Robbins Geller Obtains $85 Million for Investors in Blackstone’s IPO on the Eve of Trial

August 30, 2013

After over five years of hard-fought litigation, and only three weeks before trial was slated to begin (in September 2013), Robbins Geller has obtained an $85 million settlement in a securities class action against The Blackstone Group L.P. and four of its top executives.

The $85 million cash recovery is an exceptional result and conservatively represents a recovery of nearly 7.7 times more than the median amount of compensation recovered in actions with a similar range of investor losses – a recovery made all the more exceptional because the district court had dismissed the case in its entirety, and Robbins Geller and its co-counsel had to pursue an appeal to bring the case back to life.

Plaintiffs, two individual investors, alleged that Blackstone and its senior executives violated §§11 and 15 of the Securities Act of 1933 by failing to disclose adverse trends and uncertainties facing certain of Blackstone’s private equity and real estate segment investments at the time of Blackstone’s June 2007 initial public offering (the “IPO”). In 2009, the district court dismissed the case, holding that adverse information about Blackstone’s investments was not material because each investment comprised far less than 5% of Blackstone’s total assets under management (then $88 billion).

Undeterred, plaintiffs appealed. In Litwin v. Blackstone Group, L.P., 634 F.3d 706 (2d Cir. 2011), the Second Circuit reversed and issued an opinion that has become a landmark decision widely followed by other courts. Holding that quantitative and qualitative considerations are critical to a finding of materiality, the Second Circuit ruled – for the first time, in a case involving a private equity firm – that “Blackstone is not permitted, in assessing materiality, to aggregate negative and positive effects on its performance fees in order to avoid disclosure of a particular material negative event.” As the Second Circuit explained: “We see no principled basis for holding that an historically ‘private’ equity company that has chosen to go public is somehow subject to a different standard under the securities disclosure laws and regulations than a traditional public company with numerous subsidiaries.” Samuel H. RudmanDavid A. Rosenfeld and Mark T. Millkey, of Robbins Geller’s Melville, New York office, spearheaded efforts to secure the decision.

As a result of this victory, Blackstone sought review by an en banc panel of the Second Circuit, which request was denied, and further review by the United States Supreme Court, which also denied the request. The case then proceeded to discovery, where significant disputes arose almost immediately concerning the scope of discovery – not only of Blackstone, but also of the individual defendants. Working closely with co-counsel, Joseph Russello, a partner in the Melville office, led Robbins Geller’s discovery efforts and secured the production of over five million pages of documents from Blackstone and almost 25 non-parties. William J. Geddish and Christopher T. Gilroy, associates in the Melville office, led the review and analysis of the documents and assisted in deposition preparation. Russello, along with Jonah H. Goldstein and Robert R. Henssler, Jr., partners in the San Diego office, conducted depositions of multiple witnesses and worked with plaintiffs’ damages and real estate experts to establish a solid foundation for the summary judgment and trial stages of the case.

As discovery proceeded, plaintiffs continued to develop their case. To establish materiality, Robbins Geller developed evidence to show that the investments at issue represented a significant portion of the assets responsible for generating Blackstone’s incentive-based income – its main revenue driver. The firm also developed evidence that Blackstone’s accounting practices magnified the importance of these investments, which Blackstone did not technically even own. In addition, Robbins Geller was able to show that the investments were qualitatively material to Blackstone’s private equity and real estate segments. By doing so, the firm was prepared to demonstrate at trial that poor performance by even a handful of investments could have a disproportionately negative effect on Blackstone’s ability to generate profit from its investments – a key showing that was required to establish liability.

After an unsuccessful attempt to mediate a resolution three months before trial, plaintiffs secured class certification, briefed defendants’ motion for summary judgment, and engaged in extensive motion practice to exclude defendants’ experts before trial. While these motions were pending, the district court notified the parties that trial would commence in mid-September 2013 – at that time, only a month away. The case quickly went into overdrive, and a team led by Michael J. Dowd, along with Goldstein and Henssler, from the San Diego office, and Rudman, Russello, Geddish and Gilroy, from the Melville office, spearheaded efforts to prepare the case for trial. Plaintiffs ultimately filed 11 motions in limine, seeking various evidentiary rulings, and exchanged trial witness and exhibit lists and objections, as additional discovery of damages experts and further trial preparation took place.

With supplemental expert discovery and briefing on the pretrial motions underway, plaintiffs engaged in a final attempt to negotiate a resolution before trial. After a weekend of marathon negotiations, Robbins Geller attorneys were able to successfully resolve the case for $85 million. Commenting on the settlement, Rudman stated: “Our team’s efforts enabled me to negotiate from a position of strength. This case is a testament to the perseverance and dedication of our first-rate lawyers and staff.”

On August 30, 2013, the district court granted preliminary approval of the settlement, paving the way for notice to the class. A final approval hearing has been scheduled for December 18, 2013.

Landmen Partners Inc. v. The Blackstone Group L.P., et al., No. 08-cv-03601-HB-FM (S.D.N.Y.).

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