By LOUISE STORY and PETER LATTMAN
Published: November 19, 2010
Steven L. Rattner, the financier who oversaw the federal rescue of the auto industry, was formally accused by New York’s attorney general, Andrew M. Cuomo, on Thursday of engaging in a kickback scheme involving the state’s pension system.
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Andrew Harrer/Bloomberg News
Steven L. Rattner has agreed to pay $6.2 million in disgorgement and penalties in settling with the S.E.C.
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On the same day that Mr. Rattner was being celebrated on Wall Street for his role in turning around General Motors, he found himself embroiled in a bitter public battle with Mr. Cuomo, he settled similar charges with the Securities and Exchange Commission and he escalated a separate legal fight against his former investment firm.
Even as a resurgent G.M. went public again in a huge stock sale on Thursday, Mr. Cuomo sought to banish Mr. Rattner for life from the securities business in New York.
The civil fraud claims, which Mr. Rattner fiercely contested, came within moments of news that the financier had settled a related dispute with the S.E.C. In that case, Mr. Rattner accepted a two-year ban from certain Wall Street businesses and, without admitting or denying wrongdoing, agreed to pay a $6.2 million fine.
Mr. Cuomo, New York’s Democratic governor-elect, is seeking stiffer penalties, including $26 million. While other major figures in the pension investigation had already resolved their cases and Mr. Rattner had been expected to reach a settlement with the S.E.C., the charges from the attorney general’s office amounted to a public showdown between Mr. Cuomo and a man who is not only a prominent figure on Wall Street but also a powerful Democratic fund-raiser.
Indeed, the dispute between Mr. Rattner and Mr. Cuomo has devolved in recent months into hostilities. After months of negotiations, neither camp has much to lose by digging in. Unless Mr. Rattner reaches a settlement with Mr. Cuomo — an outcome that, for now, seems unlikely — Mr. Cuomo will hand off the investigation to a new attorney general when he becomes governor in January.
Mr. Rattner lashed out at Mr. Cuomo’s office on Thursday and accused the attorney general of political grandstanding. He also took aim at the private investment company he helped found, the Quadrangle Group, which settled with Mr. Cuomo and the S.E.C. several months ago.
“I will not be bullied,” Mr. Rattner said. “This episode is the first time during 35 years in business that anyone has questioned my ethics or integrity.” He added, “I intend to clear my name by defending myself vigorously against this politically motivated lawsuit.”
Within hours, Mr. Cuomo’s office fired back, saying that Mr. Rattner had stonewalled its investigation. “Mr. Rattner now has a lot to say as he spins his friends in the press, but when he was questioned under oath about his pension fund dealings, he was much less talkative, taking the Fifth and refusing to answer questions 68 different times,” said Richard Bamberger, a spokesman for Mr. Cuomo.
Mr. Rattner’s lawyers went on the offensive on Thursday with a flurry of court filings contesting Mr. Cuomo’s allegations. In one document related to a dispute with Quadrangle, Mr. Rattner’s lawyers wrote: “The time for the scapegoating of Mr. Rattner is over.”
The lawyers also sought to gain access to internal communications in Mr. Cuomo’s office related to the case because Mr. Rattner wanted to know who there was leaking information to the news media.
Mr. Rattner’s dispute with Mr. Cuomo began several years ago, when the attorney general’s office began examining how investment firms won business from the pension fund and whether they had improper dealings with officials.
Investments from New York’s fund not only yielded management fees — $5 million in Quadrangle’s case — but also added a luster that helped attract other investors. Pay-to-play practices have since been banned by some pension funds.
The dispute between Mr. Rattner and Mr. Cuomo escalated in 2009, after Mr. Rattner became a leader of the federal auto task force helping to restructure G.M. and Chrysler. For Mr. Rattner, it was a triumphant return to Washington, where he worked early in his career as a reporter for The New York Times.
By the time Mr. Rattner was named to the auto task force, Mr. Cuomo’s office had already granted Mr. Rattner immunity from criminal charges related to the kickbacks because his e-mails did not indicate that he had played a personal role in the matter.
After Mr. Rattner left Quadrangle, the firm investigated its involvement with the state pension fund and discovered e-mails that had not been turned over to Mr. Cuomo’s office. Those became central to Mr. Cuomo’s case against Mr. Rattner; the attorney general’s office was furious that the messages had not been originally provided.
Tensions flared in the spring when Quadrangle settled with the S.E.C. and Mr. Cuomo’s office, without Mr. Rattner’s involvement. Quadrangle asked Mr. Rattner to pay more than half of the $12 million it settled for, with the rest paid by current and former partners at the firm. Mr. Rattner earned upwards of $190 million, including earnings from investments he made, during his nine years at the firm, according to a person with knowledge of his pay.
Davidson Goldin, a spokesman for Mr. Rattner, said Mr. Rattner believed his share of the $12 million should be lower and reflect his stake in Quadrangle.
In August, Mr. Cuomo’s office issued a subpoena for Mr. Rattner to be questioned at a deposition. “Given that the attorney general made repeated threats of prosecution, of course Mr. Rattner’s lawyers advised him not to speak,” in response to any of 68 questions he was asked, said Mr. Goldin, his spokesman. Mr. Goldin was referring to possible perjury charges related to the early discrepancies in accounts about Mr. Rattner’s involvement in the case. Mr. Cuomo has not filed perjury or other criminal charges.
Despite his legal troubles, Mr. Rattner has maintained a busy schedule of news media appearances. His wife, Maureen White, has also remained active in fund-raising circles. Ms. White donated $5,000 early this year to Eric T. Schneiderman, who will replace Mr. Cuomo as attorney general. Her donation, however, was made before Mr. Schneiderman announced that he was running for that office. A spokesman for Mr. Schneiderman declined to discuss the case but said he would be tough as attorney general.
Mr. Cuomo’s office notified Mr. Rattner’s lawyers on Wednesday night that it planned to file suit on Thursday, according to two people briefed on the phone call. When a CNBC reporter asked Mr. Rattner on Thursday if the investigations would take away any of the shine of G.M.’s success, Mr. Rattner demurred.
“Well, others will have to judge that,” he replied. “What I would say for me, it was the most painful episode I’ve ever been through in my professional life.”
Nicholas Confessore contributed reporting.
A version of this article appeared in print on November 19, 2010, on page A1 of the New York edition.
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