BlackRock to Pay $12 million in SEC Settlement
Settlement closes a nearly three-year-old controversy involving former BlackRock Energy & Natural Resources manager Dan Rice.
BlackRock (BLK) has agreed to pay $12 million to settle charges levied by the Securities and Exchange Commission that the firm had violated its fiduciary duty by failing to disclose a conflict of interest involving one of its former mutual fund managers.
In addition to the penalty, the SEC ordered BlackRock to hire an independent compliance consultant to conduct an internal review. Former BlackRock chief compliance officer Bartholomew Battista also agreed to pay $60,000 to settle charges that he allowed the conflict of interest to happen on his watch and failed to report it to the fund family's boards of directors. Neither BlackRock nor Battista admitted or denied the SEC's findings.
The settlement closes a nearly three-year old controversy that forced out one of BlackRock's top-performing portfolio managers and led to some internal changes at world's largest money manager.
The SEC had notified BlackRock in 2014 that the regulator had reached a preliminary decision to take enforcement action against the firm for investments that former BlackRock Energy & Resources (SSGRX) manager Dan Rice had made in Alpha Natural Resources (ANR) in 2010. The fund allegedly increased its stake in the company after Alpha formed a joint venture with a unit of Rice Energy, a company Dan Rice had started with his sons. BlackRock, which removed Rice as manager in 2012 after the controversy broke, at first said it would contest the SEC's preliminary decision. It then indicated in its 2014 annual report that a settlement was pending.
On Monday, a firm spokesman said BlackRock was pleased to put the issue behind it, adding that neither the SEC nor its own internal review had revealed any trading improprieties or losses to investors. Since the controversy broke, BlackRock also has instituted new regulations on outside enterprises for portfolio managers, including forming an outside-activities committee that reviews all external employee business activities that may cause a conflict.
Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.