BlackRock Advisors received a Wells Notice last week, the firm said in an 8-K filing with the Securities and Exchange Commission.
A Wells Notice is a letter from the SEC sent to firms when the agency is planning to bring an enforcement action against them.
In the 8-K filing, BlackRock said the Wells Notice pertained to a former portfolio manager.
In June 2012, Daniel J. Rice, who was a high-profile energy portfolio manager at BlackRock, retired.
The firm said this move was to avoid the perception of a potential conflict of interest because of Rice’s involvement with his family’s natural gas company, Rice Energy.
Rice, who worked at BlackRock for seven years, became a billionaire earlier this year after Rice Energy became publicly traded, Bloomberg News reported.
Here’s the 8-K filing:
In June 2012, BlackRock Advisors, LLC (“BlackRock Advisors”), a subsidiary of BlackRock, Inc. (the “Company”), announced that its then-employee Daniel J. Rice III would, among other things, no longer serve as a portfolio manager for the BlackRock Energy & Resources Portfolio in order to address any perception of a potential conflict of interest as a result of his personal investments and involvement in a family business, Rice Energy LP and related entities. The Company concluded that there was no improper trading within the portfolios managed by Mr. Rice and that no clients were harmed. BlackRock Advisors further announced that Mr. Rice would retire from BlackRock Advisors, which he did in December 2012. Since 2012, BlackRock Advisors has cooperated with the staff of the United States Securities and Exchange Commission (“SEC”) in an investigation of this matter.
On June 17, 2014, BlackRock Advisors received a written “Wells Notice” from the SEC staff indicating the staff’s preliminary determination to recommend to the Commission that the SEC file an action against BlackRock Advisors.
A Wells Notice is neither a formal allegation of wrongdoing nor a finding that BlackRock Advisors violated any law. Rather, it provides BlackRock Advisors an opportunity to respond to issues raised by the SEC staff and offer its perspective prior to any SEC decision.
The SEC staff has taken the preliminary view that BlackRock Advisors’ disclosure as it related to Mr. Rice’s situation, and its policies and procedures, were inadequate. The Wells Notice indicates that the basis of any action against BlackRock Advisors would be violations of Section 206 of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder, as well as Rule 38a-1 of the Investment Company Act of 1940. BlackRock Advisors does not believe these provisions were violated.
BlackRock Advisors will continue to cooperate fully with the SEC’s inquiry and intends to make a submission to the SEC staff setting forth why no action should be commenced against it.
The Company does not expect any resolution of the matter to have a material adverse effect on its financial results or operations.
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