It was a call that, in a sense, Steven Rattner had been waiting for most of his life. It was the week between Christmas and New Year’s, and he was vacationing in Europe when Secretary of the Treasury Tim Geithner got him on his cell phone. Geithner isn’t chatty, and came right to the point: He wanted Rattner to head the task force charged with saving the American auto industry, “if they could get him,” as one White House official put it. The assignment was one of the most difficult jobs in the American economy and, as such, a huge honor for an enlightened capitalist like Rattner.
Rattner had already had three highly successful careers, first as a journalist, then an investment banker, and finally the head of a private-equity fund—“a New York financier” was the shorthand used in the papers. He was already a power in politics; Rattner and his wife raised millions, and any Democrat of ambition beat his way to their door. Mayor Bloomberg picked him to manage his money. His network, too, encompassed the top tier of the Obama administration, as well as most of boldface Washington. He’d known Geithner, along with the president’s chief economic adviser, Larry Summers, for years; they were, in effect, residents of the same small neighborhood, as Rattner sometimes thought of it.
For a man like Rattner, government service was the necessary next step. It would crown consummate financial competence with high moral purpose. Without it, the triumph of ambition would not be quite complete. And yet Rattner hesitated. He’d long been a matchless careerist who, as one admirer said, “never made a misstep.” He wasn’t one to leap impetuously. The decision would be evaluated in terms of gradations of risk, a business problem.
To help him, Rattner turned to his friends, fellow residents of the neighborhood. Arthur Sulzberger Jr., publisher of the Times, who counts Rattner among his closest friends and counseled him, says, “This was something he had to do. He would have kicked himself if he hadn’t, though on a personal level, I hated to lose him [to Washington].” Bloomberg, whom Rattner considered a very close friend, voted no. Why would Rattner want to get mired in bureaucracy? “You’re out of your mind,” he told Rattner.
Rattner, too, worried about the fallout. Would he be tainted if he failed? After careful reflection, he assessed the risks as middling. “Nobody’s going to blame me for the downfall of the American automobile industry,” he told a friend. He leaned toward taking the post. And yet it was difficult to make the leap. It was Barry Diller, CEO of IAC, who helped to nudge him over the edge. “It’s an adventure, but only if you take it. Don’t be afraid of failing,” he said.
Several weeks after taking Geithner’s call, Rattner arrived at a response, the one most everyone expected all along. “What am I saving myself for? If not now, when?” he asked a friend, with theatrical flourish.
Six months after taking the job, Rattner (who declined to comment for this story) had helped to perform a seeming magic trick, rewriting the understanding between the car companies and the unions while bending the companies’ financiers—his friends and peers—to his will. With what seemed a cool, almost arrogant confidence—his casual dismissal of GM CEO Rick Wagoner reflected this quality—he had played a large role in restructuring the American car industry, accomplishing what few had thought possible a few months earlier, and in record time.
Then, on July 13, Rattner announced that he was stepping down. His resignation took most of Washington and New York by surprise. Though the work of the task force was winding down, Rattner had let friends know that he’d planned to stay in Washington, a financial samurai ready to attack the next problem the president set before him. The announcement was accompanied by praise for his performance, but the applause was almost drowned out by a scandal Rattner had left behind in New York. He hasn’t been accused of anything, yet Rattner had become ensnared in a “web of corruption,” as it was sometimes called, in order to get state pension money for his private-equity firm to manage.
In Rattner’s conception, money was necessary but not sufficient. He wanted to be useful, to give back—noblesse oblige, after all. But Rattner’s previous life pulled him back, and faced with the reality of politics, where appearances matter, Geithner and Summers didn’t push for him to stay. “If this thing gets worse, and it sounds like it might, if they jam him,” explains a Treasury source, reflecting the view at the top, “and [New York attorney general Andrew] Cuomo makes things hotter, it’s untenable. Everyone decided it was better for him to go.”
Rattner, the “car czar,” the ultimate meritocrat, suddenly seemed a bit player in a grubby comedy. It was a long way to fall.
Steve Rattner was in his late twenties and a star reporter at the New York Times when he had a conversation that helped change his life. That’s when a friend introduced him to a young Goldman Sachs arbitrageur named Robert Rubin, who shared the plan for his own life. “How much do you like money?” Rubin asked Rattner, by way of preamble. “Let me tell you how I think about it. I like what I do, and I want to achieve financial security for my family and myself. And then I want to do something more public-minded. I want to be secretary of the Treasury.” (Rubin, another gifted careerist, attained the post under Clinton.)
