November 23, 2021/US SEC
The Securities and Exchange Commission obtained a final judgment on November 22, 2021 against John A. Paulsen, a former managing director and fixed income research analyst at a registered broker-dealer who was charged with aiding and abetting a pay-to-play scheme involving the New York State Common Retirement Fund. The final judgment enjoins Paulsen from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The final judgment further orders Paulsen to pay a civil penalty in the amount of $100,000.
After a virtual bench trial held in July 2020, Judge Paul G. Gardephe of the U.S. District Court for the Southern District of New York, found Paulsen liable on all counts. In an October 2020 order, the court found that, from early 2014 until February 2016, Navnoor S. Kang was the Fund’s Director of Fixed Income, with investment responsibility for approximately $50 billion of the Fund’s assets. Kang used his position at the Fund to solicit and receive improper entertainment from Paulsen and Deborah D. Kelley, a registered representative at the broker-dealer. In exchange, Kang directed a significant amount of state business to the broker-dealer, generating sizable commissions. 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. Paulsen and Kelley then sought reimbursement of those expenses from the broker-dealer, and submited false expense reports which concealed the fact 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 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 SEC previously obtained final judgments against Kang, Kelley, and another individual in connection with this conduct.
The SEC’s litigation was conducted by John E. Birkenheier, Alyssa A. Qualls, and Public Finance Abuse Unit members Brian Fagel and Eric Celauro. The case was supervised by LeeAnn Gaunt, Chief of the Public Finance Abuse Unit.