By Tomoeh Murakami Tse
Washington Post Staff Writer
Thursday, March 11, 2010; A15
NEW YORK -- A former New York state official pleaded guilty Wednesday to a felony in connection with an alleged pay-to-play scheme involving the state's pension system, a move that legal experts said could bring the investigation closer to one of Wall Street's most prominent financiers, Steven Rattner.
Neither Rattner, who served for four months in 2009 as head of the Obama administration's auto task force, nor Quadrangle, the private-equity firm he co-founded, has been charged with any wrongdoing. New York Attorney General Andrew M. Cuomo reiterated Wednesday that both remain under scrutiny in investigations by his office and the Securities and Exchange Commission that are now in their third year.
On Wednesday, David Loglisci, who served as chief investment officer of the New York state comptroller's office, pleaded guilty to a corruption charge in a state court in Manhattan and agreed to cooperate with the investigation. Former prosecutors and legal experts said his cooperation could prove critical.
Cases involving alleged kickbacks can be difficult to make because prosecutors must show that those involved knowingly paid for a specific gain. Such a scheme is seldom written down, and prosecutors, therefore, often have to rely on inside witnesses to make the connection.
"Loglisci is the person who can provide prosecutors with the keys to the castle here," said Robert A. Mintz, a former federal prosecutor who heads the white-collar criminal defense practice at McCarter & English. "Anybody who may have been involved with this scheme has to be very concerned at this point that this investigation has with this plea picked up a considerable amount of momentum."
The probe centers on millions of dollars in payments made by Quadrangle and about a dozen other hedge funds and private-equity firms to middlemen who connected the firms to New York's $122 billion pension fund. The payments, or "placement fees," are common in the industry and are not illegal. 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. Loglisci was the sixth and highest-ranking official to be found guilty or to plead guilty in the probe.
Loglisci is expected to help the prosecution in its case against Hank Morris, a former top adviser to then-state Comptroller Alan Hevesi who also acted as a middleman. Morris has said he is not guilty.
According to authorities, an unnamed "senior executive" of Quadrangle met with Loglisci in late 2004 to solicit investments. That meeting was followed by another in which Morris solicited a "finder's fee arrangement" with Quadrangle. A Quadrangle affiliate then agreed to pay $88,841 for the DVD distribution rights to a low-budget film, "Chooch," produced by Loglisci's brother.
After the "Chooch" DVD distribution deal was struck, Loglisci informed the Quadrangle executive that the firm would be getting a $100 million investment, authorities said. Quadrangle paid Morris's placement agency $1.125 million in fees. Sources close to the investigation have said the senior executive is Rattner.
Some experts warned that any case against Rattner would hardly be a slam-dunk. "Sometimes it becomes a story about why that cooperator is not reliable," said Steven D. Feldman, a former federal prosecutor who is a partner at Herrick, Feinstein.
John Coffee, a law professor at Columbia University, said, "Conceivably, there could still be a defense that Quadrangle thought [the "Chooch" deal] was independently desirable."
"I don't think the jury is going to buy that," he added.
Rattner and Quadrangle representatives declined to comment Wednesday.