In re Blackstone Management Partners L.L.C.

UNITED STATES OF AMERICA 
Before the 
SECURITIES AND EXCHANGE COMMISSION 
INVESTMENT ADVISERS ACT OF 1940 
Release No. 4219 / October 7, 2015 
ADMINISTRATIVE PROCEEDING 
File No. 3-16887 
In the Matter of 
Blackstone Management Partners L.L.C., 
Blackstone Management Partners III L.L.C., 
and  
Blackstone Management Partners IV L.L.C., 
Respondents. 
ORDER INSTITUTING CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO 
SECTION 203(k) OF THE INVESTMENT 
ADVISERS ACT OF 1940, MAKING 
FINDINGS, AND IMPOSING A CEASE-
AND-DESIST ORDER 
I. 
The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
and-desist proceedings be, and hereby are, instituted pursuant to Section 203(k) of the Investment 
Advisers Act of 1940 (“Advisers Act”) against Blackstone Management Partners L.
L.C., 
Blackstone Management Partners III L.L.C., and Blackstone Management Partners IV L.L.C. 
(collectively, “Blackstone” or “Respondents”). 
II. 
In anticipation of the institution of these proceedings, Respondents have submitted an Offer 
of Settlement (the “Offer”),  which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, and without admitting or denying the findings 
herein, except as to the Commission’s jurisdiction over them 
and the subject matter of these 
proceedings, 
which are admitted, Respondents consent to the entry of this Order Instituting Cease-
and-Desist Proceedings Pursuant to Section 203(k) of the Investment Advisers Act of 1940, 
Making Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below. 
 

 
2 
III. 
 
 On the basis of this Order and Respondents’ Offer, the Commission finds
1
 that: 
 
SUMMARY 
 
1. These proceedings arise from inadequate disclosures that involved two distinct 
breaches of fiduciary duty by private equity fund advisers Blackstone Management Partners L.L.C., 
Blackstone Management Partners III L.L.C., and Blackstone Management Partners IV L.L.C. 
(collectively, “Blackstone”).  First, from at least 2010 through March 2015, upon either the private 
sale of a portfolio company or an initial public offering (“IPO”), Blackstone terminated certain 
portfolio company monitoring agreements and accelerated the payment of future monitoring fees as 
set forth in the agreements.  Although Blackstone disclosed that it may receive monitoring fees from 
portfolio companies held by the funds it advised, and disclosed the amount of monitoring fees that 
had been accelerated following the acceleration, Blackstone failed to disclose to its funds, and to the 
funds’ limited partners prior to their commitment of capital, that it may accelerate future monitoring 
fees upon termination of the monitoring agreements.  Second, in late 2007, Blackstone negotiated a 
single legal services arrangement with its primary outside law firm (the “Law Firm”) on behalf of 
itself and the funds.  For the majority of legal services performed by the Law Firm beginning in 
2008 and continuing through early 2011, Blackstone received a discount that was substantially 
greater than the discount received by the funds.  The disparate legal fee discounts were not 
disclosed to the funds or the funds’ limited partners until August 2012.  Because of its conflict of 
interest as the recipient of the accelerated monitoring fees and the beneficiary of the disparate legal 
fee discounts, Blackstone could not effectively consent to either of these practices on behalf of the 
funds it advised.  As a result, Blackstone breached its fiduciary duty to the funds in violation of 
Section 206(2) of the Advisers Act and also violated Section 206(4) of the Advisers Act and Rule 
206(4)-8 thereunder.    
 
2. Blackstone separately violated Section 206(4) of the Advisers Act and Rule 206(4)-7 
thereunder by failing to adopt and implement written policies and procedures reasonably designed 
to prevent violations of the Advisers Act arising from the undisclosed receipt of fees and conflicts of 
interest.  
  
RESPONDENTS   
 
3. Blackstone Management Partners L.L.C. (“BMP”) is a Delaware limited liability 
company with its principal place of business in New York, New York.  BMP is a private equity 
fund adviser that has been registered with the Commission as an investment adviser since October 
2005.  BMP manages Blackstone Capital Partners V.         
 
4. Blackstone Management Partners III L.L.C. (“BMP III”) is a Delaware limited 
liability company that maintained its principal place of business in New York, New York.  BMP III 
                                                 
1
 The findings herein are made pursuant to Respondents’ Offer and are not binding on any other person or entity in 
this or any other proceeding. 

 
3 
was a private equity fund adviser that was registered with the Commission as an investment adviser 
from August 1997 through March 2014.
 2
  BMP III managed Blackstone Capital Partners III.          
 
5. Blackstone Management Partners IV L.L.C. (“BMP IV”) is a Delaware limited 
liability company with its principal place of business in New York, New York.  BMP IV is a private 
equity fund adviser that has been registered with the Commission as an investment adviser since 
September 2001.  BMP IV manages Blackstone Capital Partners IV.          
 
OTHER RELEVANT ENTITIES 
 
6. Blackstone Capital Partners III Merchant Banking Fund L.P., along with a 
parallel fund (collectively, “Blackstone Capital Partners III”), is a Delaware limited partnership 
and private investment fund formed in 1997 to make private equity investments.  As of March 2014, 
Blackstone Capital Partners III had exited all of its portfolio company positions and distributed all 
remaining assets to its limited partners.  
  
7. Blackstone Capital Partners IV L.P. (“Blackstone Capital Partners IV”) is a 
Delaware limited partnership and private investment fund formed in 2001 to make private equity 
investments. 
 
8. Blackstone Capital Partners V L.P., along with parallel funds (collectively, 
“Blackstone Capital Partners V”), is a Delaware limited partnership and private investment fund 
formed in 2005 to make private equity investments. 
 
