SEC Bars Two Brokers in Pension Scheme

SEC Bars Two in Pay-to-Play Pension Scheme

Two former stockbrokers have been barred by The Securities and Exchange Commission for their involvement in a “pay-to-play” pension scheme that netted them millions of dollars in trading commissions.

Pension Scheme Involved Bribe to Portfolio Manager

Broker Gregg Z. Schonhorn of Short Hills, New Jersey, and Deborah Kelley of Piedmont, California, have been barred from the securities industry for their roles in a “pay-to-play” pension scheme.

The two brokers bribed portfolio fund manager, Navnoor Kang, at the New York State Common Retirement Fund through gifts and undisclosed benefits. Kang would direct trades to FTN Securities, where Schonhorn was employed at the time, and the two brokers would capitalize on those trades, resulting in millions in commissions for them.

According to the SEC, Schonhorn paid Kang the equivalent of at least $160,000 by providing “improper and undisclosed benefits, entertainment and travel.”

Pension Scheme Involved Brokers with History of Misconduct

In late 2016, Schonhorn pled guilty to a six-count charge that included conspiracy to commit securities fraud, bank fraud, and conspiracy to obstruct justice.

Schonhorn resigned before being terminated for cause from FTN Securities in December 2016, shortly after FTN learned about the charges.

In the same year, the SEC charged Schonhorn’s co-conspirator Kelley with conspiracy to commit securities fraud and other charges. A few months prior, she was terminated by brokerage firm Stifel, Nicolaus, which had acquired her employer, Sterne Agee, for misrepresenting the nature of expenses she submitted for reimbursement.

In March 2017, she was barred by the Financial Industry Regulatory Authority (FINRA). She pled guilty to one count of conspiracy to commit securities fraud in May.

Brokers Face Years in Prison

Though prosecutors sought a five-year prison sentence, Kelley was ordered to perform 1,000 of community service, pay a $50,000 fine and is subject to three years’ probation. She will spend the first six months confined to her home.

Schonhorn awaits sentencing; he is facing as much as 30 years in prison for his role in the pension scheme.

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