Second Circuit Reverses Lower Court’s Grant of Dismissal in a Securities Case Against the Blackstone Group

On February 10, 2011, the Second Circuit Court of Appeals vacated ad remanded the dismissal of an action against the Blackstone Group that alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act in connection with Blackstone’s Registration Statement and Prospectus filed as part of its IPO. Plaintiffs had alleged that Blackstone violated the Securities Act when it failed to disclose the likely impact on its real estate investment private equity businesses from the decline in the residential mortgage market and certain other publicly-disclosed events concerning two of its equity investments. In reinstating the claims, the Second Circuit emphasized that public knowledge of the events did not excuse Blackstone from making disclosures about them because Item 303 of Regulation S-K requires issuers to disclose how such events might be reasonably expected to materially affect an issuer’s business. The Second Circuit also emphasized that materiality had to be assessed qualitatively, and that a material impact on one segment of Blackstone’s operations could require disclosure even if quantitatively immaterial to Blackstone as a whole. Appeal.