The Blackstone Group will pay $39 million to settle charges that accelerated monitoring fees and legal fee discounts benefiting the firm were not fully disclosed to investors, who will get $28.8 million of the settlement, the Securities and Exchange Commission announced Wednesday.
According to the order, three Blackstone funds, Blackstone Management Partners, Blackstone Management Partners III and Blackstone Management Partners IV, did not disclose its practice of accelerating monitoring fees until after it took the fees, from at least 2010 through March 2015. In some of the funds, Blackstone already exited the portfolio companies several years ago.
The SEC also charged Blackstone for failing to disclose a legal fee arrangement made in 2007 that provided the firm, but not the funds’ limited partners, a much greater discount on its legal fees.
“The issue is lack of disclosure,” said Andrew J. Ceresney, SEC enforcement director, on a press call. Mr. Ceresney said SEC officials have been focused on private equity fees and disclosure in recent years. “This has been an area of significant focus for the commission. It will not be tolerated, regardless of the size of the adviser,” he said.
Without admitting or denying the findings, Blackstone agreed to cease and desist from further violations, to disgorge $26.2 million plus prejudgment interest of $2.6 million, and to pay a $10 million civil penalty. Blackstone will distribute $28.8 million to affected fund investors. SEC officials noted the firm’s “voluntary and prompt cooperation” in a news release.
Blackstone spokesman Peter Rose said in an e-mail that the matter arose from the absence of express disclosure in marketing documents 10 or more years ago about possible acceleration of monitoring fees, and that when fees were received and disclosed, the limited partner advisory committee “did not exercise its right to object. Moreover, Blackstone voluntarily made changes to the applicable policies well before this inquiry was begun,” Mr. Rose said.