Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, November 18, 2010

Rattner Settles SEC Charges for $6.2 Million; New York AG Seeks Lifetime Ban from Securities Industry

The much-anticipated settlement between the SEC and the former Car Czar, Steven Rattner, was announced today, and the New York Attorney General announced it had filed two actions against Rattner.

In the SEC settlement, Rattner agreed to settle the SEC’s charges by paying $6.2 million and consenting to a bar from associating with any investment adviser or broker-dealer for at least two years.  The agency charged Rattner with participating in a widespread kickback scheme to obtain investments from New York’s largest pension fund.  The SEC alleged that Rattner secured investments for his firm Quadrangle from the New York State Common Retirement Fund after he arranged for a firm affiliate to distribute the DVD of a low-budget film produced by the Retirement Fund’s chief investment officer and his brothers. Rattner then caused Quadrangle to retain Henry Morris – the top political advisor and chief fundraiser for former New York State Comptroller Alan Hevesi – as a “placement agent” and pay him more than $1 million in sham fees even though Rattner was already dealing directly with then-New York State Deputy Comptroller David Loglisci and did not need an introduction to the Retirement Fund.

The SEC alleges that after receiving pressure from Morris, Rattner also arranged a $50,000 contribution to Hevesi’s re-election campaign. Just a month later, Loglisci increased the Retirement Fund’s investment with Quadrangle from $100 million to $150 million. As a result of the $150 million investment with Quadrangle, the Retirement Fund paid management fees to a Quadrangle subsidiary. By virtue of his partnership interest in Quadrangle and its affiliates, Rattner’s personal share of these fees totals approximately $3 million.

The SEC previously charged Morris and Loglisci for orchestrating the fraudulent scheme that extracted kickbacks from investment management firms seeking to manage the assets of the Retirement Fund. The SEC charged Quadrangle earlier this year.

Meanwhile, the New York AG filed two lawsuits against Rattner, 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.

Cuomo filed the two lawsuits today after a long-running investigation into corruption at the CRF under former Comptroller Alan Hevesi. 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.

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