Photo: Bain Capital/Boston Globe
Last week, the New York Times reported that a number of huge private equity firms, including Bain (where presidential candidate Mitt Romney was an executive), KKR, Blackstone and more, are being sued for allegedly colluding to keep down the prices of companies they intended to acquire.Shareholders of these companies allege that these so-called “club deals” lost them billions of dollars.
On top of that, now, a Boston Judge has determined that the documents those private equity firms provided to counter allegations in the scandal have too many unreasoned black-outs, Reuters reports. This came after The New York Times filed a motion requesting that documents within the complaint (filed last Monday) be cleared of redactions.
In short: The Judge decided that the firms are hiding too much specific information without cause. So now they’ll have to file another complaint with fewer omissions for the Judge’s consideration.
U.S. District Judge Edward Harrington said the private equity firms did not explain how details they redacted would cause “specific and severe harm” if released and that they had not overcome the “presumption of public access.”
The private equity firms, on the other hand, are arguing that removing the redactions would release information about “who the firms’ investors are and how the firms negotiate for and value companies. They said this could hurt the firms’ ability to attract investors and to buy and run companies,” says Reuters.
Fortune’s dauntless private equity reporter, Dan Primack, calls those excuses “weak sauce”. Here’s why (From Fortune’s Term Sheet column):
First, mega-buyout firm investor lists are hardly secret anymore. Many LPs self-report (particularly public pensions), while industry databases like CapitalIQ have entire sections of PE firm profiles that list underlying investors. Sure, there are some small LPs like family offices that fall through the disclosure cracks, but it’s hard to see how keeping such names secret would overcome the public’ interest in this case.
In the second draft of the complaint, the firms will also have to include reasons for the black-outs that satisfy the Court. Then Judge Harrington will rule on whether or not to make the documents entirely public.
There’s already some pretty damning information in the initial complaint though. For example, it reveals that some firms agreed to stand down in the sale of HCA, even though they were ready to outbid Bain and KKR by $1.6 billion.
Bottom line: Whether the firms have to completely remove redactions or not, it looks like this case isn’t going their way for now.
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