New York reaches $7 million settlement in alleged pension-fund scandal
Friday, April 16, 2010
NEW YORK -- Law enforcement officials moved a step further in their investigation of the Obama administration's former auto industry adviser, reaching settlements with the private-equity firm he co-founded in an ongoing corruption probe that has touched several prominent Wall Street firms.
In announcing a $7 million settlement with Quadrangle Group, New York Attorney General Andrew M. Cuomo noted that the agreement "does not cover former Quadrangle Managing Principal Steven Rattner," who remains under investigation. Quadrangle has renounced Rattner's role in the alleged scandal and has agreed to help the investigation, Cuomo's office said.
"We wholly disavow the conduct engaged in by Steve Rattner, who hired the New York State Comptroller's political consultant, Hank Morris, to arrange an investment from the New York State Common Retirement Fund," Quadrangle said in a statement released by Cuomo's office. "That conduct was inappropriate, wrong, and unethical."
The developments Thursday were the latest in a three-year investigation by Cuomo's office into whether private-equity firms and hedge funds knowingly participated in a pay-to-play scheme to win investments from New York's state pension fund. Six people have pleaded guilty, and 13 companies, including the District-based private-equity firm Carlyle Group, have agreed to settlements with the government that would recover more than $130 million, Cuomo's office said. Fifteen investment companies have agreed to a new code of conduct in dealing with public pension funds.
Separately, Quadrangle on Thursday agreed to pay $5 million to settle civil charges brought by the Securities and Exchange Commission, which also is investigating the matter. Rattner remains a subject of investigation by the SEC, according to sources with knowledge of the matter who spoke on condition of anonymity because the probe is ongoing.
The SEC complaint, filed Thursday in U.S. District Court in Manhattan, alleged that Quadrangle improperly obtained a $100 million investment from the New York state pension fund with "quid pro quo" arrangements. The SEC singles out a former executive at Quadrangle as having played a key role in securing that investment. The complaint does not name the executive, but sources have said it is Rattner.
Rattner, who is no longer with Quadrangle, has not been charged with any wrongdoing. He left the firm last year to join the Treasury Department as head of the Obama administration's auto industry task force. In that role, he oversaw the restructuring of General Motors and Chrysler and left the administration after the automakers emerged from bankruptcy.
"Mr. Rattner does not agree with the characterization of events released today, including those contained in Quadrangle's statement," said Jamie S. Gorelick, an attorney for Rattner. "He looks forward to the full resolution of this matter."
A source familiar with the matter said Rattner has rejected the investigators' offer of a civil settlement, saying he did not like its terms. But a law enforcement source said such a characterization of the ongoing investigation was "wholly" false. The sources spoke on condition of anonymity because they were not authorized to comment publicly.
Quadrangle said in a separate statement that it had neither admitted nor denied any allegations in reaching its settlements with Cuomo and the SEC. It said the firm's "current management" had cooperated fully with investigators. Cuomo's office said "the principals involved in the conduct at issue here are no longer with Quadrangle."
According to the SEC complaint, the $100 million investment from the New York pension fund came only after the Quadrangle executive arranged for a Quadrangle affiliate to distribute the DVD of a low-budget film called "Chooch," which was produced by the brother of former New York state deputy comptroller David Loglisci.
The SEC also said the Quadrangle executive agreed to pay more than $1 million in purported "finder" fees to Hank Morris, a political adviser to former New York state comptroller Alan Hevesi. The SEC complaint says the Quadrangle executive met with Morris in late 2003 to discuss obtaining investments from large pension funds; during the meeting, Morris asked the executive to help Loglisci's brother get distribution financing for "Chooch."
In fall 2004, the executive contacted Loglisci about investing in a new Quadrangle fund and expressed his intention to help secure a DVD distribution deal for the movie. Loglisci's brother then met with an executive at GT Brands, a Quadrangle affiliate, to discuss the matter, according to the complaint.
Although GT twice expressed a lack of interest in the distribution deal, the Quadrangle executive instructed GT's chief executive in an e-mail to "dance along" with Loglisci's brother while the Quadrangle executive figured out whether Quadrangle "needed" to do a distribution deal to secure an investment from the New York pension fund, the complaint said.
GT ultimately agreed to manufacture and distribute the DVD at a discount, an arrangement that was approved by the Quadrangle executive, who e-mailed Morris to inform him of it. Three weeks later, Loglisci told the Quadrangle executive that the fund would be making a $100 million investment, the complaint said.
Cuomo's office on Thursday settled related cases with investment firms GKM Newport Generation Capital Services, California lobbying firm Platinum Advisors, political consulting firm Global Strategy Group and Kevin McCabe, an unlicensed placement agent.
Staff Writer Zachary A. Goldfarb contributed to this report.