Risk & Compliance

BlackRock Sanctioned $12M Over Conflict of Interest

BlackRock failed to eliminate or disclose a conflict pertaining to a portfolio manager's dealings in the energy sector.
Matthew HellerApril 20, 2015

A unit of BlackRock, one of the world’s largest money management firms, has agreed to pay $12 million to settle U.S. Securities and Exchange Commission charges that it failed to disclose a conflict of interest involving a top-performing portfolio manager.

In an order instituting a settled administrative proceeding, the SEC said Monday that the conflict of interest arose from the outside business activity of Daniel J. Rice III, a former portfolio manager in the energy sector of BlackRock Advisors who was also the general partner in Rice Energy, a family-owned oil and natural gas production company.

According to the SEC, BlackRock failed to disclose that the $1.7 billion BlackRock Energy & Resources Portfolio, the largest Rice-managed fund, had a 9.4% holding in Alpha Natural Resources, a publicly-traded coal company that had partnered with Rice Energy in a joint venture.

A Better Way to Do Ecommerce

A Better Way to Do Ecommerce

Learn how Precision Medical leveraged OneWorld to cut the cost of billing in half and added $2.5M in annual revenue.

As part of the settlement, BlackRock’s chief compliance officer, Bartholomew A. Battista, also agreed to pay a $60,000 penalty.

“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,” Andrew J. Ceresney, director of the SEC’s Division of Enforcement, said in a news release.

According to the SEC, Rice joined BlackRock in 2005, becoming a “well-known, long-standing top-performing energy sector portfolio manager” who managed about $4.5 billion in assets. In 2007, he formed Rice Energy, which employed his three sons as officers and in which he personally invested about $50 million.

The joint venture with ANR was finalized in February 2010. But according to the SEC, BlackRock never disclosed its stake in ANR even though it “knew of Rice’s involvement with and investment in Rice Energy as well as the joint venture.”

The SEC said Battista caused BlackRock’s failure to report a “material compliance matter” — namely Rice’s violations of its private investment policy.

“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.