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SEC Bars Gregg Schonhorn and Deborah Kelley for Participation in Pay-to-Play Pension Scheme

Posted on Sunday, May 27th, 2018 at 8:31 am    

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Erez Law is currently investigating barred financial advisors Gregg Schonhorn (CRD# 2400042) and Deborah Kelley (CRD# 1179082) regarding participating in the offering of a penny stock and participation in a pay-to-play pension bribery scheme involving the New York State Common Retirement Fund (NYSCRF), the nation’s third largest public pension fund. The NYSCRF is a pension fund administered for the benefit of public employees of the State of New York.

In March 2018, FINRA barred Kelley after she consented to the sanction and to the entry of findings that she refused to appear for on-the-record testimony as requested by FINRA in connection with allegations that she improperly provided gifts and entertainment to a portfolio manager of a public pension fund and misrepresented the nature of the expenses submitted for reimbursement.

In March 2018, the Securities and Exchange Commission (SEC) barred Schonhorn from association with a broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or NRSRO. Schonhorn pled guilty to a six-count information charging him with conspiracy to commit securities fraud, securities fraud, honest services wire fraud, conspiracy to commit honest services wire fraud, bank fraud, and conspiracy to obstruct justice.

In September 2017, Kelley was sentenced to three years’ probation, including six months of home confinement, for participating in a “pay-to-play” bribery scheme. According to the announcement by the U.S. Attorney’s Office of the Southern District of New York, “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.” Kelley was also ordered to pay a fine of $50,000, to forfeit $187,991.19, and to complete 1000 hours of community service.

In December 2016, Schonhorn pled guilty to a six-count information charging him with conspiracy to commit securities fraud, securities fraud, honest services wire fraud,
conspiracy to commit honest services wire fraud, bank fraud, and conspiracy to obstruct justice

In December 2016, the SEC announced fraud charges against Navnoor Kang, a former official of the nation’s third largest public pension fund and two brokers accused of orchestrating a pay-to-play scheme to steer billions of dollars to certain firms in exchange for luxury gifts, lavish vacations, and tens of thousands of dollars spent on cocaine and prostitutes. Kang, who served as the director of fixed income for the pension fund from January 2014 to February 2016, allegedly used his position to direct up to $2.5 billion in state business to Schonhorn and Kelley.

Schonhorn and Kelley netted millions of dollars in commissions due to this pay-to-play pension bribery scheme. In exchange for the business that Kang sent to Schonhorn and Kelley, the brokers provided Kang with $160,000 in improper and undisclosed benefits, entertainment and travel. Kang failed to disclose the receipt of these gifts, which violated the antifraud provisions of the Securities Act and the Exchange Act. Schonhorn and Kelley knew Kang was not disclosing his activities to the Fund, and they took steps to keep the benefits a secret. Schonhorn and Kelley participated in the fraudulent scheme and provided substantial assistance to Kang in concealing the scheme from the Fund, thereby violating the antifraud provisions and aiding and abetting Kang’s fraud.

Kelley was registered with Seaport Global Securities LLC in San Francisco, California from 2015 to 2016, with Stifel, Nicolaus & Company, Incorporated in San Francisco, California from June to September 2015, when she was terminated regarding, “Violation of policies of Sterne, Agee & Leach LLC; provided gifts or entertainment to a portfolio manager of a public pension fund and misrepresented the nature of expenses submitted for reimbursement.” Previously, Kelley was registered with Sterne, Agee & Leach, Inc. in San Francisco, California from 2012 to 2015.

Schonhorn was registered with FTN Financial Securities Corp. in New York, New York from 2013 to January 2017, when he was terminated regarding, “FTN Financial Securities Corp learned on December 21, 2016 that Gregg Schonhorn had pled guilty under seal on December 20, 2016 to illegal conduct. The illegal conduct related to improper and undisclosed benefits, entertainment and travel provided by Schonhorn to a portfolio manager at the New York State Common Retirement Fund in exchange for directing Fund trades to FTN. Before FTN could notify Mr. Schonhorn of its termination of his employment for cause, he submitted a letter of resignation.”

Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, their former brokerage firms may be liable for investment or other losses suffered by Schonhorn and Kelley’s customers.

Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.