Private-Equity Firm Collusion Case: Is a Billion Dollar Settlement Enough?

on January 24, 2014 by James Hunt

SFTH 11According to the New York Post, the largest private-equity firms in the world are facing serious legal trouble. In 2007, shareholders of formerly publicly traded companies that were bought by KKR, Bain Capital, Blackstone Group, Carlyle Group, Goldman Sachs Capital Partners, Silver Lake Partners and TPG Capital filed a lawsuit alleging they were defrauded out of billions of dollars when the entities colluded to drive down prices on companies they sought to purchase. The Post reports that it is going to cost the defendants in excess of $1 billion to settle the lawsuit.

Although no settlement offer has been made by the defendants and defendants are not ready to settle, the shareholders have indicated that $1 billion is no longer satisfactory to resolve the case. The eight buyouts have been valued at $170 billion.

The lawsuit centers on the firms’ alleged agreement from 2004 through 2008 not to outbid each other after transactions were announced, a practice known as “jumping.” The private-equity firms have attempted numerous times to get the lawsuit dismissed, but each attempt failed. Additionally, attempts to reach a resolution through mediation have not been successful.

The shareholders’ primary evidence against the firms includes emails between the top executives of the defendant entities. The judge agreed the evidence was strong enough to allow the shareholders’ claims that the big firms had an agreement not to jump each other. However, the judge also indicated the firms had legitimate reasons not to pursue particular buy-outs.

The private-equity firms have joint liability in the lawsuit, so if any individual defendant settles with the shareholders, it will place an increased financial risk on the remaining defendants.

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