Richard Drew/Associated PressTraders at the New York Stock Exchange in 2007 at the post that handled the Blackstone Group on its first day of trading.The Blackstone Group has agreed to pay $85 million to settle a lawsuit brought by a group of investors that accused it of misrepresenting some investments ahead of its 2007 initial public offering.
The settlement, filed in Federal District Court in Manhattan on Wednesday, closes the door on a five-year legal battle with investors who contended that the firm misrepresented the value of three investments in its prospectus. Blackstone denied any wrongdoing or liability in the settlement.
By settling, Blackstone has avoided a securities class-action trial that was scheduled to begin next month. Shares of Blackstone rose 1.9 percent on Thursday, to $22.05.
In June 2007, at the peak of the private equity boom, Blackstone raised $4.1 billion in a share offering on the New York Stock Exchange with much fanfare. It was one of the first of a group of highly secretive private equity firms to go public, attracting the kind of media attention normally left for Hollywood movie premieres. Camera operators and reporters lined up at the stock exchange to cover the event, according to a New York Times report at the time.
“We may be witnessing the end of capitalism as we know it,” Tom Wolfe, the author of “Bonfire of the Vanities,” told CNBC, according to the report.
But the shares, which listed at $31 a share and rose on the first day of trading to $35.06, quickly fell in value amid wider market volatility.
A group of investors, unhappy with the way the company disclosed its investments, filed a complaint against the company and its chairman, Stephen A. Schwarzman, in April 2008, less than a year after the listing. They contended the Blackstone did not properly disclose the value of its investments in three companies – a monoline insurer, a semiconductor manufacturer and a real estate company. These investments were already losing value at the time of the I.P.O., they argued, posing a potential risk to the firm’s performance fees.
A year after Blackstone’s I.P.O., its stock had lost nearly half its value and was trading at $18.15 a share.
The settlement puts an end to a long and complicated legal process. The case was initially thrown out in 2009 by Judge Harold Baer of Federal District Court but was revived on appeal in early 2011. A later appeal by Blackstone was rejected in October 2011.
During the process, more than five million pages of documents were handed over to the court from Blackstone and nearly 25 third parties, according to the settlement papers. Before the settlement, Judge Baer was expected to examine the documents and disposition again carefully before deciding whether to dismiss the case.
“We’re delighted at the result,” said Samuel H. Rudman, a lawyer with Robbins Geller Rudman and Dowd, co-lead counsel for the plaintiffs.
A representative for Blackstone could not be reached for comment.