Rattner had started at the Times in 1974, a couple of weeks after graduating from Brown, and rose swiftly through the ranks, along the way befriending Sulzberger, who’d worked as a reporter alongside him. (They became so close that people sometimes took him for a Sulzberger.) Rattner was a talented reporter. “He was exceptionally hardworking and yet never seemed to be,” says Judith Miller, a Times colleague and onetime girlfriend. “He seemed to do it all easily. It was an enormously attractive quality to be very cool when others are flustered,” she adds.
Rattner covered the big stories of the Carter administration and, in the process, befriended some of its most influential members, who’d later usher him into his second career. It became a Rattner trademark to slip under the wing of great men—he did it elegantly, without apparent slavishness. “In his life, he’s cultivated the people who were important to his success at the time, and he’s done that extraordinarily well,” says a person who’s worked with him.
Rattner is self-contained and, even friends say, often difficult to read. “Warm in a cool way,” says Miller. Yet no one missed his focus and his drive, especially toward his career.
In 1982, Rattner was recruited by Roger Altman, whom Rattner had met when Altman was President Carter’s assistant Treasury secretary, for a job at Lehman Brothers. Sulzberger flew to London, where Rattner was then posted, in an effort to persuade Rattner to stay in journalism. They talked and drank much of the night, frat-boy bonding that Sulzberger particularly relished. It did no good. Rattner had a scary vision of himself in twenty years, as a deputy national editor and stuck. “He wanted to matter, to do things, to be respected, to cast a shadow,” says a friend. And so Rattner, after his usual careful consideration, moved to Wall Street.
It was a switch that some fellow journalists considered a shameful apostasy. The Washington Monthly even published an article criticizing Rattner’s career change. Rattner, quoted in the piece, acknowledged stiffly, “I’m a failure at discharging all my social responsibilities.”
Maureen White, Rattner’s wife and herself an investment banker at the time, understood the scope of her husband’s ambition. “It begins to get on you after a while that [as a journalist] you are writing about people who have more power than you, more influence and more money, and are not any more capable,” she told The Washington Monthly. “Why in God’s name are you trailing them around the world and writing about them when you are smart enough to make the money and have influence commensurate with theirs?”
Rattner may have been the most prominent investment banker of his generation; his press clippings said as much. Colleagues didn’t always like him, though Rattner was powerful enough that few openly admitted it. “Many people feel a need to be nice and social with Steve,” one colleague said, “but it doesn’t mean they like him.” To outward appearances, it didn’t ruffle Rattner. “Most people want to be liked,” says a person who worked with Rattner. “In some weird way, he kind of knows that once you get to know him, you won’t like him, and I don’t think he cares. Which is really useful if you want to get ahead.” But Rattner knew that view of him, and in fact it wounded him—he wanted to be liked. He may have been a shark, but it wasn’t all he was.
At Morgan Stanley and then at Lazard Frères, where he arrived in 1989, Rattner had a hand in some of the large media deals of the nineties: Paramount, McCaw, Comcast, Random House. “Give him his due,” says one of those friends who don’t like him. “He was a preeminent investment banker in media and telecommunications.” Rattner cultivated CEOs like he’d once cultivated sources, he has said, and they trusted him. In these interactions, Rattner’s restrained style worked. He let the CEOs be the stars. Rattner appeared to possess the subordinate ego in the room, an alpha carefully disguised as a beta. Rattner’s approach came naturally. He can seem effete, almost precious. He wears nicely cut suits with high-waisted pants, round tortoiseshell glasses, and speaks about almost every topic in the same even-toned, matter-of-fact way. “I’ve never encountered anybody with as much mojo who has less charisma,” says one person who worked for him. Still, in his low-key style, Rattner talked bluntly. As Craig McCaw, now CEO of Clearwire, says, “Some investment bankers are prone to tell you more of what you want to hear. That would not be Steve. He tells people what they don’t want to see about their own business,” and, adds McCaw, he doesn’t negotiate on his fees.
At Lazard, Rattner initially attached himself to Felix Rohatyn, who probably “invented the persona of investment banker as trusted M&A adviser,” writes William Cohan, whose book The Last Tycoons portrays Rattner revealingly.
