Blackstone: $39M settlement for fee practices

October 09 07:47 2015

Blackstone Group LP (BX) has agreed to pay nearly $39 million to settle Securities and Exchange Commission allegations over some of the private equity giant’s disclosures about fee practices. Three of the New York-based financial firm’s private equity fund advisers failed to inform investors fully about financial benefits the advisers obtained from accelerated monitoring fees and separate discounts on legal fees, the SEC said Wednesday.

Nearly $29 million of the settlement will be distributed to affected fund investors, the SEC said. The agreement stems from an SEC investigation showing that Blackstone Management Partners, Blackstone Management Partners III and Blackstone Management Partners IV did not inform investors about the acceleration of monitoring feeds paid by fund-owned portfolio companies before those firms were sold or launched initial public offerings of stock.

The payments in question reduced the value of the portfolio companies, “to the detriment of the funds and their investors,” the SEC said. Additionally, SEC investigators found that fund investors weren’t told about a separate fee arrangement that gave Blackstone a larger discount on services by an outside law firm than the discount that firm provided to the funds.

Without admitting or denying the findings, Blackstone agreed to the entry of an SEC order that concluded the firm breached its fiduciary duty, failed to make proper disclosures and neglected to adopt and implement reasonably designed policies and procedures. “Full transparency of fees and conflicts of interest is critical in the private equity industry, and we will continue taking action against advisers that do not adequately disclose their fees and expenses, as Blackstone did here,” said Andrew Ceresney, director of the SEC’s Enforcement Division.