Private equity firm Quadrangle Group LLC settled its part of a long-running pay-to-play probe involving the state's $129.4 billion pension fund, but the accord excludes co-founder Steve Rattner, who remains under scrutiny.

New York Attorney General Andrew Cuomo said on Thursday that Quadrangle and four other defendants agreed to pay nearly $12 million to settle over their involvement in the New York State Common Retirement Fund.

Cuomo also confirmed his probe, which has focused on alleged kickbacks while former state Comptroller Alan Hevesi was in office, has expanded to activity during the term of current Comptroller Thomas DiNapoli, who succeeded Hevesi in 2007.

A DiNapoli spokesman was not immediately available for comment.

On a conference call, Cuomo said there has been a constant refrain of alleged kickbacks afflicting the Common Retirement Fund, the third-largest U.S. public pension fund, for decades.

Everyone does it, everyone knows about it and no one's done anything about it, he said. Well, that is changing.

Cuomo said his probe has resulted in six guilty pleas, settlements with 15 firms, including Carlyle Group and more than $130 million of recoveries.

The attorney general is widely expected to run this year for New York's governorship and has a large lead in polls over prospective rivals. Cuomo and DiNapoli are Democrats.

QUADRANGLE, RATTNER

Investigators alleged that Quadrangle won a $100 million investment from the pension fund by engaging in improper quid pro quo arrangements.

They said this involved agreements to pay more than $1 million of finder fees to Henry Hank Morris, a former top adviser to Hevesi, and distribute a DVD of the film Chooch, produced by former Common Retirement Fund chief investment officer David Loglisci.

Quadrangle, in a statement released by Cuomo, said: We wholly disavow the conduct engaged in by Steve Rattner... That conduct was inappropriate, wrong, and unethical.

The New York-based firm is paying $7 million to New York State and $5 million in a related settlement with the U.S. Securities and Exchange Commission. It also agreed to cooperate with Cuomo's investigation of Rattner and others.

Quadrangle did not admit wrongdoing in agreeing to settle. In a joint statement with Cuomo, it said the principals involved in the alleged improper conduct have left the firm.

A spokesman for Rattner was not immediately available for a comment. Rattner has retained a lawyer, Cuomo said.

Today's action is yet more evidence that kickbacks and corruption contaminated the Retirement Fund, Robert Khuzami, director of the SEC enforcement division, said in a statement. The victims were New York State's hard-working retirees, who were entitled to have honest advisers manage their hard-earned dollars.

The 57-year-old Rattner, a former New York Times reporter, quit Quadrangle in 2009 to run U.S. President Barack Obama's auto bailout task force, causing the firm to put plans to raise a new private equity fund on hold.

Having settled with Cuomo, Quadrangle plans to meet with investors in the coming months to lay the groundwork for perhaps raising a third fund, a person familiar with the matter said. [ID:nWEN2784]. The person requested anonymity because the plans are not public.

Loglisci in March pleaded guilty to helping favored firms gain access to the Common Retirement Fund. He and Morris were charged in March 2009 in a 123-count indictment.

TRANSACTION AFTER DINAPOLI TOOK OVER

The other settlements announced on Thursday include $2 million from political consultant Global Strategy Group, $1.6 million from GKM Newport Generation Capital Services LLC, $715,000 from placement agent Kevin McCabe, and $500,000 from California lobbying firm Platinum Advisors.

Cuomo said Global Strategy Group arranged pension fund investments in private equity funds managed by Intermedia Advisors LLC, a private equity firm led by former AT&T Broadband and YES Network Chief Executive Leo Hindery, and private equity firm Clayton, Dubilier & Rice.

He also said calendar records show a Global Strategy Group and a managing partner at Intermedia met with DiNapoli on April 5, 2007, 13 days before the Common Retirement Fund committed $15 million to Intermedia.

Hindery is one of two Intermedia managing partners, according to the firm's website. Intermedia spokeswoman Anya Hoerburger and Clayton, Dubilier spokesman Dan Jacobs did not immediately return calls seeking comment. Global Strategy, in a statement, said it was pleased to settle with Cuomo.

The New York comptroller is the sole trustee for the state pension fund. Many other U.S. states have multi-member boards to oversee pension funds.

The SEC case is SEC v. Quadrangle Group LLC et al, U.S. District Court, Southern District of New York, No. 10-03192.

(Reporting by Megan Davies, Steve Eder, Joan Gralla, Jonathan Stempel and Rachelle Younglai; editing by Dave Zimmerman, Tim Dobbyn and Andre Grenon)