The Securities and Exchange Commission (SEC) has taken action against BlackRock, a major investment management firm, for providing misleading information to investors about its investments in the entertainment sector. The SEC found that BlackRock failed to disclose certain risks associated with its investments, leading investors to make decisions based on incomplete information. As a result, BlackRock has agreed to pay a penalty of $2.5 million to resolve the charges.
According to the SEC’s press release, BlackRock was charged with misleading investors by inaccurately describing significant investments in the entertainment sector. These investments were made through BlackRock Multi-Sector Income Trust (BIT), a publicly traded fund advised by the company. BlackRock has consented to pay the $2.5 million penalty as part of a settlement agreement.
During its investigation, the SEC discovered that from 2015 to 2019, BIT had made substantial investments in Aviron Group, LLC, a company focused on developing print and advertising plans for one to two films per year. However, BlackRock’s public documents filed with the SEC inaccurately portrayed Aviron as a “Diversified Financial Services” company. These inaccuracies were present in multiple annual and semi-annual reports available to investors.
Andrew Dean, Co-Chief of the SEC’s Enforcement Division’s Asset Management Unit, highlighted the importance of accurate disclosures in evaluating investment decisions. He expressed that investment advisers should provide crucial information about a fund’s portfolio and noted that BlackRock failed to do so regarding the Aviron investment.
In addition to misleading investors about Aviron, the SEC also found that BlackRock had overstated the interest rate that Aviron was paying, further misleading investors. BlackRock corrected these errors in 2019 by revising its reports to accurately describe Aviron’s industry and interest rate.
BlackRock has agreed to a cease-and-desist order and censure as part of the SEC’s order, which determined that the company violated the Investment Advisers Act of 1940 and the Investment Company Act of 1940. It is important to note that BlackRock agreed to these measures without admitting or denying the SEC’s findings.
It is worth mentioning that in 2020, the SEC charged William Sadleir, the founder of Aviron, with misappropriating BIT funds invested in his company. Sadleir was accused of defrauding BlackRock Multi-Sector Income Trust of at least $13.8 million out of the $75 million investment. He allegedly misused the embezzled funds for personal and business expenses. However, the action against Sadleir has since been resolved.
These recent actions by the SEC highlight the importance of accurate and transparent information for investors. Investment management firms like BlackRock have a responsibility to provide complete and truthful disclosures to help investors make informed decisions.
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