A former head of the NY State Pension Fund's Common Retirement Fund has been charged with securities fraud, wire fraud and obstruction of justice for allegedly accepting numerous bribes—ranging from weekend trips with crack cocaine to prostitutes and tickets to see Paul McCartney—in exchange for steering billions of pension fund money to two brokers. U.S. Attorney Preet Bharara called it a "classic, quid-pro-quo bribery scheme."

This comes ten years after former NY State Comptroller Alan Hevesi resigned, after it was revealed that he used state employees to chauffeur his sick wife around. Then it turned out Hevesi accepted $1 million in bribes to direct pension fund money to specific funds.

2016_12_nkang.jpg
Navnoor Kang

Navnoor Kang, a Columbia University graduate and former trader at Guggenheim Partners started work at the NY State Pension Fund in 2014.

The fund is the third largest in the country, with $184 billion for more than one million retirees and other beneficiaries. The Common Retirement fund is, Reuters reports, "is the investment arm of the New York State and Local Employees' Retirement System and the New York State and Local Police and Fire Retirement System."

According to the U.S. Attorney's office, Kang signed a Code of Conduct—implemented after the Hevesi scandal—specifically stating he would hold himself to the "highest ethical, professional and conflict of interest standards."

Instead, he allegedly accepted various bribes—"entertainment, travel, lavish meals, prostitutes, nightclub bottle service, narcotics, tickets to sports games and other events, luxury gifts, and cash payments for strippers"—from Deborah Kelley, former Sterne Agee Group Inc managing director, and Greg Schonhorn, a broker-dealer at FTN Financial Securities Corp.

2016_12_bribe1.jpg

Kang started to invest at Kelley's and Schonhorn's firms. For example, FTN Financial Securities Corp. did no business with the pension fund in the fiscal year ending March 2013; by the end of the next fiscal year, FTN got its foot in the door with $1.5 million and then it went to $858 million in the fiscal year ending March 2015. The most recent fiscal year showed the NY State pension fund doing $2.378 billion with FTN.

At one point, the investment firms were making millions in commissions, with Kelley and Schonhorn making 35-40% of that. That's probably why it was easy for Schonhorn to buy Kang a $17,000 luxury watch:

2016_12_luxurywatch.jpg

Kang recommending using Schonhorn and Kelley on deals that didn't even need brokers. It's believed the total value of the bribes was $1 million.

Schonhorn has pleaded guilty to conspiracy to commit securities fraud; securities fraud; conspiracy to commit honest services wire fraud; honest services wire fraud; bank fraud; and conspiracy to obstruct justice. He and Kelley, who is expected to surrender today, used WhatsApp to coordinate the bribes with Kang:

2016_12_whatsapp.jpg

Kang, currently Chief Strategy Officer at media company Fair Observer, was arrested in Portland, Oregon. U.S. Attorney Bharara said, "The hard-earned pension savings of New Yorkers should never serve as a vehicle for corrupt, personal enrichment. The intersection of public corruption and securities fraud appears to be a busy one, but it's one that we are committed to policing."

Today, NY State Comptroller Tom DiNapoli said, "The New York State Common Retirement Fund has absolutely no tolerance for self-dealing, and we are outraged by Mr. Kang’s shocking betrayal of his responsibilities. In February 2016, he was dismissed. As the criminal indictment says, he secretly circumvented our rigorous ethical standards and policies."

Governor Andrew Cuomo hadn't seen the indictment when asked about it this morning, but according to the Times Union, "[H]e did malign the fact that the New York comptroller is the pension fund’s sole trustee while other states have boards that control their funds. 'The temptation for corruption and bribery and bid-rigging is very, very high given the system we have,' Cuomo said, noting that he brought a pay-to-play pension fund case against former Comptroller Alan Hevesi when Cuomo was attorney general. 'It is a chronic problem,' he added. 'It has been in New York state. It has been in controller’s offices across the board, but not as bad as in New York because in New York we have the sole trustee.'"