FACTS 
 
A. Background      
 
9. BMP and BMP IV are New York-based private equity fund advisers and BMP III is 
a former private equity fund adviser (BMP, BMP III, and BMP IV collectively, “Blackstone”).  
The Blackstone Group L.P. (NYSE: BX), a publicly traded company since 2007, is Blackstone’s 
parent company and has approximately $330 billion in assets under management.    
 
10. Blackstone has advised multiple private equity funds, including Blackstone Capital 
Partners III, Blackstone Capital Partners IV, and Blackstone Capital Partners V (collectively, the 
“Funds”), each of which was or is governed by a limited partnership agreement (“LPA”) setting 
forth the rights and obligations of its limited partners, including their obligations to pay advisory 
and other fees and expenses to Blackstone pursuant to a separate management agreement between 
each fund and the relevant Blackstone adviser.  As is typical in the industry, among other fees and 
expenses, Blackstone generally charges the limited partners in its Funds an annual advisory or 
“management fee” equivalent to 1.5% of their capital under management.     
 
                                                 
2
 BMP III withdrew its registration with the Commission in March 2014, after Blackstone Capital Partners III – the 
fund it advised – exited all of its portfolio company positions and distributed all of its remaining assets to its limited 
partners. 

 
4 
11. Each Fund’s LPA established a Limited Partnership Advisory Committee 
(“LPAC”) consisting of a number of limited partners.  The functions of the LPAC include, among 
other things, the review and approval or disapproval of any potential conflicts of interest in any 
transaction or relationship (including those relating to the receipt of certain fees).    
 
B. Acceleration of Monitoring Fees 
 
12. Each Blackstone-advised fund owns multiple portfolio companies.  Blackstone 
typically enters into monitoring agreements with each portfolio company that is owned by a 
Blackstone-advised fund.  Pursuant to the terms of the monitoring agreements, Blackstone charges 
each portfolio company an annual fee in exchange for rendering certain consulting and advisory 
services to the portfolio company concerning its financial and business affairs.  The monitoring 
fees paid by each fund-owned portfolio company to Blackstone are in addition to the annual 
management fee paid by the Funds’ limited partners to Blackstone.  However, a certain percentage 
of the monitoring fees the portfolio companies pay to Blackstone are used to offset a portion of the 
annual management fees that the Funds’ limited partners would otherwise pay to Blackstone.  The 
offset percentage, which was 50 percent for BCP III and is also 50 percent for BCP IV and BCP V, 
is set forth in each fund’s LPA or investment advisory agreement.  
 
13. Blackstone’s practice of entering into monitoring agreements with portfolio 
companies and collecting monitoring fees is disclosed and authorized in various pre-commitment 
fund documents, including private placement memoranda, LPAs, and investment advisory 
agreements.  For example, one fund’s LPA states, “The Limited Partners recognize and consent 
that [Blackstone] may receive financial advisory fees, monitoring fees, [and] divestment fees. . . .”  
 
14. Prior to 2012, Blackstone monitoring agreements commonly provided for ten years 
of monitoring services and fees.  Some of these agreements contained so-called “evergreen” 
provisions that automatically extended the life of the agreement for an additional term.  The 
monitoring agreements between Blackstone and the portfolio companies also provided for 
acceleration of monitoring fees to be triggered by certain events.  For example, upon either the 
private sale or IPO of a portfolio company, the monitoring agreements allowed Blackstone to 
terminate the monitoring agreement and accelerate the remaining years of monitoring fees, in some 
cases including additional renewal periods, and receive present value lump sum “termination 
payments.”  While a portion of these accelerated monitoring payments reduced management fees 
otherwise payable by limited partners, the net amount of the payments also reduced the value of 
the Funds’ assets (i.e., the portfolio companies making the accelerated monitoring payments) when 
sold or taken public, thereby reducing the amounts available for distribution to limited partners. 
 
15. In some instances, Blackstone terminated the monitoring agreement and accelerated 
monitoring fee payments even though the relevant Blackstone-advised fund had completely exited 
the portfolio company, meaning that Blackstone would no longer be providing monitoring services 
to the portfolio company.  In most instances, Blackstone terminated the monitoring agreement 
upon a portfolio company IPO and accelerated monitoring fee payments while maintaining some 
ownership stake in the company.  In connection with most IPOs, Blackstone continued to provide 
consultancy and advisory services to the publicly traded portfolio company until the fund 

 
5 
completely exited its investment.  However, in a few instances, Blackstone accelerated monitoring 
fees beyond the period of time during which it held an investment in the company.  The timing of 
the exits following the IPOs ranged from approximately one-and-a-half years to several years.  
 
16. While Blackstone disclosed its ability to collect monitoring fees to the Funds and to 
the Funds’ limited partners prior to their commitment of capital, it did not disclose to the Funds, 
the Funds’ LPAC, or the Funds’ limited partners its practice of accelerating monitoring fees until 
after Blackstone had taken accelerated fees.  The disclosures were made in distribution notices, 
quarterly management fee reports, and, in the case of IPOs, Form S-1 filings.  By the time these 
disclosures were made, the limited partners had already committed capital to the Funds and the 
accelerated fees had already been paid.  The LPAC of each Fund could have objected and 
arbitrated over the accelerated monitoring fees after they had been taken, but never did.  Finally, 
because of its conflict of interest as the recipient of the accelerated monitoring fees, Blackstone 
could not effectively consent to the practice on behalf of the Funds.    
 
C. Disparate Legal Fee Discounts  
 
17. From at least late 2007 through early 2011, the Law Firm performed a substantial 
volume of legal work for Blackstone and the Funds.  During this period, the Funds generated 
significantly more legal fees than Blackstone. 
 
18. In late 2007, Blackstone negotiated a single legal services arrangement with the 
Law Firm on behalf of itself and the Funds whereby Blackstone benefited by receiving a discount 
from the Law Firm that was substantially greater than the discount received by the Funds.   
 