If Robert Rubin provided Rattner with a goal, Rohatyn showed him a path. Not only was he larger than any particular deal, but Rohatyn was also a civic force who’d helped rescue New York City from bankruptcy in the seventies. And he was a shaper of opinion, tossing off authoritative essays on economic policy for The New York Review of Books while courting intellectuals at his Fifth Avenue apartment. He had it all, including one supreme gift: He made personal ambition seem beneficent. It was a quality Rattner no doubt admired.
Rohatyn initially seemed to think of Rattner as a younger version of himself, the yuppie model with expensive suits and 5:45 a.m. workouts with his buddy Sulzberger.
Like Rohatyn, Rattner was a student of economic policy—he could hold his own with Summers—and also wrote op-eds. He was a member of the Council on Foreign Relations and a trustee of the Metropolitan Museum of Art, and he chaired Channel 13. And at every turn, he carefully cultivated the social and political connections these positions yielded. Elected officials, intellectuals, journalists, businessmen gathered at his apartment a mile north of Rohatyn’s—his own Fifth Avenue “salon,” as Harvey Weinstein called it.
Rohatyn’s sole failure had been in politics. “You know,” Rohatyn once confessed to Rattner, according to Cohan, “I used to think that being a policy guru and saving New York was enough to become Treasury secretary, but I found out that you really have to be in the mix and you really have to raise money. It’s not going to happen for me.”
Rattner would not be so foolish. His wife served as national finance chair of the Democratic National Committee for five years, until 2006—“the DNC’s ATM,” she was called in this magazine. Rattner too was a force, securing millions for Democrats, and in the process making friends. He palled around with the Clintons. Al Gore and Senator Charles Schumer are good friends, along with Mayor Bloomberg.
Friendships at that level are in part alliances of people who never lose sight of one another’s usefulness. Rattner’s brilliant connections opened doors. So did the seemingly endless publicity he’d attracted ever since Washington Monthly founding editor Charlie Peters made him a symbol of his generation. “I don’t know why all these people want to write about me,” Rattner once said. People who heard that snorted. Had there ever been a more energetic or successful manipulator of the media? Perhaps his greatest feat was the 1994 Vanity Fair article that first declared the then-41-year-old “the premier investment banker of his generation,” while permitting him to expatiate on his surprisingly simple values. I’m rich but not like those rich, he seemed to say. “I often take the subway to and from work, in part, because I don’t see how one can have a view about the problems of the city without experiencing the city on at least some level as typical people do,” Rattner told the magazine.
The article infuriated Rohatyn, whom it treated as a relic, and he reacted with barely contained fury. In a 1996 New York Magazine article, he took on Rattner. “Steve is so monomaniacal,” he told writer Suzanna Andrews. “Eventually he wants to be Treasury secretary, and he’s trying to get it by getting media attention and by social climbing … He just wants to get ahead.”
Rattner later said he regretted the Vanity Fair article, but no one believed him. The deed was done, and swiftly. The next year, Rohatyn retired—Clinton appointed him ambassador to France, a consolation prize. Rattner, his successor, moved into Rohatyn’s office at Lazard. (Bruce Wasserstein, New York Magazine’s owner, is Lazard’s chairman and CEO, but he wasn’t there during this period.)
Rattner thrived at Lazard for a time. He was a big earner, and that garnered respect. In 1997, he was promoted to deputy CEO and briefly viewed as one who might bring unity to a contentious group. But Michel David-Weill, Lazard’s effective owner at the time—“its patron saint,” as Rattner later derided him—had near-monarchical powers, and he wasn’t about to relinquish them to anyone. Rattner departed in 2000, disappointed and downhearted—“defeated,” says a friend, for the first time in a long while.
If Rattner had, in effect, been bounced from Lazard, it didn’t shake him for long. His drive had always been matched by a boundless and seemingly innate self-confidence. “He’s always been comfortable with himself,” says Sulzberger, one quality that, Cohan writes, gave him an air of “inevitability.”
In 2000, Rattner took three colleagues with him and founded Quadrangle Capital Partners, a private-equity firm focused on media and telecommunications investments, his specialty.
Private equity is an investment banker’s revenge. After all is said and done, investment bankers are attendants paid on commission. In private equity, Rattner would be a decision-maker, often buying and sometimes running companies, a true actor for the first time. He’d also be rich and not merely investment-banker rich. “Private equity is the best business known to man,” says one former investment banker. Every year, Quadrangle pocketed 1.75 percent of the money it raised, plus 20 percent of the profit from investments. Eventually, Quadrangle raised $3 billion, which tossed off, when fully funded, a brisk $52 million a year, and that was before realizing any profits.
