SEC interrogates Blackstone

The US securities watchdog requested the Steve Schwarzman-led firm provide more details of executive compensation and a class-action lawsuit tied to the firm’s 2007 public listing.

In a four-page letter dated 25 April, the Blackstone Group was questioned by the US Securities and Exchange Commission over senior personnel pay and risks relating to an IPO lawsuit. The filing was made public this week.

A person close to the situation said the SEC had closed the matter satisfied the group was able to meet all necessary filing requirements. “The agency didn't realise Blackstone had actually already filed some of the information requested”, the source said.

The agency, responding to the firm’s annual report filing earlier this year, requested follow-up details on how the group’s head Steve Schwarzman determines carried interest allocations, cash payments and equity awards for Blackstone’s executive officers.

The SEC further sought clarity on whether an investor lawsuit against Blackstone could potentially have a material adverse impact on the firm’s operations and financial health. In February a federal appeals court gave the green light to a class action lawsuit claiming Blackstone whitewashed its portfolio before launching its listing on the New York Stock Exchange in mid-2007.

Steve Schwarzman

In a reply letter dated 9 May, Blackstone said “the likelihood of any material loss resulting from the IPO lawsuit to be remote”. Blackstone declined to comment beyond the response letter.

The letter said Blackstone would incorporate further details on the lawsuit and executive compensation schemes in future filings with the agency, adding executive pay was based “on internal measures which are applied to a number of complex individual businesses and partnerships”.

In its response the firm noted the executive officers’ accrued amount of carry, which is subject to future realisations, was submitted in its annual filing last February. The filing shows Schwarzman holding an accrued $6.73 million in carried interest while the firm’s president and chief operating officer Tony Hamilton could eventually pocket $26.1 million in carry.

Both partners received $350,000 in base compensation last year, while Hamilton received a further $23.5 million bonus, the filing shows. The bulk of Schwarzman’s wealth is tied up in vested Blackstone shares worth $400 million at the end of last year. He holds an additional $544.7 million in shares which have not yet vested. 

The exchange underscores the headaches that come along with a public listing for private equity firms. Most recently Oaktree Capital Group filed plans for a $100 million flotation on the NYSE. “Public ownership is the most widely accepted way to go beyond an entrepreneur-led or family-owned company to one able to live on indefinitely,” said Oaktree in its prospectus.