19. Blackstone did not disclose the disparate legal fee discounts the Law Firm provided 
from 2008 through early 2011 to the Funds, the Funds’ LPAC, or the Funds’ limited partners.  
Moreover, because of its conflict of interest as the beneficiary of the disparate legal fee discounts, 
Blackstone could not effectively consent to the undisclosed practice on behalf of the Funds.    
 
20. As the result of an early-2011 internal Blackstone audit, Blackstone voluntarily 
ended the disparate legal fee arrangement with the Law Firm and adopted a new task-based legal 
services arrangement pursuant to which Blackstone and the Funds received the same discounts.  In 
August 2012, Blackstone disclosed to all of its Funds’ limited partners the disparate legal fee 
discounts that had been in place from late 2007 through early 2011 and stated that the rate 
differential generally reflected the different mix of work performed by the Law Firm for the Funds 
and Blackstone.   
 
D. Blackstone Failed to Adopt and Implement Policies and Procedures 
Reasonably Designed to Prevent Violations of the Advisers Act and its Rules  
 
21. While registered as investment advisers, BMP, BMP III, and BMP IV were subject 
to the Advisers Act rules, including the requirement to adopt and implement written policies and 
procedures reasonably designed to prevent violations of the Advisers Act and its rules. 
 

 
6 
22. From at least January 2010 through March 2015, while BMP, BMP III, and BMP 
IV were registered with the Commission as investment advisers, they failed adequately to disclose 
their practice of receiving accelerated monitoring fees. 
 
23. From January 2008 through early 2011, while BMP, BMP III, and BMP IV were 
registered with the Commission as investment advisers, they received a discount on the majority of 
their legal fees that was substantially greater than the discount received by the Funds and they 
failed adequately to disclose the disparate legal fee discounts. 
 
24. Despite the practice of receiving accelerated monitoring fees and receiving a more 
favorable legal fee discount than the Funds, BMP, BMP III, and BMP IV did not adopt or 
implement any written policies or procedures reasonably designed to prevent violations of the 
Advisers Act or its rules arising from the undisclosed receipt of fees or conflicts of interest. 
 
VIOLATIONS 
 
25. Section 206(2) of the Advisers Act prohibits investment advisers from directly or 
indirectly engaging “in any transaction, practice, or course of business which operates as a fraud or 
deceit upon any client or prospective client.”  A violation of Section 206(2) of the Advisers Act 
may rest on a finding of simple negligence.  SEC v. Steadman, 967 F.2d 636, 643 n.5 (D.C. Cir. 
1992) (citing SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 195 (1963)).  Proof of 
scienter is not required to establish a violation of Section 206(2) of the Advisers Act.  Id.  As a 
result of the conduct described above, BMP, BMP III, and BMP IV violated Section 206(2) of the 
Advisers Act. 
 
26. Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder make it unlawful 
for any investment adviser to a pooled investment vehicle to “[m]ake any untrue statement of a 
material fact or omit to state a material fact necessary to make the statements made, in the light of 
the circumstances under which they were made, not misleading, to any investor or prospective 
investor in the pooled investment vehicle” or “engage in any act, practice, or course of business 
that is fraudulent, deceptive, or manipulative with respect to any investor or prospective investor in 
the pooled investment vehicle.”  As a result of the conduct described above, BMP, BMP III, and 
BMP IV violated Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. 
 
27. Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder require registered 
investment advisers to adopt and implement written policies and procedures reasonably designed 
to prevent violations of the Advisers Act and its rules.  As a result of the conduct described above, 
BMP, BMP III, and BMP IV violated Section 206(4) of the Advisers Act and Rule 206(4)-7 
thereunder.    
 
 
 

 
7 
BLACKSTONE’S COOPERATION AND REMEDIAL EFFORTS 
28. In determining to accept Blackstone’s Offer, the Commission considered remedial 
acts taken by Blackstone prior to contact from Commission staff and cooperation afforded the 
Commission staff after Blackstone was contacted.  In early 2011, Blackstone voluntarily ended 
its disparate legal fee arrangement with the Law Firm.  In 2012, Blackstone disclosed to all 
limited partners, without any resulting complaints, that historical discounts offered to Blackstone 
exceeded discounts provided to the Funds.   
 
29. For all funds formed after 2012, Blackstone has disclosed in the PPMs that 
monitoring agreements may contain acceleration provisions that trigger lump sum payments.  In 
addition, as it disclosed to its LPACs in June 2014, since 2012, Blackstone has not entered into any 
monitoring agreements that have terms beyond ten years, self-renew or contain “evergreen” 
provisions.  Blackstone has, since 2010, also not taken advantage of any evergreen provisions in 
existing agreements when collecting a lump sum payment.  In 2012, Blackstone enhanced the 
disclosures it makes after taking accelerated monitoring payments by explicitly identifying 
termination payments in reports distributed to limited partners and setting forth in detail the 
assumptions underlying the calculation of such payments.  In 2014, prior to the SEC investigation, 
Blackstone changed its business practices and further disclosed that it will not accelerate 
monitoring fee payments when it completely exits a portfolio company through private sale and 
will not accelerate more than three years (equal to the approximate average post-IPO length of time 
before Blackstone has made full exits) of remaining monitoring fee payments in the event of an 
IPO.    
 
30. Throughout the staff’s investigation, Blackstone voluntarily and promptly 
provided documents and information to the staff.  Blackstone met with the staff on multiple 
occasions and provided detailed factual summaries of relevant information.  Blackstone was 
extremely prompt and responsive in addressing staff inquiries.     
 
IV. 
 
 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
agreed to in Respondents’ Offer. 
 
