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Thursday, November 18, 2010

More Change We Can Believe In, Or NOT!

Settling With S.E.C., Rattner Is Sued by Cuomo
Steven Rattner’s settlement will cap an inquiry into kickbacks involving New York’s pension fund.Andrew Harrer/Bloomberg News Steven L. Rattner has agreed to pay $6.2 million in disgorgement and penalties in settling with the S.E.C.

Andrew M. Cuomo, the attorney general and governor-elect of New York, sued the financier Steven L. Rattner on Thursday over his role in kickbacks to secure investments from the New York State pension fund.

The attorney general filed two lawsuits, seeking at least $26 million from Mr. Rattner and a lifetime ban for Mr. Rattner from the securities industry in New York.

Mr. Rattner left his private equity firm, Quadrangle Group, last year to head the Obama administration’s efforts to overhaul the auto industry. He responded to the attorney general’s lawsuit in a statement to DealBook on Thursday morning, addressing charges brought against him under the Martin Act, a sweeping state securities law.

“While settling with the S.E.C. begins the process of putting this matter behind me, I will not be bullied simply because the attorney general’s office prefers political considerations instead of a reasoned assessment of the facts,” Mr. Rattner said. “This episode is the first time during 35 years in business that anyone has questioned my ethics or integrity — and I certainly did not violate the Martin Act. That’s why I intend to clear my name by defending myself vigorously against this politically motivated lawsuit.”

Soon after Mr. Rattner made his statement, a spokesman for the attorney general’s office had a sharp retort: “Mr. Rattner now has a lot to say as he spins his friends in the press, but when he was questioned under oath about his pension fund dealings he was much less talkative, taking the Fifth and refusing to answer questions 68 different times. Anyone who reads the extensive facts laid out in our complaint will understand that Rattner’s claims that he did nothing wrong are ridiculous and belied by the fact that he is paying the S.E.C. $6 million today.”

Mr. Rattner is accused of paying Hank Morris, a top adviser to a former New York State comptroller, Alan G. Hevesi, for his help in securing investments from the $135 billion New York pension fund. According to earlier reports, Mr. Morris is expected to plead guilty to charges related to the case.

Also Thursday, the Securities and Exchange Commission announced a settlement with Mr. Rattner in which he agreed to pay $6.2 million in disgorgement and penalties. He will also be barred from “associating with any investment adviser or broker dealer” for two years.

“Rattner delivered special favors and conducted sham transactions that corrupted the [pension fund's] investment process,” said David Rosenfeld, associate director of the S.E.C.’s New York regional office.

Mr. Rattner, 58 years old, is among the most prominent individuals ensnared by a nationwide inquiry over the investment activities of state pension funds. The so-called pay-to-play investigations, which have been conducted in states including New York, California, New Mexico and Illinois, have focused on the role of midddlemen who are paid fees by money-management firms for helping secure investments from state pension funds. Those payments can be illegal if they are bribes or kickbacks masked as legitimate payments.

Mr. Cuomo’s investigation has led to criminal charges and seven guilty pleas, including one from Mr. Hevesi, who as comptroller had sole control over the state pension fund.

The timing of the attorney’s general lawsuit against Mr. Rattner is especially awkward as it comes on the day of the initial public offering of General Motors. Mr. Rattner had been speaking publicly all week about the revival of G.M. and appeared on CNBC Thursday morning to talk about the I.P.O.

“The attorney general and the S.E.C. have the same information,” said Davidson Goldin, a spokesman for Mr. Rattner. “So picking the day of the G.M. I.P.O after about 500 possible days further demonstrates that the attorney puts politics and maximizing his own media coverage ahead of the public interest.”

The attorney general’s action focuses on Mr. Rattner’s hiring of Mr. Morris to win business from the New York fund, as well as the help Mr. Rattner provided to the brother of a top pension fund official in distributing ”Chooch,” a low-budget movie, through a DVD company owned by the Quadrangle, a private equity firm Mr. Rattner co-founded a decade ago. The complaint also accuses Mr. Rattner of connecting the pension fund official’s brother to IFC, a cable network in which Quadrangle was an investor and on whose board Mr. Rattner sat.

Mr. Cuomo also claims that Mr. Rattner, a major Democratic fund-raiser, arranged for contributions totaling $50,000 to Mr. Hevesi’s re-election campaign, contributions that the attorney general says caused the pension fund to increase its investment with Quadrangle to $150 million, from $100 million. These contributions were made through third parties to conceal Mr. Rattner’s role, Mr. Cuomo’s office says.

“Steve Rattner was willing to do whatever it took to get his hands on pension fund money including paying kickbacks, orchestrating a movie deal and funneling campaign contributions,” Mr. Cuomo said. “Through these lawsuits, we will recover his ill-gotten gains and hold Rattner accountable.”

Last month, Mr. Rattner rejected a settlement offer from Mr. Cuomo that would have had him pay a $20 million penalty. Mr. Rattner and his lawyers have said that amount sought by the attorney general is disproportionate to the money he earned at Quadrangle and to the penalties paid by other executives ensnared by the pension fund investigation.

Mr. Rattner’s team also believes that his compensation related to any income Quadrangle received from the New York State pension fund investment is fully disgorged by the S.E.C. settlement, according to a person familiar with Mr. Rattner’s thinking.

Quadrangle settled with authorities this year, admitting to paying Mr. Morris for his help in securing investments from the New York pension fund. Mr. Morris pleaded guilty in November to selling access to the fund.

The firm paid a $12 million settlement and, as part of the deal, disavowed Mr. Rattner’s actions as ”inappropriate, wrong and unethical.”

Lawyers for Mr. Rattner have disputed Quadrangle’s characterizations, and on Thursday, they fired back at his former partner.

In a filing in New York state court, Mr. Rattner requested documents related to the New York pension-fund inquiry as part of an arbitration claim that he is pursuing against his former firm. The claim seeks damages against Quadrangle and its partners ”for their unlawful conduct and contractual breaches” and for taking advantage of Mr. Rattner’s departure “to seize” money owed to Mr. Rattner.

The filing also says that Mr. Rattner’s former partners effectively threw him under the bus. ”Faced with the investigation, the Quadrangle parties had a choice: they could have either disclosed completely their involvement with the underlying facts,” said the filing, “or they could offer the New York Attorney General a scalp. They chose the latter.”

Before Quadrangle, Mr. Rattner was a former reporter for The New York Times who went on to work as an investment banker at Lazard. He rose as high as vice chairman at Lazard. When he signed on to head the Obama administration’s auto task force, he disclosed a net worth of $188 million to $608 million.

Mr. Rattner, who left Quadrangle in February 2009 to take the government post, has been keeping busy promoting “Overhaul,” his new book on the revamping of the auto industry. He also is working at Willett Advisors, an investment firm dedicated to managing the money of Michael R. Bloomberg, the mayor of New York and a close friend of Mr. Rattner’s.

People close to Mr. Rattner say that the S.E.C. ban will allow him to continue in that role.

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