New York State Comptroller Thomas P. DiNapoli has unveiled a series of new and reinforced polices for the New York State Common Retirement Fund, Albany, to prevent a repeat of alleged securities fraud by a former pension fund executive, Navnoor Kang.
“I have zero tolerance for self-dealing,” said Mr. DiNapoli, the sole trustee of the pension fund, in a Wednesday interview on radio station WCNY, Syracuse. “There were some failings in our own operations.”
In December, Mr. Kang was charged with securities fraud in a grand jury indictment by the U.S. attorney's office in New York and in a Securities and Exchange Commission complaint.
He had been director of fixed income and head of portfolio strategy. He was hired in January 2014 and terminated in February 2016.
Mr. Kang was charged with conspiring with two broker-dealers, who allegedly paid for gifts in return for his recommending to the $186 billion pension fund to steer fixed-income investment business to them.
The scheme lasted from 2014 until early 2016, according to the indictment and SEC complaint. Mr. Kang has pleaded not guilty.
Mr. DiNapoli's office issued a 17-page report Wednesday reviewing how Mr. Kang was hired, how he acted in his pension fund role and what steps the pension fund has since taken.
Among the policies outlined Wednesday, the report said job candidates must list all former employers, former supervisors and the supervisors' contact information in their applications. A candidate must provide at least three professional references, including the most recent employer, and then be subject to a background check by a third-party vendor.
Also, former employers over the past 10 years must be contacted and asked “whether the employer would hire the candidate again,” according to the report.
The report emphasized that reference checks will be done internally. “This function may not be delegated to an outside entity,” the report said.
The pension fund issued an RFP in January 2013 for a firm to conduct searches for seven top pension fund jobs. Korn Ferry was chosen from among 11 candidates.
Nearly one-third of Mr. DiNapoli's report was devoted to the hiring process and the search firm's role.
“As to Korn Ferry, the contract period ended and we have not entered into any subsequent contracts,” Matthew Sweeney, a spokesman for Mr. DiNapoli, wrote Wednesday in an email response to questions. In hiring Korn Ferry, the pension fund “invoked the provision of the contract requiring Korn Ferry to check references,” Mr. Sweeney added.
Dan Gugler, a Korn Ferry spokesman, declined to comment.
Mr. DiNapoli's report cited one passage from the SEC complaint that Mr. Kang “lied about the reason he was terminated” from his previous employer, an unnamed asset manager.
“When queried as to whether Kang's six-month period of unemployment at the time of his interview should have been a red flag, the Korn Ferry official stated that 2013 was a terrible year for fixed income and that 2012 had been a 'horror show,'” the report said. So, a six-month gap in employment wasn't considered a long period, said the report, referencing the official's comments.
The report, citing Korn Ferry notes, said the search firm originally “passed” on Mr. Kang's resume in June 2013, “meaning his resume was not considered for further review at that time.”
On Aug. 2, 2013, pension officials called Korn Ferry expressing “frustration” with the search process and the “quality of resumes,” the report said. One week later, the Korn Ferry team leader took a “second look” at Mr. Kang's resume, the report said.
Pension fund officials conducted a telephone interview with Mr. Kang in September 2013. “When asked why he had departed his previous employer, Kang stated that he had been 'laid off' because he was seeking to relocate to the East Coast to join his fiancee but that his former employer was laying people off in New York and there were no positions available for him,” the report said.
Pension officials also conducted an in-person interview in December, asking Korn Ferry to confirm reference checks, the report said.
In December 2013, a pension fund official referred to notes of a conversation with a Korn Ferry official noting that the search firm official confirmed that Mr. Kang's departure “all checked out,” the report said.
“Notably, the individuals the Korn Ferry team leader chose to contact to complete her reference check were selected solely by the team leader presumably after discussions with Kang,” the report said.
