Former Obama Car Czar Slammed in Pension Probe

Apr. 15, 2010 — -- 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."