In the Quadrangle years, Rattner overcame whatever inhibitions he’d felt about the display of wealth. He owned four cars, a plane that he flies himself. (“Did you drive or fly here?” is a joke he and the mayor share.) The subway guy had gone baronial. He had a 15,000-square-foot home on Martha’s Vineyard, a homestead in horsey North Salem, and that splendid Fifth Avenue apartment at an address where Astors and Guggenheims had once lived.
Every business leverages its strengths, and Quadrangle’s strength was Rattner’s relationships, The four partners were supposed to be equals, “but people weren’t just buying into Quadrangle,” says one fund manager. “They bought Rattner.” Indeed, Quadrangle was brand Rattner, and it relied on his reputation and his Rolodex, one of the best in New York. He needed it. The fund had no track record, and it was through Rattner’s contacts that Netscape founder Marc Andreessen, McCaw, and Diller invested. Eventually Rattner raised $1 billion.
Soon Rattner’s vision of Quadrangle’s future expanded to a many-tentacled investment institution, a smaller version of Blackstone, the giant private-equity firm. In 2002, he snatched a group of disgruntled distressed-debt traders from his former employer, and the new fund quickly became a standout at Quadrangle. Quadrangle also launched an equity fund, even briefly discussed a real-estate fund; by 2004, Rattner was on the road raising a second fund. Later, he’d take steps to raise a third fund and venture into the asset-management business, with the billionaire mayor as the fund’s only client, testament to Rattner’s relationships.
With the blossoming of Quadrangle during the boom years, Rattner had achieved most of what he’d envisioned after his conversation with Bob Rubin. But he wasn’t yet the person he wanted to be. At Quadrangle, colleagues had confronted him about his manner. He was distant and haughty and they didn’t like it. So Rattner hired an executive coach, Art Gingold, and worked with him for a couple of years until he left for Washington. It was essentially a likability course. “He took to the feedback as diligently as anybody I’ve coached,” says Gingold, who declined to discuss personal details. “He studied, almost memorized it. He really took it to heart.” Gingold helped Rattner change his behavior, and gave him pointers. Now Rattner walked down to people’s offices. In meetings, where he’d been business-only, he now opened with, “Good morning, how was your weekend?” He took junior people to lunch. “It sounds simple and obvious, but wasn’t [to him],” says Gingold.
Rattner emerged warmer, but he had other goals. The crucial next step in the Rubin plan was Washington.
Rattner arrived in the capital in February and quickly divvied up task-force responsibilities with Ron Bloom, whom he’d recruited to be his second in command. They were an odd couple. Rattner’s image had long ago been set in stone: He was the relentlessly acquisitive financier who reported a net worth of between $200 million and $600 million, making him one of the wealthiest in the Obama administration. Bloom, too, had once been an investment banker—he and Rattner had crossed paths at Lazard—and, though with less fanfare, he too had earned millions. But Bloom was a recovered banker. For the past dozen years, he’d worked for the steelworkers union.
Bloom had an easier time making up his mind than Rattner. “This was the easiest decision I’ve ever made in my life,” he told me. “This is the mother of all restructurings. It’s important, consequential, it matters to America. How could you not want to do this?”
Rattner understood how different he and Bloom are, but he worked at getting along. While upending the car industry, Rattner tried out his new personality skills. This was a fresh start with people who didn’t yet have a view of him, he told a friend, and he fought his tendency to be cool and remote. He was proud of himself; the guys really seemed to respect and to like him.
At one point, the creditors, including the largest banks in the world, seemed to like him, too. Of course, he’d known them for years. For Rattner, the fight over the future of the auto industry had the qualities of an intramural skirmish. These were his peers, his friends, fellow residents of the neighborhood. Their interconnections were as dense as a spiderweb’s. Joe Perella, head of a hedge fund with which Rattner later faced off, is president of Rattner’s co-op board. At Quadrangle, Rattner had been in a deal with Cerberus, a major hedge fund. That time, Cerberus had foreclosed on him; this time, Rattner would preside as Cerberus, which had a large stake in Chrysler, got fleeced.
Rattner didn’t take confrontations personally. He still didn’t run hot. Indeed, he seemed at times almost blandly rational, a technocrat. “He tended to stay very level and to focus on execution,” Summers says, which “fits with the culture of this administration.”
