Sunday, April 19, 2009

Rattner Retains Obama’s Confidence Amid Pension Probe (Update1)

President Barack Obama expressed confidence in Steven Rattner, the chief U.S. auto-industry adviser whose former firm was linked to probes of millions of dollars in New York pension-fund kickbacks.

Rattner, co-founder of New York-based Quadrangle Group LLC, a private-equity firm, told the U.S. Treasury Department before Obama took office about the investigation of alleged kickbacks made to intermediaries for a New York pension fund, according to a Treasury department spokesperson who declined to be identified.

“He’s not accused of doing any wrongdoing,” Robert Gibbs, Obama’s press secretary, told reporters traveling yesterday with the president. “And he’s not likely to face any criminal or civil charges as it relates to this,” Gibbs said. “The pending investigation was something that Steve brought up to us.” Rattner declined to comment.

The federal probe is focused in part on whether Quadrangle, Carlyle Group and other private-equity firms knowingly made illegal payments, a person familiar with the matter said. The Securities and Exchange Commission, investigating with New York Attorney General Andrew Cuomo, is collecting information and hasn’t reached a conclusion about how much private-equity firms and hedge funds knew and whether they were duped, the person said, declining to be identified because the probe isn’t public.

The SEC hasn’t given Rattner, 56, any indication that he faces enforcement action, the person said. John Nester, a spokesman for the SEC, and Cuomo spokeswoman Emily Browne declined to comment.

Millions of Dollars

Quadrangle, an investor in media companies and distressed debt, and Washington-based Carlyle, the world’s second-largest private-equity firm, are among companies that paid millions of dollars in sham commissions to people claiming to have helped them win business from the $122 billion New York State Common Retirement Fund, the nation’s third-largest, according to an SEC lawsuit. Payments were made between 2003 and 2007, the regulator said.

Allegations of wrongdoing involving the New York pension fund began emerging last month when Cuomo and the SEC filed lawsuits and criminal charges against former New York State Deputy Comptroller David Loglisci and political adviser Hank Morris. This week, the probe yielded a guilty plea from a Dallas hedge-fund manager and charges against a former New York political party boss.

Cuomo said at least $30 million in kickbacks were paid. A 123-count indictment filed last month in New York State Supreme Court in Manhattan named Morris, who advised ex-New York Comptroller Alan Hevesi, and Loglisci as key figures in a “web of corrupt actions for both political and personal gain,” Cuomo said at the time. The defendants have denied any wrongdoing.

‘Senior Executive’

Rattner, who the Wall Street Journal reported is an unidentified “senior executive” at Quadrangle mentioned in the SEC complaint, left the firm this year to join the Treasury and become the chief adviser on the restructuring of General Motors Corp. and Chrysler LLC.

According to the SEC complaint, Quadrangle obtained a $100 million investment from the pension fund three weeks after a DVD-distribution company owned by the private equity firm distributed an independent film, “Chooch,” produced by Loglisci’s brother.

Quadrangle also agreed to pay a finder’s fee to Morris’s firm, Searle & Co., the agency said.

“Neither Loglisci nor anyone else ever disclosed the Chooch DVD distribution agreement with the Quadrangle affiliate and the conflict of interest it created,” the SEC said in the complaint. Quadrangle isn’t named as a defendant in the filing.

Brother’s Movie

The SEC claims Loglisci improperly used his position to direct more than $250,000 worth of contributions from Morris and others to development of his brother’s film, a comedy about a disgraced softball player from Queens, New York, who is kidnapped in Mexico. The DVD company usually releases animated children’s films and fitness videos.

The investment stemmed from a meeting in 2004 between Loglisci and the unidentified senior Quadrangle executive who solicited business with the pension fund, the SEC said. A few months after a deal was secured, Morris also met with a Quadrangle executive to seek a finder’s fee, the regulator said.

“Quadrangle is fully cooperating, has produced all documents requested and our expectation is that no action will be taken,” Quadrangle spokesman Adam Miller said yesterday in an e-mailed statement.

Loglisci’s Role

State and federal officials alleged that Loglisci arranged for the pension fund to invest $5 billion with private-equity firms and hedge-fund managers that paid kickbacks to Morris and others. Loglisci told managers the payments were required to do business with the fund, the regulator said.

Morris’s lawyer William Schwartz didn’t return a call for comment. Irving Seidman, a lawyer for Loglisci, declined to comment.

This week, Cuomo announced that Barrett Wissman, head of a Dallas-based fund, admitted violations of securities laws and agreed to be a witness in the case. Felony charges also were filed against former New York State Liberal Party Chairman Ray Harding. Cuomo said at an April 15 press conference that he expects there to be more criminal charges in the case.

Wissman, 46, and Harding, 74, allegedly enriched themselves by requiring investment firms to pay finder fees if they wanted the pension fund to place assets with them, Cuomo alleged. The two men demanded payment even when they didn’t arrange the deals, he said.

Other Funds

William Brewer, lawyer for Wissman, didn’t return a call seeking comment. Harding’s lawyer, Gary Naftalis, declined to comment on Rattner and said his client is innocent.

Other funds named last month by Cuomo and the SEC as having paid fees to Morris and his unidentified partners were the Access/NY European Fund, the Aldus New York Emerging Fund, GKM/NY Venture Capital Fund, Olympia John Street Fund, Paladin Homeland Security Fund (NY), Pequot Diversified Offshore Fund/Pequot Private Equity Partners Fund IV and Strategic Co- Investment Partners, according to court documents. They weren’t charged with wrongdoing.

Chris Ullman, a Carlyle spokesman, didn’t respond to a call seeking comment. The firm said April 14 that it’s cooperating with investigators, the inquiry is industrywide and that it understands it’s not the “focus” of the investigation.

Quadrangle Asset Management handles the personal and philanthropic finances of New York City Mayor Michael Bloomberg, whom Rattner supported through his chairmanship of Democrats for Bloomberg during the mayor’s 2005 re-election campaign.

Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.

GM fell 8 cents, or 4.1 percent, to $1.86 yesterday in New York Stock Exchange composite trading. The shares have tumbled 91 percent in the past year