President Obama’s Car Czar has been charged with paying kickbacks to obtain investments for his former firm from New York’s biggest pension fund.
Steven Rattner, who advised the White House on the General Motors bailout and is now promoting his book on the subject, was also hit with two lawsuits from the New York Attorney General over sham deals.
Mr Rattner agreed to pay $6.2 million and refrain from associating with investment advisers and broker dealers for at least two years in order to settle the Securities and Exchange Commission’s charges. But he plans to fight the charges brought by Andrew Cuomo, the Attorney-General who is also New York’s Governor-elect. Mr Cuomo wants Mr Rattner to pay $26 million and accept a lifetime ban from the securities industry.
But Mr Rattner said yesterday the charges — brought on the day GM returned to the market — were politically motivated and that he would defend himself vigorously.
The SEC accused Mr Rattner of using a corrupt middle man, Henry Morris, in 2005 and 2006 to secure investments for his Quadrangle private equity firm from New York’s $132 billion state pension fund. At the time, Mr Morris was an adviser and chief fundraiser for Alan Hevesi, then the State Comptroller, who was in charge of investing the fund.
The regulator alleged that Mr Rattner arranged for Quadrangle to pay more than $1 million to Mr Morris for his services as a “placement agent” of the pension fund. Around the same time, Quadrangle contributed $50,000 to Mr Hevesi’s re-election campaign.
Mr Rattner also arranged for a Quadrangle affiliate called GT Brands to offer a film distribution deal to the brother of the fund’s chief investment officer. The film — a comedy called Chooch — was a flop.
In return, the state pension fund increased its investment with Quadrangle from $100 million to $150 million. The SEC says this increased investment was worth $3 million to Mr Rattner personally.
David Rosenfeld, associate director at the SEC, said: “Rattner delivered special favours and conducted sham transactions that corrupted the fund’s investment process.”
In April, Quadrangle disgorged $7 million and paid $5 million to settle charges against the firm over the kickback scheme, which it blamed on Mr Rattner. The firm “wholly disavowed the conduct” of its co-founder, which it called “inappropriate, wrong and unethical”.
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