April 19 (Bloomberg) --New York-based Quadrangle Group LLC, an investment firm founded by federal auto taskforce head Steven Rattner, used an indicted political adviser to gain the business of the New Mexico State Investment Council.

The New Mexico council, which oversees an $11.7 billion state trust that funds education and government services for children, asked managers of the more than 200 funds the council invests in to disclose their relationships with third-party brokers after a probe of such middlemen in New York was made public March 19.

Quadrangle and the world’s second-largest private equity firm, the Carlyle Group of Washington, worked with New York adviser Hank Morris, according to a list of third-party brokers released by the council.

A 123-count indictment filed last month in New York State Supreme Court in Manhattan named Morris. He was charged with soliciting millions of dollars from firms doing business with the New York State Common Retirement Fund.

“At the time of the investment, we disclosed we were using a finder and are unaware of any investigation related to that investment,” said Chris Ullman, a Carlyle spokesman.

The firm has since quit using placement agents when dealing with pensions, Ullman said. “Carlyle implemented this policy two years ago to remove any concern about the integrity of the investment process.”

No Payment

A Quadrangle spokesman said the company worked with Morris’s firm, Searle & Co., but said there was no payment. Rattner, 56, left Quadrangle, which oversees more than $6 billion, when he joined the Obama administration Feb. 23.

Carlyle paid $150,000 to Morris or his company after he brokered a $20 million placement by the New Mexico council in a Carlyle fund. Morris also aided a $20 million New Mexico investment in Quadrangle, the council disclosed.

More than 60 funds disclosed their brokers to New Mexico officials, while another 110 said they didn’t have any third- party relationship. The remaining funds didn’t respond.

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.

To contact the reporters on this story: Martin Z. Braun in New York at mbraun6@bloomberg.net

Last Updated: April 19, 2009 20:30 EDT