Equity firm settles pension fund scheme case

NEW YORK (CNNMoney.com) -- The private equity firm founded by former "car czar" Steven Rattner agreed Thursday to pay a total of $12 million to settle charges it was involved in a "widespread kickback scheme" with New York's largest pension fund.

The Securities and Exchange Commission said Quadrangle Group LLC, which Rattner helped create in 2000, has agreed to pay a $5 million penalty in connection with charges it took part in a "pay-to-play" scheme with former New York state officials beginning in 2005.

Separately, the New York Attorney General's office said Quadrangle has agreed to pay $7 million to settle similar charges brought by the state.

Rattner, who is no longer employed by Quadrangle, was tapped by President Obama last year to help usher General Motors and Chrysler through bankruptcy. He stepped down from that position in July 2009 amid talk of his involvement in a kickback scheme.

The SEC complaint, which did not name Rattner specifically, alleged that an unnamed Quadrangle executive arranged in 2005 for an affiliate of the firm to distribute the DVD of a low-budget film called "Cooch" that former New York State Deputy Comptroller David Loglisci and his brothers had produced.

In exchange, the SEC said, Quadrangle received a $100 million investment from the New York State Common Retirement Fund, which is overseen by the Comptroller's office.

The SEC also charged that the former Quadrangle executive agreed to pay a $1 million finder's fee to Henry Morris, a top adviser to then New York Comptroller Alan Hevesi, for arranging the deal with the pension fund.

According to the SEC, the finder's fee was a sham because Quadrangle had already presented an investment proposal directly to Loglisci in the Comptroller's office.

"This pay-to-play scheme resulted in the retirement fund's assets being invested with Quadrangle for the hidden purpose of enriching a political operative and the Deputy Comptroller's brother," David Rosenfeld, an associate director at the SEC, said in a statement.

The SEC had already charged Morris and Loglisci for taking kickbacks from financial firms interested in managing the pension fund's assets. Quadrangle agreed to pay a $5 million penalty to settle those charges last year.

Meanwhile, Andrew Cuomo, the New York attorney general, announced Thursday that Quadrangle will pay $7 million to settle charges it paid Morris fees to arrange investments from the state's Common Retirement Fund.

The agreement "expressly does not cover former Quadrangle Managing Principal Steven Rattner," according to a statement from Cuomo's office. Quadrangle has agreed to fully cooperate with the investigation into Rattner and others.

"We wholly disavow the conduct engaged in by Steve Rattner," Quadrangle said in the statement, adding that Rattner's conduct was "inappropriate, wrong, and unethical."

The law firm representing Rattner did not immediately respond to requests for comment. The New York State Comptroller's office also did not immediately provide a response.

New York's Common Retirement Fund is the largest pool of money in the state and the third largest pension fund in the country, according to Cuomo. The fund was most recently valued at roughly $129 billion.

Cuomo said Thursday's announcement is part of an ongoing probe into corrupt practices involving the state's pension funds. This investigation has resulted in six guilty pleas from former state politicians and money managers, he said.