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Political Notebook

Auto task force chair tied to investment investigation

Washington Post / April 18, 2009
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NEW YORK - Steven Rattner, the head of the Obama administration's auto task force, was involved in activities being investigated by authorities as part of an inquiry into an alleged pay-to-play scheme involving the New York State Pension Fund, a source close to the matter said yesterday.

At the center of the two-year investigation, by New York Attorney General Andrew Cuomo and the Securities and Exchange Commission, are millions of dollars in payments made by investment firm Quadrangle Group, co-founded by Rattner in 2000, and about a dozen other private-equity firms and hedge funds. The payments went to middlemen who connected the firms to New York's $122 billion pension fund.

The controversial payments, known as "placement fees," are a common industry practice and are not illegal. The authorities are investigating whether Quadrangle and other investment managers knowingly participated in a pay-to-play scheme to get investments from the state pension fund, according to people familiar with the case.

Cuomo and the SEC have alleged that the middlemen won business for the firms through illicit payments.

The White House is standing behind Rattner. Press Secretary Robert Gibbs told reporters aboard Air Force One yesterday that the White House is aware of the allegations but backs Rattner. Gibbs said Rattner is not likely to face criminal or civil charges and that Rattner informed them of the pending investigation.

Authorities are also investigating whether the firms adequately disclosed their use of middlemen.

So far, three people have been charged and one, a hedge fund executive, pleaded guilty this week.

Those facing charges include Hank Morris, a former top adviser to then-state Comptroller Alan Hevesi, and David Loglisci, former chief investment officer for the pension fund, who were indicted last month on 123 criminal counts, including corruption, bribery, and money laundering.