Rattner’s mien was in stark contrast to that of his partner Bloom, who gave the impression that the deal was a white-knuckled thriller. The Obama administration also values toughness—“Be tough,” the president had urged the task force—and Bloom was certainly that. He appeared emotional, even angry at times. “Ron Bloom,” says Greg Gardner, who covers the auto industry for the Detroit Free Press, “is like a very rational Jack Bauer”—the torture-adept counterterrorism agent played by Kiefer Sutherland in 24. “He won’t resort to weapons, but he’ll make everybody face the ugliest of realities. ‘This is it or we all die.’ ”
On February 17, both Chrysler and GM submitted viability plans, arguing that they could continue as stand-alone businesses. In the view of the task force, Chrysler and GM were like misbehaving adolescents; they’d caused this mess, and now their job was to not get in the way.
In the president’s March 30 speech, which the task force helped shape, President Obama outlined the plan that Rattner and his team had developed. Chrysler would be handed over to Fiat SpA, the Italian automaker whose technology, it was believed, could save Chrysler—and would be given only 30 days to close the deal. A couple of days earlier in the Oval Office, the president had quizzed Rattner on the chances of getting a deal done. “Fifty-one percent,” he answered. “Though in my experience, deals usually get worse, not better, over time.” (GM got 60 days to work out its problems.)
Bloom took the unions, his constituency, and muscled them into line. They took wage and job cuts and agreed to not strike for six years, among other concessions.
Rattner focused on his friends, the creditors. Jimmy Lee, vice-chairman of JPMorgan Chase and the creditors’ representative, had known Rattner for years. In this go-round, Rattner held all the cards, and Lee knew it. The government was the lender of last resort, and if it walked away, Chrysler and GM would be sold off for parts. Still, Lee started off aggressively, as he was obliged to. “We won’t accept anything less than $6.9 billion,” he said, which was the original value of the loans, although some of the current creditors had bought them for much less. “We should get a hundred cents to the dollar.”
Rattner almost laughed. “Jimmy, look. If you want the company, it’s yours,” Rattner told him. “If we can’t make a deal, then it’s your company,” which Lee knew he couldn’t afford. He also knew the administration still wasn’t sure Chrysler was worth saving—at one point, the task force was deadlocked 4-4 on the issue. “The president was clear: If it can’t work, it can’t work,” recalls Summers.
On April 2, Rattner convened a meeting in a conference room in the fortresslike Treasury Building. Jimmy Lee’s creditors’ committee attended in force. After a presentation, Rattner made his offer. He’d give the creditors $1 billion, the lowest figure he could say with a straight face. Then, as Rattner saw it, Lee went through a performance, mainly for the benefit of fellow creditors. “We have our rights, and we expect … ” he began with what seemed like conviction.
Rattner, as he told task-force members, knew that if he really wanted to stick it to Lee, for the pure sport of it, he could get a deal done at a billion and a half. It pleased him to be magnanimous. And he was content to let Lee extract a higher figure, in part, as Rattner saw it, to save face before some restive and increasingly angry creditors.
“Jimmy, it’s $2 billion, take it or leave it,” Rattner eventually communicated.
By then, $1 of Chrysler debt could be bought for $.14 on the open market. The market valued the $6.9 billion in Chrysler IOUs at about $1 billion. Lee, wily beneath an aw-shucks manner, countered, “Make it cash and we’ll take it.” He didn’t want to own any more IOUs, and he didn’t want to be in business with this bullying administration, which acted unilaterally anytime it saw fit.
Rattner’s group considered and then agreed. Lee persuaded 90 percent of the creditors to sign on, and all of the big ones. But some hedge funds were incensed and accustomed to fighting. At one point, one of the task-force members e-mailed a colleague, “The hedge funds are off the ranch.”
Lee had the right to push the deal through, and he had the votes. But these hedge funds, though they had small stakes, were talking about going to court to break the deal. Lee tried to talk them down. He’d been dealing with this administration through months of bank bailouts. He told the half-dozen holdouts, “This government crowd is very tough-minded.” They thought Lee was chickening out.
One holdout hedge fund was Perella Weinberg Partners’ Xerion Fund. Joe Perella is president of Rattner’s co-op, and for a moment it seemed American capitalism—and the future of the country’s car industry—might come down to a chat between Rattner and his upstairs neighbor.
“Look, you guys do what you have to do,” Rattner told Perella on the day of the deadline, April 30. “I respect your rights as creditors. But if you want to try to resolve this, I’m here.”
