Obama Backs Autos Task Force Chief; Rattner Faces Probes of Pension Fund Deals
Saturday, April 18, 2009
President Obama has full confidence in auto task force chief Steve Rattner, the president's spokesman said yesterday, despite disclosures that the former Wall Street financier was involved in business dealings now under investigation by New York and federal authorities.
At the heart of the two-year probe are millions of dollars in payments from investment firm Quadrangle Group, co-founded by Rattner in 2000, and about a dozen other private-equity firms and hedge funds. These payments went to middlemen who connected the firms to New York's $122 billion pension fund.
White House press secretary Robert Gibbs, citing news coverage of the investigation, said that Rattner is "not accused of doing any wrongdoing and is not likely to face either criminal or civil charges as it relates to this."
Rattner had informed the administration of the pending investigation during the transition, Gibbs said.
The disclosure comes at a sensitive moment for Rattner and his auto task force. Chrysler is fast approaching an end-of-the-month deadline to finalize a deal with Fiat and cut billions in debt and labor costs. And General Motors is working against a May 31 deadline to avoid bankruptcy.
The administration's decision to press on with his appointment follows other instances when an appointee's qualifications appeared to trump other concerns.
Top aides have said they were aware of issues in the backgrounds of several high-profile appointees, including Treasury Secretary Timothy F. Geithner and one-time Health and Human Services nominee Tom Daschle, before Obama nominated them.
Geithner survived questions about his failure to pay taxes, but questions about Daschle's use of a limousine doomed his nomination.
The investigation involving Rattner and others is being conducted by New York Attorney General Andrew M. Cuomo and the Securities and Exchange Commission.
In an SEC complaint filed this week, a "senior executive" at Quadrangle is described as having arranged a $1 million-plus payment to a middleman. A person close to the matter identified the executive as Rattner. His role was previously reported by the Wall Street Journal.
A spokesman for Quadrangle said the firm is fully cooperating with the investigation. It has "produced all documents requested and our expectation is that no action will be taken," the spokesman said.
Through a spokesperson, Rattner declined to comment.
The controversial payments, known as "placement fees," are a common industry practice and not illegal. But the authorities are investigating whether Quadrangle and other investment managers knowingly participated in a pay-to-play scheme to get investments from the state pension fund, according to people familiar with the case.
The questions around Quadrangle and Rattner follow others that came to light soon after he emerged as a candidate to lead the Obama administration's efforts to prop up Chrysler and General Motors.
Quadrangle was, at least indirectly, previously involved in a deal involving Chrysler's majority owner, Cerberus Capital Management, a private equity firm.
That connection has led some Chrysler investors to doubt whether Rattner can decide without bias how the government should aid Chrysler.
In the summer of 2007, Quadrangle purchased Dennis Publishing, the owner of magazines including Maxim and Blender. The estimated price was $250 million.
Quadrangle's new magazine company was renamed Alpha Media and it took a loan of $125 million, much of it coming from Cerberus.
A year after Quadrangle's purchase, the publishing company's profits began to plummet.
The company announced last month that it would cease publication of its Blender magazine. Quadrangle has written the Alpha Media investment down to zero on its books, and Cerberus, the company's major creditor, is now effectively in control of Alpha, a person familiar with the matter said.
Despite the failure of the investment, there is no ill will between Quadrangle and Cerberus, people familiar with the matter said.
Michael D. Shear and Brady Dennis contributed to this report.