Private equity firm Quadrangle Group LLC settled its part of a long-running pay-to-pay 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.

Quadrangle is paying $7 million to New York State and $5 million in a related settlement with the U.S. Securities and Exchange Commission.

The Cuomo accord does not cover Rattner, and the attorney general said Quadrangle agreed to cooperate with his investigation as to Rattner and others.

Three other companies and one individual agreed to pay $5 million to settle other parts of Cuomo's probe.

On a conference call, Cuomo said there has been a constant refrain of alleged pay-to-play afflicting the Common Retirement Fund for decades.

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

Cuomo also confirmed that his probe, which has focused on activities under former state Comptroller Alan Hevesi, has expanded to the administration of Hevesi's successor, current Comptroller Thomas DiNapoli.

A spokesman for DiNapoli was not immediately available for comment.

The attorney general said his probe has resulted in six guilty pleas and more than $130 million of recoveries.

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 firm did not admit wrongdoing.

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

QUID PRO QUO

Quadrangle has already been struggling from the loss of Rattner, who quit in 2009 to run U.S. President Barack Obama's auto bailout task force. The firm at the time said it put plans to raise a new private equity fund on hold.

Investigators alleged that Quadrangle won a $100 million investment from the Common Retirement Fund by engaging in an improper quid pro quo arrangement.

They said this involved the arrangement by a former executive for an affiliate to distribute a DVD of the film Chooch, which was produced by former New York State Deputy Comptroller David Loglisci and his brothers, and to pay more than $1 million in finder fees to Henry Hank Morris, a former top adviser Hevesi.

The former Quadrangle executive is Rattner, a person familiar with the matter said.

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 over the alleged steering of hundreds of millions of dollars of investments in exchange for kickbacks.

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 and Jonathan Stempel; Editing by Dave Zimmerman and Tim Dobbyn)

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