Did Rattner Pay to Play?

Steven Rattner, the private equity executive tapped by President Barack Obama in February to lead the Treasury Dept.'s rescue of the U.S. auto industry, is being linked to payments made in an alleged kickback scheme at the New York State pension fund, according to documents and published reports. Rattner is not charged in the "pay to play" scheme, in which investment firms were allegedly solicited for kickbacks in order to get state business.

Rattner, who left his job as managing principal at the Quadrangle Group when he was named counselor to U.S. Treasury Secretary Timothy Geithner, is the Quadrangle executive mentioned in an Apr. 15 amended complaint filed by the Securities & Exchange Commission against several individuals, according to sources cited by The New York Times and The Wall Street Journal. Those people allegedly schemed to obtain kickbacks from investment management firms seeking to manage the state pension fund. Neither Rattner nor any other Quadrangle executive is specifically named in the SEC complaint.

Rattner's link to the investigation was first reported in February, and Rattner told the Obama Administration about the pending SEC probe before taking his job, a Treasury Dept. spokeswoman told the Associated Press. Rattner has not been charged with any wrongdoing, and a spokesman for Quadrangle declined to comment when asked by the Associated Press about the company's role.

Obama press secretary Robert Gibbs told reporters aboard Air Force One on Friday that the White House was aware of the allegations but backs Rattner, according to the AP. Gibbs said Rattner is not likely to face criminal or civil charges, and that Rattner informed them of the pending investigation.

As Time Runs Out

The revelations come at a crucial period for the auto industry, as both Chrysler and General Motors (GM) near deadlines set by the Administration to create viable restructuring plans or be forced into bankruptcy proceedings. It was not immediately clear whether the new revelations would affect Rattner's involvement in those efforts.

According to the SEC, the investment management firms involved in the scheme paid "sham 'finder' or 'placement agent' fees" to get investments from the retirement fund. The Commission said those were "little more than kickbacks."

The complaint alleges that an affiliate of New York-based Quadrangle agreed to acquire for $89,000 the DVD distribution rights to a low-budget film co-produced by David Loglisci, the state comptroller's official who oversaw investments in private equity funds. That was shortly before Quadrangle obtained a $100 million investment from the state retirement fund.

The complaint also alleges Quadrangle paid a $1.125 million finder's fee to Hank Morris, one of the defendants and a political aide to former New York State Comptroller Alan Hevesi. Morris and Loglisci have pleaded not guilty to criminal charges in connection with the probe. Hevesi has not been charged and has denied any wrongdoing.

The Associated Press contributed to this report.

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