Blackstone Group LP won dismissal on Tuesday of an investor class-action lawsuit accusing the private equity firm of failing to disclose prior to its 2007 initial public offering that some of its holdings were losing value.
In a 15-page ruling, U.S. District Judge Harold Baer in Manhattan said the plaintiffs failed to state a claim upon which they could recover. He dismissed the case with prejudice, meaning the plaintiffs cannot bring their claims again.
Lawyers for the plaintiffs did not immediately return requests for comment. A Blackstone spokesman said the New York-based firm was delighted with Baer's decision.
Blackstone offered about 153 million common units at $31 each when it went public in June 2007, on the cusp of what would become a global credit crisis.
The price of the units, however, fell to about $7 by the time the plaintiffs filed their amended complaint in October 2008. The units closed up 21 cents, or 1.5 percent, at $14.66 on Tuesday on the New York Stock Exchange.
The plaintiffs said Blackstone did not disclose at the time of its IPO that some holdings were not performing well and were of declining value. They said this limited the potential for Blackstone to collect performance fees, and raised the chance that fees could be clawed back by limited partners.
The alleged problem holdings included a $331 million investment in FGIC, a bond insurer hurt by subprime mortgages; a $3.1 billion investment in Freescale Semiconductor Inc FSLSM.UL, which would lose a key contract with Motorola Inc, and some real estate investments, court papers show.
Baer said Blackstone's exposures to FGIC and to Freescale fell short of being material, reflecting their size relative to Blackstone's $88.4 billion of overall assets, and the fact that IPO investors could benefit from better performance at some of Blackstone's 41 other portfolio companies.
The judge also said the plaintiffs failed to show a link between problems in the residential housing market in late 2006 and early 2007 with Blackstone's real estate investments, 85 percent of which were in commercial and hotel properties.
It may well be that as sophisticated real estate investors Blackstone should have known that the problems in the real estate and credit markets were not limited to subprime residential mortgages, the judge wrote, but this is not enough.
The case is Landmen Partners Inc v. Blackstone Group LP, U.S. District Court, Southern District of New York (Manhattan), No. 08-3601.
(Reporting by Jonathan Stempel; Additional reporting by Megan Davies; editing by Andre Grenon and Matthew Lewis)