Blackstone Settles IPO Disclosure Lawsuit for $85 Million

By | August 29, 2013

Blackstone Group LP reached an $85 million settlement with investors over claims it made misrepresentations about its initial public offering.

A U.S. appeals court in 2011 reversed the dismissal of a proposed class-action lawsuit against Blackstone, the biggest manager of private-equity real estate funds, alleging that it made inadequate disclosures before its initial public offering in 2007.

The agreement is intended to “fully, finally, and forever resolve, discharge, and settle” the lawsuit claims, according to a court filing. Blackstone denies any securities law violations, according to the filing.

The plaintiffs, including Landmen Partners Inc., sued Blackstone, Chairman Stephen Schwarzman, and others claiming that at the time of the IPO, two Blackstone portfolio companies and its real-estate fund investments “were experiencing problems” that the firm knew would hurt revenue.

Blackstone and other investors bought a majority stake in FGIC Corp. from General Electric Co. in 2003. An FGIC unit, Financial Guaranty, sold insurance on collateralized debt obligations backed by subprime mortgages, in the form of credit- default swaps, according to the complaint.

FGIC Investment

When mortgage-default rates began to rise, Blackstone should have disclosed the “uncertainties” at the unit, the plaintiffs said. Blackstone wrote down the value of its FGIC investment in fourth-quarter 2007 results.

Peter Rose, a spokesman for New York-based Blackstone, didn’t immediately respond to a phone call and e-mail after regular business hours seeking comment on the settlement.

Blackstone went public in June 2007, raising $4.13 billion in the largest U.S. IPO in five years.

Since the IPO at $31 a share near the peak of a multiyear boom for the buyout industry, the stock has fallen 30 percent, closing today at $21.65 in New York trading. Blackstone fell to as low as $3.87 in February 2009 after the global financial crisis froze deal making.

The case is Landmen Partners v. Blackstone Group PP, 08- cv-03601, U.S. District Court, Southern District of New York (Manhattan). The appeals case is Litwin v. Blackstone Group LP, 09-4426, U.S. Court of Appeals for the Second Circuit (New York).

With assistance from Don Jeffrey in New York and Josh Friedman in Los Angeles.Editors: Peter Blumberg, Michael Hytha

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