Blackstone Inc. Rotten Score Breakdown

The U.S. Securities and Exchange Commission charged three private-equity fund advisers affiliated with Blackstone in October 2015 with disclosure failures and breaches of fiduciary duty involving fees and expenses charged in connection with Blackstone-managed private-equity funds. The SEC found that Blackstone entered into monitoring agreements with portfolio companies under which the companies paid Blackstone monitoring fees for advisory and consulting services. When portfolio companies were sold or taken public, Blackstone sometimes terminated those monitoring agreements early. Blackstone nevertheless accelerated payment of future monitoring fees that would otherwise have been payable over subsequent years. According to the SEC, this meant portfolio companies made lump-sum payments to Blackstone for periods during which Blackstone would no longer actually provide monitoring services. The SEC found that Blackstone failed to adequately disclose this accelerated-monitoring-fee practice to investors before they committed capital to the affected funds. The SEC also identified a separate conflict involving legal fees. Blackstone had negotiated a legal-services arrangement under which Blackstone itself received a substantially greater discount from a law firm than the discount received by the Blackstone-managed funds. According to the SEC, this preferential arrangement was not adequately disclosed to fund investors. Blackstone agreed to pay approximately $26.2 million in disgorgement and approximately $2.6 million in prejudgment interest. The company also agreed to pay a $10 million civil penalty. Approximately $28.8 million was to be distributed to affected fund investors. The total monetary resolution therefore approached $39 million. Primary source: U.S. Securities and Exchange Commission — Blackstone Charged With Disclosure Failures: https://www.sec.gov/newsroom/press-releases/2015-235