BlackRock To Pay $12M To Settle SEC Charges

BlackRock To Pay $12M To Settle SEC Charges
By BlackRock [Public domain], <a href="">via Wikimedia Commons</a>

BlackRock Advisors agreed to pay a penalty of $12 million to settle the charges filed by the Securities and Exchange Commission (SEC) in connection with its fiduciary duty violation.

In addition, BlackRock failed to adopt and implement policies and procedures for outside activities of employees.

The SEC ordered BlackRock to engage the services of an independent compliance consultant to perform an internal review.

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BlackRock failed to disclose conflict of interest

According to SEC, BlackRock Advisors failed to disclose a conflict of interest involving the outside business activity of Daniel J. Rice III, one of its top-performing portfolio managers.

The SEC found that Mr. Rice was managing energy-focused funds and separately managing accounts at BlackRock when he established Rice Energy, a family-owned and operated oil and natural gas company.

Mr. Rice was a general partner at Rice Energy. He invested approximately $50 million in the company, which later created a joint venture with Alpha Natural Resources, a publicly-traded coal company.

Alpha Natural Resources became the largest holding of BlackRock Energy & Resources Portfolio, which was managed by Mr. Rice. According to the SEC, BlackRock knew about the investment and involvement of Mr. Rice in Rice Energy including its joint venture with ANR.

The Commission emphasized that BlackRock failed to disclose Mr. Rice’s conflict of interest to the board of directors of the Fund or its advisory clients.

SEC Division of Enforcement Director Andrew Ceresney said,
“BlackRock violated its fiduciary obligation to eliminate the conflict of interest created by Rice’s outside business activity or otherwise disclose it to BlackRock’s fund boards and advisory clients.”

He added, “By failing to make such a disclosure, BlackRock deprived its clients of their right to exercise their independent judgment to determine whether the conflict might impact portfolio management decisions.”

On the other hand, Julie Riewe, co-chief of the Enforcement Division commented, “This is the first SEC case to charge violations of Rule 38a-1 for failing to report a material compliance matter such as violations of the adviser’s policies and procedures to a fund board.”

BlackRock chief compliance officer also paid a penalty

Bartholomew Battista, then chief compliance officer of BlackRock was also responsible for the failure of the fund to report a material compliance matter, according to the SEC.

Battista agreed to pay $60,000 penalty to settle the charges filed by the Commission against him.

The SEC also ordered BlackRock and Battista to cease from committing or causing any further violations. BlackRock and Battista neither admitted nor denied the findings of the Commission.

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