Three individuals convicted of defrauding the New York State Common Retirement Fund would avoid paying any fines to the Securities and Exchange Commission under a proposed settlement awaiting approval by a federal judge.
The proposed settlement, filed in federal district court in New York late last week, would bring to a close the SEC’s case against Navnoor Kang, Deborah Kelley and Gregg Schonhorn. Kang was the former director of fixed income for the NYSCRF, while Kelley and Schonhorn were brokers charged with working with Kang in a yearslong pay-to-play scheme. All three pleaded guilty to criminal charges in 2017, and Kang was sentenced to 21 months in prison.
“As a result of the sentences and restitution and forfeiture orders imposed in their related criminal cases, the settling defendants will not be obligated to pay any funds to the SEC,” according to the proposed order of settlement. “Rather, their disgorgement obligations will be ‘deemed satisfied’ by the restitution and forfeiture orders in the related criminal cases.”
The trio’s guilty pleas involved the two brokers providing Kang with bribes of “at least $180,000” in various benefits between 2014 and 2016 including travel and entertainment in exchange for his influence in awarding fixed income business to their firms. They have already paid hundreds of thousands of dollars in fines and restitution, and Kang was also forced to surrender a luxury watch valued at $17,000.
Financial Industry Regulatory Authority documents show that Kelley worked at Birmingham, Alabama-based Sterne, Agee & Leach Inc. and St. Louis-based Stifel Nicolaus & Co. during the period covered by the complaint, and Schonhorn worked for Memphis-based FTN Financial Securities Corp.
The settlement would permanently enjoin all three defendants from further violations of the federal securities laws, and would also bar Kang from “participating in any decisions involving investments in securities by public pensions as a trustee, officer, employee or agent.”
Kang’s defense lawyers sought to portray their client as a hardworking man who overcame racism due to his Indian heritage and who repeatedly sacrificed his own career ambitions to care for his family. The Department of Justice painted him as an unscrupulous and greedy individual who resented his life at the NYSCRF and longed for the luxurious life the pay-to-play scheme offered.
Though it is up to the judge to decide whether to approve the proposed settlement, it isn't typical for one to reject an agreement in a case like this. The SEC pointed out in the proposed settlement that this action will allow the court to “eliminate the need to litigate the merits of the settling defendants’ liability.”
“Entry of the proposed judgments will further the interests of justice and judicial economy,” the SEC’s filing concludes.
Attorneys representing Kang, Kelley, and Schonhorn did not respond to requests to comment on the proposed agreement.
