Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Stephen Schwarzman (Schwarzman), currently associated with Blackstone Securities Partners L.p., has at least one disclosable event. These events include one customer complaint, alleging that Schwarzman recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a pending customer complaint on July 29, 2020.
This is a lawsuit brought by the Kentucky Attorney General purportedly on behalf of the Kentucky Retirement Systems and the Commonwealth of Kentucky. The Kentucky Attorney General’s lawsuit incorporates the claims first raised in the lawsuit commenced on December 26, 2017, which is the subject of a DRP filed by the registrant on February 5, 2018. Specifically: On December 26, 2017, the registrant was named as a defendant in a purported derivative lawsuit brought by eight individual pension beneficiaries on behalf of the Kentucky Retirement Systems (‘KRS’), filed in Franklin County, Kentucky, Circuit Court (the ‘Circuit Court’). The defendants in the suit included the registrant, The Blackstone Group L.P. (now Blackstone Inc.), Blackstone Alternative Asset Management L.P. (‘BAAM’) and the then CEO of BAAM (the ‘Blackstone Defendants’), as well as other investment managers and their executive officers, current and former KRS trustees and officers, and several outside advisors. The lawsuit concerned, among other issues, KRS’s investment in a BAAM-managed fund, and alleged state law claims for breach of trust, fiduciary, and unspecified other duties; civil conspiracy; and aiding and abetting breach of statutory, fiduciary, and unspecified other duties. After numerous motions and appeals, in July 2020, the Kentucky Supreme Court unanimously ordered the dismissal of the complaint because plaintiffs lack standing. In July 2020, the Kentucky Attorney General filed a motion to intervene in the action and pursue the claims on behalf of the Commonwealth of Kentucky. Also in July 2020, the Kentucky Attorney General filed a separate action which is substantially the same as its intervening complaint. In December 2020, the Circuit Court granted the Attorney General’s motion to intervene over the defendants’ objections. In April 2023, the Court of Appeals vacated the Circuit Court’s order authorizing the Attorney General’s intervention. In January 2024, the Kentucky Supreme Court denied the Commonwealth’s motion for discretionary review of the Court of Appeals’ decision. After the Court of Appeals’ decision, the Attorney General pursued Civil Action No. 20-CI-00590. On May 1, 2024, the Circuit Court denied Blackstone Defendants’ (and most other defendants’) motions to dismiss. While that motion was pending, the court permitted the Attorney General to amend its complaint for the third time to add a claim for breach of contract. On April 8, 2024, the Kentucky Attorney General filed an action, Civil Action No. 24-CI-00354, that involves the same subject matter, names the same parties as defendants, and brings the same claims as the operative complaint in Civil Action No. 20-CI-00590. The Attorney General has stated its purpose in filing the new action was to satisfy a limitations statute. On May 1, 2024, the Circuit Court granted the Commonwealth’s motion to consolidate Civil Action No. 24-CI-00354 with Civil Action No.00590. On January 3, 2025, certain defendants, including the Blackstone Defendants, entered into a settlement agreement with KRS and the Commonwealth of Kentucky. The settlement, which is subject to court approval and to certain contingencies, would be funded entirely by insurance and would resolve all claims against the Blackstone Defendants in Civil Action No. 20-CI-00590 and Civil Action No. 24-CI-00354. On January 8, 2025, the settling parties moved for court approval of the settlement. That motion is pending.
Brokers are required to adhere to the SEC’s Regulation Best Interest (Reg BI) standard of care under the Securities Exchange Act of 1934 which establishes a ‘best interest’ standard for broker-dealers and associated persons. Reg BI applies when brokers recommend a retail investor engage in securities transaction or an investment strategy involving one or more securities. Reg BI also applies to financial advice concerning the transfer of funds and opening of accounts. This standard applies when brokers make recommendations to retail customer for any securities transaction or investment strategy involving securities, including recommendations of types of accounts.
The care obligation also requires the broker to address the client’s specific needs through obtaining specific investment profile information on the client. The associated person typically will ask the customer for information such as the investor’s risk tolerance or ability to withstand account value declines or increases; experience with investments available; investment objectives and goals; investment time horizon; liquidity needs; assets such as investment accounts held at other financial institutions; tax information; their age and retirement plans; and other information that a customer may want to provide to the advisor to help them to properly address the services needed. The Reg BI rule applies a fiduciary principles and requires an associated person to act in the retail investor’s “best interests” while barring the broker from placing their own financial interests and compensation incentives ahead of the investor’s best interest. There are several different aspects of the rule that brokers must comply with. One of which is the care obligations which require brokers to form a reasonable belief that their investment advice and recommendations are in the retail investor’s best interest. The care obligations include three components. First, the advisor must have an understanding of the potential risks, rewards, and costs associated with a product, investment strategy, account type, or series of transactions.
The care obligation also requires the broker to address the client’s specific needs through obtaining specific investment profile information on the client. The associated person typically will ask the customer for information such as the investor’s risk tolerance or ability to withstand account value declines or increases; experience with investments available; investment objectives and goals; investment time horizon; liquidity needs; assets such as investment accounts held at other financial institutions; tax information; their age and retirement plans; and other information that a customer may want to provide to the advisor to help them to properly address the services needed. Finally, the financial advisor must use their knowledge of both their reasonable diligence into investment options as well as their knowledge of the investor’s client specific needs to consider reasonably available investment options. Those investment options must allow the broker to determine that there is a reasonable basis that the recommendation is in the retail investor’s best interest. In addition to specific investments being recommended, under Reg BI, a broker must also understand the type of account that their client would need in order to meet their care obligations. The SEC has stated that the type of securities account an investor has can greatly affect a customers’ costs and overall investment returns. Further, different account types can offer and support different features, products, securities, or services, and account type would not be appropriately applied in a one size fits all manner.
Schwarzman entered the securities industry in 1979. Schwarzman has been registered as a Broker with Blackstone Securities Partners L.p. since 1986.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.