An ex-BlackRock portfolio manager’s conflict of interest surrounding energy investments cost the fund company $US12 million in fines from the Securities and Exchange Commission, government officials announced Monday.
What got BlackRock into trouble with regulators was the failure to disclose a conflict of interest, dating back to an investment the company made in Rice Energy LP.
Daniel Rice III, as managing director at BlackRock over a span lasting about seven years from 2005 through 2012, also formed Rice Energy LP with his three sons over that time frame, investigators said. The firm’s chief of compliance at this time, Bart Battista, was aware of this, and also paid a fine of $US60,000 in connection with the case, investigators said. Neither admitted wrongdoing as a result of the agreement.
“Rice was the general partner of Rice Energy and personally invested approximately $US50 million in the company,” the SEC said. “Rice Energy later formed a joint venture with a publicly-traded coal company that eventually became the largest holding (almost 10 per cent) in the $US1.7 billion BlackRock Energy & Resources Portfolio, the largest Rice-managed fund.”
The SEC said Rice used BlackRock email to conduct business on behalf of Rice Energy, and that BlackRock did not report conflicts of interest to its investors.
Via email, a BlackRock representative said that Battista will retire from the firm at the end of the year, and stated:
“BlackRock has extensive policies and procedures in place to manage conflicts of interest, including employees’ outside activities. However, 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’ outisde business activities. As a fiduciary for our clients, we take even the appearance of conflicts of interest extremely seriously.”
Rice III retired from BlackRock in late 2012, and the company was served a Wells Notice regarding the investigation in mid-2014. A column in the Wall Street Journal appeared to first question whether Rice’s investing at BlackRock and in his sons’ company represented a conflict of interest.