Chrysler rescue stirs Cerberus disclosure debate

By Poornima Gupta - Analysis

DETROIT (Reuters) - Cerberus Capital Management has received $5.5 billion in U.S. government funding for Chrysler and its financing arm and is seeking more, while maintaining what critics see as a black-box approach to disclosure.

At the center of the debate is a big unknown: the identity of investors that provided Cerberus CBS.UL with funds to buy 80 percent of the struggling automaker from Daimler AG in 2007 in a $7.4 billion deal.

With U.S. President Barack Obama set to deliver a decision on Chrysler's request for more aid on Monday, critics say the firm should open up in return for new assistance. Some have also said Cerberus should put more of its own money into Chrysler.

Cerberus counters that it cannot name its investors because that would breach its agreements with them.

The firm also says it has a responsibility to its investors including universities, pension plans and charitable trusts that keeps it from investing more of their funds in Chrysler.

"The American taxpayer should receive disclosure about the precise relationship between Cerberus and Chrysler and how it is structured," said Robert Salomon, professor at New York University's Stern School of Business.

"This is a private investor that made a bad bet," he said. "They should pay for their bad bet."

Senator Chuck Grassley, a Republican critical of the lack of transparency in the $700 billion bailout of U.S. banks, said Cerberus should not be exempt from disclosure and should put more money into the struggling automaker.

"It's foolhardy of Cerberus, when they have got such a stake in Chrysler, to think that they can hide behind private equity," Grassley told Reuters. "Do they believe in Chrysler or don't they believe in Chrysler? If they believe in it they ought to be helping."

The Obama administration has said it will demand tough restructuring from Chrysler and rival General Motors Corp GM.N, but a person involved in the process said the U.S. autos task force had not pressed Cerberus for more disclosure.

"There is a reason it's called private equity," the person said, who asked not to be named because of the confidential nature of the closed-door discussions.

Cerberus Managing Director Tim Price said criticism of the firm for not putting more money into Chrysler reflects a misunderstanding of its role in managing investor funds.

"The money Cerberus has, as fiduciary, belongs to our investors," Price said. "Our investment guidelines limit the amount of capital committed to any single investment."

WHO REALLY OWNS CHRYSLER?

Cerberus took Detroit by storm almost two years ago, taking control of Chrysler in a deal the firm said was intended to rescue a struggling American icon.