The Securities & Exchange Commission has filed a civil injunctive action against John Paulsen, a former managing director and fixed income research analyst at registered broker-dealer Sterne Agee & Leech Inc., for aiding and abetting a pay-to-play scheme involving the New York State Common Retirement Fund.
From early 2014 until February 2016, Navnoor Kang was the New York State Common Retirement Fund’s director of fixed income, with investment responsibility for approximately $50 billion of its assets.
According to the SEC’s complaint, Kang used his position to solicit and receive improper entertainment from Paulsen and Deborah Kelley, a Sterne Agee registered representative. In exchange, Kang directed millions of dollars in state business to the broker-dealer, and Kelley earned “sizable commissions.”
The complaint alleges that Kang previously told Paulsen that the fund had very strict rules that prohibited him from accepting gifts. However, the SEC alleges that Paulsen and Kelley planned a Park City, Utah ski trip for the purpose of entertaining Kang and his girlfriend, allegedly spending more than $11,000 entertaining the couple.
These expenses included limousine service, four meals, ski rentals and lessons, and three nights at the Hotel Park City (at more than $1,100 per night) for Kang and his girlfriend.
According to the complaint, Paulsen and Kelley then sought reimbursement of those expenses from Sterne Agee and submitted false expense reports which concealed the fact that they had entertained Kang on the trip.
Later, when the broker-dealer discovered inconsistencies in the expense reports and began an internal investigation, Paulsen and Kelley allegedly lied to the investigators.
Kang was recently sentenced to 21 months in prison for his role in the pay-to-play scheme, while Kelley was sentenced to three years’ probation and ordered to pay a $50,000 fine and perform 1,000 hours of community service.
The SEC charges Paulsen with aiding and abetting Kang and Kelley’s violations and seeks a permanent injunction and disgorgement plus interest and civil penalties.
From April 2015 through the present, Paulsen has been the head of research at Stonebridge Advisors, a registered investment adviser based in Wilton, Connecticut.