Steve Rattner, the money manager who is Obama's top adviser on bailing out the auto industry, is uncomfortably close to a criminal investigation into the New York state pension fund, newspapers reported today.

In October 2004 Rattner, the private equity investor and former New York Times reporter who is leading (if not quite the "czar" of) the Obama administration's task force to save the auto industry, met with David Loglisci, the recently-indicted chief investment officer of the New York General Pension Fund to solicit an investment in his private equity fund Quandrangle, according to news reports in today's New York Times and the Wall Street Journal. By January Rattner's fund had allegedly signed a written agreement to give a 1.1% cut of whatever investment Quadrangle received from the fund to Henry Morris, the (also recently indicted) former aide to the disgraced former state comptroller Alan Hevesi. A few days later, as if to sweeten the deal, Rattner agreed to meet with Loglisci's brother and wound up investing $88,841 for the DVD distribution rights to a movie that had grossed barely a third of that during its brief release in theaters through a Quadrangle affiliate called GT Brands. (The brother produced the movie, Chooch.) Three weeks later, Loglisci the CIO "personally informed" Rattner that Quadrangle would be getting a $100 million investment from the pension fund -- and over the next two and a half years Morris would in turn collect over a million dollars in "finders fees" for the transactions.

Those, at least, are the allegations of a lawsuit filed Wednesday by the SEC against Morris, Loglisci and two of their associates in the latest development in the protracted pay-to-play probe of New York state pension funds. The lawsuit only makes reference to a "Quadrangle executive" but the Times and the Journal quote sources confirming the executive is Rattner. Both papers also specify that Rattner is not himself a target of the probe, and that he told the administration about the investigation when he took the job.

The scheme was so brazen -- and so unsophisticated when compared, say, with the convoluted network of middlemen through whom Illinois Gov. Rod Blagojevich funneled public funds into his personal coffers -- that it's hard to imagine Rattner, a billionaire with lifelong political ambitions and more connections than any one person could ever legitimately milk for profits, would go along with it in "good faith." There's also some careful wording to the suit that suggests Rattner was acting with some element of deliberation.

When the Chooch DVD distribution deal was agreed upon, the Quadrangle executive immediately notified Morris of that fact and the connection to Loglisci.

Developing, as they say...