BlackRock Advisors made a $12 million settlement with the US Securities and Exchange Commission (SEC) to resolve charges of failing to disclose a conflict of interest, thereby violating its fiduciary duty.
The SEC said Monday that the world’s largest asset manager failed to reveal that former Portfolio Manager Daniel Rice was running a family-owned and operated oil and natural gas company while managing the BlackRock’s energy funds.
Rice also personal invested nearly $50 million in his family’s company, which later partnered with a coal company that became the largest holding of a fund he managed for BlackRock.
“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.” —SEC“BlackRock violated its fiduciary obligation to eliminate the conflict of interest created by Rice’s outside business activity,” said Andrew Ceresney, director of SEC’s division of enforcement.
The regulators added that BlackRock was aware of Rice’s personal investments and business but failed to reveal the fact to the firm’s fund boards and advisory clients.
As part of the agreement, BlackRock must also undergo an internal review by an independent compliance consultant.
“This has been a learning experience for our firm and we have taken a number of additional steps to further enhance our policies and procedures regarding, among other things, our employees’ outside business activities,” a spokesperson for the investment giant said.
The SEC also said then-Chief Compliance Officer Bartholomew Battista caused BlackRock’s failure to report Rice’s violations. He agreed to pay a $60,000 penalty.
Additionally, the New York-based firm failed to “adopt and implement policies and procedures for outside activities of employees,” the regulators said.
“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,” Ceresney said.
In response, BlackRock said it takes “even the appearance of conflicts of interest” very seriously.
The firm first received official notice of possible securities violations in June 2014. BlackRock has $4.8 trillion in assets.
Separately, the UK regulator has fined Merrill Lynch International £13.2 million ($19.8 million) for failures related to transaction reporting. The Financial Conduct Authority (FCA) said Merrill Lynch International incorrectly reported more than 35 million transactions and failed to report another 121,000, between November 2007 and November 2014.
The company is the 12th firm to be fined by the FCA for such failures. Merrill Lynch is yet to comment on the fine.
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