Is Obama’s auto czar using blackmail on Perella-Weinberg/Xerion?

Just two days ago, No Quarter, a handful of blogs and a thimbleful of major media caught on to the Chrysler holdout firms’ attorney, Tom Lauria, and his accusations that Obama’s auto czar, Steven Rattner, threated to destroy P-W’s reputation if they continued to oppose the government orchestrated sell out of Chrysler to Fiat SpA.

Perella-Weinberg has a stake in Chrysler via their Xerion [Capital] Fund. Chrysler, itself, is currently owned by Cerberus Capital Management LP. Try to keep all these names straight… these players are going to continue to reappear, along with some others you may not know about.

Per Law Shucks, and via Andrew Sorkin at the NYTs Dealbook, Lauria added more detail to that threat in a follow up interview with Jake Tapper.

In a follow-up interview with ABC News’s Jake Tapper, [Lauria] identified Mr. Rattner, the head of the auto task force, as having told a Perella Weinberg official that the White House “would embarrass the firm.”

It’s no surprise that the WH denied the event ever took place. And yesterday Perella-Weinberg issued their carefully parsed statement as well.

Suggestions have been made that the Perella Weinberg Partners Xerion Fund changed its stance on the Chrysler restructuring due to pressure from White House officials. This is incorrect. The decision to accept and support the proposed deal was made by the Xerion Fund after reflecting carefully on the statement of the President when announcing Chrysler’s bankruptcy filing. In considering the President’s words and exercising our best investment judgment, we concluded that the risks of potentially severe capital loss that could arise from fighting this in bankruptcy court far outweighed any realistic potential upside.

We have a very specific mandate from our investors, and that is to carefully weigh investment risks and rewards. It is not our investment mandate to pursue political or risky legal campaigns with our investors’ money. This was our assessment of investment risk and reward, nothing else.

While we did and still do believe that the lenders would be justified in pressing their objections under conventional bankruptcy law principles, we believe a settlement would now be in the best interests of all parties in the context of avoiding a drawn out contested bankruptcy litigation proceeding, and we encourage our colleagues in the loan syndicate to pursue this immediately.

Note very carefully, Perella-Weinberg spokespersons have not denied the charges of White House strong arming. Instead, in no uncertain terms, P-W has chosen to use the promise of heavy litigation costs …. with a questionable outcome… as their reason for a change of heart. Surely they would have known this before signing on to the lawsuit. Could they be this under-informed at the onset?

History… plus their choice of legal representation, belies this possibility. Lauria has been in this same spot for his clientele before with a previous decision in Adelphia Communications.

Here the bankruptcy judge refused requests by Lauria, representing first lien holders, to appoint a trustee to oversee disputes, and to disqualify a chief Adelphia bankruptcy counsel. The bench considered this a “nuclear war button” threatening obliteration of a crucial $17.6 billion deal, selling Adelphia’s assets to cable rivals, Time Warner and Comcast.

Key to the judge’s decision was that a failed sale due to delays could incur higher costs in penalties to Adelphi, and that the assets could be sold prior to the creditor challenges to the planned reorganization by using Section 363 of the US Bankruptcy Code under Chapter 11.

In the same vein, Obama’s orchestrating a forced asset sale to what will be a government and union owned company, [55% to UAW, 10% to government/secured lenders] known as Fiat SpA (or whatever new name they give to this new US entity), prior to Lauria’s Chrysler claims being heard.

But there’s way too much crony’ism going on with Rattner as Obama’s auto czar. As the ever astute Missy pointed out at the end of March, Rattner’s conflicts of interest in oversight are tenacled.

Rattner is co-founder and senior executive of the Quadrangle Group, under investigation for it’s alleged roll in a kickback scheme in concert with Henry “Hank” Morris, and former New York deputy comptroller, David Loglisci, and involving the New York State Common Retirement Fund. Both Morris and Loglisci were arrested in March of this year, charged with 123-count state criminal indictment that included money-laundering, enterprise-corruption and bribery charges.

So far, the most indepth round up of the doin’s between Rattner’s Quadrangle, and Rattner himself with documented meetings with Morris, and Loglisci comes from The New Republic’s Marty Peretz.

I’ll let you read thru the whole unsavory story itself, but it appears that Mr. Loglisci co-produced one loser of a flick called “Chooch” which lost about $700K after a brief run in three theatres. Rattner’s Quadrangle Group decided to do a quid pro quo, and avoided crucial reporting requirements by using a subsidiary to buy the DVD rights to this movie for $88K. Shortly thereafter, magically, Loglisci… in charge of managing some of the NY pension funds… slide $100K from the fund to Rattners Quadrangle Group for investment purposes.

AKA… pay to play.

Andrew Ross Sorkin’s article also adds more fodder to the story, saying Rattner turned to Morris for his specific placement services for the NY pension funds after meeting the then managing director of private markets for the New York City comptroller, Josh Wolf-Powers. Mr. Powers informed Rattner that “he could not think of any investment firm that had persuaded the city’s pension fund to invest without using a placement agent.” [Mata note: remember this statement…]

Thus the relationship between Rattner, and the now charged Morris, began.

