NEW YORK, Nov 23 (Reuters Legal) - When New York Attorney General Andrew Cuomo announced civil-fraud charges against Steven Rattner last week in connection with the pension-fund corruption scandal, Cuomo's office cited Rattner's refusal to testify at a recent deposition as one reason the state is seeking especially harsh penalties. But an examination of the case suggests that Rattner, the financier and former auto-industry czar, had no reasonable alternative.
Several defense lawyers not involved with the case say that Rattner's legal team, led by Jamie Gorelick of Wilmer Cutler Pickering Hale and Dorr, correctly advised their client not to respond to questions at the September deposition-even though it risked provoking Cuomo's ire. These lawyers pointed to the fact that Rattner had previously testified under oath before a state grand jury as a witness in the same investigation, and any subsequent statements under oath could potentially expose him to perjury charges. New York law grants a witness who testifies before a grand jury immunity from criminal prosecution; it does not protect a witness against future perjury charges.
"Any time someone is testifying or required to testify in a deposition or grand jury context there are always risks of making apparently inconsistent statements or offering facts different from what the questioner believes to be the truth thereby exposing the witness to possible perjury charges," said Daniel Ruzumna, a partner at Patterson Belknap Webb & Tyler.
Gorelick did not respond to a call seeking comment.
The civil charges against Rattner include paying kickbacks to win investments for the private-equity firm he co-founded, Quadrangle Group, from the state's largest pension fund, New York State Common Retirement Fund. Under the state's sweeping Martin Act, which is intended to combat securities fraud, Cuomo is seeking to recoup at least $26 million from Rattner and ban him from the securities industry in New York. Last week Rattner separately settled with Securities and Exchange Commission under much less harsh terms , agreeing to pay $6.2 million and accept a ban from "associating with any investment adviser or broker" for at least two years. Rattner said he did not violate the Martin Act and intends to fight the charges.
BEFORE THE GRAND JURY
Rattner was called as a witness before the state grand jury in 2008, which suggests the Attorney General's office wasn't then targeting him in its investigation. But things took a turn last summer when Quadrangle, late in the game, produced emails relating to Rattner, according to an article in the Wall Street Journal. Based on the newly revealed evidence, Cuomo questioned whether Rattner, who by then had left Quadrangle to become the Obama administration's auto adviser, had been truthful in his grand jury testimony, the article said.
In April, the Attorney General and the Securities and Exchange Commission announced settlements with Quadrangle, and in a statement by Cuomo, Quadrangle said it disavowed Rattner's conduct. The firm and its former co-founder locked horns in a battle over Rattner's compensation, and entered private arbitration proceedings.
Meanwhile, Cuomo's pursuit of Rattner heated up. The Attorney General subpoenaed him for a deposition, and on Sept. 16, Rattner appeared in Cuomo's office in lower Manhattan. Aside from giving his name and address, he declined to answer any questions, citing advice of counsel and his Fifth Amendment rights. In last week's press release announcing the suits against Rattner, Cuomo's office noted that Rattner "refused to answer 68 questions" in that deposition.
NOW HE'S TALKING
But Rattner has not been quiet in the days since the charges were announced. His strategy now appears to be twofold: attack Cuomo in the media, and try to show that his former colleagues at Quadrangle were legally at fault. In a statement last week, Rattner said he would not be "bullied simply because the attorney general's office prefers political considerations instead of a reasoned assessment of the facts."
Davidson Goldin, a public-relations spokesman for Rattner, emphasized the difference between the penalties Cuomo is seeking and the settlement terms Rattner agreed to with SEC. "The only reason for the attorney general to take this action is political," Goldin said.
Rattner's compensation fight with Quadrangle continues, and documents emerging from that arbitration give an apparent preview of how he will defend Cuomo's charges. In a petition for discovery filed in New York State Court last week, Rattner claims that his former colleagues were angry when he left to work for the Obama administration, and exacted revenge by trying to shift the blame to him in the pension-fund scandal. Rattner, who is being represented in the arbitration by Cleary, Gottlieb, Steen & Hamilton, contends that his former colleagues chose to "offer the NYAG a scalp" instead of taking responsibility for their own actions.
For its part, Quadrangle in a letter to its limited partners last week said the filing by Rattner "is filled with inaccuracies and misrepresentations, which continues his pattern of failing to take responsibility for his actions."
THE 'CHOOCH' CHARGE
In the discovery petition, Rattner also takes on the substance of Cuomo's allegations, including the charge that he paid kickbacks to former political adviser Hank Morris, who served as an intermediary between would-be investors and the pension fund. Rattner claims that the hiring of Morris--who pleaded guilty yesterday to a felony charge related to the scandal--was legal and appropriately disclosed. Rattner's petition seeks evidence that others at Quadrangle knew about the hiring of Morris, and that they were aware of talks surrounding another of Cuomo's allegations that Rattner denies-the one pertaining to the now-infamous "Chooch" DVD. In his suit against Rattner, Cuomo charged that Rattner tried to curry favor with the pension fund's then-chief investment officer by arranging a distribution deal for the man's brother, a producer of the movie.
A judge has yet to be assigned to the case, Cuomo v. Rattner, New York State Supreme Court, New York County, No. 451435-2010.
(Reporting by Andrew Longstreth of Reuters Legal)