Blackstone avoids trial with $85m settlement

Facing allegations it had whitewashed its portfolio before its public debut on the NYSE, The Blackstone Group reached a settlement with plaintiffs three weeks shy of a trial hearing.

Following five years of litigation, The Blackstone Group reached an $85 million settlement with investors who claim bad investments were hidden from view before the firm’s initial public offering in 2007.

The settlement allows Blackstone to avoid what could have been a lengthy and expensive hearing scheduled for September 16.

According to plaintiffs’ lawyers, the settlement represents about 12 percent of the roughly $700 million in damages they believed were achievable at trial.

A spokesperson for Blackstone was not immediately available for comment. The firm denies any wrongdoing as part of the settlement, according to court documents.

The $85 million settlement will be paid for by an insurance company Blackstone has a policy with, according to a source with knowledge of the matter.

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 computer component maker 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. Blackstone’s shares closed at $21.65 on Wednesday. 

The case, which was originally dismissed by a district court in September 2009, was revived by a US appeals court in early 2011. The US Supreme Court rejected Blackstone's further appeal in October 2011.