* Drops requirement stockholders agree to arbitration
* Carlyle decision followed talks with SEC, investors
* Sen. Blumenthal, shareholder advocates welcome decision
By Greg Roumeliotis and Jonathan Stempel
Feb 3 Carlyle Group LP, a giant private
equity firm that has filed for an initial public offering, has
dropped a controversial effort to require its future
shareholders to resolve claims through arbitration rather than
The Washington, D.C.-based firm, with $148 billion of assets
under management, said on Friday it made the change after
consulting with the U.S. Securities and Exchange Commission,
which must approve any plans to go public, as well as investors
and other interested parties.
"We are pleased they have announced that they plan to remove
this provision. We advised them that the staff was not prepared
to clear the filing with the mandatory arbitration provision
included," SEC spokesman John Nester said in a statement.
Private equity firms that go public traditionally offer
shareholders little say in governance, offering "units" that
confer limited voting rights and no ability to remove the
But in a regulatory filing on Jan. 10, Carlyle went one step
further, requiring arbitration of any disputes and barring
shareholders from pursuing individual or class-action lawsuits
in court. Friday's decision drops that limitation.
"I'm enormously pleased that Carlyle has not only done the
right thing for itself, but also set an example for others
contemplating IPOs and, hopefully, sent a message to the
financial community about the unfairness of arbitration," Sen.
Richard Blumenthal, a Connecticut Democrat who had opposed the
arbitration requirement, said in a telephone interview.
In a statement on Friday, Carlyle said it first proposed
requiring arbitration, "because we believed that arbitrating
claims would be more efficient, cost effective and beneficial to
The firm sent a somewhat different message in the Jan. 10
filing, telling prospective shareholders that requiring
arbitration could mean their "cost of seeking and obtaining
recoveries may be higher than otherwise would be the case."
No other major, publicly-listed U.S. private equity firm -
Blackstone Group LP, KKR & Co or Apollo Global
Management LLC - imposes a similar litigation ban on its
"Wonderful," Eleanor Bloxham, president of the Corporate
Governance Alliance, said in an interview upon learning of the
"I'm sure they faced strong resistance, because they
wouldn't want to create this level of controversy around their
IPO," she added. "Our system of capitalism works because there
is a host of checks and balances. This proposal represented a
chipping away of shareholder rights."
Carlyle was co-founded in 1987 by William Conway and David
Rubenstein, who are its co-chief executives, and Daniel
D'Aniello, who serves as chairman.
According to its website, the firm has investments in a wide
range of companies such as movie theater operator AMC
Entertainment, donut maker Dunkin Brands and car rental company
The U.S. Supreme Court has made it easier in recent years
for companies to enforce mandatory arbitration to resolve
customer disputes, including last April in a case involving a
unit of AT&T Inc.
Some consumer advocates believe arbitration favors companies
by making it too costly for claimants to bring cases and more
difficult to win large awards.
Lawsuits such as those alleging securities fraud, in
contrast, often let parties pool their resources. This can lead
to lower legal bills and often results in bigger recoveries
because more claimants are able to participate.
Earlier on Friday, Blumenthal and two Democratic colleagues,
Al Franken of Minnesota and Robert Menendez of New Jersey, wrote
to SEC Chairman Mary Schapiro urging her not to approve
Carlyle's IPO with the arbitration clause.
"This kind of provision should be off the table," Blumenthal
said in his telephone interview. "Carlyle has rightly responded
to criticism of a provision that is blatantly one-sided,
potentially deceptive and clearly unfair."
In the AT&T case, a divided Supreme Court said the company's
AT&T Mobility unit could require wireless customers to waive
their right to bring class-action cases to resolve disputes,
even over small sums.
Then last month, on the same day Carlyle proposed the
arbitration requirement, the Supreme Court upheld the ability of
Synovus Financial Corp and CompuCredit Holdings Corp
to force customers to resolve credit card disputes in
The American Association for Justice, a trade group once
known as the Association of Trial Lawyers of America, in a
statement called Carlyle's change of plans "a strong signal to
other companies" not to adopt forced arbitration clauses.