Broker ties Navnoor Kang made while working for investment firms in California played a key role Navnoor Kang, former executive at the New York State Common Retirement Fund, walking into Manhattan federal court on Wednesday.PHOTO: STEVE REMICH FOR THE WALL STREET JOURNAL By Justin Baer Updated Nov. 10, 2017 4:05 p.m. ET 20 COMMENTS When Guggenheim Partners’ investment chief Scott Minerd was asked about Navnoor Kang at a 2015 event, he praised his former trader as a good guy who had “made a mistake.” This mistake was news to Vicki Fuller, chief investment officer at New York state’s giant retirement plan, according to public documents and people familiar with the matter. She had hired Mr. Kang from Guggenheim to manage the pension’s bond portfolio in early 2014. By early 2016, she had fired him after learning securities regulators were investigating gifts he had received from a Wall Street saleswoman. In December, prosecutors filed criminal charges against him. Mr. Minerd didn’t reveal to Ms. Fuller what he meant by Mr. Kang’s “mistake” at Guggenheim, the people said. And when Ms. Fuller confronted Mr. Kang not long after her conversation with Mr. Minerd, he told her he was forced out for rejecting the sexual advances of a Guggenheim executive, according to people familiar with the situation. A Guggenheim spokesman said no harassment claim was ever made. What Mr. Kang didn’t disclose is that Guggenheim had presented him with nearly a dozen instances when the firm said he had failed to report payments by salespeople for his entertainment and other gifts, these people said. Mr. Kang and at least one outside salesman lost their jobs. The connections Mr. Kang established with brokers during his years on the West Coast with investment firms Guggenheim and Pacific Investment Management Co. would play a critical role in what prosecutors alleged was the biggest public pension fund scandal in the U.S. of the past decade. Mr. Kang pleaded guilty earlier this week to committing two counts of fraud while overseeing fixed-income investments for public employees across New York state. Some of the bond salespeople in Mr. Kang’s orbit during the early part of his career later provided Mr. Kang with meals, vacations and other gifts in exchange for more trading business with the New York pension fund, according to U.S. prosecutors. Those West Coast ties also contributed to Mr. Kang’s arrest. A securities regulator’s investigation that eventually led to Mr. Kang began when a brokerage firm reviewed a saleswoman’s expenses. Another salesman cooperated with prosecutors as they pursued a case against Mr. Kang. This article is drawn from legal proceedings, emails, government documents and dozens of interviews with people with knowledge of the events. At Pimco and Guggenheim, Mr. Kang bought and sold bonds through a network of brokerage firms. Not long after Mr. Kang started work in Guggenheim’s Santa Monica, Calif., offices, his new boss told him and other traders they needed to meet salespeople regularly over drinks or dinner. From a Rock Concert to a Pension Fund Probe A decision by Navnoor Kang to attend a Rolling Stones concert with a salesman on his 33rd birthday set in motion the end of his career at Guggenheim Partners. KEVIN MAZUR/WIREIMAGE/GETTY IMAGES 1 of 7 ••••• The salespeople found Mr. Kang an affable client. In 2011, while at Guggenheim, Mr. Kang started a spirits company, Secrets Vodka LLC, with a close friend from college. Mr. Kang appeared to be doing well. On Christmas Day in 2012, at the annual holiday party Mr. Minerd hosted at his home to raise money for charity, the Guggenheim CIO chatted with Mr. Kang’s parents, speaking highly of the trader’s work, people familiar with the matter said. But on Dec. 13, his 33rd birthday, a decision by Mr. Kang to join Joseph Daher of Jefferies LLC for a Rolling Stones concert had set in motion the end of his Guggenheim career. A Guggenheim employee reported anonymously to the firm’s compliance department that Mr. Kang had sat in the third row of the concert with the salesman, people familiar with the matter said. The incident led to a broader review of traders’ relationships with salespeople by Guggenheim’s compliance team that uncovered other gifts Mr. Kang failed to report. The firm also contacted Jefferies to alert them to Mr. Daher’s expenses, people familiar with the matter said. Jefferies asked for the salesman’s resignation later that year. Mr. Daher hasn’t been accused of any wrongdoing by authorities, and neither he nor Jefferies was named in the indictment against Mr. Kang. A Jefferies spokesman and Mr. Daher’s lawyer declined to comment. At the New York pension fund, Mr. Kang reconnected with Gregg Schonhorn and Deborah Kelley, two brokers he knew from his days at Guggenheim and Pimco. Prosecutors alleged Ms. Kelley and Mr. Schonhorn provided Mr. Kang the gifts to bribe him at the New York pension fund. In the fall of 2014, prosecutors said those gifts escalated