Some took that as a veiled threat, which astonished Rattner. Business, though, is often done in the gray area between explicit and implicit—“credible” D.C. friends called to warn of serious consequences—and at the Perella Weinberg offices, the atmosphere hummed with danger and urgency.
In the end, fighting wasn’t Joe Perella’s decision but that of Daniel Arbess, portfolio manager of Xerion. The national interest, so-called, concerned him less than his rights as a creditor, which he thought were being trampled.
That same day, April 30, the day that President Obama had promised to walk away, he again took to the airwaves. The president wielded the big stick; Rattner didn’t have to. Obama was putting Chrysler into bankruptcy. At Perella Weinberg, they watched the speech as if Obama were speaking directly to them. The president, for once almost angry, promised he wasn’t going to bend to “speculators,” as he labeled the troublesome hedge funds. Perella didn’t like being called a speculator. But the part of the speech that scared them was when Obama intimated that, come bankruptcy, the creditors might get little or nothing, a threat reviewed by Rattner’s people.
Arbess had an investment decision to make; he closed his office door, considered his responsibility to his investors. He’d shrewdly picked up some bonds for as low as $.15 on the dollar. If the government paid $2 billion, he’d still make money. Did he want to risk that for the chance of greater returns? Arbess signed on. That same day, Chrysler filed for bankruptcy, with all but one small creditor in agreement, allowing the proceedings, after a brief protest in court, to speed through in an unprecedented 41 days, a record bested only by GM’s trip in and out.
For Rattner, Washington was a new start, a place where people didn’t have the standard hypercareerist view of him. He fought his tendency to be cool and remote.
The auto bailout—with a large assist by front man Barack Obama—was a triumph for Rattner: a glorious, immortalizing public service. But as he prepared for his day in the sun, clouds gathered.
It seems, at first glance, unlikely that a gifted social operator like Rattner would get involved in an imbroglio as grubby and venal—inelegant, if not illegal—as the pension-fund scandal centered around Democratic consultant Hank Morris. But Rattner at the time was building his private-equity business, and to win at that game you have to play the game, and Morris is a person with whom it was played.
By 2004, Rattner, the firm’s effective CEO, was Quadrangle’s public face and its key fund-raiser—he hardly brought deals in anymore. The firm’s first $1 billion fund was fully invested, and if the business was going to grow, it needed more money, and the biggest money is in institutions like pension funds. Also, an investment from a major pension fund like New York State’s signals to other funds that Quadrangle is a good bet.
Soliciting pension funds is not the glamorous part of private equity, the kind of banking done on Park Avenue, where Quadrangle’s offices are located. It’s high-end panhandling, and to a downmarket clientele, politicians in questionable suits in Spokane and Wichita. In 2005, Rattner must have held north of a hundred meetings with potential investors. It wasn’t easy to keep his spirits up, but Quadrangle was his brand, his reputation was on the line, and so he put his mind to it. He thought of Schumer bustling through five-a-day fund-raisers with a smile on his face—Rattner was Schumer’s finance director in 1998. The trick, Rattner explained to a friend, is to keep your enthusiasm up, by force of will if need be, and never ask, What the hell am I doing here?
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?”
Steve Rattner is in Martha’s Vineyard now, where he likes to fly his plane. It’s summer. He’s settled into his grand home, with its sweeping waterfront acreage, next to the grand home of Brian Roberts, the CEO of Comcast, a loyal client and friend. Rattner’s worked night and day for six months, so he’s looking forward to relaxing with his four kids. Still, the vacation has the feel of exile, albeit gilded. This was supposed to be Rattner’s Bob Rubin moment, when he ascended past the mere operators to became a noble figure sharing his consummate financial talents with the people. Instead, he’s embroiled in a scheme to get rich at the public trough. For Rattner, it’s a sad denouement. He’s stopped reading about himself—his Google alerts bring up references to Chooch.
It’s unlikely Rattner will return to Wall Street. Quadrangle is happy not to have him back—the firm wants to be clear of the scandal that’s attached to his name. And at any rate, Rattner has little interest in returning. He’s told friends that, after his Washington adventures, banking has lost its excitement. He’d loved Washington, the high stakes, the public service, the whole heady drama. “There are not many people who spend as much time with the president in four years as I spent in six months,” he told one friend recently. And he liked the person he’d become there, no longer the cool hypercareerist who had won the game in New York. He’d like to go back—if only Washington will have him.