Blackstone IPO lawsuit moves forward

The US Supreme Court has given the green light to an investor lawsuit claiming Steve Schwarzman-led Blackstone whitewashed its portfolio before launching its listing on the NYSE.

The US Supreme Court ruled 3 October that an investor lawsuit against The Blackstone Group can move forward. The court declined to review an appellate court ruling that allowed investors to seek to recover losses from the 2007 initial public offering.

Investors who bought 133 million units of Blackstone’s IPO for $3.5 billion are seeking to recover money lost when the shares declined in value.

Blackstone did not respond to requests for comment.

Blackstone was dealt a blow in February when a US appeals court reversed an earlier decision dismissing investor allegations the Steve Schwarzman -led Blackstone 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. Investors took issue with Blackstone’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 Semiconductor in 2006. Both companies tumbled following the economic downturn, depressing the buyout shop’s listed share price, according to plaintiffs.

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.

The lawsuit, Landmen Partners vs. Blackstone Group, also names Schwarzman, Michael Puglisi, Peter Peterson and Tony James as defendants.

The case now goes back to US District Court in New York, which in September 2009 denied the class-action lawsuit.