Private equity firms that sell shares to the public should be designated as investment companies, Forbes reports. This is a category that would have meant more regulation for Blackstone Group, Democratic lawmakers said Wednesday.
Rep. Dennis Kucinich, D-Ohio, said during a House hearing that the Securities and Exchange Commission made a mistake last month when it refused to classify the New York-based Blackstone as an investment firm before it proceeded with its initial public offering.
Critics of Blackstone’s initial public offering, including labor groups such as the AFL-CIO, said it could set a dangerous precedent because the SEC allowed a private equity firm to go public while escaping strict regulation.
Andrew J. Donohue, the SEC’s director of the division of investment management, defended the agency’s decision in the Blackstone case saying the private equity firm is “more akin to an investment adviser.”
The SEC concluded that the value of investment securities held by Blackstone and Fortress Investment Group, the first private equity firm to go public, was less than 40 percent of the firms’ total assets.
John C. Coffee, a professor at Columbia University Law School, told the House members that there are other ways to increase the oversight of partnerships like Blackstone.
“The SEC should urge the New York Stock Exchange and Nasdaq to require partnerships to accept similar corporate governance rules that the exchanges require of other companies” says Coffee.