The Securities and Exchange Commission has won a $100,000 civil penalty from John Paulsen, a former broker-dealer at Sterne Agee charged with aiding and abetting in a pay-to-play scheme with the New York State Common Retirement Fund.
The final judgment from the U.S. District Court for the Southern District of New York issued Monday also enjoined Paulsen from further violations of the securities laws.
The final judgment comes after an October 2020 order found that from early 2014 until February 2016, Navnoor Kang, the director of fixed income at the New York State Common Retirement Fund, used his position to solicit and receive “improper entertainment” from Paulsen and his colleague Deborah Kelley.
In February 2015, Paulsen and Kelley planned a ski trip with Kang to Park City, Utah and spent $11,000 on entertainment, the Commission said.
“The court found that although Kang told Paulsen and Kelley that the Fund had very strict rules that prohibited him from accepting anything from Paulsen, Paulsen and Kelley spent thousands of dollars entertaining Kang and his girlfriend,” the SEC said in a release. “Paulsen and Kelley then sought reimbursement of those expenses from the broker-dealer and submitted false expense reports which concealed the fact that they had entertained Kang on the trip.”
Noticing inconsistencies in the expense report, the broker-dealer then launched an internal investigation, during which Paulsen and Kelley conspired to lie and did lie to the broker-dealer’s internal investigators.
“The court concluded that Paulsen lied because he understood that Kang and Kelley were engaged in an illegal quid pro quo relationship,” the release said.
After a virtual bench trial in July 2020, Judge Paul Gardephe found Paulsen liable on all counts. He had previously after denied the SEC’s 2019 request for summary judgment against Paulsen.
The Commission obtained
Kang is also barred from “participating in any decisions involving investments in securities by public pensions as a trustee, officer, employee or agent,” in addition to serving 21 months in jail.
