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Carlyle Drops Class-Action Lawsuit Ban as Opposition Mounts

Carlyle Group LP abandoned a plan to ban shareholders from filing class-action lawsuits after U.S. regulators threatened to block a stock sale the private-equity firm is seeking to complete as soon as April.

The Washington-based firm amended the documents for its initial public offering on Jan. 10 to include a provision that would have required future stockholders to resolve any claim against Carlyle through arbitration rather than in court. The move provoked controversy among lawmakers and shareholder rights advocates, who urged the U.S. Securities and Exchange Commission not to approve the arbitration clause.

The SEC subsequently told Carlyle that it wouldn’t sign off on the IPO as long as the provision was included, according to a statement the agency issued today. In addition, the proposal was likely to draw opposition from public pensions and agencies, which provided about 40 percent of the capital commitments to Carlyle’s funds as of Sept. 30 and would also have been potential customers for the IPO.