SEC Obtains Final Judgments in Pay-To-Play Scheme

Litigation Release No. 24700 / December 26, 2019

Securities and Exchange Commission v. Navnoor S. Kang, Gregg Z. Schonhorn, and Deborah D. Kelley, No. 16-cv-9829 (S.D.N.Y. filed December 21, 2016)

On December 23, 2019, the U.S. District Court for the Southern District of New York entered final judgments against Navnoor Kang, who previously served as the director of fixed income for the New York State Common Retirement Fund, as well as Gregg Schonhorn and Deborah Kelley, who were registered representatives at two different broker-dealers.

The SEC's complaint, filed on December 21, 2016, alleged that Kang had investment responsibility for approximately $50 billion of the Fund's assets. Kang allegedly used his position to direct up to $2.5 billion in state business to Schonhorn and Kelley. In exchange for this lucrative business, which netted Schonhorn and Kelley millions in commissions, the brokers allegedly provided Kang with tens of thousands of dollars in undisclosed benefits, including luxury gifts, extravagant dining, lavish vacations, and illicit entertainment. The SEC's complaint alleged that Kang breached his fiduciary duty to disclose his solicitation and receipt of the gifts and entertainment he received from Schonhorn and Kelley. Schonhorn and Kelley allegedly knew Kang was not disclosing his activities to the Fund, and they took steps to keep the benefits a secret.

The Court entered the final judgments based upon Kang's, Schonhorn's, and Kelley's consent to resolve all claims. The final judgments permanently enjoin Kang, Schonhorn, and Kelley from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and permanently enjoin Kang from participating in any decisions involving investments in securities by public pensions as a trustee, officer, employee, or agent. The SEC previously issued administrative orders barring Kelley and Schonhorn from the securities industry. Kang, Schonhorn, and Kelley agreed to disgorge $182,422, $3,598,046, and $168,721, respectively, plus prejudgment interest, which is deemed satisfied by the restitution and/or forfeiture ordered in connection with parallel criminal actions brought by the U.S. Attorney's Office for the Southern District of New York.

The SEC's litigation was led by John E. Birkenheier, Alyssa A. Qualls, Brian D. Fagel, and Eric A. Celauro. The case was supervised by LeeAnn Gaunt, Chief of the Public Finance Abuse Unit, and Kathryn A. Pyszka, Associate Regional Director of the SEC's Chicago Regional Office. The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.