A former Sterne Agee & Leach managing director pleaded guilty to lavishing a portfolio manager at the $192 billion New York State Common Retirement Fund with trips to luxury vacation destinations in exchange for steering hundreds of millions in trading business her way.
Deborah Kelley was accused of spending tens of thousands of dollars to pay for trips for Navnoor Kang and his girlfriend to New Orleans and Park City, Utah, and VIP tickets to a Paul McCartney concert. She expensed the costs to Sterne Agee, while omitting that the money was spent entertaining Mr. Kang, prosecutors said.
Ms. Kelley pleaded guilty to conspiracy to commit securities fraud and honest services fraud, and she could face five years in prison when she is sentenced Sept. 15.
Mr. Kang was also charged with fraud and has pleaded not guilty.
Ms. Kelley said she first got to know Mr. Kang when he worked at a prior employer and invited him on the ski trip to Utah after he joined the Albany-based pension fund. She said she knew he wasn't allowed to accept such gifts and understood that he didn't intend to disclose them.
The guilty plea proceeding was temporarily thrown into disarray when Ms. Kelley, in response to a question from U.S. District Judge J. Paul Oetken in Manhattan, said she didn't know at the time that what she was doing is illegal.
Under certain circumstances, such an admission could be cause for a judge to reject a guilty plea. But after a delay in the proceedings, Ms. Kelley told the judge she knew what she was doing was wrong and that Mr. Kang's acceptance of her largesse violated his obligations to his fund. Mr. Oetken then accepted the plea.
A lawyer for Ms. Kelley, Robert Gage, declined to comment after the hearing.
Mr. Kang, a onetime director of fixed income and head of portfolio strategy at the New York State Common Retirement Fund, took at least $180,000 in bribes in exchange for sending business to certain brokerages from 2014 to 2016, according to prosecutors. Another broker, Gregg Schonhorn, pleaded guilty and agreed to cooperate with authorities. He was accused of plying Mr. Kang with cocaine, prostitutes, luxury travel and a $17,000 watch.
Before Mr. Schonhorn and Ms. Kelley started plying Mr. Kang with the gifts, neither of their brokerages was approved to do business with the New York pension fund, according to prosecutors.
Mr. Kang got them on the approved list of broker-dealers, after which the value of transactions from the pension fund soared to more than $150 million a year at Sterne Agee, and $2.3 billion at Mr. Schonhorn's firm, FTN Financial Securities Corp., prosecutors said. The trades resulted in millions of dollars in commission payments to the two firms, of which Ms. Kelley and Mr. Schonhorn earned 35% to 40%, prosecutors said.
Ms. Kelley was fired by Sterne Agee after the expenses were scrutinized amid inquiries by the U.S. Securities and Exchange Commission and Financial Industry Regulatory Authority, an industry regulator. Sterne Agee has since sold the unit.