite his efforts, the court still ordered Kelley to make the payment. Neither Schonorn nor Kang have yet been sentenced, though both have pleaded guilty. All three are also defendants in a parallel civil suit filed by the Securities and Exchange Commission. That case was placed on hold pending the end of the criminal proceedings.