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Press Release

Former Managing Director At New York Broker-Dealer Sentenced In “Pay-To-Play” Bribery Scheme Involving Public Pension Fund

For Immediate Release
U.S. Attorney's Office, Southern District of New York

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, announced that DEBORAH KELLEY, a former managing director of institutional fixed income sales at a New York-based broker-dealer (the “Broker-Dealer”), was sentenced today in Manhattan federal court to three years’ probation, including six months of home confinement, for participating in a “pay-to-play” bribery scheme involving the New York State Common Retirement Fund (“NYSCRF”), the nation’s third largest public pension fund.   KELLEY pled guilty to conspiracy to commit securities fraud and honest services wire fraud on May 30, 2017, before U.S. District Court Judge J. Paul Oetken, who also imposed today’s sentence.   


Acting Manhattan U.S. Attorney Joon H. Kim said:  “Deborah Kelley bribed an official with control over the investment of more than $50 billion in state pension fund assets.  She did so to direct business to her brokerage firm and to reap hundreds of thousands of dollars in additional commissions for herself.  Kelly now has been sentenced for defrauding New York pensioners and depriving them of the honest services of the pension administrator.”


According to the Indictment charging KELLEY, other filings in Manhattan federal court, and statements made during her sentencing proceeding:




The NYSCRF is a pension fund administered for the benefit of public employees of the State of New York.  From January 2014 through February 2016, Navnoor Kang served as Director of Fixed Income and Head of Portfolio Strategy for the NYSCRF.  In that capacity, Kang was responsible for investing more than $53 billion in fixed-income securities on behalf of the NYSCRF.  Kang owed a fiduciary duty to the NYSCRF and its members and beneficiaries, and was required to make investment decisions in their best interests and free of any conflict of interest.  New York State law and NYSCRF policies prohibited Kang and other NYSCRF employees from receiving any bribes, gifts, benefits, or consideration of any kind, as KELLEY well knew.


The Scheme to Steer NYSCRF Fixed-Income Business in Exchange for Secret Bribes


From 2014 through 2016, Kang, KELLEY, and others 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.  The scheme involved, among other things, an agreement among Kang, KELLEY, and others to pay Kang bribes in the form of entertainment, travel, and lavish meals, among other things in exchange for fixed-income business from the NYSCRF.  Such bribes were strictly forbidden by the NYSCRF, and were paid secretly and without any disclosure to the NYSCRF and its members and beneficiaries concerning the conflicts of interests inherent therein. 


In exchange for the bribes paid by KELLEY, Kang used his position as Director of Fixed Income and Head of Portfolio Strategy at the NYSCRF to promote the interests of KELLEY and her brokerage firm.  Kang, in exchange for the bribes he received, agreed to steer fixed-income business to the Broker-Dealer.  In so doing, Kang, with KELLEY’s knowledge and approval, breached his fiduciary duty to make investment decisions in the best interest of the NYSCRF and its members and beneficiaries, and free of conflict, and deprived the NYSCRF of its intangible right to Kang’s honest services.  


As KELLEY paid bribes to Kang, the Broker-Dealer’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 in the fiscal year ending March 1, 2015, and to approximately $179 million in the fiscal year ending March 1, 2016.  Kang’s trades resulted in the payment of more than a half-million dollars in commissions to the Broker-Dealer, of which KELLEY personally earned nearly $200,000.


Obstruction of Justice


In late 2015, the Securities and Exchange Commission (“SEC”) opened an investigation into the entertainment and benefits that KELLEY had provided Kang, and the SEC subpoenaed both KELLEY and Kang for their testimony.  In advance of their testimony, KELLEY and Kang agreed to align their stories and testify falsely before the SEC in order to conceal their scheme.  In late 2015 and early 2016, KELLEY and Kang each falsely testified under oath before the SEC about expenses KELLEY had paid for Kang.  


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KELLEY, 58, of Piedmont, California, was also ordered to pay a fine of $50,000, to forfeit $187,991.19, and to complete 1000 hours of community service.  Restitution will be determined within 90 days of sentencing.


In December 2016, Gregg Schonhorn, a former a vice president of fixed income sales at another New York-based broker-dealer, pled guilty for his participation in the scheme.  Kang, against whom charges for conspiracy, securities fraud, honest services wire fraud, and obstruction of justice are currently pending, is presumed innocent unless and until proven guilty.  Kang is scheduled to proceed to trial on December 4, 2017.


Mr. Kim praised the investigative work of the Federal Bureau of Investigation and noted that the investigation is continuing.   He also thanked the SEC, which filed civil charges against Kang, KELLEY, and Schonhorn in a separate civil action, and the Office of Inspector General for the Office of the New York State Comptroller.


This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorneys Edward A. Imperatore and Joshua A. Naftalis are in charge of the prosecution.  

Updated September 29, 2017

Securities, Commodities, & Investment Fraud
Press Release Number: 17-316