Blackrock Advisors Neither Admits Nor Denies, to Pay $12 Million Penalty

The Securities and Exchange Commission (SEC) charged BlackRock Advisors LLC with breaching its fiduciary duty by failing to disclose a conflict of interest created by the outside business activity of a top-performing portfolio manager.

BlackRock neither admitted nor denied the charges and will pay a $12 million penalty.

blackrock

The firm also must engage an independent compliance consultant to conduct an internal review.

BlackRock was represented by Colleen Mahoney of Skadden Arps in Washington, D.C.

Daniel J. Rice III was managing energy-focused funds and separately managed accounts at BlackRock when he founded Rice Energy, a family-owned and operated oil-and-natural gas company.

Rice was the general partner of Rice Energy and personally invested approximately $50 million in the company.

Rice Energy later formed a joint venture with a publicly-traded coal company that eventually became the largest holding (almost 10 percent) in the $1.7 billion BlackRock Energy & Resources Portfolio, the largest Rice-managed fund.

The SEC’s order finds that BlackRock knew and approved of Rice’s investment and involvement with Rice Energy as well as the joint venture, but failed to disclose this conflict of interest to either the boards of the BlackRock registered funds or its advisory clients.

“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,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “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.”

The SEC’s order also finds that BlackRock and its then-chief compliance officer Bartholomew A. Battista caused the funds’ failure to report a “material compliance matter” – namely Rice’s violations of BlackRock’s private investment policy – to their boards of directors.

BlackRock failed to adopt and implement policies and procedures for outside activities of employees, and Battista caused this failure.

Battista was represented by Jonathan Polks of Weil Gotshal in New York.

Battista agreed to pay a $60,000 penalty to settle the charges against him.

“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,” said Julie M. Riewe, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “BlackRock and Battista caused the funds’ failure to report Rice’s violations of BlackRock’s private investment policy and denied the funds’ boards critical compliance information alerting them to Rice’s outside business interests.”

Copyright © Corporate Crime Reporter
In Print 48 Weeks A Year

Built on Notes Blog Core
Powered by WordPress