By Sarah N. Lynch
(Reuters) – BlackRock Inc, one of the world’s largest asset managers, agreed to pay $12 million to resolve civil charges that one of its unit failed to disclose a conflict of interest created by one of its top portfolio managers.
The U.S. Securities and Exchange Commission said Monday that BlackRock Advisors LLC breached its fiduciary duties to clients by failing to disclose that Daniel Rice, who oversaw some energy funds, was running a family-owned oil and natural gas company that partnered with a coal company that later became the largest holding of a fund he ran for BlackRock.
A top senior compliance officer at BlackRock Advisors at the time, Bartholomew Battista, agreed to a related $60,000 penalty, the SEC said.
Neither BlackRock nor Battista admitted or denied the SEC’s findings in agreeing to settle, and BlackRock also agreed to engage an independent compliance consultant to conduct a review. The company first disclosed the SEC probe in a filing last year.
“BlackRock has extensive policies and procedures in place to manage conflicts of interest, including employees’ outside activities,” spokesman Brian Beades said.
“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.”
An attorney for Battista could not be immediately reached.
The SEC said that Rice, who departed BlackRock in 2012, was involved in managing energy funds for his employer at the same time he founded Rice Energy, a family-owned oil and natural gas company.
The SEC said Rice personally invested $50 million in Rice Energy, which later formed a joint venture with a publicly-traded coal company that rose to become the largest holding in the $1.7 billion BlackRock Energy and Resources portfolio.
The regulator said BlackRock knew and approved of Rice’s activities, but failed to disclose the conflict to the boards of the BlackRock funds and to clients.
Julie Riewe, the co-head of the SEC’s asset management enforcement unit, said Monday this case marks the first time the SEC has charged a firm over failing to report a “material compliance matter” to a fund board.
“BlackRock and Battista caused the funds’ failure to report Rice’s violations of BlackRock’s private investment policy and denied the funds’ boards critical compliance information,” she added.
Earlier this year, Riewe gave a speech saying her unit has unearthed numerous examples of hidden conflicts at asset managers and is planning to file a series of cases.
(Reporting by Sarah N. Lynch in Washington and Jonathan Stempel in New York; Editing by Diane Craft)