After more than 5 years of legal tussle between certain investors and The Blackstone Group L.P. (BX), the latter has now agreed to settle an investor class action lawsuit related to its initial public offering (:IPO). The lawsuit accused the company of concealing the fact that its portfolio of investments was underperforming, while filing the prospectus for IPO in 2007.
Blackstone will be paying $85 million as settlement, without admitting or denying the charges. The settlement also covers the claims against the company’s top executives including the CEO, Stephen Schwartzman.
The lawsuit was filed in Apr 2008, nearly a year after Blackstone’s IPO raised more than $4 billion.
The suit had accused Blackstone of not disclosing the fact that 2 of its portfolio companies – FGIC Corp. and Freescale Semiconductor Inc. – as well as its commercial real-estate investments were not performing as per expections. This, in turn, increased the risk of performance fees being clawed back by limited partners.
At present, the settlement awaits the approval of the U.S. District Judge Harold Baer, who had dismissed the lawsuit in Sep 2009. However, in Feb 2011, the 2nd U.S. Circuit Court of Appeals in New York reversed the above order and revived the lawsuit. Further, in Oct 2011, the U.S. Supreme Court rejected Blackstone's appeal for dismissal of the suit.
The lawsuit settlement removes a longstanding litigation headwind for Blackstone. Though the company did not admit any wrongdoing, the legal hassles that braced it is a warning to other companies which conceal information about the performance of their investments.
Currently, Blackstone carries a Zacks Rank #2 (Buy). Other investment management companies worth considering include Ameriprise Financial, Inc. (AMP), Fortress Investment Group LLC (FIG) and Noah Holdings Limited (NOAH). All these stocks carry the same Zacks Rank as Blackstone.
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