The SEC recently charged BlackRock Advisors LLC and its former CCO with violations relating to conflicts of interest resulting from the activities of a portfolio manager. According to the SEC, the portfolio manager formed a family-owned oil and natural gas company at the same time he was responsible for BlackRock’s energy-focused funds and related separately managed accounts. His company subsequently formed a joint venture with a company that became the largest holding (9.4%) of the then $1.7 billion BlackRock Energy & Resources Portfolio.
The SEC found that BlackRock and its CCO were aware of the portfolio manager’s outside activities, which represented violations of the firm’s private investment policy. The SEC considered these violations “material compliance matters.” However, BlackRock did not report the conflict of interest to the boards of the registered funds in violation of Rule 38a-1. According to Julie Riewe, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, “[t]his 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.” To settle the violations, BlackRock agreed to pay a $12 million fine and hire an independent compliance consultant. The CCO agreed to pay a $60,000 fine.
The order can be found here.