BlackRock Advisors agreed to pay $2.5 million as part of a settlement with the Securities and Exchange Commission (SEC) addressing allegations the firm inaccurately described investments a fund it advised made in a now-defunct film production company.
BlackRock Multi-Sector Income Trust (BIT) made significant investments in Aviron Group, which it described in reports to the SEC as a “diversified financial services” firm, according to the agency’s press release Tuesday. But Aviron’s only line of business was developing plans for distributing films and funding the associated distribution costs, making the description provided by BlackRock appear inaccurate.
BlackRock said it discovered the reporting errors in connection with an internal review it undertook after uncovering fraud perpetrated by Aviron and its principal against the BIT. The founder of Aviron was sentenced to more than three years in prison in October 2022 for misusing Covid-19 relief loans and separately charged by the SEC for misappropriating BIT funds.
The details: BlackRock sourced the inaccurate description of Aviron from a third-party vendor and failed to correct it across eight reports from October 2015 to October 2019, according to the SEC’s order.
The firm also stated Aviron paid a higher interest rate than was actually the case, the agency found.
Compliance considerations: After identifying its reporting errors in 2019, BlackRock changed its disclosures to identify Aviron as being in the “entertainment” sector.
The firm received cooperation credit for promptly providing witnesses, documents, and analysis on a voluntary basis; voluntarily covering losses associated with Aviron; and providing BIT with a rate of return equal to the other investments in its portfolio, according to the SEC’s order.
Firm response: “We are pleased to fully resolve the SEC’s investigation of this matter,” said a BlackRock spokesperson in an emailed statement. “… As soon as BlackRock discovered the reporting errors, we acted promptly to correct them and enhance our procedures to prevent a reoccurrence.”
BlackRock neither admitted nor denied the SEC’s findings in reaching settlement.
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