As if the pay to play investigation weren’t enough on it’s own, there’s the incestuous relationship between Quadrangle Group and Cerberus – Chrysler owner. Again, back to Law Shucks brief summary on the situation, Quadrangle received a loan from Cerberus in which they are now technically in default.

Cerberus Capital Management LP, the current owner of Chrysler LLC, lent Rattner’s Quadrangle $125 million as part of the financing for the buyout of Maxim magazine and music publication Blender. As both titles limp through the drop in advertising revenue, Cerberus wants more capital invested to cover the debt levels, a request that Quadrangle has balked at. The two remain at loggerheads over the issue with Cerberus claiming the loans are technically in default.

As one source told the New York Post (NWS 9.85 ↑6.37%), “Cerberus is about to foreclose on the loan to Quadrangle, and now Steve Rattner is going to be the boss of Cerberus.”

Rattner is, of course, the “boss” of Cerberus via his Obama appointment as auto czar to Chrysler… aka Cerberus.

Simple translation? Rattner’s Quadrangle Group is one of Chrysler/Cerberus creditors in default… and he’s in charge of structuring their asset sell off.

Yeah. No conflict there…

Okay… I told you all the above so I could get to this moment. Just what is it the Obama admin (via his) auto czar have on P-W, aka Xerion Capital as the Chrysler first lien investor, to “embarrass” or “ruin their reputation”?

One’s first thoughts turn to Rahm’bo. And while there are, again, the tenacles of connection, that doesn’t pan out as planned. As Timothy Carney at the Washington Examiner reports today, Obama’s Chief of Staff and ballet-dancing tough guy has his own ties to Perella-Weinberg… taking in over $16 mil in his two-and-a-half years between the Clinton White House and Congress. Other publications, such as ProPublica.org and CNN actually put that figure at $18 million.

If one thinks that Rahm’bo was pulling strings with a former employer, I consider it unlikely. A quick look at Joseph Perella’s campaign contributions show he is anything but on Rahm’bo’s side of the political aisle. Records show Mr. Perella contributing a total of $29,600 to Obama’s rival, John McCain. But this would also explain why Rahm’bo also wouldn’t necessarily harbor any feelings to protect his former financial benefactor.

But then I ran across one of Tyler Durden’s (Zero Hedge) late February articles, examining just where the New York State Common Retirement System’s pension money was being invested. And among them are some very common names…

What is more curious is an often missed page in the Office Of The State Comptroller’s website (link here) in which the New York State Common Retirement Fund discloses its monthly indirect investment in other asset managers, be they private, public equity or real estate focused. Compiling the publicly available data from February 2007 yields some curious results. Turns out in 2007 the New York Common Fund invested over $5.9 billion directly into a plethora of other hedge and private equity funds, and a total of $7.3 billion net invested over the past 2 years. Some curious names that stand out:

Guggenheim, which received $100 million in May 2007 and a total of $500 million, and which has since shuttered;

Bear Stearns, which received $20 million in June 2007, after the blow up, only to see a the entire investment (including previous installments) of $490 redeemed in August, likely at a great loss;
The investment of $415 million in 24 assorted office properties in October 2007 (peak of the commercial real estate market) through a JV with Liberty Washington;

Apollo’s latest Investment Fund (VII), which received $350 million in August 2007, which somehow closed in late January with $15 billion in total commitments. Looks like New York ignored the stellar performance of the prior fund, in which most leveraged buyouts are currently bankrupt or on the verge;

BlackStone Real Estate Partners VI, in which the fund invested $800 million, and which closed in March 2008 with total commitments of $10.9 billion. Blackstone Real Estate became famous for its bidding war for the Equity Office Properties REIT which it won at the peak of the market with a final purchase price of $39 billion, and in which it invested almost $4 billion in equity, only to flip most of it to pay down the associated debt; they are likely stuck with the balance at a significantly underwater valuation.

Harbinger Capital Partners, which received a $71 million investment from the fund in 2007, and which is likely worth roughly 60 cents on the dollar;

Cerberus, which received $50 million in May 2007, and which might very well have been immediately funneled into such sterling investments as Chrysler and Aozora bank;

GoldenTree, which received $35 million in 2007, and is now running dutch auctions to offload all its illiquid holdings;

Xerion, which received $13 million in 2008, months after it was acquired by Perella Weinberg. As we have written, Joe Perella is probably the most important financial advisor in the country currently, advising the FDIC on its assorted activities (with very little information on how the process is compensated). If New York is invested in a fund which is run by a firm compensated by the FDIC, the potential conflict of interest here, absent further disclosure, could have massive proportions.

Is Rattner… who must be intimate to just what “placement agent” was used to gain access to NY pension funds… dragging Perella Weinberg via Xerion into the Henry Morris/David Loglisci investigation as a “threat”?

And then there’s the appearance of Cerberus on that same list…

Naturally, there can be instances where the NY Common Retirement Fund may indeed choose investments for their employees pension funds that are legitimate. But it does raise the question… are they tainted by the same contact? And is Rattner so absolutely sure of a common bond… ala running a possible P-W/Xerion pay to play scheme… that it would be an effective bully tactic to use as government blackmail?

Hopefully the really stellar guys at this… ala Naked Capitalism and Zero Hedge… will get to the bottom of it. But it’s food for thought.