Rattner’s name wouldn’t open pension-fund doors, and eventually he turned to Hank Morris, whom he’d known through Schumer; Morris was the senator’s political consultant in 1998. Rattner has told friends that it was Morris’s association with Schumer that vouched for him as “a man of unquestioned integrity.” Rattner had already hired two research-focused “placement agents,” middlemen who market investors to pension funds. Morris, who’d reinvented himself as a placement agent, brought different talents to the craft. “We didn’t hire him for his math skills,” Rattner told a friend, stating the obvious. Morris was a political fixer, whose power at the time derived from his close association with then–New York State comptroller Alan Hevesi, who managed the state’s $122 billion pension fund.
Before Rattner signed on with Morris, he’d already met with David Loglisci, Hevesi’s deputy comptroller, who made key pension-fund-investment decisions and who was, according to Attorney General Cuomo, Morris’s co-conspirator in a criminal enterprise. Rattner’s first meeting with Loglisci was set up while he was working with his other placement agents. Loglisci, though, hadn’t yet finalized the investment. Not long afterward, Rattner reached out to Morris. The timing seemed suspicious to the Securities and Exchange Commission. On January 10, 2005, according to the SEC, Rattner promised Morris 1.1 percent of whatever he raised from New York State—a relationship that Quadrangle failed to disclose to the state, though it did disclose its other placement agents.
There’s nothing illegal about hiring a fixer. Like lobbyists, they sell access for a fee. Still, depending on circumstance, a fee can look like a bribe.
Even after clinching the deal with Morris, Loglisci didn’t immediately invest pension funds in Quadrangle. In the meantime, Loglisci’s brother Steve had called Rattner. He too was a fund-raiser; his project was something called Chooch, a low-budget indie film about a “lovable idiot” (chooch, in Italian slang) that played on three screens. Morris had invested $100,000, as did a couple of fund managers who later received investments from the New York State pension fund.
Steve Loglisci needed help with his little film, and Rattner made an introduction for him to GT Brands, one of Quadrangle’s portfolio companies, which agreed to distribute a DVD of Chooch. Perhaps Rattner viewed it as just another favor. He does lots of favors—he too is a fixer. The deal itself appears to be legitimate, contrary to suggestions by the SEC. According to a copy of the February 24, 2005, distribution agreement, GT Brands paid no money up front but shared profits with the producers. “It was a standard indie deal,” says Chooch producer Tami Powers.
Even if it wasn’t an inducement, appearances couldn’t have been worse. Not long after the deal was agreed to, David Loglisci personally called to inform Rattner that Quadrangle would receive a $100 million investment, according to the SEC. (Rattner was not named in the complaint.) “It is incomprehensible that Steve did it,” says a fund manager who’s known Rattner for years. “It’s so obviously wrong, but it’s also so unsophisticated.”
Then, along with many private-equity firms, Quadrangle began to hit rough weather. In 2007, its $3 billion distressed-debt fund bought its way out of Quadrangle for a sizable sum and formed its own firm. Quadrangle shut down its equity fund after disastrous losses. It wrote off some flops, inconsequential in and of themselves but still high-profile; GT Brands went bust in 2005. Quadrangle essentially abandoned its investment in the company that owned Maxim, the lad magazine.
Quadrangle still reported to investors an impressive rate of return, 10 or 15 percent depending on whether you accept the Times’ or the Journal’s figure. Some investors, though, griped that those rates are misleading. “If I’m getting that return [10 or 15 percent], someone’s taking my checks from my mailbox,” says one investor. Private-equity returns are always guesswork. They own assets that aren’t for sale, and it’s impossible to know how much they’re really worth. So funds make educated guesses. Quadrangle’s annual statement from 2008, a copy of which was obtained by New York, shows that after eight years, investors in the first $1 billion fund had just about got back their initial investment. There was still considerable “unrealized value,” as the illiquid assets are called, and if you add that in, the returns beat a poorly performing stock market over that time, though they still wouldn’t have outperformed a municipal bond. “We’ve had lots of investments that have disappointed,” says Damon Mezzacappa, a former vice-chairman at Lazard and an investor. “Quadrangle was okay, not great.”
In the long run, Quadrangle may do well—its performance is in line with that of its peers. It owns valuable properties, and the fund has held on to investors and staff. Still, the coast is hardly clear. The firm is in preliminary talks with Cuomo’s office, and most expect a settlement that could be in the millions. Quadrangle is in damage-control mode. “It’s pretty ugly,” says one person close to the company, adding, “Who would want to invest in a fund in the midst of a scandal?”