Steven Rattner Caught Up In Pension Probe
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NEW YORK — State and federal investigators probing a pay-to-play scandal at New York's giant government pension fund have turned up the heat in recent weeks on one of the saga's better-known figures, former Obama car czar Steven Rattner.
The one-time star of Wall Street and Washington has been dealing for more than a year with an investigation into allegations that he and other money managers paid kickbacks in exchange for lucrative state investment contracts.
The long-running probe drew attention again Thursday when Rattner's former firm, the Quadrangle Group, agreed to pay $12 million to settle its role in the matter. As part of the deal, Quadrangle made a statement condemning Rattner's role as "inappropriate, wrong, and unethical."
The Securities and Exchange Commission also filed legal papers Thursday that contained new details about Rattner's involvement.
The filing did not mention Rattner by name, but it singled out a senior executive at the Quadrangle Group for harsh criticism, saying he had secured a $100 million pension fund investment only after agreeing to distribute a DVD of a low-budget film produced by the brother of one of the fund's chief officials.
The SEC called the DVD deal "a clear conflict of interest."
Other investment bankers, lobbyists and financial firms accused of similar conduct have quickly agreed to pay millions of dollars in penalties and reform their business practices.
Rattner, however, has cut no such deal. He finished his stint on the auto industry task force in July, and since then has remained busy, but under a cloud.
He wrote a lengthy article for Fortune magazine about his experiences restructuring the auto industry. That article, published in November, is now being expanded into a book called "Overhaul," to be published by Houghton Mifflin Harcourt this year.
The one-time New York Times reporter has also continued to pen commentary for newspapers, offering contributions to the op-ed pages of The Washington Post and The Wall Street Journal, and give occasional interviews about the economy and other matters.
He has reportedly been working behind the scenes, as usual, in New York politics, taking an interest in the coming U.S. senate election and briefly backing Harold Ford Jr. as a potential challenger to Kirsten Gillibrand before the former congressman decided not to run.
Rattner hasn't said much about his future, or his involvement in the pension fund, although he made brief reference to it in his Fortune article. In that piece, he acknowledged only that the probe had been an added burden as he worked on the auto bailout.
"I lived in a sterile sublet condo in Washington and would have to grapple simultaneously with the New York attorney general's investigation of my former firm, Quadrangle Group, and me about our actions in connection with an investment from the state pension fund. But we soldiered on," he wrote.
His lawyer issued a statement Thursday saying he disagreed with the characterizations of his conduct. Rattner's spokesman didn't respond to further inquiries Friday.
New York Attorney General Andrew Cuomo, whose office has led the investigation into the pension fund, has declined to comment on what actions he might take against Rattner – though authorities have previously said repeatedly that they didn't expect him to face criminal charges.
The Wall Street Journal reported in March that Rattner was in settlement talks, but no resolution has emerged.
Part of Rattner's troubles stem from his handling of a screwball comedy called "Chooch."
Federal investigators said that in a bid to curry favor with state officials, Rattner first used his connections in the entertainment industry to try to get "Chooch" distributed in theaters.
When that didn't pan out, he later set up a meeting between the film's producer, the brother of pension fund chief investment officer David Loglisci, and executives at GT Brands, a DVD distributor owned by one of Quadrangle's private equity funds.
GT Brands initially resisted the film.
The company's chief executive sent an e-mail calling Loglisci's brother "unrealistic and naive," and said he wanted to pass on "Chooch," according to the SEC.
Rattner, according to the SEC filing, kept the DVD talks going, eventually telling the GT Brands executive they needed to "dance along" until they figured out whether Quadrangle needed to do the DVD deal to get its pension fund investment.
"The DVD distribution deal proved to be important," the SEC wrote. "Despite GT Brands' avowed lack of interest in distributing the Chooch DVD, GT Brands reversed course and ultimately offered to manufacture and distribute the Chooch DVD in exchange for 12 percent of the net revenue generated by the distribution of the film." That was a discount from GT Brands' standard fee of 15 to 20 percent.
The deal was finalized in December. Around the same time, Quadrangle also agreed to pay more than $1 million in finders fees to a longtime political consultant to state Comptroller Alan Hevesi. Three weeks later, Loglisci told Rattner that the state would invest $100 million with Quadrangle.
Loglisci pleaded guilty to securities fraud in March. A string of other investment advisers, lobbyists and minor political figures have also pleaded guilty to a variety of charges, most carrying a relatively low risk of jail time.
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DAVID B. CARUSO 04/16/10 07:41 PM ET Associated Press