 Accordingly, pursuant to Section 203(k) of the Advisers Act, it is hereby ORDERED that: 
 
A. Respondents BMP, BMP III, and BMP IV cease and desist from committing or 
causing any violations and any future violations of Sections 206(2) and 206(4) of the 
Advisers Act and Rules 206(4)-7 and 206(4)-8 thereunder. 
 
B. Respondents BMP, BMP III, and BMP IV shall pay, jointly and severally, 
disgorgement and prejudgment interest as follows: 
 
i. Respondents shall pay a total of $28,911,756 consisting of disgorgement 
of $26,225,203 and prejudgment interest of $2,686,553 (collectively, the 

 
8 
“Disgorgement Fund”) to compensate the Funds and limited partners 
therein that invested in private equity transactions from 2010 to March 
2015 that resulted in payment of undisclosed accelerated monitoring 
fees; 
 
ii. Within ten (10) days of the entry of this Order, Respondents shall 
deposit the full amount of the Disgorgement Fund into an escrow 
account acceptable to the Commission staff and shall provide the 
Commission staff with evidence of such deposit in a form acceptable to 
the Commission staff.  If timely deposit of the Disgorgement Fund is 
not made, additional interest shall accrue pursuant to SEC Rule of 
Practice 600;  
 
iii. Respondents shall be responsible for administering the Disgorgement 
Fund.  When possible, Respondents shall distribute the amount of the 
Disgorgement Fund to the applicable funds or limited partners as a 
credit against or other effective reduction of certain fees or other 
amounts that the funds would otherwise be obligated to pay to 
Blackstone or that Blackstone would otherwise be entitled to receive.  
Within 30 days of the entry of this Order, Blackstone shall submit a 
proposed distribution to the staff for review and approval.  The proposed 
distribution will include the names of the applicable funds or limited 
partners and their respective payment amounts and a description of the 
methodology used to determine the exact amount of payment or credit 
for each fund or limited partner that will receive a distribution.  The 
distribution of the Disgorgement Fund shall be made in the next two 
fiscal quarters immediately following the entry of this Order but no later 
than within 270 days of the date of the Order, based on the methodology 
set forth in the proposed distribution and as reviewed and not objected 
to by the staff.  If Respondents do not distribute any portion of the 
Disgorgement Fund for any reason, including factors beyond 
Respondents’ control, Respondents shall transfer any such undistributed 
funds to the Commission for transmittal to the United States Treasury.  
Any such payment shall be made in accordance with Section IV.C 
below; 
 
iv. Respondents agree to be responsible for all tax compliance 
responsibilities associated with distribution of the Disgorgement Fund 
and may retain any professional services necessary.  The costs and 
expenses of any such professional services shall be borne by 
Respondents and shall not be paid out of the Disgorgement Fund; and 
 
v. Within 270 days after the date of the entry of the Order, Respondents 
shall submit to the Commission staff a final accounting and certification 
of the disposition of the Disgorgement Fund not unacceptable to the 

 
9 
staff, which shall be in a format to be provided by the Commission staff.  
The final accounting and certification shall include: (i) the amount paid 
or credited to each fund or limited partner; (ii) the date of each payment 
or credit; (iii) the check number or other identifier of money transferred 
or credited to the fund or limited partner; and (iv) any amounts not 
distributed to be forwarded to the Commission for transfer to the United 
States Treasury.  Respondents shall submit the final accounting and 
certification, together with proof and supporting documentation of such 
payments and credits in a form acceptable to Commission staff, under a 
cover letter that identifies BMP, BMP III, and BMP IV as the 
Respondents in these proceedings and the file number of these 
proceedings to Anthony S. Kelly, Assistant Director, Asset Management 
Unit, Division of Enforcement, Securities and Exchange Commission, 
100 F Street, NE, Washington, DC 20549-5010.  Any and all supporting 
documentation for the accounting and certification shall be provided to 
the Commission staff upon request.  Once the Commission approves the 
final accounting, Respondents shall pay any amounts that have not been 
distributed to the Commission for transmittal to the United States 
Treasury. 
 
C. Respondents BMP, BMP III, and BMP IV shall pay, jointly and severally, within 
ten (10) days of the entry of this Order, a civil monetary penalty in the amount of 
$10,000,000 to the Securities and Exchange Commission for transfer to the 
general fund of the United States Treasury, subject to Section 21F(g)(3) of the 
Securities Exchange Act of 1934.  If timely payment is not made, additional 
interest shall accrue pursuant to 31 U.S.C. § 3717.  Payment must be made in one 
of the following ways:   
 
(1) Respondents may transmit payment electronically to the Commission, 
which will provide detailed ACH transfer/Fedwire instructions upon 
request;  
 
(2) Respondents may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
 
(3) Respondents may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  
 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
 

 
10 
Payment by check or money order must be accompanied by a cover letter 
identifying BMP, BMP III, and BMP IV as Respondents in these proceedings, and the file 
number of these proceedings; a copy of the cover letter and check or money order must be 
sent to Anthony S. Kelly, Assistant Director, Asset Management Unit, Division of 
Enforcement, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 
20549-5010. 
 
D. Respondents acknowledge that the Commission is not imposing a civil penalty in 
excess of $10,000,000 based upon their cooperation in a Commission investigation 
and related enforcement action.  If at any time following the entry of the Order, the 
Division of Enforcement (“Division”) obtains information indicating that 
Respondents knowingly provided materially false or misleading information or 
materials to the Commission or in a related proceeding, the Division may, at its sole 
discretion and with prior notice to the Respondents, petition the Commission to 
reopen this matter and seek an order directing that the Respondents pay an additional 
civil penalty.  Respondents may contest by way of defense in any resulting 
administrative proceeding whether it knowingly provided materially false or 
misleading information, but may not:  (1) contest the findings in the Order; or (2) 
assert any defense to liability or remedy, including, but not limited to, any statute of 
limitations defense. 
 
 
By the Commission. 
 
