Congressman Dennis Kucinich: Blackstone Poses New Risks to Small Investors
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FOR IMMEDIATE RELEASE
JUNE 21, 2007
2:52 PM
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CONTACT: Congressman Dennis Kucinich
Natalie Laber (202) 225-5871 (o);
(202) 365-1040 (c)
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Kucinich and Waxman to SEC: Blackstone
Poses New Risks to Small Investors
Ask SEC to Slow Down Public Offering; Promise Oversight Hearings
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WASHINGTON - JUNE 21 -Domestic Policy Subcommittee Chairman Dennis Kucinich (D-OH) and Oversight and Government Reform Committee Chairman Henry Waxman (D-CA) released a letter to the Securities and Exchange Commission today, asking that it slow down the public offering of Blackstone LP and promising imminent hearings on new risks for small investors created by the Blackstone offering.
Kucinich’s subcommittee has oversight jurisdiction over the Securities and Exchange Commission.
“We believe that small investors could be harmed if the SEC allows the IPO to proceed precipitously. The Blackstone LP offering poses new risks for small investors, from which they have been protected until now. Congress needs the opportunity to hold hearings before the SEC allows such a potentially dangerous investment to be offered to the general investing public,” said Kucinich.
The text of the letter is below:
June 21, 2007
The Honorable Christopher Cox
Chairman
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Dear Chairman Cox:
We are writing out of concern that the proposed initial public offering (IPO) of The Blackstone Group L.P. (Blackstone LP) 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.
Blackstone LP would be the first manager of hedge and private equity funds to attempt to go public as a limited partnership. The value of public investors’ interests in Blackstone LP would be tied to the performance of the underlying hedge and private equity funds, which have not been considered suitable investments for the general public because of their high risks and speculative nature. While exposing unsophisticated investors to new risks, the Blackstone LP 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.
Small investors, in particular, would benefit from more consideration by the Securities and Exchange Commission and Congress of the proposed IPO. Under current law, Blackstone Group is prohibited from selling interests in its underlying funds, including its hedge and private equity funds, to the general investing public. Instead, these funds can be sold only to sophisticated investors, such as wealthy individuals and institutional investors. The collapse of Long-Term Capital Management in 1998 is one example of the volatility and risk involved in investing in hedge funds. With these concerns and the explosive growth of these funds in mind, the SEC recently proposed a rule that would increase the minimum wealth for investors in certain types of hedge funds from $1 million to $2.5 million.1
According to legal and financial experts whom we consulted, the Blackstone LP IPO presents novel questions because it appears to be a vehicle for allowing public investors to participate in hedge-fund type investments that have previously been considered unsuitable. As we understand it, the main value of the investors’ stake in Blackstone LP derives from the performance of the underlying hedge funds and private equity investments. This would be a major change in investor protections and market regulation. It should not be authorized without careful consideration of its implications for the average investor.
The Domestic Policy Subcommittee intends to hold a hearing on these issues at the earliest opportunity. We urge that you decline to accelerate the effectiveness of the Blackstone LP IPO in order to allow more time for SEC review and for the congressional hearing to occur. More time would allow for a fuller consideration of the tax and national security concerns that have been raised by other members of Congress.2
If you have any questions concerning this letter, your staff can contact Charlie Honig, Counsel, Domestic Policy Subcommittee, at (202) 225-6427.
Sincerely,
Dennis J. Kucinich Chairman
Henry A. Waxman Chairman
Domestic Policy Subcommittee Committee on Oversight and
Government Reform
cc: Tom Davis
Ranking Minority Member
Committee on Oversight and Government Reform
Darrell Issa
Ranking Minority Member
Domestic Policy Subcommittee
The Honorable Paul S. Atkins
Commissioner
U.S. Securities and Exchange Commission
The Honorable Roel C. Campos
Commissioner
U.S. Securities and Exchange Commission
The Honorable Annette L. Nazareth
Commissioner
U.S. Securities and Exchange Commission
The Honorable Kathleen L. Casey
Commissioner
U.S. Securities and Exchange Commission
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