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SEC Brings New York 'Pay-to-Play" Case Against Rattner

Bruce Carton | November 18, 2010

As I discussed in my most recent monthly column, "pay-to-play" is now an area of keen interest for the SEC. Today, the SEC added to its growing list of cases in this area with the announcement of a settled enforcement action against former Quadrangle Group principal Steven Rattner.

The SEC alleges that Rattner participated in a kickback scheme to obtain investments from the New York State Common Retirement Fund. According to the SEC, Rattner secured investments for Quadrangle from the Retirement Fund after he arranged for an affiliate of his firm to distribute the DVD of a low-budget film called "Chooch" that was produced by the Retirement Fund's chief investment officer and his brothers. Rattner also allegedly had Quadrangle retain Henry Morris, the top political advisor and chief fundraiser for former New York State Comptroller Alan Hevesi, as a "placement agent." Morris was allegedly paid over $1 million in fees despite the fact that Rattner was already dealing directly with the Comptroller's office and did not need any introduction by Morris.

As a result of these kickbacks and others, the SEC claims, the Retirement Fund increased its investment with Quadrangle from $100 million to $150 million, which led to Rattner personally receiving approximately $3 million in fees.

To settle the case, Rattner agreed to pay $3.2 million in disgorgement and a $3 million penalty, and consented to a bar from associating with any investment adviser or broker-dealer for at least two years.