 
 
Brent J. Fields  
Secretary 

UNITED STATES OF AMERICA 

Before the 

SECURITIES AND EXCHANGE COMMISSION 

INVESTMENT ADVISERS ACT OF 1940 

Release No. 4219 / October 7, 2015 

ADMINISTRATIVE PROCEEDING 

File No. 3-16887 

In the Matter of 

Blackstone Management Partners L.L.C., 

Blackstone Management Partners III L.L.C., 

and  

Blackstone Management Partners IV L.L.C., 

Respondents. 

ORDER INSTITUTING CEASE-AND-

DESIST PROCEEDINGS PURSUANT TO 

SECTION 203(k) OF THE INVESTMENT 

ADVISERS ACT OF 1940, MAKING 

FINDINGS, AND IMPOSING A CEASE-

AND-DESIST ORDER 

I. 

The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-

and-desist proceedings be, and hereby are, instituted pursuant to Section 203(k) of the Investment 

Advisers Act of 1940 (“Advisers Act”) against Blackstone Management Partners L.L.C., 

Blackstone Management Partners III L.L.C., and Blackstone Management Partners IV L.L.C. 

(collectively, “Blackstone” or “Respondents”). 

II. 

In anticipation of the institution of these proceedings, Respondents have submitted an Offer 

of Settlement (the “Offer”), which the Commission has determined to accept.  Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the findings 

herein, except as to the Commission’s jurisdiction over them and the subject matter of these 

proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Cease-

and-Desist Proceedings Pursuant to Section 203(k) of the Investment Advisers Act of 1940, 

Making Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.  



 

2 

III. 
 

 On the basis of this Order and Respondents’ Offer, the Commission finds1 that: 

 

SUMMARY 

 

1. These proceedings arise from inadequate disclosures that involved two distinct 

breaches of fiduciary duty by private equity fund advisers Blackstone Management Partners L.L.C., 

Blackstone Management Partners III L.L.C., and Blackstone Management Partners IV L.L.C. 

(collectively, “Blackstone”).  First, from at least 2010 through March 2015, upon either the private 

sale of a portfolio company or an initial public offering (“IPO”), Blackstone terminated certain 

portfolio company monitoring agreements and accelerated the payment of future monitoring fees as 

set forth in the agreements.  Although Blackstone disclosed that it may receive monitoring fees from 

portfolio companies held by the funds it advised, and disclosed the amount of monitoring fees that 

had been accelerated following the acceleration, Blackstone failed to disclose to its funds, and to the 

funds’ limited partners prior to their commitment of capital, that it may accelerate future monitoring 

fees upon termination of the monitoring agreements.  Second, in late 2007, Blackstone negotiated a 

single legal services arrangement with its primary outside law firm (the “Law Firm”) on behalf of 

itself and the funds.  For the majority of legal services performed by the Law Firm beginning in 

2008 and continuing through early 2011, Blackstone received a discount that was substantially 

greater than the discount received by the funds.  The disparate legal fee discounts were not 

disclosed to the funds or the funds’ limited partners until August 2012.  Because of its conflict of 

interest as the recipient of the accelerated monitoring fees and the beneficiary of the disparate legal 

fee discounts, Blackstone could not effectively consent to either of these practices on behalf of the 

funds it advised.  As a result, Blackstone breached its fiduciary duty to the funds in violation of 

Section 206(2) of the Advisers Act and also violated Section 206(4) of the Advisers Act and Rule 

206(4)-8 thereunder.    

 

2. Blackstone separately violated Section 206(4) of the Advisers Act and Rule 206(4)-7 

thereunder by failing to adopt and implement written policies and procedures reasonably designed 

to prevent violations of the Advisers Act arising from the undisclosed receipt of fees and conflicts of 

interest.  

  

RESPONDENTS   

 

3. Blackstone Management Partners L.L.C. (“BMP”) is a Delaware limited liability 

company with its principal place of business in New York, New York.  BMP is a private equity 

fund adviser that has been registered with the Commission as an investment adviser since October 

2005.  BMP manages Blackstone Capital Partners V.         

 

4. Blackstone Management Partners III L.L.C. (“BMP III”) is a Delaware limited 

liability company that maintained its principal place of business in New York, New York.  BMP III 

                                                 
1 The findings herein are made pursuant to Respondents’ Offer and are not binding on any other person or entity in 

this or any other proceeding. 



 

3 

was a private equity fund adviser that was registered with the Commission as an investment adviser 

from August 1997 through March 2014. 2  BMP III managed Blackstone Capital Partners III.          

 

5. Blackstone Management Partners IV L.L.C. (“BMP IV”) is a Delaware limited 

liability company with its principal place of business in New York, New York.  BMP IV is a private 

equity fund adviser that has been registered with the Commission as an investment adviser since 

September 2001.  BMP IV manages Blackstone Capital Partners IV.          

 

OTHER RELEVANT ENTITIES 

 

6. Blackstone Capital Partners III Merchant Banking Fund L.P., along with a 

parallel fund (collectively, “Blackstone Capital Partners III”), is a Delaware limited partnership 

and private investment fund formed in 1997 to make private equity investments.  As of March 2014, 

Blackstone Capital Partners III had exited all of its portfolio company positions and distributed all 

remaining assets to its limited partners.  

  

7. Blackstone Capital Partners IV L.P. (“Blackstone Capital Partners IV”) is a 

Delaware limited partnership and private investment fund formed in 2001 to make private equity 

investments. 

 

8. Blackstone Capital Partners V L.P., along with parallel funds (collectively, 

“Blackstone Capital Partners V”), is a Delaware limited partnership and private investment fund 

formed in 2005 to make private equity investments. 

 

FACTS 
 

A. Background      

 

9. BMP and BMP IV are New York-based private equity fund advisers and BMP III is 

a former private equity fund adviser (BMP, BMP III, and BMP IV collectively, “Blackstone”).  

