Deborah Kelley, a former managing director at Sterne Agee, has pleaded guilty to participating in a “pay-to-play” bribery scheme involving the New York State Common Retirement Fund (NYSCRF), the third-largest public pension fund in the US.
According to the US Attorney’s office, between 2014 through 2016, Kelley and Navnoor Kang, director of fixed income and head of portfolio strategy for the NYSCRF, “participated in a scheme to defraud the NYSCRF and its members and beneficiaries, and to deprive the NYSCRF of its intangible right to Kang’s honest services.”
Kang was responsible for investing more than $53 billion in fixed-income securities on behalf of the NYSCRF. New York State law and NYSCRF policies prohibits NYSCRF employees from receiving any bribes, gifts, benefits, or consideration of any kind, which the indictment said Kelley was well aware of. Charges against Kang for conspiracy, securities fraud, honest services wire fraud, and obstruction of justice are currently pending.
“Deborah Kelley bribed Navnoor Kang to steer state pension business to her brokerage firm, reaping hundreds of thousands of dollars in additional commissions for the firm,” said acting US Attorney Joon Kim. “The hard-earned retirement savings of New Yorkers should not be a vehicle for corrupt pension administrators and securities brokers to profit.”
The arrangement involved an agreement among Kang, Kelley, and others to pay Kang bribes in the form of entertainment, travel, and lavish meals in exchange for fixed-income business from the NYSCRF. According to court documents, the bribes were paid secretly, and without any disclosure to the NYSCRF and its members and beneficiaries concerning the conflicts of interests.
The US Attorney’s office said that in exchange for the bribes paid by Kelley, Kang used his position at the NYSCRF to promote Kelley’s interests, and those of Sterne Agee. Kang agreed to steer fixed-income business to Sterne Agee, and by doing so, Kang, with Kelley’s knowledge and approval, breached his fiduciary duty to make investment decisions in the best interest of the NYSCRF and its participants.
The court documents said that as Kelley paid bribes to Kang, Sterne Agee’s fixed-income business with the NYSCRF “skyrocketed.” The value of NYSCRF’s domestic bond transactions with the broker-dealer increased from zero in the fiscal year ending March 1, 2014, to approximately $156 million one year later. Kang’s trades contributed to hundreds of thousands of dollars in commissions to Sterne Agee, of which Kelley personally earned approximately 35% to 40%.