Blackstone Asks Court To Throw Out IPO Appeal

(Reuters) – Blackstone Group LP (BX.N) urged a federal appeals court not to revive an investor lawsuit accusing it of hiding bad investments before raising $4.7 billion in its 2007 initial public offering.

A lawyer for the private equity firm argued that U.S. securities laws did not require the private equity firm to disclose expansive details about hundreds of investments that it believed the investors sought.

But investor’s attorney David Brower countered that U.S. District Judge Harold Baer was wrong to dismiss the lawsuit in September 2009.

“Blackstone has the obligation to report significantly negative, and even significantly positive, results,” Brower, a partner at Brower Piven PC, told the U.S. Second Circuit Court of Appeals in New York.

“Numbers are always relevant when you’re talking about investments,” he added.

According to the lawsuit, Blackstone failed to properly disclose at the time of its IPO that some holdings were losing value, limiting potential performance fees and raising the chance that fees could be “clawed back” by limited partners.

Blackstone offered 153 million common units at $31 each when the New York-based firm went public in June 2007, on the eve of a credit crisis that led to a global recession.

The price had fallen to about $7 by the time the plaintiffs filed their amended complaint in October 2008, and has yet to fully recover. In Wednesday afternoon trading, they were down 6 cents at $10.37 on the New York Stock Exchange.


Investors contend that Blackstone should have revealed prior to its IPO a $331 million investment in FGIC, a bond insurer hurt by subprime mortgages; a $3.1 billion investment in Freescale Semiconductor Inc, which would lose a key contract; and some real estate investments.

Baer, however, said the FGIC and Freescale exposures were not material relative to Blackstone’s $88.4 billion of assets.

He also said the plaintiffs failed to link known problems in residential housing at the time to Blackstone’s investments in commercial and hotel properties.

Bruce Angiolillo, a partner at Simpson Thacher & Bartlett LLP representing Blackstone, at Wednesday’s argument likened individual Blackstone’s investments to “streams” that flow into the “river” that constitutes the firm’s overall results.

Circuit Judge Chester Straub asked whether an investor wouldn’t want to know that some streams might be “polluted,” and thus taint overall performance and the stock price.

“When you have hundreds of contributors” to results, Angiolillo responded, “if you are going to make an allegation that one of those streams has a problem, then you have to look at what it means for Blackstone as a whole.”

The Second Circuit panel did not say when it will rule, a process that typically takes several weeks or months.

The case is Litwin et al v. Blackstone Group LP et al, U.S. Second Circuit Court of Appeals, No. 09-4426. (Reporting by Jonathan Stempel. Editing by Robert MacMillan)