24 UNIT EIGHT: BUSINESS ORGANIZATIONS
initial public offering (IPO), Blackstone filed a registration statement with the SEC. At the time, Corporate Private
Equity’s investments included FGIC Corp. and Freescale Semiconductor, Inc. In the registration statement,
In Litwin v. Blackstone Group, LP, the U.S. Court of Appeals for the Second Circuit vacated and remanded.
The plaintiffs adequately pleaded that Blackstone omitted material information. The information concerned the extent
to which known events and trends could reasonably be expected to affect Blackstone’s investments and revenue. The
plaintiffs alleged that Blackstone should have disclosed this information. In particular, a reasonable investor would
want to know the expected effect on Corporate Private Equity’s future revenue.
Would the view of materiality asserted by the plaintiffs in this case require companies like Blackstone
to issue enormous collections of information for the scores of companies and other assets in which they
invest? Including all such information would obviously bury material information in a flood of unnecessary detail. In
fact, the securities laws prohibit this result and protect against by requiring that information must be material and
Blackstone raised more than $4.5 billion through the IPO. Blackstone officers received nearly all of
the net proceeds. If the company had disclosed the omitted information in its registration statement, how
might these results have been different? Informed investors would probably not have been willing to pay the same
price for shares of Blackstone’s stock as they paid without the omitted information. Thus, most likely, the amount of
capital raised through the IPO would have been less, and the proceeds that the Blackstone officers received would
have likewise been less.
Footnote 30: Between May 4 and June 22, 2009, Boeing Co. made announcements that implied its
Dreamliner, which had not yet flown, was on track for its “First Flight” (a significant milestone in the development of
new aircraft) scheduled for June 30. Meanwhile, however, the plane failed important stress tests—before and after
In United States v. Newton, the U.S Court of Appeals for the Seventh Circuit affirmed. Investors' allegations
that when the Dreamliner was announced to be on track, company executives knew about the likely postponement of
the flight, based on internal e-mails, were insufficient to establish scienter.
Corporate governance involves the rights and responsibilities among different corporate participants and
affects the relationship between a corporation and its shareholders. Effective corporate governance requires more
than simple compliance with the law. How did Newton’s conduct in the circumstances of this case impact the
corporate governance of RLAB? The bad acts of corporate officers and managers who attempt to advance their