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The Securities and Exchange Commission (SEC) has revealed that it has filed charges against BlackRock, one of the largest investment management firms globally, for providing misleading information to investors by inaccurately portraying its investments in the entertainment industry.
The agency determined that BlackRock did not disclose certain risks linked to its investments, which resulted in investors making decisions based on insufficient information. As part of a settlement, the financial giant has consented to pay a penalty of $2.5 million to settle the allegations.
SEC Charges BlackRock for Misleading Investors
In a press release dated Oct. 24, the SEC announced it has charged BlackRock with misleading investors by failing to accurately represent significant investments in the entertainment sector.
The investments were part of the BlackRock Multi-Sector Income Trust (BIT), a publicly traded fund managed by the firm. As part of the settlement, the company has agreed to pay a penalty of $2.5 million.
The SEC’s investigation uncovered that from 2015 to 2019, BIT had made considerable investments in Aviron Group, LLC, a company focused on developing marketing and advertising strategies for one to two films annually.
BlackRock’s public filings with the SEC misrepresented Aviron as a “Diversified Financial Services” entity. These misrepresentations were found in several annual and semi-annual reports accessible to investors.
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“Accurate disclosures of a closed-end or mutual fund’s portfolio are essential for retail and institutional investors to assess their investment choices,” stated Andrew Dean, Co-Chief of the SEC’s Enforcement Division’s Asset Management Unit. He highlighted that investment advisers must provide this critical information, noting that BlackRock did not fulfill this obligation regarding the Aviron investment.
Furthermore, the SEC discovered that BlackRock had exaggerated the interest rate that Aviron was paying, further misleading investors. BlackRock rectified these inaccuracies in 2019, amending its reports to accurately reflect Aviron’s industry and interest rate.
BlackRock Agrees to Cease and Desist Order
BlackRock has accepted the SEC’s order, which concluded that it violated the Investment Advisers Act of 1940 and the Investment Company Act of 1940. In addition to the financial penalty, BlackRock has agreed to a cease-and-desist order and censure without admitting or denying the SEC’s findings.
Additionally, the SEC had previously charged William Sadleir, the founder of Aviron, in 2020. Sadleir was accused of misappropriating BIT funds that were invested in his company.
The agency alleged that he defrauded BlackRock Multi-Sector Income Trust, the primary investor in Aviron, of at least $13.8 million from the $75 million investment. He subsequently misused the embezzled funds for personal and business expenses. However, the case against Sadleir has since been resolved.
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