Funds News

SEC clears Blackstone IPO despite lawmakers' plea

WASHINGTON (Reuters) - A last-minute plea from a senior U.S. House of Representatives Democrat to delay Blackstone Group LP’s initial public offering was rejected by U.S. regulators on Thursday, and the IPO went ahead, eagerly grabbed up by hungry investors.

In making its decision, the U.S. Securities and Exchange Commission said it “rigorously applied” U.S. laws in reviewing the offering.

Rep. Henry Waxman, a California Democrat who heads the House Committee on Oversight and Government Reform, had urged the SEC to delay the private equity fund’s IPO until Congress had a chance to hold hearings on it.

But soon after floor trading ended at the New York Stock Exchange Thursday, the IPO was priced at $31 per share, at the top of its projected range, and raised $4.13 billion.

Several fund managers said the deal was heavily oversubscribed after Blackstone mounted lavish and extremely well attended marketing presentations. The bulk of the interest was from hedge funds, investors said.

The SEC, which had remained largely silent amid growing political pressure about Blackstone, issued a brief statement saying, “Congress has created the world’s strongest investor protection laws, which the commission has rigorously applied.”

Under securities law, the SEC can only deny an issuer’s IPO registration statement because of a material misstatement or an omission of fact.

In a letter to SEC Chairman Christopher Cox, Waxman said Blackstone’s IPO may present potential investors and the public with new and undisclosed risks, while stripping them of necessary protections.

“For this reason, we urge you to refrain from accelerating the IPO until Congress has had a chance to hold hearings on this matter,” wrote Waxman. The letter was also signed by Rep. Dennis Kucinich, an Ohio Democrat and chairman of the panel’s domestic policy subcommittee.

Blackstone declined to comment.

Waxman was the fifth chairman of a congressional committee to express concerns or raise questions about the Blackstone IPO during the past week.

The Democratic and Republican leaders of the Senate Finance Committee have proposed legislation to sharply raise the tax rate on private equity funds that go public. The chairmen of the House Financial Services Committee, the House Ways and Means Committee and the Senate Banking Committee have also expressed worries about Blackstone and private equity funds going public.

In the letter, Waxman said the value of investors’ interests in Blackstone would be tied to the performance of its underlying hedge and private equity funds. Such funds have not been considered suitable investments for the general public because of their high risks and speculative nature, he said.

“While exposing unsophisticated investors to new risks, the Blackstone IPO would also apparently deprive them of control over the management of the funds and of many of the protections provided by fiduciary duties typically owed to them by management,” Waxman and Kucinich wrote.

The two lawmakers said they would hold a hearing on the issues at the “earliest opportunity.”

The AFL-CIO labor federation had pressed the SEC to force Blackstone to re-register its IPO under the Investment Company Act, which would require it to disclose more information.