Federal Judge Green Lights Suit Against Private Equity Firms

The investor lawsuit claims the companies, including Blackstone, Carlyle and Bain Capital, colluded to drive down prices on hundreds of billions of dollars in takeovers.

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RENEE MONTAGNE, HOST:

An update now on a case that's been working its way through the courts for several years. Some of the world's largest private equity firms are accused of improper business practices. Just yesterday, a federal judge in Boston allowed the case to proceed.

NPR's Chris Arnold has more.

CHRIS ARNOLD, BYLINE: The lawsuit names Bain Capital, Goldman Sachs private equity arm, Blackstone Group and others. The numbers here are pretty eye-popping. The suit involves a quarter trillion dollars of company takeovers. Plaintiffs say that the firms colluded to keep prices low on companies that they wanted to buy. Former shareholders in those companies are the ones who brought the suit.

One allegation is that the private equity firms took turns buying - so that multiple bids wouldn't push up the price.

JILL FISCH: You bid for Toys R Us, I'll bid for the next company that comes along.

ARNOLD: That's Jill Fisch, a professor of Business Law at the University of Pennsylvania. She says the lawsuit also alleges that a group of private equity firms would come together and jointly submit one bid so they wouldn't push the price up with competing bids. The thing is, she says there are perfectly good business reasons to want to jointly purchase a company that way. So...

FISCH: The business practices that are described here, I think people in the industry all understand as the way the private equity bidding market has worked for the last, at least, 10 years. We all understand these club deals, we all understand that private equity firms typically won't bid against each other. But I hadn't really thought about it as an anti-trust issue.

ARNOLD: So in that sense the lawsuit is being watched as a test case to determine whether what has become standard practice might actually be in violation of antitrust law.

Chris Arnold, NPR News, Boston.

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