Cuomo files suit over equity kickbacks

Keith Loria Nov. 18, 2010, 2:28pm


NEW YORK (Legal Newsline) -- New York Attorney General Andrew Cuomo filed two lawsuits on Thursday against the former founding principal of a private equity firm that was allegedly involved in kickbacks.

Steven L. Rattner, the former founding principal of private equity firm Quadrangle Group LLC, allegedly paid kickbacks to obtain $150 million in investments in Quadrangle from the New York State Common Retirement Fund.

Cuomo is seeking at least $26 million and an immediate lifetime ban for Rattner in the securities industry in the state.

The first lawsuit named Rattner as an alleged part of a forfeiture action pending in New York State Supreme Court against Henry "Hank" Morris and David Loglisci. Cuomo alleges in this suit that Rattner obtained $13 million. Cuomo is seeking to get that money back as well as millions in future fees and profits.

In the second suit, Cuomo, under the Martin Act and the Executive Law, including the Tweed Law, is attempting to recover more than $13 million in civil recoveries from Rattner. Cuomo is also seeking millions in future fees and profits, as well as additional remedies, including injunctive relief.

Cuomo filed an application to permanently ban Rattner from engaging in the securities business in the state of New York as part of the Martin Act lawsuit, based on the fact that he allegedly engaged in fraud and refused to answer 68 questions based on his fifth amendment privilege.

"Steve Rattner was willing to do whatever it took to get his hands on pension fund money including paying kickbacks, orchestrating a movie deal, and funneling campaign contributions," Cuomo said. "Through these lawsuits, we will recover his ill gotten gains and hold Rattner accountable."

Cuomo alleges that Rattner arranged for a series of kickbacks aimed at influencing Office of the State Comptroller officials. In turn, they would allegedly recommend and approve the CRF investment in Quadrangle, a violation of their fiduciary duties.

These kickbacks allegedly included over $1 million in sham placement fees paid to Henry "Hank" Morris, the political adviser to then-State Comptroller Alan Hevesi.

Rattner also allegedly arranged for a DVD distribution deal for "Chooch," a movie produced by the brother of then-CRF Chief Investment Officer David Loglisci, as well as $50,000 in contributions to Hevesi's re-election campaign.

Cuomo is seeking disgorgement of gains, and payment of restitution and damages caused directly or indirectly by Rattner's alleged conduct; an injunction against committing further acts of fraud; an injunction against Rattner from providing any service as an investment manager or advisor, holding any position at an investment fund, or otherwise managing the investments of others; an injunction against Rattner from entering into any contractual relationship with any governmental subdivision of the State of New York; and a court-appointed receiver to take control of all future fees, profits or other compensation Rattner stands to receive as a result of the CRF's investment in the Quadrangle investment vehicle.

A related civil settlement was announced by the U.S. Securities and Exchange Commission with Rattner on Thursday.

In April, Quadrangle settled with Cuomo's office by agreeing to pay a total of $7 million, and agreeing to comply with the Public Pension Fund Reform Code of Conduct.

Last year, Cuomo announced his Public Pension Fund Reform Code of Conduct, which bans investment firms from compensating intermediaries for introductions to public pension funds.

To date, Cuomo's long-running look into this criminal scheme has resulted in seven guilty pleas and has garnered over $139 million in recoveries for the state through agreements with 16 firms and three individuals.

Those that have endorsed the code are investment firms The Carlyle Group; Riverstone Holdings LLC; Pacific Corporate Group Holdings LLC; HM Capital Partners I; Levine Leichtman Capital Partners; Access Capital Partners; Falconhead Capital; Markstone Capital Group; Ares; Freeman Spogli; Quadrangle; and GKM; placement agent Wetherly Capital Group; political consulting firm Global Strategy Group; lobbying firm Platinum Advisors; and law firm Manatt Phelps & Phillips LLP.

Three individuals have also agreed to pay money to the CRF or the state and abide by the Code of Conduct, including unlicensed placement agents Kevin McCabe and William "Bill" White, and founder of Riverstone Holdings LLC, David Leuschen.

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