Blackstone CEO's high profile sparks backlash

By Jonathan Keehner and Christian Plumb

NEW YORK (Reuters) - If private equity firms had aimed to steer clear of political controversy heading into an election year, the message may have been lost on Stephen Schwarzman.

The CEO and co-founder of Blackstone Group BG.UL this week became a lightning rod for criticism over perceptions that he makes too much money and leads an overly lavish lifestyle.

Blackstone revealed his stake in the firm could be worth $7.73 billion after its initial public offering this month and that he will get a one-off payout of up to $677.2 million.

One of his private staff also exposed his penchant for very expensive food: $400 crabs (working out to $40 a leg) and $3,000 for a weekend's food shopping for himself and his wife.

The disclosure of such spending could prove even more costly. By the end of the week, powerful Republican and Democrat politicians were proposing legislation that would impose much higher taxes on private equity firms going public.

Their big concern is that buyout groups are structured in a way that allows them to pay far less in tax, by paying capital gains taxes, than businesses hit with corporate tax rates.

"The public responds to things that are very much in the news and visual," said Columbia University Law School Professor John Coffee. "That Mr. Schwarzman will be worth $8 billion and that he's paying only capital gains taxes has to bother ordinary citizens."

BIRTHDAY GALA

Image consultants say Schwarzman has lost a sense of what sounds acceptable to many Americans.

"This isn't rocket science," said Daniel Keeney, president of crisis communications firm DPK Public Relations. "It's about being a responsible steward on behalf of your brand."

Schwarzman's behavior has only served to arm his critics.

In February, he hosted a few hundred friends at an opulent 60th birthday gala in New York that featured British rocker Rod Stewart, singer Patti LaBelle and comedian Martin Short.

That same month he was lionized on the cover of Fortune magazine, which crowned him "The New King of Wall Street."

On Monday, Schwarzman will be feted by the New York Public Library. He is due to sip cocktails in the historic building's Astor Hall, with author and humorist Calvin Trillin and TV anchorwoman Maria Bartiromo the featured guests.

Then there was this week's Wall Street Journal profile, which mentioned not only an appetite for $400 stone crabs but also his intolerance for domestic staff with noisy shoes. He found the squeaking distracting while sunning poolside at his 11,000-square-foot home in Palm Beach, Florida, the Journal reported.