The Blackstone Group L.P. (NYSE: BX), a publicly traded company since 2007, is Blackstone’s 

parent company and has approximately $330 billion in assets under management.    

 

10. Blackstone has advised multiple private equity funds, including Blackstone Capital 

Partners III, Blackstone Capital Partners IV, and Blackstone Capital Partners V (collectively, the 

“Funds”), each of which was or is governed by a limited partnership agreement (“LPA”) setting 

forth the rights and obligations of its limited partners, including their obligations to pay advisory 

and other fees and expenses to Blackstone pursuant to a separate management agreement between 

each fund and the relevant Blackstone adviser.  As is typical in the industry, among other fees and 

expenses, Blackstone generally charges the limited partners in its Funds an annual advisory or 

“management fee” equivalent to 1.5% of their capital under management.     

 

                                                 
2
 BMP III withdrew its registration with the Commission in March 2014, after Blackstone Capital Partners III – the 

fund it advised – exited all of its portfolio company positions and distributed all of its remaining assets to its limited 

partners. 



 

4 

11. Each Fund’s LPA established a Limited Partnership Advisory Committee 

(“LPAC”) consisting of a number of limited partners.  The functions of the LPAC include, among 

other things, the review and approval or disapproval of any potential conflicts of interest in any 

transaction or relationship (including those relating to the receipt of certain fees).    

 

B. Acceleration of Monitoring Fees 

 

12. Each Blackstone-advised fund owns multiple portfolio companies.  Blackstone 

typically enters into monitoring agreements with each portfolio company that is owned by a 

Blackstone-advised fund.  Pursuant to the terms of the monitoring agreements, Blackstone charges 

each portfolio company an annual fee in exchange for rendering certain consulting and advisory 

services to the portfolio company concerning its financial and business affairs.  The monitoring 

fees paid by each fund-owned portfolio company to Blackstone are in addition to the annual 

management fee paid by the Funds’ limited partners to Blackstone.  However, a certain percentage 

of the monitoring fees the portfolio companies pay to Blackstone are used to offset a portion of the 

annual management fees that the Funds’ limited partners would otherwise pay to Blackstone.  The 

offset percentage, which was 50 percent for BCP III and is also 50 percent for BCP IV and BCP V, 

is set forth in each fund’s LPA or investment advisory agreement.  

 

13. Blackstone’s practice of entering into monitoring agreements with portfolio 

companies and collecting monitoring fees is disclosed and authorized in various pre-commitment 

fund documents, including private placement memoranda, LPAs, and investment advisory 

agreements.  For example, one fund’s LPA states, “The Limited Partners recognize and consent 

that [Blackstone] may receive financial advisory fees, monitoring fees, [and] divestment fees. . . .”  

 

14. Prior to 2012, Blackstone monitoring agreements commonly provided for ten years 

of monitoring services and fees.  Some of these agreements contained so-called “evergreen” 

provisions that automatically extended the life of the agreement for an additional term.  The 

monitoring agreements between Blackstone and the portfolio companies also provided for 

acceleration of monitoring fees to be triggered by certain events.  For example, upon either the 

private sale or IPO of a portfolio company, the monitoring agreements allowed Blackstone to 

terminate the monitoring agreement and accelerate the remaining years of monitoring fees, in some 

cases including additional renewal periods, and receive present value lump sum “termination 

payments.”  While a portion of these accelerated monitoring payments reduced management fees 

otherwise payable by limited partners, the net amount of the payments also reduced the value of 

the Funds’ assets (i.e., the portfolio companies making the accelerated monitoring payments) when 

sold or taken public, thereby reducing the amounts available for distribution to limited partners. 

 

15. In some instances, Blackstone terminated the monitoring agreement and accelerated 

monitoring fee payments even though the relevant Blackstone-advised fund had completely exited 

the portfolio company, meaning that Blackstone would no longer be providing monitoring services 

to the portfolio company.  In most instances, Blackstone terminated the monitoring agreement 

upon a portfolio company IPO and accelerated monitoring fee payments while maintaining some 

ownership stake in the company.  In connection with most IPOs, Blackstone continued to provide 

consultancy and advisory services to the publicly traded portfolio company until the fund 



 

5 

completely exited its investment.  However, in a few instances, Blackstone accelerated monitoring 

fees beyond the period of time during which it held an investment in the company.  The timing of 

the exits following the IPOs ranged from approximately one-and-a-half years to several years.  

 

16. While Blackstone disclosed its ability to collect monitoring fees to the Funds and to 

the Funds’ limited partners prior to their commitment of capital, it did not disclose to the Funds, 

the Funds’ LPAC, or the Funds’ limited partners its practice of accelerating monitoring fees until 

after Blackstone had taken accelerated fees.  The disclosures were made in distribution notices, 

quarterly management fee reports, and, in the case of IPOs, Form S-1 filings.  By the time these 

disclosures were made, the limited partners had already committed capital to the Funds and the 

accelerated fees had already been paid.  The LPAC of each Fund could have objected and 

arbitrated over the accelerated monitoring fees after they had been taken, but never did.  Finally, 

because of its conflict of interest as the recipient of the accelerated monitoring fees, Blackstone 

could not effectively consent to the practice on behalf of the Funds.    

 

C. Disparate Legal Fee Discounts  

 

17. From at least late 2007 through early 2011, the Law Firm performed a substantial 

volume of legal work for Blackstone and the Funds.  During this period, the Funds generated 

significantly more legal fees than Blackstone. 

 

18. In late 2007, Blackstone negotiated a single legal services arrangement with the 

Law Firm on behalf of itself and the Funds whereby Blackstone benefited by receiving a discount 

from the Law Firm that was substantially greater than the discount received by the Funds.   

