Rattner in Limbo

The conventional wisdom is that the financier and former car czar is toast, and was abandoned by his friend, the mayor. Don’t be so sure

By Max Abelson

While Manhattan suffered through another desperately slushy storm recently, financier Steven Rattner was holed up inside his family’s Westchester horse farm. There were no taxis to splash through icy curbside puddles. Snow fell from the pretty white sky.

It was bad. There are only two things that can happen after a hugely baroque Manhattan scandal: survival or ruin. But sometimes a New Yorker gets trapped in between, in the gooey limbo of semi-disgrace, which you wouldn’t wish on your worst enemy. Important chief executives ask aloud if the U.S. attorney general’s office might be interested in having a chat with you. Over iced teas at midtown hotel bars, important publicists nudge reporters about around-the-corner indictments. Friends speak about you gently, and foes, voices even gentler, purr about your fate.

Almost one year ago to the day, Rattner triumphantly left Wall Street to become car czar in the Obama administration, then equally triumphant. Six months later, he was gone, and under the cloud of New York Attorney General Andrew Cuomo’s investigation into the putrid world of state pension-fund money.

And there Rattner, 57, has sat since the summer, simmering in purgatory. When the news broke two weeks ago that Mayor Michael Bloomberg was moving $5 billion away from Quadrangle, the enormous firm Rattner co-founded, tongues again clucked and mouths watered. Was the mayor, an old friend, quietly shuffling away from an oncoming train wreck? “I’ve heard from a zillion people, ‘Did you hear?’” a longtime friend who asked for anonymity said. “And everyone’s reaction is, ‘Oh, that’s a bad thing.’”

But like with many great stories, first reactions are often exceptionally wrong. Interviews with sources close to Rattner and the mayor, and with their peers at the top of the city’s political and finance circles, paint a much more interesting picture, one in which the financier might make it out of the long winter alive, maybe even with some dignity.

The first thing anyone says about Rattner is that he is simply the most coolly focused and ambitious and intelligent man on the Upper East Side, which is why it is incredibly hard to fathom how he got tangled in such a vulgar mess. The Securities and Exchange Commission has said that at the New York State pension fund, one of the most immense masses of assets anywhere in the world, more than half of the $9.5 billion put in alternative investments from 2003 to 2007 was stained by kickbacks.

Hank Morris and David Loglisci, middlemen between the fund and the investors who wanted its business, were charged last March on 123 counts of larceny, corruption, fraud, bribery and money laundering. According to reports published a month later, not only did Rattner have his firm quietly pay Morris more than $1 million in exchange for a $100 million investment from the fund, but a Quadrangle affiliate paid $88,841 to acquire the DVD distribution rights to a slapstick comedy produced by Loglisci and his brothers. The film, Chooch, is about goofballs from Queens who get in trouble on a Mexican adventure.

Instead of leaving D.C. as a heroic savant who managed to entirely rebuild Chrysler and GM in mere months, even though he hadn’t been to Detroit in decades, Rattner slouched back home in July as the subject of an escalating investigation. “I think he had a sense that the whole thing was something foolish that had been blown up way out of proportion. In other words, he certainly didn’t feel that what had been done was right,” said New Yorker architecture critic Paul Goldberger, a longtime friend. “But it was a mistake that was being exploited.”

When the news broke on Feb. 20 that Bloomberg would be moving billions away from Quadrangle, the New York Daily News put Rattner’s pension-fund investigation in its lead. The New York Post called it “a humiliating blow” to the firm he co-founded. “People were speculating,” said someone who knows the investor from New York City political circles, describing guests at a recent Upper East Side dinner. “Was the mayor distancing himself from Rattner? Was it a put-down?”

“It’s actually the opposite,” a source close to the investor said. “He’s moving toward Steve.”

Here’s how the thinking goes: The mayor had brought his billions to Quadrangle in the first place only because of his relationship with Rattner, an old friend and fundraiser. And not only has Rattner been gone from the firm for a full year now, but there doesn’t seem to be any love lost between the man and the firm he left during a very fraught era.

What if, at long last, there are real stirrings from investigators? “I don’t see that anything that’s happening is going to come between them, in my personal opinion,” said Thomas H. Lee, the private-equity pioneer. Spokespeople for the New York State attorney general’s office and the SEC wouldn’t comment, and a call to the U.S. attorney general’s office wasn’t returned.

Friends of his like to point out that the giant private-equity firm Carlyle Group, which was essentially accused of paying a much bigger fee to Morris, about $10 million, was allowed to settle with Cuomo in May for $20 million. And that firm’s decorated chief, David M. Rubenstein, still gets to speak at Davos and sit on the boards of the Kennedy Center and the Council on Foreign Relations.

Then again, Rattner was said to be personally involved with Morris and the pension-fund money.

For now, he wafts in limbo. “His greatest strength always has been a rock-hard realism. He knows that a lot of stuff happens and you deal with it,” Goldberger said. “He’s not one to say, ‘I’m taking my ball and going home! Fuck you all.’”

“Do I know how bad it is inside his head? No, I don’t,” the anonymous friend said, “Am I convinced personally that it’s bad? Yes.”