Steve Rattner and Andrew Cuomo have reached a settlement: Rattner will pay $10 million and be banned from working in any public pension fund for 5 years, according to the Wall Street Journal.
That’s a vastly better outcome for Rattner than Cuomo was hoping for: $26 million and a lifetime ban from the entire securities industry.
Rattner also didn’t admit any wrongdoing.
Specifically, Cuomo sued the former founding manager of Quadrangle and former auto czar Steve Rattner for $26 million and demanded his immediate lifetime ban from the securities industry a month ago.
Cuomo compromised on both. Instead of a lifetime ban, Rattner will be “banned from appearing in any capacity before any public pension fund in New York for five years,” according to Reuters.
Also important: Shortly before the Cuomo lawsuit, Rattner had been sued by SEC (he ended up settling for $6.2 million).
Again, this all related to the kickback pension-fund scandal.
Here are the details about the now-settled lawsuit, which was filed on November 18th:
NEW YORK, NY (November 18, 2010) – Attorney General Andrew M. Cuomo today filed two lawsuits against Steven L. Rattner, former founding principal of private equity firm Quadrangle Group, LLC (“Quadrangle”), in the New York State Supreme Court, New York County, alleging he paid kickbacks in order to obtain $150 million in investments in Quadrangle from the New York State Common Retirement Fund (“CRF”).
The two lawsuits seek at least $26 million from Rattner and his immediate lifetime ban from the securities industry in New York.
In the first action, Cuomo added Rattner as a defendant to a forfeiture action pending in New York State Supreme Court, New York County, against Henry “Hank” Morris and David Loglisci, and seeks to recover $13 million obtained by Rattner, and millions in future fees and profits.
In the second action, Cuomo filed a lawsuit against Rattner under the Martin Act and the Executive Law, including the Tweed Law, in New York State Supreme Court, New York County, seeking over $13 million in civil recoveries, millions in future fees and profits, as well as additional remedies including injunctive relief.
In a third action, as part of the Martin Act lawsuit, Cuomo filed an application to permanently ban Rattner from engaging in the securities business in the State of New York. The application for an immediate securities ban is based on the fact that Rattner engaged in fraud and refused to answer 68 questions based on his fifth amendment privilege.
“Steve Rattner was willing to do whatever it took to get his hands on pension fund money including paying kickbacks, orchestrating a movie deal, and funelling campaign contributions,” said Attorney General Cuomo. “Through these lawsuits, we will recover his ill gotten gains and hold Rattner accountable.”
Cuomo filed the two lawsuits today after a long-running investigation into corruption at the CRF under former Comptroller Alan Hevesi. The investigation showed and the lawsuits allege that Rattner arranged for a series of kickbacks aimed at influencing Office of the State Comptroller (“OSC”) officials so that they would recommend and approve the CRF investment in Quadrangle in violation of their fiduciary duties. These kickbacks included more than one million dollars in sham placement fees paid to Henry “Hank” Morris, the political adviser to then-State Comptroller Alan Hevesi. At Morris’s request, Rattner also arranged for a DVD distribution deal for “Chooch,” a movie produced by the brother of then-CRF Chief Investment Officer David Loglisci as well as $50,000 in contributions to Hevesi’s re-election campaign.
In the Martin Act lawsuit filed today, the Attorney General asserts three claims of securities fraud in violation of the Martin Act, one claim of engaging in persistent fraud or illegality in violation of the Executive Law, and two claims of aiding and abetting breaches of fiduciary duty under the Tweed Law. The complaint seeks comprehensive remedies, including the following:
* Disgorgement of gains, and payment of restitution and damages caused directly or indirectly by the alleged conduct;
* An injunction against committing further acts of fraud;
* An injunction against Rattner from providing any service as an investment manager or advisor, holding any position at an investment fund, or otherwise managing the investments of others;
* An injunction against Rattner from entering into any contractual relationship with any governmental subdivision of the State of New York;
* A court-appointed receiver to take control of all future fees, profits or other compensation Rattner stands to receive as a result of the CRF’s investment in the Quadrangle investment vehicle.
As a part of that lawsuit, the Attorney General filed an application today seeking to permanently ban Rattner from selling, offering for sale or providing investment advice with respect to any securities within New York State.
Today, the U.S. Securities and Exchange Commission announced a related civil settlement with Rattner.