 

19. Blackstone did not disclose the disparate legal fee discounts the Law Firm provided 

from 2008 through early 2011 to the Funds, the Funds’ LPAC, or the Funds’ limited partners.  

Moreover, because of its conflict of interest as the beneficiary of the disparate legal fee discounts, 

Blackstone could not effectively consent to the undisclosed practice on behalf of the Funds.    

 

20. As the result of an early-2011 internal Blackstone audit, Blackstone voluntarily 

ended the disparate legal fee arrangement with the Law Firm and adopted a new task-based legal 

services arrangement pursuant to which Blackstone and the Funds received the same discounts.  In 

August 2012, Blackstone disclosed to all of its Funds’ limited partners the disparate legal fee 

discounts that had been in place from late 2007 through early 2011 and stated that the rate 

differential generally reflected the different mix of work performed by the Law Firm for the Funds 

and Blackstone.   

 

D. Blackstone Failed to Adopt and Implement Policies and Procedures 

Reasonably Designed to Prevent Violations of the Advisers Act and its Rules  
 

21. While registered as investment advisers, BMP, BMP III, and BMP IV were subject 

to the Advisers Act rules, including the requirement to adopt and implement written policies and 

procedures reasonably designed to prevent violations of the Advisers Act and its rules. 

 



 

6 

22. From at least January 2010 through March 2015, while BMP, BMP III, and BMP 

IV were registered with the Commission as investment advisers, they failed adequately to disclose 

their practice of receiving accelerated monitoring fees. 

 

23. From January 2008 through early 2011, while BMP, BMP III, and BMP IV were 

registered with the Commission as investment advisers, they received a discount on the majority of 

their legal fees that was substantially greater than the discount received by the Funds and they 

failed adequately to disclose the disparate legal fee discounts. 

 

24. Despite the practice of receiving accelerated monitoring fees and receiving a more 

favorable legal fee discount than the Funds, BMP, BMP III, and BMP IV did not adopt or 

implement any written policies or procedures reasonably designed to prevent violations of the 

Advisers Act or its rules arising from the undisclosed receipt of fees or conflicts of interest. 

 

VIOLATIONS 

 

25. Section 206(2) of the Advisers Act prohibits investment advisers from directly or 

indirectly engaging “in any transaction, practice, or course of business which operates as a fraud or 

deceit upon any client or prospective client.”  A violation of Section 206(2) of the Advisers Act 

may rest on a finding of simple negligence.  SEC v. Steadman, 967 F.2d 636, 643 n.5 (D.C. Cir. 

1992) (citing SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 195 (1963)).  Proof of 

scienter is not required to establish a violation of Section 206(2) of the Advisers Act.  Id.  As a 

result of the conduct described above, BMP, BMP III, and BMP IV violated Section 206(2) of the 

Advisers Act. 

 

26. Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder make it unlawful 

for any investment adviser to a pooled investment vehicle to “[m]ake any untrue statement of a 

material fact or omit to state a material fact necessary to make the statements made, in the light of 

the circumstances under which they were made, not misleading, to any investor or prospective 

investor in the pooled investment vehicle” or “engage in any act, practice, or course of business 

that is fraudulent, deceptive, or manipulative with respect to any investor or prospective investor in 

the pooled investment vehicle.”  As a result of the conduct described above, BMP, BMP III, and 

BMP IV violated Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. 

 

27. Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder require registered 

investment advisers to adopt and implement written policies and procedures reasonably designed 

to prevent violations of the Advisers Act and its rules.  As a result of the conduct described above, 

BMP, BMP III, and BMP IV violated Section 206(4) of the Advisers Act and Rule 206(4)-7 

thereunder.    

 

 

 



 

7 

BLACKSTONE’S COOPERATION AND REMEDIAL EFFORTS 

28. In determining to accept Blackstone’s Offer, the Commission considered remedial 

acts taken by Blackstone prior to contact from Commission staff and cooperation afforded the 

Commission staff after Blackstone was contacted.  In early 2011, Blackstone voluntarily ended 

its disparate legal fee arrangement with the Law Firm.  In 2012, Blackstone disclosed to all 

limited partners, without any resulting complaints, that historical discounts offered to Blackstone 

exceeded discounts provided to the Funds.   

 

29. For all funds formed after 2012, Blackstone has disclosed in the PPMs that 

monitoring agreements may contain acceleration provisions that trigger lump sum payments.  In 

addition, as it disclosed to its LPACs in June 2014, since 2012, Blackstone has not entered into any 

monitoring agreements that have terms beyond ten years, self-renew or contain “evergreen” 

provisions.  Blackstone has, since 2010, also not taken advantage of any evergreen provisions in 

existing agreements when collecting a lump sum payment.  In 2012, Blackstone enhanced the 

disclosures it makes after taking accelerated monitoring payments by explicitly identifying 

termination payments in reports distributed to limited partners and setting forth in detail the 

assumptions underlying the calculation of such payments.  In 2014, prior to the SEC investigation, 

Blackstone changed its business practices and further disclosed that it will not accelerate 

monitoring fee payments when it completely exits a portfolio company through private sale and 

will not accelerate more than three years (equal to the approximate average post-IPO length of time 

before Blackstone has made full exits) of remaining monitoring fee payments in the event of an 

IPO.    

 

30. Throughout the staff’s investigation, Blackstone voluntarily and promptly 

provided documents and information to the staff.  Blackstone met with the staff on multiple 

occasions and provided detailed factual summaries of relevant information.  Blackstone was 

extremely prompt and responsive in addressing staff inquiries.     

 

IV. 

 

 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 

agreed to in Respondents’ Offer. 

 

 Accordingly, pursuant to Section 203(k) of the Advisers Act, it is hereby ORDERED that: 

 

A. Respondents BMP, BMP III, and BMP IV cease and desist from committing or 

causing any violations and any future violations of Sections 206(2) and 206(4) of the 

Advisers Act and Rules 206(4)-7 and 206(4)-8 thereunder. 

