Former Obama Car Czar Slammed in Pension Probe

Steven Rattner, the man brought in by President Obama to hammer the auto industry back into shape, had his reputation badly dented by his own company today when it disavowed the way he allegedly used a middle man to get New York State to invest with his Quadrangle Group as "inappropriate, wrong, and unethical."

The firm made the remarks as part of a settlement agreement with New York State Attorney General Andrew Cuomo in his ongoing probe into unethical practices and criminal conduct in connection with the investment of public funds. Quadrangle, which Rattner co-founded, agreed to repay $7 million to New York State and to sign on to Cuomo's "Public Pension Fund Reform Code of Conduct."

Rattner, who Obama appointed the head of his auto task force in 2009, is still the subject of an ongoing investigation by Cuomo, his office said, and Quadrangle has agreed to cooperate in the probe including into any actions of Rattner, a cofounder of the firm.

"This agreement does not cover former managing principal, Steve Rattner," Special Counsel to the Attorney General Linda A. Lacewell said in the opening remarks of a conference call announcing the agreement.

Rattner's spokesman, Adam Miller, was traveling and not immediately available for comment. An attorney for Rattner also was not immediately available for comment.

Rattner was instrumental, according to the firm and Cuomo, in paying a $1.1 million finder's fee to Hank Morris the political advisor to New York's then comptroller, Alan Hevesi, to arrange a $100 million investment in Quadrangle from the $129 billion New York State Common Retirement Fund, the third largest pension fund in the country. The investment took place after a 2004 meeting between Rattner and Morris, according to published reports.

Just three weeks before Quadrangle obtained the $100 million investment from the New York pension, a DVD company owned by Quadrangle agreed to distribute "Chooch," a low-budget movie co-produced by David Loglisci, the state retirement fund's chief investment officer, and his brother, according to court papers. Loglisci, who was indicted with Morris, pled guilty Mar. 10 to a corruption charge and agreed to cooperate in the probe.

On Sunday, the New York Daily News quoted court papers in which attorneys for Morris, who still faces a 123 count indictments and who is alleged to have pocketed $25 million as a result of his role as a fund fixer, said he had done nothing criminal.

"It should come as a shock to no one that 'knowing people' matters and that individuals with political connections frequently enjoy readier access to government decision makers than do others," Morris lawyers William Schwartz and Laura Grossfield Birger wrote. "The question posed here is whether gaining access, and even influence, in that manner is criminal."

"The simple fact is that no matter how much the attorney general disapproves as a matter of policy or ethics of the web of relationships that provided access and influence, there was no crime here," they wrote.

"If you follow the money in the state of New York it will take you to the New York State pension fund," Cuomo said today. So far his probe has yielded six guilty pleas, recovered $100 million and reached agreements with sixteen firms to sign on to his reform code. "We can stay here and do cases…or we can reform the system…so you stop the fraud once and for all," he said.

Susan Lerner, the executive director of Common Cause/NY, said on that call that the agreement "underscores the crying need we have in New York State for pension reform."

Cuomo has authored a pension reform bill that would replace the sole trustee at the New York State Common Retirement Fund with a board of trustees and eliminate pay-to-play in state public pension funds. The legislation, entitled, "Taxpayers' Reform for Upholding Security and Transparency" ("T.R.U.S.T."), has received bipartisan support. In his remarks today he again called for the state legislature to pass that bill.

In a statement acknowledging the settlement posted to its web site this morning Quadrangle said in part, "that it has reached resolution with the Offices of the New York Attorney General ("NYAG") and the Securities and Exchange Commission ("SEC") concerning the investigation of public pension fund investments in New York. The NYAG and the SEC stated in their respective agreements that the matters under investigation related solely to the actions of former Quadrangle employees. As part of these settlements, Quadrangle neither admitted nor denied any allegations, will make payments to New York State of $7 million and the SEC of $5 million, and adopted the NYAG's Public Pension Fund Code of Conduct."

Quadrangle added that "as a result of the Attorney General's investigation, we have taken other remedial steps to include replacing both our General Counsel and outside counsel from that time period, implementing new compliance policies and better aligning the firm with the interests of our investors."

In addition to Quadrangle, the Attorney General announced that three other firms, Global Strategy Group, GKM and Platinum Advisors, and one individual, Kevin McCabe, reached agreements to repay a total of $12 (including Quadrangle's $7 million) comply with the Code of Conduct. None of the parties either admitted or denied the allegations.

Last year, Rattner left the post as head of the Obama's auto task force, as Cuomo's office focused on Quadrangle.

Upon leaving the auto task force, Rattner said he wanted to return to private life and his family. In a written statement to reporters at the time, Treasury Secretary Timothy Geithner said that with the heavy lifting of the auto bailout over, Rattner had "decided to transition back to private life and his family in New York City."

More than 100 firms have been subpoenaed by Cuomo in the pay-for-play probe, which has been ongoing since 2007.

In past settlements reported by ABC News, The Carlyle Group, a giant Wall Street firm best known for its ties to former President George H.W. Bush and other prominent public officials, agreed to pay $20 million to "resolve its role" in the ongoing corruption investigation and agreed to a new code of conduct that prohibits the use of such middlemen. Carlyle had made more than $13 million in payments to a indicted political fixer who arranged for the firm to receive business from a New York pension fund, New York attorney general Andrew Cuomo said today.

According to Cuomo, his corruption investigation found that in 2003, Carlyle hired Hank Morris, the chief political aide to then New York state comptroller Alan Hevesi, as "a placement agent" to help obtain investments from the New York Common Retirement Fund.

"If Boss Tweed were alive today, he would be a placement agent," Cuomo said.

In a statement, Carlyle said it "was unaware of any improper conduct" and "was victimized by Hank Morris' alleged web of deceit." Carlyle said it intended to file suit against Morris and has "cooperated extensively and voluntarily" with Cuomo.

More than 100 firms have been subpoenaed by Cuomo in the pay for play probe which has been ongoing since 2007.

"This is the nexus of private sector fraudulent operators meeting government and political fraudulent operators," said Cuomo in 2009, when he announced the sweeping issuance of subpoenas to investment firms and their agents.

Under federal and NY state law, any agent that brokers deals between the private investment firms seeking pension fund money and the government or political officials doling out the money, must be a registered securities broker, with the occasional exception allowed. Cuomo's investigation, however, found that 40-50% of so-called 'placement agents' seeking investments from the NY State and City pension funds are unregistered.

"The troubling pattern of unlicensed agents highlights yet another systemic weakness in New York's pension fund," said Cuomo, "creating a situation which is fraught with peril and prone to abuse. This investigation will continue until public trust has been restored and reform has been achieved."

"It's the wild west of government relations and financial brokers," said Cuomo.

And on tax day, Cuomo's Special Counsel Linda A. Lacewell acknowledged during the call that "as a matter of logic" based on the facts set forth the investigation is also probing conduct involving the state comptroller's office under its current head.

Click Here for the Blotter Homepage.