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The Securities and Exchange Commission plans to reverse an earlier decision that would have allowed former Wall Street deal maker Steven Rattner to return to the securities industry after serving a regulatory ban for more than five years, according to people familiar with the matter.

The about-face follows dissent within the agency over the move in March to readmit Mr. Rattner, who in 2010 was barred from the industry as part of an SEC settlement over his alleged role in a pay-to-play arrangement involving New York state's flagship pension fund. The SEC's reprieve, which was approved by its lower-level staff, quickly unraveled because two of its commissioners later questioned the deal and objected to not being told about it, according to people familiar with the matter.

The agency plans as soon as this week to issue a public notice that it is withdrawing an order that would have cleared the way for Mr. Rattner to work for Guggenheim Securities LLC, the people said. Mr. Rattner, whose legal troubles interrupted his work as the leader of the U.S. government's auto-bailout program in 2009, told the SEC that he wanted to rescind his request to be reinstated to the brokerage industry and work for Guggenheim after learning that commissioners would reconsider it, the people said.

Davidson Goldin, a spokesman for Mr. Rattner, said Mr. Rattner had said "that he's no longer interested due to his full time role as chairman of Willett Advisors," which manages the fortune of Bloomberg L.P. founder and former New York City Mayor Michael Bloomberg, as well as Bloomberg Philanthropies' assets. Mr. Goldin said Mr. Rattner informed the SEC "weeks ago," and that "anonymous sources telling you anything different are just wrong on the facts."

The development underscores how high-profile enforcement cases and settlements continue to bedevil the SEC. Just last week, Sen. Elizabeth Warren (D., Mass.) criticized a settlement that will allow another financier—Steven Cohen, whose firm pleaded guilty to insider-trading charges—to return to managing hedge funds. SEC officials said their settlement with Mr. Cohen imposed requirements on him "that are even stronger than typical remedies available under the securities laws," and vowed to "scrutinize his trading activity closely going forward."

Mr. Rattner's case stems from his time running Quadrangle Group LLC, a private-equity firm. Law-enforcement officials accused him of doing favors for and paying money to state officials in connection with a $150 million investment that Quadrangle obtained from the New York State Common Retirement Fund in 2005 and 2006.

The settlement with the SEC banned him from working for a brokerage firm or investment adviser for two years, and allowed him to reapply after serving that time on the sidelines.

Mr. Rattner's application for reinstatement was initially supported by the Financial Industry Regulatory Authority, a self-regulatory body whose decisions must be approved by the SEC. The SEC staff, which can act on Finra's recommendations without a vote of the commission, issued an order approving Mr. Rattner's request on March 14.

The deal called for Guggenheim's executives to closely monitor Mr. Rattner's meetings, client appointments, and his "outgoing and incoming written correspondence on a weekly basis." The deal would have forbidden Mr. Rattner from soliciting investments from public pension funds or managing any public-pension-fund money. Mr. Goldin said last month that Mr. Rattner didn't plan to work for Guggenheim immediately, but the deal "enables Steve to engage in investment-banking activities" if he chose to return to the business.

Commissioner Michael Piwowar, a Republican, immediately inquired about the deal, partly because it linked Mr. Rattner to Guggenheim, a firm that had recently been sanctioned for its own compliance failures, the people said. Michael Sitrick, a spokesman for Guggenheim, declined to comment.

Guggenheim Partners Investment Management LLC, the asset-management business of Guggenheim Partners LLC, whose investment-banking and brokerage arm is Guggenheim Securities LLC, agreed last August to pay $20 million to settle SEC claims that it failed to disclose a conflict of interest involving a loan that one of its executives took from a client. The SEC's investigation alleged that a Guggenheim Partners Investment Management executive received a $50 million loan that permitted him to personally invest in a corporate acquisition led by Guggenheim Partners. The loan should have been disclosed to other Guggenheim Partners Investment Management clients because it put the lender in a position to seek better treatment than other investors, the SEC said. Guggenheim didn't admit or deny the SEC's claims but agreed to pay a $20 million penalty and hire an independent compliance consultant.

Commissioner Kara Stein, a Democrat, separately questioned the SEC staff about the deal to return Mr. Rattner to the industry, another person said.

On March 16, the agency's officials told Mr. Rattner's attorneys and Guggenheim Securities executives that SEC commissioners would put the staff's decision on hold and would consider the case themselves, the people said.

Neither Mr. Piwowar nor Ms. Stein were told about the deal to readmit Mr. Rattner to the financial industry before it was announced, the people said. SEC Chairman Mary Jo White wasn't involved because she had recused herself, the people said. Before joining the SEC, Ms. White worked in private practice and represented a law firm, Simpson Thacher, which had defended Mr. Rattner from the pay-to-play accusations, according to her financial-disclosure statement.

SEC spokesman John Nester declined to comment on the reasons for Ms. White's recusal.

Mr. Rattner was accused of paying kickbacks and arranging a distribution deal for a state official's low-budget movie to secure a $150 million investment from the New York fund, the country's third-largest state pension pool. He didn't admit to wrongdoing but agreed to pay $6.2 million to settle the SEC's claims and $10 million to settle an investigation brought by then-New York Attorney General Andrew Cuomo.

Mr. Rattner ran the Obama administration's auto bailout program in 2009, which took both General Motors and Chrysler LLC through bankruptcy reorganization, before settling the bitterly fought case in 2010.

Write to Dave Michaels at dave.michaels@wsj.com

(END) Dow Jones Newswires

April 26, 2016 21:25 ET (01:25 GMT)

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