Obama’s Car Czar Wasn’t Vetted Very Well: Former Firm Under Investigation For Kickbacks

Steven Rattner, the leader of the Obama administration’s auto task force, was one of the executives involved in an investigation of an alleged kickback scheme at New York state’s pension fund, according to the Wall Street Journal today..

A Securities and Exchange Commission complaint says a “senior executive” of Mr. Rattner’s investment firm met in 2004 with a politically connected consultant about a finder’s fee The complaint says that after the meeting, Rattner’s firm received an investment from the state pension fund and paid $1.1 million in fees.

The “senior executive” is Mr. Rattner, according to the WSJ. Rattner is the co-founder of investment firm, Quadrangle Group, which he left to join the Treasury Department to oversee the auto task force earlier this year. A spokeswoman for Turbo-Tax Timmy Geithner, who is in charge of the auto task force, says that “during the transition, Mr. Rattner made us aware of the pending investigation.”

Authorities allege that about 20 investment firms made payments in exchange for investments from the $122 billion New York State Common Retirement Fund. The case, being investigated by New York Attorney General Andrew Cuomo and the SEC, has led to three criminal indictments and a guilty plea.

The next phase of the investigation is expected to focus more on the investment firms, which include Quadrangle, Carlyle Group and Odyssey Investment Partners. Authorities are trying to determine whether any of the firms violated securities laws in paying fees to a “placement agent” for access to the state pension fund. Placement agents play a big role in the hedge fund and private-equity fund-raising biz. They serve as middlemen between investment firms and prospective clients, and get a percentage of the investments as fees. In this case, some VERY lucrative fees.

The SEC’s complaint submits that a meeting was arranged between the “senior Quadrangle executive” and a brother of New York’s then-deputy comptroller to discuss acquiring the DVD distribution rights to the low-budget film, “Chooch.” The deputy comptroller, now under indictment, and his brothers produced the movie. Quadrangle, through an affiliate called GT Brands, agreed to acquire the rights for $88,841, and three weeks later the deputy comptroller told the “senior Quadrangle executive” that his firm would get a $100 million investment from the pension fund, according to the complaint. Quadrangle then paid the $1.1 million finders fees to a company affiliated with the political consultant, according to the complaint.

Rattner is a veteran deal maker who co-founded Quadrangle in 2000 after spending years as an investment banker at Lehman Brothers, Morgan Stanley and Lazard Freres & Co., where he held the No. 2 spot. Earlier this year, Barack Obama tapped him to lead a task force of two dozen people to figure out how to restructure U.S. auto makers General Motors Corp. and Chrysler LLC. Obviously, Rattner’s fund-raising skills weren’t too useful in developing a successful business plan for the automakers.

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