The Treasury’s car czar, Steve Rattner, has been dragged into the New York State retirement fund kickback scandal that led to several arrests earlier this week.
Rattner’s private equity firm, Quadrangle, paid a finder’s fee to one of the defendants in the kickback scheme for a $100 million investment the state retirement fund made in one of Quadrangle’s funds.
More troublingly, one of Quadrangle’s affiliate companies also paid $88,000 to acquire the DVD distribution rights for a movie produced by the New York State official who made the investment decision and his brothers. Quadrangle made this DVD payment during the time the state was considering making the investment.
According to the Wall Street Journal, Steve Rattner is the Quadrangle executive described in the SEC complaint we’ve excerpted below. The complaint says Rattner was personally involved in both the payment of the finder’s fee and the acquisition of the movie rights.
Private equity firms often pay finder’s fees. In this case, Quadrangle had reportedly already retained a placement agent in connection with the investment, and the “finder” was only brought into the loop after the initial meeting, but paying both placement and finder’s fees isn’t unusual. The timing of the acquisition of the movie rights, however, is downright bizarre. Even if it was a legitimate transaction, it creates an obvious appearance of impropriety.
Quadrangle and Rattner did not comment for the WSJ story. The firm is not yet a target of the investigation, but the WSJ says the next phase of the investigation will focus on the investment firms.
Treasury officials say they were aware of the investigation at the time they tapped Rattner as car czar, so they were presumably satisfied that there was nothing to be concerned about. But if there’s a simple explanation for the finder’s fee and movie rights payments, Quadrangle and Rattner need to provide it quickly.
Here’s an excerpt from the SEC complaint:
76. In or about October 2004, a senior executive of Quadrangle Group LLC (“Quadrangle”), a private equity firm specializing in media and communications investments, met with Loglisci to solicit an investment for Quadrangle from the Retirement Fund [Loglisci is the state official who made investment decisions for the fund. He has been charged in the kickback scheme. The WSJ says the Quadrangle executive is Steve Rattner]. Loglisci reacted favourably to the solicitation and began taking the necessary steps to secure approval for a large Retirement Fund investment directly with Quadrangle.
In or about December 2004 - after Loglisci’s meeting with the Quadrangle executive –Morris [another defendant in the kickback scheme] met with the Quadrangle executive and solicited a finder fee arrangement between Quadrangle and Morris. Even though Quadrangle had already retained a placement agent, the Quadrangle affiliate that served as the general partner of the private equity fund in which the Retirement Fund invested, Quadrangle GP Investors II, L.P. (“Quadrangle GP”), entered into a written agreement, dated January 10, 2005, to pay Searle 1.1% ofany amount invested by the Retirement Fund with that private equity fund, Quadrangle Capital Partners IT Fund, L.P. (“Quadrangle Fund”).
That part could be meaningless. Sometimes firms pay both placement fees and finder’s fees. It still deserves a full explanation, though, especially since the “finder” didn’t make the introduction.
The next bit is the part that seems bizarre:
Also in January 2005 –very shortly after the Quadrangle GP-Searle agreement was signed –a Quadrangle affiliate, GT Brands LLC, agreed to acquire the DVD distribution rights to Chooch for $88,841 [Chooch is the movie produced but Loglisci and his brothers]. Before this transaction occurred, Loglisci had arranged a meeting to discuss Chooch between one of LogIisci’s brothers and the same Quadrangle executive with whom Loglisci had met to discuss the proposed Retirement Fund investment. When the Chooch DVD distribution deal was agreed upon, the Quadrangle executive immediately notified Morris of that fact and the connection to Loglisci. Three weeks later, Loglisci personally informed the Quadrangle executive that the Retirement Fund would be making a $100 million investment in the Quadrangle Fund, which was managed by an affiliate of Quadrangle GP.
The Retirement Fund made the investment by purchasing a limited partnership interest in the Quadrangle Fund, which invested in other companies through the purchase of securities and other means. The investment closed in September 2005 and, as a result, Quadrangle GP paid Searle a total of $1.125 million from October 2005 through June 2007, with Morris receiving 95 per cent ofthe
total amount. Neither Loglisci nor anyone else ever disclosed the Chooch DVD distribution
agreement with the Quadrangle affiliate –and the conflict ofinterest that it created –to the lAC
or to other members of the Comptroller’s staff. Nor did Loglisci or anyone else ever disclose
Morris’s role in the Quadrangle investment to other members ofthe Comptroller’s staff or to the
See Also: Watch Trailer To Bribe Movie “Chooch”
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