SEC seeks to ban former 'auto czar' from Wall St. activities for up to 3 years
Thursday, June 3, 2010
Last July, the Obama administration's "auto czar," Steven Rattner, unexpectedly stepped down after guiding the federal government's bailout of the auto industry for five months.
Rattner kept quiet when he resigned, but associates told news outlets that he was leaving because the auto companies were emerging from bankruptcy and his primary work was coming to an end.
In fact, Rattner was also being advised by his lawyers to make himself a lower-profile target for federal and state investigators who were probing whether he had paid off a middleman to win a lucrative contract from New York's pension system while he worked on Wall Street, a government source said Wednesday.
But stepping out of the limelight did little to get the bull's-eye off his back. The Securities and Exchange Commission has pressed recently for a settlement of its investigation that would ban Rattner from working in the securities business for up to three years, two sources familiar with the case said. Such a penalty could spoil his dream of returning to a prominent post in Washington.
Rattner has rejected the SEC's terms, leaving the agency with a choice between dropping the matter or moving forward with a civil case that would have to prove Rattner's actions broke the law, those sources said, speaking on the condition of anonymity because the case is ongoing. The SEC's effort to ban Rattner's Wall Street activities was first reported by the New York Times.
Rattner's former firm, Quadrangle Group, has said Rattner arranged payments of more than $1 million to a political operative to obtain a $100 million investment from the New York State Common Retirement Fund, one of the largest pension systems in the country. He also helped a brother of a senior New York pension official distribute a low-budget film called "Chooch" through a DVD company controlled by Quadrangle.
In April, Quadrangle agreed to pay $12 million in settlements with New York state and the SEC while aiming an unusually harsh missive at its founder.
Rattner's conduct was "inappropriate, wrong and unethical," the company said. "We wholly disavow the conduct engaged in by Steve Rattner." Federal and state investigators noted then that their settlements with Quadrangle did not cover Rattner.
Rattner's spokesman declined to comment, as did the SEC and the New York attorney general's office. Quadrangle's spokesman did not return phone calls.
Rattner has made no secret of his desire for a prominent post in the nation's capital. But involvement in a pension scandal would complicate any appointment requiring Senate confirmation. When he agreed to lead Treasury's auto team, Rattner was among a group of "senior counselors" to Treasury Secretary Timothy F. Geithner, a title that allowed the officials to have influence over policy matters but avoid the scrutiny of a Senate confirmation process.
Rattner began his career as a reporter for the New York Times and leapt to Wall Street in the late 1980s after meeting Robert E. Rubin, a Goldman Sachs executive who later became Treasury secretary. He quickly became known for his investment prowess in media and telecommunication companies and his ability to hold fundraisers for prominent Democrats. He got to know influential financiers, such as Michael R. Bloomberg who is New York's mayor, as well as top government officials such as Geithner.
The call to come to Washington finally came when Geithner asked him to lead the team overseeing the auto industry bailout. Rattner arrived in February; two months later, details emerged of the alleged influence-peddling scheme.
When Rattner decided to leave in July, Geithner and other senior administration officials agreed it was better to let him go in case the pension probe began to focus on Rattner, a source said. Geithner released a statement at the time that was hopeful of Rattner's return to Washington.
"Steven Rattner, whose leadership and vision were invaluable . . . has decided to transition back to private life and his family," Geithner said. "I hope that he takes another opportunity to bring his unique skills to government service in the future."
Rattner is now living in Manhattan and working on a book about the restructuring of the auto industry.