Private equity

A federal judge did not dismiss the lawsuit accusing that private equity firms of bid rigging conspiracy in connection with the companies  they acquired or sought to buy between 2003 to 2007, which costs shareholders billions of dollars. The report from Reuters cited that Judge Edward Harrington of the U.S. District Court of Massachusetts issued a ruling allowing some part of the lawsuit to move forward. However, the judge opined that the investors who filed the lawsuit against the private equity firms were unable to provide enough evidence to prove a broader “overarching” conspiracy to reduce the prices of the companies they sought to takeover.

According to Judge Harrington, “While some groups of transactions and defendants can be connected by quid pro quo arrangements, correspondence, or prior working relationships, there is little evidence in the record suggesting that any single interaction was the result of a larger scheme.”

The shareholders of the then publicly-traded companies acquired by private equity firms between 2003 to 2007 filed the civil antitrust lawsuit against 11 private equity firms including Bain Capital Partners LLC, Blackstone Group LP (NYSE:BX), Carlyle Group LP (NASDAQ:CG), KKR & Co (NYSE:KKR), TPG Capital Management, among others.

The plaintiffs included JP Morgan Chase & Company (NYSE:JPM) in the case due to its involvement in providing financing and advice in some of the 27 transactions in question including 19 leveraged buyouts, six non-leveraged buyouts, and two that were not completed. In his ruling, Judge Harrington allowed investors to file a claim against the private equity firm that agreed not to compete against each other in the bidding process after the announcement of transactions.

On the other hand, the judge also gave the private equity firms the opportunity to file a motion to dismiss claims. In addition, Judge Harrington also permitted investors to file a complaint against the private equity firms involved in rigging and did not offer competitive bids in acquiring Hospital Corporation America (HCA) that was subject of a $32.1 billion leveraged buyout.

In 2006, Bain Capital’s competitors stand down in bidding against the firm to take over the largest hospital chain in the United States. Bain Capital together with KKR and Merrill Lynch acquired HCA. Judge Harrington dismissed the allegations against JP Morgan Chase & Company (NYSE:JPM) due to lack of evidences demonstrating that the bank bid or suggested participation in the “narrowed overarching conspiracy.”

Commenting on the court’s ruling regarding the case, Christopher Burke, partner at Scott & Scott law firm representing the shareholders said; “From plaintiff’s perspective, this was a good day.” Burked added, “This remains a multibillion dollar case, and that is going forward. What was written by some defendants in their papers, and by some of the press, that what we have was thin gruel has been dispelled.”