BlackRock Sanctioned for Inaccurate Statements
The Commission periodically files enforcement actions centered on statements which are false or inaccurate. In many instances the false statements are the predicate for selling securities. In those cases, the reason for the false statements is clear. In other instances, false statements are made to enhance results in a variety of situations.
In the Commission’s most recent case involving false or incorrect statements, however, the reason for making inaccurate representations is far from clear. Indeed, the incorrect statements may have had a mixed effect on the reporting. In the Matter of BlackRock Advisors, LLC, Adm. File No. 3-21786 (October 24, 2023).
The action centers around BlackRock and its client, BlackRock Investment Advisors, LLC or BTI. Blackrock is perhaps one of the best know registered investment advisers. Its client, BlackRock Multi-Sector Income Trust, is a closed-end management investment company. BTI is required to file periodic reports regarding its investments. The reports contain information supplied by BlackRock.
In eight reports filed with the Commission, from October 2015 to October 2019, BlackRock inaccurately described the investments of BTI regarding Aviron Group LLC. At one point this was BTI’s largest investment.
The reports described the firm in which BTI invested as being engaged in Diversified Financial Services. Aviron, however, was not diversified; it was not a financial services firm. To the contrary, the firm was in the business of developing print and advertising plans for one or two films each year. It also underwrote the distribution expenses in exchange for an agreed upon rate of return from the proceeds of the films.
Six of the Reports made during the period inaccurately reflected the coupon rate to be paid by Aviron to BIT. In those instances it appeared that the nominal yield derived from the investments would be larger than in fact is was while in four of the reports, smaller and in one report provided conflicting information.
In 2019, in connection with a review of the Aviron investment, BlackRock identified the errors and accurately reported the Aviron Investment going forward. The Order alleges violations of Advisers Act Section 206(4) and Investment Company Act Section 34(b).
To resolve the action BlackRock consented to the entry of a cease-and-desist order, based on the Sections cited. In addition, the firm was censured and agreed to pay a penalty of $2.5 million. The firm did cooperate with the staff and undertook remedial actions.