Goldman Sachs, Bain Seek Dismissal of Bid-Rigging Lawsuit

Goldman Sachs Group Inc. (GS) and Bain Capital Partners LLC urged a federal judge to dismiss an investor lawsuit accusing investment banks and private-equity firms of conspiring to rig bids on leveraged buyouts.

The financial companies were among at least 10 defendants seeking summary judgment from U.S. District Judge Edward Harrington in the five-year-old class action, or group lawsuit, according to court papers filed yesterday in Boston.

Goldman Sachs, in its filing, said the plaintiffs, who must respond to the summary judgment motions by Aug. 23, haven’t proved that the banks and private equity firms “participated in any conspiracy in violation of the antitrust laws.” The financial companies seek oral arguments in court. Meanwhile, most documents supporting the motions are under seal.

Individuals and a pension fund that held shares in companies including Freescale Semiconductor Ltd. (FSL), Neiman Marcus Group and Aramark Holdings Corp. sued the firms in 2007 and 2008. Two separate lawsuits were consolidated by the judge, who rejected a bid by the financial firms to move the case to federal court in New York.

Firms’ ‘Conspiracy’

“There was a conspiracy among private equity firms to rig bids, restrict the supply of private equity financing, fix transaction prices and divide up the market for private equity services for leveraged buyouts,” the plaintiffs said in their lawsuit.

The defendants also include Carlyle Group LP (CG), Blackstone Group LP (BX), Kohlberg Kravis Roberts & Co. LLP, JPMorgan Chase & Co. (JPM), Apollo Global Management LLC, (APO) Providence Equity Partners Inc., Thomas H. Lee Partners LP, Silver Lake Technology Management LLC and TPG Capital.

The companies have argued that the plaintiffs have no right to sue for antitrust violations that would be subject to Securities and Exchange Commission regulations. They also said the transactions represented legitimate business practices.

“They neither identify any direct evidence of an actual agreement among these 17 defendants to fix the market for large LBOs nor allege circumstantial facts that support the plausibility of such a conspiracy,” the defendants said in court filings. “These transactions simply represent the normal workings of the mergers and acquisition business.”

Freescale Sale

Plaintiff Kirk Dahl said in court papers that he and others in the class owned shares in Freescale Semiconductor in 2006 when it announced an LBO by firms including Carlyle and Blackstone.

“The prices paid for Freescale were suppressed below prices that would otherwise prevail in a competitive market as a result of the conspiracy,” the complaint stated.

The firms formed “bidding clubs” that rigged bids, limited competitive offers and “artificially depressed prices,” according to the lawsuit. Firms that weren’t part of the winning bidding clubs would get minority stakes in the acquired companies or fees as advisers, according to the complaint.

“Joint bidding is central to the proper functioning of a well-regulated capital markets system,” the financial firms said.

To limit the number of bids, the companies’ managers were offered incentives that included new equity, the plaintiffs claimed.

After a company was acquired, the new owners would often sell bonds to fund a dividend for themselves, allowing the private equity firms to recoup as much as 35 percent of their investment quickly and the banks to win fees for the debt sale, the lawsuit stated. Later, the firms would sell the companies in public stock offerings, reaping more returns and fees.

The plaintiffs include the Police and Fire Retirement System of the City of Detroit, a public pension fund.

The case is Dahl v. Bain Capital Partners LLC, 07-12388, U.S. District Court, District of Massachusetts (Boston).

To contact the reporter on this story: Don Jeffrey in New York at djeffrey1@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net