Obama sticks by auto chief despite NY probe link

NEW YORK/WASHINGTON Fri Apr 17, 2009 6:33pm EDT

Steven Rattner of Quadrangle speaks at the Reuters Global Hedge Fund and Private Equity Summit in New York, April 11, 2007. REUTERS/Eric Thayer

Steven Rattner of Quadrangle speaks at the Reuters Global Hedge Fund and Private Equity Summit in New York, April 11, 2007.

Credit: Reuters/Eric Thayer

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NEW YORK/WASHINGTON (Reuters) - U.S. President Barack Obama stood by his auto task force head on Friday, saying Steven Rattner had not been accused of any wrongdoing related to an alleged pension kickback scheme in New York.

Rattner was one of the executives involved with payments being probed by New York state and federal regulators in the alleged scheme, a source familiar with the situation said on Friday.

He is the person only identified as a "senior executive" of Quadrangle Group in the U.S. Securities and Exchange Commission complaint against two former New York political officials and others, the source said. His identity was earlier reported by The Wall Street Journal and The New York Times.

The "senior executive" met with a consultant, and then the firm paid a $1.1 million fee after receiving an investment from New York's pension fund, the complaint said.

Neither Rattner nor Quadrangle, a private equity fund he co-founded, has been accused of any wrongdoing.

The White House said Obama had full confidence in Rattner.

"He's not accused of doing any wrongdoing and he's not likely to face any criminal or civil charges as it relates to this. And the pending investigation was something that he brought up to us," White House spokesman Robert Gibbs told reporters aboard Air Force One on the way to Trinidad.

Rattner could not be reached for comment. Quadrangle and a spokesperson for the U.S. Treasury, which oversees Rattner's auto task force, declined comment.

AGGRESSIVE LINE

The task force led by Rattner has taken a sophisticated and aggressive line with automakers, surprising some Washington and industry insiders who thought the Obama administration would opt for a more nuanced and gradual approach.

Rattner left Quadrangle to lead the auto task force, and just a few weeks into his job was instrumental in ousting General Motors Chief Executive Rick Wagoner.

Quadrangle helps run New York City Mayor Michael Bloomberg's personal investments and Rattner has been a major Democratic fundraiser.

The first criminal charges related to the scheme were brought last month by New York state attorney general Andrew Cuomo, who accused Hank Morris, the former state comptroller's top fundraiser, and David Loglisci, the pension investment chief from 2003-2006, with taking million-dollar kickbacks from money manager firms.

The two men, whose lawyers say they are innocent, also face civil charges from the SEC.

More than 20 investment deals made by the state's pension fund were "tainted" by the kickbacks, New York Attorney General Andrew Cuomo said at the time. The list of companies involved includes The Carlyle Group and other private funds.

The main legal issue for the investment firms is whether they knew, or should have known, that fees they paid to intermediaries to win business from New York's pension fund were legitimate or were kickbacks, and whether they were properly disclosed, people familiar with the matter told the Journal.

Earlier this week, hedge fund manager Barrett Wissman pleaded guilty to a felony for "his role in the pay-to-play scheme" and agreed to forfeit $12 million and serve as a witness in the continuing investigation. Criminal charges were also filed against the former head of New York's Liberal Party, Raymond Harding, who was charged with taking more than $800,000 in illegal fees.

Harding's lawyer has said he is innocent.

"CHOOCH" DEAL

A bizarre aspect of the saga outlined in the charges regards a low-budget film named "Chooch," produced by Loglisci and his brothers. It is a comedy about a Queens resident who goes to Cancun after performing badly in a softball game, according to the movie review website Rottentomatoes.com.

In January 2005 a Quadrangle affiliate, GT Brands LLC, agreed to acquire the DVD distribution rights to Chooch for $88,841, says the SEC complaint. That was shortly after Quadrangle agreed to pay a firm associated with Morris 1.1 percent of any amount invested by the retirement fund with Quadrangle.

However, a source close to Quadrangle said that the distribution deal was a standard commercial agreement under which no money was paid out until GT Brands recouped its cost.

Quadrangle invested in GT Brands, formerly Good Times Entertainment in 2003 and it filed for bankruptcy protection in 2006, according to press reports at the time.

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