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News: The Blackstone Group Advisers Agree to Settle Charges for Failing to Disclose Necessary Information

Three private equity advisors have agreed to pay almost $39 million dollars to settle charges of disclosure failures brought against them, the Securities and Exchange Commission announced on Wednesday. 

The SEC issued an Order on Wednesday instituting proceedings against three private equity fund advisers with the Blackstone Group for failing to inform their customers of the benefits the advisors gained from accelerated monitoring fees and the legal discounts the firm received, in violation of securities industry regulations.

The three advisers named in the Order are Blackstone Management Partners, Blackstone Management Partners III, and Blackstone Management Partners IV. According to the SEC, the firms were not transparent in their dealings with their clients. The Blackstone-advised equity funds allegedly bought companies, and would charge those companies an annual fee – paid to Blackstone, rather than to the fund itself. In essence, the fee created a conflict of interest, according to the SEC. As a result, the SEC alleged that Blackstone had breached its fiduciary duties to the funds.

Other SEC allegations included: 

  • Blackstone charged monitoring fees that covered the cost of advisory and consulting services.
  • Blackstone advanced future monitoring fees to pay off some management fees.
  • Blackstone did not tell clients of the accelerated fees until after they were paid.
  • Blackstone violated the Investment Advisers Act of 1940 when it did not adopt and implement written policies and procedures reasonably designed to prevent violations of the Investment Advisers Act.

Neither admitting nor denying the charges, Blackstone agreed to pay $26.2 million in disgorgement with $2.6 million in prejudgment interest. They will also pay a $10 million dollar civil penalty. According to reports, $28.8 million is reserved for investors who claimed losses.

The information contained in The Firm’s posts on its blog, fraud alerts, investigations or elsewhere on the site is based upon information obtained from other sources including, but not limited to, news outlets and federal, state, and regulatory agency filings. All suspects and subjects of postings herein are presumed innocent until proven guilty in a court of law or administrative action and any and all crimes are alleged until a court or regulatory agency finds otherwise .

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