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SEC vs BlackRock: Conflict of Interest Case Case Study


One of the leading asset managers in the world, Black Rock Advisors LLC, was charged with “breaching its fiduciary duty by failing to disclose a conflict of interest created by the outside business activity of a top-performing portfolio manager” (U.S. Securities and Exchange Commission, 2015a, para. 1).

In the case under consideration, Daniel Rice, the manager of the energy sector, violated BlackRock’s private investment policy by forming and funding the Rice Energy Trust and receiving about fourteen million in loans. Together with Bartholomew Battista (the top compliance manager), BlackRock failed to deliver to the board of directors and clients the information about Rice’s intentions and activity. As a result, both sides became involved in fraud concerning the conflict of interest. BlackRock Advisors LLC also agreed to pay twelve million to resolve the case (Lynch, 2015).

In the case being investigated, several vital issues should be identified. The first matter refers to the fact that the outside activity of Rice formed a conflict of interest. Rice used his authority and connections from BlackRock for personal interest. For instance, Rice made use of his business connection to receive access to land for drilling (U.S. Securities and Exchange Commission, 2015b). The second issue concerns BlackRock’s approval of Rice’s activity.

Legal and Compliance Department of BlackRock, being headed by Bartholomew Battista, knew and accepted the establishment of the Rise Energy Trust despite the fact that it was against the private policy investment. The third issue includes the breaching of fiduciary duty to inform the board of directors and the failure to “exercise the utmost good faith in dealing with its clients — including to fully and fairly disclose all material facts and to employ reasonable care to avoid misleading its clients” (U.S. Securities and Exchange Commission, 2015b, p. 7). Finally, BlackRock failed to work on policies and procedures addressing the outside activity of employees.

The case under investigation includes four applicable stakeholders. Daniel Rice and Rice Energy were the first two stakeholders. Rice had the power to use his business connections at BlackRock to establish and form his own business though such activity was not legal. BlackRock and Bartholomew Battista were other stakeholders who failed to follow all legal regulations connected to the employees’ outside activity and the conflict of interest. They should have informed the board of directors and clients about Rice’s plans. As the BlackRock’s became involved in the extrajudicial activity, the final cost of trade-off was twelve million.

The situation was resolved with the U.S. Securities and Exchange Commission involvement in the investigation of the case. The first action the firm had to do was to invite an independent compliance consultant to examine all of the issues. The consequences of the reveal of the fraud concerned BlackRock and Battista primarily. Thus, the company agreed to pay a sum of twelve million dollars to resolve the case. Battista also accepted the offer to pay sixty thousand dollars to avoid charges. More importantly, both respondents were required to eliminate any possibility of further violations (U.S. Securities and Exchange Commission, 2015a).

In my opinion, every company should conduct only open and fair activities. Clients are the first who should be informed about potential changes to know their attitude towards it. BlackRock demonstrated the neglect of clients and the board of directors’ interests to follow particular purposes. I do believe that all charges are fair though Daniel Rice should be called to account for his activities when he was a manager at BlackRock.

References

Lynch, S. (2015). . Web.

U.S. Securities and Exchange Commission. (2015a). . Web.

U.S. Securities and Exchange Commission. (2015b). . Web.

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IvyPanda. (2020, July 10). SEC vs BlackRock: Conflict of Interest Case. Retrieved from https://ivypanda.com/essays/sec-vs-blackrock-conflict-of-interest-case/

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"SEC vs BlackRock: Conflict of Interest Case." IvyPanda, 10 July 2020, ivypanda.com/essays/sec-vs-blackrock-conflict-of-interest-case/.

1. IvyPanda. "SEC vs BlackRock: Conflict of Interest Case." July 10, 2020. https://ivypanda.com/essays/sec-vs-blackrock-conflict-of-interest-case/.


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IvyPanda. "SEC vs BlackRock: Conflict of Interest Case." July 10, 2020. https://ivypanda.com/essays/sec-vs-blackrock-conflict-of-interest-case/.

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IvyPanda. 2020. "SEC vs BlackRock: Conflict of Interest Case." July 10, 2020. https://ivypanda.com/essays/sec-vs-blackrock-conflict-of-interest-case/.

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IvyPanda. (2020) 'SEC vs BlackRock: Conflict of Interest Case'. 10 July.

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