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Former Auto Czar’s Pay-To-Play Case On Hold

Settlement delayed.

by on Oct.15, 2010

Former auto czar Steve Rattner's settlement of a pay-to-play scandal is on hold.

The Securities and Exchange Commission has postponed – temporarily – a vote to approve a preliminary settlement with Steven Rattner, the Obama administration’s former “auto czar” who was instrumental in re-shaping Detroit through a massive bailout of bankrupt makers General Motors and Chrysler.

Since leaving Washington in the summer of 2009, Rattner has been swept up in a “pay-to-play” scandal involving New York State’s public pension fund.  The SEC has been working on a settlement, but the financier remains under investigation by New York Attorney General Andrew Cuomo.

Under the proposed deal with the federal government, Rattner would pay $6 million and accept a two-year ban from the financial industry, according to The New York Times, where Rattner once worked as a reporter before launching a second career as a financier.

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Such a settlement with the SEC would effectively end the 58-year-old Rattner’s career as a financier and make it doubtful he would ever hold a top political office.

It is unclear why the SEC settlement hearing was postponed, and the agency has not set a subsequent date.  It is also uncertain whether a settlement deal might be in jeopardy due to the Cuomo investigation, which would not necessarily be impacted by a settlement between Rattner and the federal government.

Rattner, whose arrogance and ego helped make him a Wall Street insider, clearly relished his brief role as auto czar, even though it was a role that lasted only a few months – he decided to leave the White House position as concerns about corruption surfaced. In addition, despite his short tenure, he had a major impact on the auto industry, and not only in the U.S. but around the globe.

During the bailout, Rattner, a long-time Wall Street insider, played hardball, forcing bond holders to make serious concessions.  While critics contend Rattner clearly favored the unions during the restructuring, he insisted, during a visit to Detroit earlier this year, the concessions by bond holders simply made it easier for the United Auto Workers Union to accept concessions.

Rattner famously dismissed GM’s long-time CEO, G. Richard Wagoner, who had led the company to the brink of bankruptcy and appeared ready to let the company’s business in North America sink in a bid to save the company’s growing business in Asia and South America.

Rattner has savaged Wagoner and GM in his new book about the bailout, saying that as it lost market share over the last 30 years, GM developed a “culture of losing” that had made sales declines all too acceptable.

But Rattner also has defended the Obama administration’s decision to bail out GM and Chrysler, even though they were in his words “failed companies.”

“Here was a case in which the private market had failed, the government came in and provided the capital and achieved the most fundamental restructuring of this industry we’ve ever seen,” he said.

If the administration had failed to save GM and Chrysler, thousands of jobs would have been lost and the economy in the Midwest could have sunk into a true depression, he said.

Rattner’s influence at GM was substantial. Having worked on the investment side of the telecommunications business, Ratter was familiar with Ed Whitacre, the former AT&T chairman who was brought into Detroit initially to serve as non-executive chairman but then, last November, was named GM’s CEO.

In the months following the bankruptcy, Whitacre dismissed most of GM’s top executives. Ultimately only Mark Reuss and Tom Stephens survived the purge. Whitacre also recruited new executives such as Chris Liddell, hired away from Microsoft to serve as CFO, and Joel Ewanwick, the former Hyundai executive now in charge of GM marketing.

In August, Whitacre also tapped Dan Akerson, another former telecommications executive blessed by Rattner, to serve as the Texas executive’s replacement as GM chief executive officer.

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