to Mr. Schonhorn handing Mr. Kang thousands of dollars for prostitutes, strippers and personal expenses. RELATED Behind the Fall of a New York State Pension Fund Executive (Nov. 8) Ex-Broker Pleads Guilty in New York Pension Case (May 30) Review Says New York State Pension Manager Allegedly Manipulated System to Hide Scheme (April 5) New York Pension Fund Dismisses a Third Brokerage Amid Bribery Scandal(March 16) Inside New York’s Pension-Fund Scandal: What Went Unchecked(March 10) New York Pension Scandal Prompts Firing of Second Employee (Fen. 1) At New York Pension, Red Flags and Failure of Oversight (Dec. 23, 2016) In court on Wednesday, Mr. Kang acknowledged he had failed to report some of the gifts, including a Utah ski trip, a luxury watch, dinners and concert tickets. But his admissions didn’t address other bribery allegations and the omissions weren’t challenged by prosecutors in court. It was Ms. Kelley who first attracted the attention of U.S. regulators when her firm, Sterne Agee, was sold to Stifel Financial in 2015. In August of that year, the firm questioned her about a report seeking to be reimbursed for expenses from the Utah ski trip with Mr. Kang. Stifel fired her that month following concerns with her expenses and contacted regulators. The Securities and Exchange Commission opened an investigation, which spread from Ms. Kelley to Mr. Kang, then touched other salespeople doing business with the pension fund, including Messrs. Schonhorn and Daher, who had since left Jefferies to join another firm. A spokesman for Stifel said earlier this year that the firm had inherited the problem, and that “our report to the SEC started their investigation.” The SEC said Ms. Kelley and Mr. Kang both lied about who had paid for the ski trip. According to the prosecutors, Mr. Kang then called Mr. Schonhorn, then a salesman at FTN Financial, in late 2015 to ask him if he knew anyone who could create fake receipts that would show he paid for the trip. Mr. Kang has denied he asked Mr. Schonhorn about falsifying the receipts, a person familiar with the matter said. The Financial Industry Regulatory Authority, the securities industry’s self-regulating body, banned Ms. Kelley and Mr. Daher earlier this year for failing to cooperate with their inquiries into their dealings with Mr. Kang. A federal judge ordered a stay on the SEC case earlier this year until the criminal proceedings ran their course. Navnoor Kang PHOTO: MARC CARTWRIGHT On May 30, Ms. Kelley returned to Manhattan’s federal courthouse to plead guilty to securities and honest-service wire fraud, under a law that makes it a crime to deprive someone of “the intangible right of honest services.” “I recognize that what I did was wrong,” she said. But when Judge J. Paul Oetken asked her if she understood her actions were illegal, Ms. Kelley said: “No.” Mr. Schonhorn pleaded guilty to six counts, including securities, wire and bank fraud charges. His lawyer declined to comment. Ms. Kelley’s lawyer didn’t respond to requests for comment. A spokeswoman for FTN, a unit of First Horizon National Corp . , has said the charges to which Mr. Schonhorn pleaded guilty “reflect a betrayal of FTN and its values.” In the summer of 2016, Mr. Kang met Mr. Schonhorn in New York. The salesman told him federal agents had showed up at his home. His voice shaking, Mr. Schonhorn detailed what he believed the government was pursuing, one person familiar with the matter said. On Dec. 21, U.S. Marshals rattled the door of Mr. Kang’s Portland, Ore., apartment to arrest him on fraud charges. Mr. Kang this year spent time at auditions, looking for acting and modeling work. Last summer he posted his latest headshots on his Facebook page and Twitter feed. In June, Mr. Schonhorn launched a motivational-coaching firm called “Gregg.” “Over my 23 years,” he wrote on his website, “there is not much I have not seen or done.”
How does stuff like this happen? Easy, public pension funds are cheapo outfits that don't and won't pay the going rate for qualified employees. "In 2014, the New York State pension fund, which has about $178.6 billion in assets, needed someone to run a $50 billion bond portfolio, and turned to Korn Ferry to help it fill the position. The pension fund had trouble filling the role because it paid far less than what a trader could make at a private firm, and because the position was located in Albany, the report said." http://nypost.com/2017/04/05/dinapoli-blames-headhunter-for-hiring-corrupt-pension-manager/ A tenth of one percent corrupt or stupid or incompetent on $50 billion is $50 million a year. The position sure as hell doesn't pay even $500K a year. You would think that the New York State pension fund would just hire a Wall Street firm to run its pension fund at a negotiated discount fee. But no, Wall Street is evil. Can't have Wall street making money on the backs of public employees. This crap will never end because you can't fix penny pinching cheapo and stupid.