In April of this year, Quadrangle entered a settlement with the Attorney General’s Office whereby it agreed to pay a total of $7 million, comply with the Attorney General’s Public Pension Fund Reform Code of Conduct, and cooperate with the investigation as to Rattner. Quadrangle has disavowed Rattner’s conduct.
Today’s announcement arises from a three-year, ongoing investigation into corruption involving the OSC and the CRF. The charges to date allege a complex criminal scheme involving numerous individuals operating at the highest political and governmental levels under former Comptroller Alan Hevesi. Through this scheme, Hevesi, his chief political aide Morris, and various political allies and friends reaped tens of millions of dollars in kickbacks, bribes and sham consulting and finder fees connected to CRF investments.
To date, Cuomo’s long-running investigation into this criminal scheme has now resulted in seven guilty pleas and has garnered over $139 million in recoveries for the state through agreements with sixteen firms and three individuals.
DETAILS OF THE RATTNER KICKBACKS
The series of kickbacks paid or arranged by Rattner include the following:
* Rattner paid over $1 million in sham placement fees to Henry “Hank” Morris, then-Comptroller Alan Hevesi’s paid political adviser and campaign manager.
* Though Morris provided no legitimate placement services, Rattner paid these fees in order to influence Hevesi’s and then-Chief Investment Officer David Loglisci’s decision to make investments totaling $150 million in Quadrangle Capital Partners II (“QCPII”), a private equity fund.
* At Morris’s request, Rattner arranged a DVD distribution deal for a movie, “Chooch,” produced by Loglisci’s brother, through a Quadrangle portfolio company. Though it was not originally interested in “Chooch,” the portfolio company eventually entered into a distribution deal with Loglisci’s brother, after Rattner had instructed the company’s CEO to reconsider the film, because David Loglisci was important to Quadrangle.
* Rattner also connected Loglisci’s brother to various people at a film channel company, IFC, in which Quadrangle was an investor and on whose board Rattner sat at the time.
* At Morris’s request and in order to influence Hevesi, Rattner arranged for third-party contributions totaling $50,000 to Hevesi’s re-election campaign. Shortly thereafter, the CRF increased its total investment in QCPII from $100 million to $150 million. Rattner ensured that the contributions were made through third-parties in order to conceal his role and to ensure his name did not appear on public donor records.
Attorney General Cuomo’s investigation into corruption at the pension fund has led to a number of criminal charges and seven guilty pleas to date, including guilty pleas by the following individuals: former New York State Comptroller Alan Hevesi; former Chief Investment Officer at the Office of the State Comptroller David Loglisci; former Liberal Party Chair Ray Harding; investment advisor Saul Meyer; hedge fund manager Barrett Wissman; unlicensed placement agent Julio Ramirez; and venture fund manager Elliott Broidy. An indictment against Morris is pending and Morris is presumed innocent unless and until proven guilty in court.
In May 2009, the Attorney General’s office subpoenaed investment firms and their agents in connection with New York public pension fund investments after determining that 40 to 50 per cent of agents acting to secure investments from the state and city pension funds were unlicensed.
Last year, Cuomo announced his Public Pension Fund Reform Code of Conduct, which, among other things, bans investment firms from compensating intermediaries for introductions to public pension funds. To date, sixteen firms have endorsed the Code: investment firms The Carlyle Group, Riverstone Holdings, LLC, Pacific Corporate Group Holdings, LLC, HM Capital Partners I, Levine Leichtman Capital Partners, Access Capital Partners, Falconhead Capital, Markstone Capital Group, Ares, Freeman Spogli, Quadrangle, and GKM; placement agent Wetherly Capital Group; political consulting firm Global Strategy Group; lobbying firm Platinum Advisors, and law firm Manatt Phelps & Phillips, LLP. Three individuals have also agreed to pay money to the CRF or the State and abide by the Code of Conduct: unlicensed placement agents Kevin McCabe and William (“Bill”) White, and founder of Riverstone Holdings, LLC, David Leuschen.
These firms collectively have agreed to return more than $100 million associated with pension fund investments; these funds will principally be provided to the pension fund for the benefit of the pension holders. Payments from individuals, including criminal defendants, bring that total to over $139 million for the pension fund and the State.
This investigation was conducted by Deputy Chief of the Public Integrity Bureau Stacy Aronowitz, Assistant Attorneys General Emily Bradford, Rachel Doft, Noah Falk, and Amy Tully, and Legal Aide Michael Ellis, under the supervision of Special Deputy Attorney General for Public Integrity Ellen Nachtigall Biben and Special Counsel to the Attorney General Linda A. Lacewell.
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