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Former state pension fund manager charged in pay-to-play scheme

ALBANY – A former portfolio manager at the massive pension fund for state and local government employees was charged Wednesday morning in a pay-to-play scheme in which he allegedly steered business to two private brokers in exchange for cash, lavish trips, expensive watches, prostitutes and cocaine.

Navnoor Kang, a former top official at the New York State Common Retirement Fund, was charged along with the two brokers, Deborah Kelley and Gregg Schonhorn, according to a grand jury indictment unsealed and released by U.S. Attorney Preet Bharara.

The six-count indictment – which includes charges of securities fraud, theft of honest services and wire fraud – involves allegations of a bribery scheme that stretched for two years until last February.

Kang had been director of fixed income and portfolio strategy head for the pension system, the nation’s third largest retirement system that includes more than one million beneficiaries of a system that covers public employees from New York’s smallest towns and villages to large state agencies and cities.

The system’s has a portfolio value of about $184 billion. The system is run by state Comptroller Thomas DiNapoli.

Kang’s influence over the retirement system was enormous. Prosecutors say he controlled $53 billion worth of investments. They say he steered $2 billion worth of business to Kelley and Schonhorn, who then made millions in commissions off the trades they executed on behalf of the pension fund.

The alleged bribes ran the gamut, including travel, hotel, lavish meals at posh Manhattan restaurants, money for prostitutes and cocaine, nightclub bottle service and cash.
In all, the bribes totaled about $100,000.

When fired earlier this year for his role in the scheme, Kang was making $166,464 with the state, the comptroller's office said.

In a trip to Montreal, Kang allegedly got everything from airfare and narcotics paid for by the two brokers. Another pension fund employee accompanied him on that trip, but the indictment did not name that person and no other officials at the pension fund were charged Wednesday.

In a trip to New Orleans, Kang’s alleged bribes included tickets to a Paul McCartney concert, according to the court papers. In a trip to Park City, Utah, he got his travel paid for as well as ski lessons for himself and a then-girlfriend, according to the indictment.

Other alleged bribes included tickets to Broadway shows and the U.S. Open.

In one instance, Kang allegedly told Schonhorn that he wanted a new watch. The two then went to a luxury watch store on Madison Avenue where Schonhorn bought Kang a $17,420 Panerai wristwatch.

It wasn’t the first watch purchase that prosecutors called a bribe for Kang – Schonhorn had previously bought him an $8,000 Rolex.

Bharara recently accepted an offer by President-elect Donald Trump to remain on the job in the new administration.

Bharara called his latest public corruption case “a classic, quid-quo-pro bribery scheme.”

Kang was arrested Wednesday in Portland, Ore.

Kelley was expected to surrender to authorities in San Francisco.

Schonhorn, who began cooperating with prosecutors last summer, pleaded guilty to six counts for his role in the scheme, Bharara said. Kelley and Schonhorn had been employed by two Manhattan-based brokerage companies. The companies were not identified in the indictment.

In the grand jury indictment unsealed Wednesday, Kang was characterized as a senior official at the fund who reported to DiNapoli as well as the fund’s chief investment officer.

Prosecutors said the pension fund was, at times, hit with higher commission fee payments due to the way Kang steered business to the two brokers. Kang was hired by the pension fund in 2014.

Prosecutors said he had been terminated from a prior job for not disclosing gifts he had received from clients. The firm was not identified and the indictment said Kang lied to New York pension fund officials when applying for the job in 2014. Pension officials said a pre-hiring background check on Kang had been performed.

In a statement, DiNapoli’s office said the comptroller is “outraged by Mr. Kang’s shocking betrayal of his responsibilities.”

DiNapoli said Kang was fired in February and that his agency’s inspector general worked with law enforcement on the case.

“As the criminal indictment says, he secretly circumvented our rigorous ethical standards and policies,’’ the comptroller’s office said.

Gov. Andrew Cuomo, who has sour relations with DiNapoli, criticized the system in New York that makes the state comptroller the sole trustee of the pension fund. Many other states have a board-run retirement system for their government pension programs.

“The temptation for corruption and bribery and bid rigging is very, very high given the system we have,’’ Cuomo said.

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