 

B. Respondents BMP, BMP III, and BMP IV shall pay, jointly and severally, 

disgorgement and prejudgment interest as follows: 

 

i. Respondents shall pay a total of $28,911,756 consisting of disgorgement 

of $26,225,203 and prejudgment interest of $2,686,553 (collectively, the 



 

8 

“Disgorgement Fund”) to compensate the Funds and limited partners 

therein that invested in private equity transactions from 2010 to March 

2015 that resulted in payment of undisclosed accelerated monitoring 

fees; 

 

ii. Within ten (10) days of the entry of this Order, Respondents shall 

deposit the full amount of the Disgorgement Fund into an escrow 

account acceptable to the Commission staff and shall provide the 

Commission staff with evidence of such deposit in a form acceptable to 

the Commission staff.  If timely deposit of the Disgorgement Fund is 

not made, additional interest shall accrue pursuant to SEC Rule of 

Practice 600;  

 

iii. Respondents shall be responsible for administering the Disgorgement 

Fund.  When possible, Respondents shall distribute the amount of the 

Disgorgement Fund to the applicable funds or limited partners as a 

credit against or other effective reduction of certain fees or other 

amounts that the funds would otherwise be obligated to pay to 

Blackstone or that Blackstone would otherwise be entitled to receive.  

Within 30 days of the entry of this Order, Blackstone shall submit a 

proposed distribution to the staff for review and approval.  The proposed 

distribution will include the names of the applicable funds or limited 

partners and their respective payment amounts and a description of the 

methodology used to determine the exact amount of payment or credit 

for each fund or limited partner that will receive a distribution.  The 

distribution of the Disgorgement Fund shall be made in the next two 

fiscal quarters immediately following the entry of this Order but no later 

than within 270 days of the date of the Order, based on the methodology 

set forth in the proposed distribution and as reviewed and not objected 

to by the staff.  If Respondents do not distribute any portion of the 

Disgorgement Fund for any reason, including factors beyond 

Respondents’ control, Respondents shall transfer any such undistributed 

funds to the Commission for transmittal to the United States Treasury.  

Any such payment shall be made in accordance with Section IV.C 

below; 

 

iv. Respondents agree to be responsible for all tax compliance 

responsibilities associated with distribution of the Disgorgement Fund 

and may retain any professional services necessary.  The costs and 

expenses of any such professional services shall be borne by 

Respondents and shall not be paid out of the Disgorgement Fund; and 

 

v. Within 270 days after the date of the entry of the Order, Respondents 

shall submit to the Commission staff a final accounting and certification 

of the disposition of the Disgorgement Fund not unacceptable to the 



 

9 

staff, which shall be in a format to be provided by the Commission staff.  

The final accounting and certification shall include: (i) the amount paid 

or credited to each fund or limited partner; (ii) the date of each payment 

or credit; (iii) the check number or other identifier of money transferred 

or credited to the fund or limited partner; and (iv) any amounts not 

distributed to be forwarded to the Commission for transfer to the United 

States Treasury.  Respondents shall submit the final accounting and 

certification, together with proof and supporting documentation of such 

payments and credits in a form acceptable to Commission staff, under a 

cover letter that identifies BMP, BMP III, and BMP IV as the 

Respondents in these proceedings and the file number of these 

proceedings to Anthony S. Kelly, Assistant Director, Asset Management 

Unit, Division of Enforcement, Securities and Exchange Commission, 

100 F Street, NE, Washington, DC 20549-5010.  Any and all supporting 

documentation for the accounting and certification shall be provided to 

the Commission staff upon request.  Once the Commission approves the 

final accounting, Respondents shall pay any amounts that have not been 

distributed to the Commission for transmittal to the United States 

Treasury. 

 

C. Respondents BMP, BMP III, and BMP IV shall pay, jointly and severally, within 

ten (10) days of the entry of this Order, a civil monetary penalty in the amount of 

$10,000,000 to the Securities and Exchange Commission for transfer to the 

general fund of the United States Treasury, subject to Section 21F(g)(3) of the 

Securities Exchange Act of 1934.  If timely payment is not made, additional 

interest shall accrue pursuant to 31 U.S.C. § 3717.  Payment must be made in one 

of the following ways:   

 

(1) Respondents may transmit payment electronically to the Commission, 

which will provide detailed ACH transfer/Fedwire instructions upon 

request;  

 

(2) Respondents may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  

 

(3) Respondents may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to:  

 

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

 



 

10 

Payment by check or money order must be accompanied by a cover letter 

identifying BMP, BMP III, and BMP IV as Respondents in these proceedings, and the file 

number of these proceedings; a copy of the cover letter and check or money order must be 

sent to Anthony S. Kelly, Assistant Director, Asset Management Unit, Division of 

Enforcement, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 

20549-5010. 

 

D. Respondents acknowledge that the Commission is not imposing a civil penalty in 

excess of $10,000,000 based upon their cooperation in a Commission investigation 

and related enforcement action.  If at any time following the entry of the Order, the 

Division of Enforcement (“Division”) obtains information indicating that 

Respondents knowingly provided materially false or misleading information or 

materials to the Commission or in a related proceeding, the Division may, at its sole 

discretion and with prior notice to the Respondents, petition the Commission to 

reopen this matter and seek an order directing that the Respondents pay an additional 

civil penalty.  Respondents may contest by way of defense in any resulting 

administrative proceeding whether it knowingly provided materially false or 

misleading information, but may not:  (1) contest the findings in the Order; or (2) 

assert any defense to liability or remedy, including, but not limited to, any statute of 

limitations defense. 

 

 

By the Commission. 

 

 

 

Brent J. Fields  

Secretary