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The U.S. Securities and Exchange Commission (SEC) has taken action against BlackRock Advisors, LLC, accusing the investment advising firm of misrepresenting certain entertainment industry investments in its publicly traded fund. In light of these allegations, BlackRock has consented to pay a penalty amounting to $2.5 million.
BlackRock’s Misrepresentation of Aviron Group, LLC
Between 2015 and 2019, the BlackRock Multi-Sector Income Trust (BIT) engaged in substantial investments with Aviron Group, LLC. Aviron’s primary operations revolved around formulating print and promotional strategies for one to two film projects each year.
However, the SEC discovered discrepancies in how BlackRock portrayed Aviron in several of BIT’s annual and semi-annual public reports. Rather than describing Aviron’s genuine role in the entertainment sector, BlackRock labeled them as a “Diversified Financial Services” entity. Furthermore, BlackRock alleged that Aviron remitted an interest rate which was notably higher than the genuine figure.
By 2019, BlackRock rectified these misrepresentations, ensuring that subsequent reports aptly outlined Aviron’s investments.
The Importance of Transparent Disclosures
Andrew Dean, who co-leads the Enforcement Division’s Asset Management Unit at the SEC, emphasized the crucial role of accurate disclosures. He stated, “Both retail and institutional investors depend on transparent revelations regarding the constituents of a mutual or closed-end fund’s portfolio when deciding on an investment. Investment advisers, like BlackRock, are obligated to offer this essential data. Regrettably, BlackRock fell short with its portrayal of the Aviron investment.”
BlackRock’s Concession to the SEC’s Findings
While not conceding to or refuting the SEC’s findings, BlackRock has acceded to the SEC’s decree. This order ascertains BlackRock’s infringement of both the Investment Advisers Act and the Investment Company Act, both from 1940. In addition to the financial penalty, BlackRock has accepted a cease-and-desist order alongside a formal censure.
Prior SEC Actions
This isn’t the SEC’s sole involvement with Aviron. Previously, the commission took action against Aviron’s founder, William Sadleir, accusing him of misappropriating funds from BIT dedicated to Aviron. That matter has since been settled.
The investigation concerning BlackRock was managed by Salvatore Massa and Brian Fitzpatrick, both under the supervision of Andrew Dean and Corey Schuster from the SEC’s Enforcement Division’s Asset Management Unit.