Appeals court revives Blackstone lawsuit

A US federal appeals court has given the green light to an investor lawsuit claiming Blackstone whitewashed its portfolio before launching its listing on the NYSE.

A class action lawsuit against one of the world’s preeminent buyout firms has been given new life following a recent court ruling.

A US appeals court reversed an earlier decision dismissing investor allegations the Steve Schwarzman -led Blackstone Group failed to adequately disclose its risks ahead of its IPO in June 2007.

Plaintiffs argued Blackstone failed to mention in IPO documents problems experienced by two of the group’s portfolio companies as well as its exposure to the brewing subprime mortgage crisis. Namely the firm’s $331 million investment in FGIC, a bond insurer, in 2003; and the group’s $3.1 billion contribution to the take-private of chip maker Freescale Semiconductor in 2006. Both companies tumbled following the economic downturn, depressing the buyout shop’s listed share price, according to plaintiffs.

Blackstone’s share price fell to $9.14 the week investors filed their complaint in October 2008, a 70 percent drop from its June 2007 issue price of $31 per unit.

In September 2009 a district court granted Blackstone’s request to dismiss the complaint—ruling the problem investments were immaterial, accounting for only a small share of the group’s $88 billion operation.

The appeals court disagreed, deciding investors “plausibly allege” Blackstone omitted material information to investors, regardless of the investment’s contribution to the firm’s overall performance.

A Blackstone spokesperson did not return a request for comment by press time.