Steven Rattner, the former head of Quadrangle Group LLC, will pay $6.2 million and accept a two-year ban from associating with broker-dealers or investment advisers to resolve a Securities and Exchange Commission probe of kickbacks in connection with the New York state pension fund.
The sanctions include a payment of $3.2 million in disgorgement and a $3 million fine, the SEC said. New York Attorney General Andrew Cuomo sued Rattner today as well, seeking at least $26 million and his immediate lifetime ban from the securities industry in New York, according to an e-mailed statement. Richard Bamberger, a spokesman for Cuomo, said there was no settlement planned with Rattner.
“While settling with the SEC 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,” Rattner said in an e-mailed statement. “This episode is the first time during 35 years in business that anyone has questioned my ethics or integrity.”
Cuomo’s lawsuits were filed on the day General Motors Co., which went bankrupt last year, advanced as much as 9.1 percent in its return to public trading following a $20 billion initial public offering. Rattner is the former head of the U.S. government’s auto task force that oversaw GM’s restructuring.
According to an SEC complaint filed in Manhattan federal court, Rattner and Quadrangle won $150 million in investments from the state pension fund in 2005 and 2006 as part of a pay-to-play scheme.
“Rattner delivered special favors and conducted sham transactions that corrupted the retirement fund’s investment process,” said David Rosenfeld, associate director of the SEC’s regional office in New York.
As part of the settlement, Rattner agreed to be barred from acting as an investment adviser or broker for at least two years. Offices set up by wealthy families to manage their money are generally exempt from having to register as investment advisers.
Today’s news follows a plea deal between Cuomo and Henry ‘Hank’ Morris, a former political consultant, under which Morris is to plead guilty to charges related to the probe that carry a maximum sentence of 1 1/3 to four years in prison.
Cuomo said in a statement today that he added Rattner as a defendant in a forfeiture action pending in New York state court against Morris and David Loglisci, former head of alternative investments at the state pension fund.
The attorney general also filed a lawsuit seeking $13 million in civil recoveries and millions of dollars in future fees and profits, according to the statement. Additionally, Cuomo said he filed an application for Rattner’s immediate ban from the securities industry in New York.
“The application for an immediate securities ban is based on the fact that Rattner engaged in fraud and refused to answer 68 questions based on his Fifth Amendment privilege,” Cuomo said in the statement. “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.”
Rattner said in his statement that he would fight Cuomo’s “politically motivated” lawsuits.
Morris was at the center of Cuomo’s probe of corruption at the state pension fund. He was facing more than 70 charges related to the investigation. On the top charge, he faced as many as 25 years in prison.
Morris reaped $19 million in fees for himself through 23 state pension-fund investments for which he acted as an undisclosed placement agent, or middleman, according to Cuomo.
‘Most Important Cases’
“This case is, in this court’s opinion, one of the most important cases relating to corruption in government in the state of New York and perhaps one of the almost seminal cases involving that in the country,” New York State Supreme Court Justice Lewis Stone said at a hearing related to Morris’s deal.
Rattner, 58, arranged to retain Morris, the former chief political consultant to ex-New York Comptroller Alan Hevesi, as a placement agent. Rattner also tried to set up a DVD distribution deal with a company owned by one of Quadrangle’s private-equity funds, for a movie produced by Loglisci and his brothers, according to the SEC.
When the company said it wasn’t interested, Rattner sent an e-mail to the head of the firm, instructing him to “dance along” while he figured out whether Quadrangle needed to do the deal to secure an investment from the retirement fund, according to the SEC’s court filing.
Hevesi, 69, pleaded guilty last month to participating in the scheme at the pension fund, which he once ran. He was the highest-ranking official convicted in the three-year investigation by Cuomo, who was elected governor of New York earlier this month.
Morris is awaiting trial on charges he corrupted the investment process to benefit money managers who made campaign contributions and politically connected placement agents who received lucrative fees, including himself.
At least six other people besides Hevesi have pleaded guilty in connection with the state probe, 15 firms besides Quadrangle have settled and more than $139 million has been paid to the fund and the state, according to Cuomo.
Quadrangle has no comment, according to outside company spokesman Andy Merrill.
‘Inappropriate, Wrong, Unethical’
Quadrangle’s settlement with the SEC and Cuomo, publicly announced on April 15, was accompanied by a statement by Quadrangle saying Rattner’s conduct was “inappropriate, wrong and unethical.” Cuomo’s office required Quadrangle to make the statement as a condition of the settlement, according to two people familiar with the matter. Quadrangle agreed to pay $7 million to Cuomo and $5 million to the SEC without admitting or denying wrongdoing.
Quadrangle Asset Management has handled the personal and philanthropic finances of New York Mayor Michael R. Bloomberg, whom Rattner supported through his chairmanship of Democrats for Bloomberg during the 2005 re-election campaign.
Bloomberg is the majority owner of Bloomberg LP, the parent of Bloomberg News.
“Mr. Rattner now has a lot to say,” Richard Bamberger, Cuomo’s director of communications, said in a statement today. “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.” Bamberger called Rattner’s claims that he did nothing wrong “ridiculous.”
“Given the attorney general made repeated threats of prosecution, of course Mr. Rattner’s lawyers advised him not to speak,” said Davidson Goldin, a spokesman for Rattner.
Goldin said the decision to file the suit on the day of the General Motors IPO “is further proof the attorney general puts politics and media coverage ahead of the public interest.”
The cases are U.S. Securities and Exchange Commission v. Rattner, 10-CV-08699, U.S. District Court, Southern District of New York (Manhattan); and People v. Morris, 0025/2009, New York State Supreme Court, New York County (Manhattan).