November 18, 2010 / 3:31 PM / in 7 years

Ex-car czar Rattner sued by Cuomo, settles with SEC

NEW YORK (Reuters) - Former Obama administration auto industry czar Steven Rattner was sued by New York’s attorney general on Thursday for allegedly paying kickbacks to win investments from the state’s $130 billion pension fund.

Rattner separately settled a related U.S. Securities and Exchange Commission civil lawsuit, agreeing to pay $6.2 million and accept a two-year ban from working with an investment adviser or broker-dealer.

The former investment banker led the federal government’s auto task force that oversaw the restructuring and bankruptcy of General Motors Co.

The lawsuit was filed by Andrew Cuomo, the New York attorney general and governor-elect, on the same day that GM began trading on the New York Stock Exchange.

Only hours before the suit was filed, Rattner had been on CNBC television talking about the revamped GM’s stock market debut.

The allegations date back to when Rattner worked at Quadrangle, the private equity firm he co-founded. Relations between the firm and Rattner have become strained, however.

Court papers showed on Thursday that he is pursuing arbitration proceedings to recover money he believes Quadrangle owes him. He also accuses his former employer of trying to “shift responsibility for its penalty” to him.

In a letter to investors obtained by Reuters, Quadrangle said it was vigorously defending itself against Rattner’s claims, and that Rattner’s conduct “continues his pattern of failing to take responsibility for his actions”.

“WILL NOT BE BULLIED”

Cuomo filed two lawsuits seeking to recover at least $26 million from Rattner and permanently bar him from the securities industry in the state.

Cuomo and the SEC alleged that Rattner entered quid pro quo arrangements with the New York State Common Retirement Fund to win $150 million in business for Quadrangle in 2005 and 2006.

The attorney general’s allegations include fraud charges under the Martin Act, a powerful state law used to combat securities fraud.

“Steve Rattner was willing to do whatever it took to get his hands on pension fund money,” Cuomo said in a statement. “Through these lawsuits, we will recover his ill-gotten gains and hold Rattner accountable.”

Rattner, 58, said he would fight Cuomo’s lawsuits, which he called “politically motivated,” and clear his name.

“This episode is the first time during 35 years in business that anyone has questioned my ethics or integrity,” Rattner said in a statement. “I will not be bullied simply because the Attorney General’s office prefers political considerations instead of a reasoned assessment of the facts.”

Rattner is the most prominent outside executive to face charges in the “pay to play” corruption probe involving the now $132.4 billion Common Retirement Fund.

His $6.2 million SEC civil penalty includes a $3 million fine. Rattner did not admit wrongdoing in agreeing to that settlement, which requires court approval.

James Fanto, a corporate and securities law professor at Brooklyn Law School, said it the “two-year ban that the SEC imposed is not significant for someone of Rattner’s stature.”

“CHOOCH”

Quadrangle reached its own settlements related to the corruption probes in April, agreeing to pay $7 million to New York and $5 million to the SEC.

The alleged kickbacks included an agreement for a Quadrangle affiliate to distribute a DVD of “Chooch,” a low-budget film produced by the brother of the pension fund’s then-chief investment officer, David Loglisci.

Regulators also accused Rattner of funneling more than $1 million of sham “finder” fees to Henry “Hank” Morris, a top political adviser to former New York comptroller Alan Hevesi, and arranging for an outside $50,000 contribution to Hevesi’s 2006 re-election campaign.

Hevesi, who ran the pension fund at that time, pleaded guilty last month to a felony corruption charge related to the probe. Morris has also agreed to plead guilty to a felony charge, a person close to the matter said.

Rattner has long been a major fundraiser for Democrats. A former reporter for the New York Times before going to Wall Street, he has been on a promotional tour this month for the book “Overhaul,” his account of the auto industry rescue.

A Cuomo spokesman, Richard Bamberger, said in a statement that Rattner had refused to answer questions 68 times when questioned under oath about his pension fund dealings.

Eric Schneiderman, a Democratic state senator, was elected this month to replace Cuomo in January as attorney general.

The cases are Cuomo v. Morris et al, New York State Supreme Court, New York County, No. 2009-400605; Cuomo v. Rattner in the same court; and SEC v. Rattner, U.S. District Court, Southern District of New York, No. 10-08699.

Reporting by Jonathan Stempel and Megan Davies in New York; additional reporting by Grant McCool in New York and Rachelle Younglai in Washington, D.C., editing by Dave Zimmerman and Andre Grenon

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