BlackRock has agreed to pay $2.5 million to resolve a U.S. Securities and Exchange Commission (SEC) charge that the world’s largest asset manager failed to provide investors with accurate information about a publicly traded fund.
A BlackRock investment fund made “significant investments” in a now-defunct film distribution company called Aviron Group between 2015 and 2019, the SEC said in an Oct. 24 statement. However, the fund published annual and semiannual reports describing Aviron as a “diversified financial services” company.
BlackRock also falsely claimed that Aviron paid a higher interest rate. Only after 2019 did BlackRock rectify those inaccuracies.
The SEC found that BlackRock’s actions violated the Investment Advisers Act of 1940 and the Investment Company Act of 1940. While BlackRock agreed to pay the penalty, the firm said it doesn’t admit or deny the SEC’s findings.
“Retail and institutional investors rely on accurate disclosures of the companies that make up a closed-end or mutual fund’s portfolio to evaluate a current or prospective investment in the fund,” said Andrew Dean, co-chief of the SEC Enforcement Division’s Asset Management Unit.
“Investment advisers have a responsibility to provide this vital information, and BlackRock failed to do so with the Aviron investment.”
The fund, BlackRock Multi-Sector Income Trust (BIT), is still operating. Year to date, it’s down by more than 3 percent as of 2 p.m. New York time on Oct. 26. The primary aim of the fund is “to seek high current income,” with its secondary objective being capital appreciation.
“The trust seeks to achieve its investment objectives by investing, under normal market conditions, at least 80 percent of its assets in loan and debt instruments and other investments with similar economic characteristics,” according to BlackRock.
“We are pleased to fully resolve the SEC’s investigation of this matter,” a BlackRock spokesperson told The Epoch Times in an emailed statement. “BlackRock discovered these inadvertent reporting errors in connection with an internal review it undertook after uncovering a fraud perpetrated by Aviron and its principal against the BlackRock Multi-Sector Income Trust (BIT).
BlackRock’s China Ties
The SEC action against BlackRock comes as the investment giant has increasingly faced scrutiny from authorities in recent months.In July, for example, the U.S. House’s China Select Committee sent a letter to BlackRock CEO Larry Fink stating that together with the MSCI investment index, the two companies had directed Americans’ investments into more than 60 Chinese entities that were blacklisted by the U.S. government.
As a result of these actions, those who invested their savings in the funds run by the two companies were “unwittingly funding” Chinese firms that built weapons for the Chinese military, the letter stated.
“It is unconscionable for any U.S. company to profit from investments that fuel the military advancement of America’s foremost foreign adversary and facilitate human rights abuses,” it said. BlackRock was alleged to have invested more than $429 million in the backlisted Chinese entities across five funds.
In September, BlackRock announced that it was closing a China-focused offshore fund called the China Flexible Equity Fund. A top investment of the fund was the Chinese state-backed tech giant Tencent, which has aided the communist regime in spreading propaganda through the WeChat messaging app.
BlackRock also has scaled back its support for environmental, social, and governance (ESG) proposals at company meetings, after Republican-led states withdrew billions of dollars worth of public pension funds from the firm because of the policy.
In an August report, BlackRock said that it supported about 7 percent of ESG proposals at company meetings in the 12 months until June, a sharp drop from the 22 percent that it supported during the same period a year earlier.
Oklahoma State Treasurer Todd Russ and Auditor and Inspector Cindy Byrd are reviewing the hiring of BlackRock by the Oklahoma Public Employee Retirement System (OPERS) to manage 60 percent of its assets.
BlackRock is on the list of companies banned by Oklahoma law from handling state funds due to the firm’s boycott of oil and gas companies. Handing 60 percent of asset management to BlackRock could have violated the Oklahoma Energy Discrimination Elimination Act (EDEA) of 2022. The oil industry is a key driver of the state’s economy.
Aviron Scam
In November 2022, the SEC charged William Sadleir, the founder of Aviron, for misappropriating at least $13.8 million in BIT funds that were invested in the company.The SEC alleged that BIT invested about $75 million in Aviron, according to a November 2022 statement. Mr. Sadleir is said to have represented that these investments would be used to support the distribution of films.
However, “contrary to these representations, Mr. Sadleir allegedly used a sham company as a vehicle to fraudulently divert and misappropriate BIT funds and issued fake invoices seeking additional BIT funds for services that were never provided,” according to the statement. He “allegedly used the funds to pay personal expenses, including his purchase, furnishing, and renovation of a Beverly Hills mansion.”
The SEC eventually ordered Mr. Sadleir to pay $17.8 million, which included the defrauded $13.8 million. In a criminal case related to the matter brought by the U.S. Attorney’s Office for the Southern District of New York, Mr. Sadleir was sentenced to 72 months in prison and fined $31.6 million.
