BlackRock Is Now Hit With 54 Counts of Securities Violations

August 28, 2024

Updated on November 6, 2024

BlackRock is now hit with 54 counts of securities violations by Indiana Secretary of State Diego Morales, sources confirm.

BlackRock manages funds for the Indiana Public Retirement System and over 415,000 Indiana residents, according to an order from Morales.

The cease-and-desist notice outlines a total of 54 violations of Indiana securities laws related to the firm’s claims about its ESG (Environmental, Social, and Governance) integration, which are said to contradict disclosures made for non-ESG funds.

Despite some disclosures indicating that certain funds do not use ESG strategies, BlackRock has made various statements committing to incorporate ESG considerations across all its managed assets, including efforts towards net-zero goals.

Morales stated, “My office is committed to rigorously enforcing the law and ensuring that Hoosier investors are protected from those who exploit the system.”

In response, BlackRock called the order a “politically motivated attack” that misrepresents its investment approach.

BlackRock emphasized its focus on helping Indiana clients achieve their investment objectives and stated its intention to defend against what it views as an arbitrary use of state power.

The order also highlights BlackRock’s membership in the UN-backed Net Zero Asset Managers initiative (NZAM), which commits signatories to implement strategies aimed at achieving net-zero emissions by 2050.

Additionally, it mentions BlackRock’s involvement with CA100+, a group that has seen several members exit recently, including JPMorgan and State Street.

The order asserts that, as the world’s largest asset manager, BlackRock wields significant proxy voting power to enforce its ESG standards but has often downplayed its activities.

According to its latest investment stewardship report, BlackRock supported only 4% of environmental and social-related shareholder proposals in the 2024 proxy season, a decline from 7% in 2023 and 21% in 2022.

The order also references previous findings by the Indiana State Treasurer’s Office, which cited BlackRock’s NZAM membership as evidence of its ESG commitments.

Still, Morales believes BlackRock has exploited the system.

Last year, the SEC charged BlackRock with failing to properly disclose investments by a publicly traded fund it advised.

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Also Read: Exposures At Hedge Funds Now Surge To Over $28 Trillion

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The SEC now charges a hedge fund for compliance failures when it failed to establish and enforce policies within its insider information material.

Note: The SEC has updated their PR to charging Sound Point for ‘compliance failures’ — the title of this article previously read ‘illegal trading’.

As a result, the Securities and Exchange Commission (SEC) has charged Sound Point Capital Management LP a $1.8 million penalty.

The SEC has found that the investment management firm Sound Point violated securities laws related to the management of collateralized loan obligations (CLOs) and the firm’s access to material non-public information (MNPI).

Sound Point managed CLOs and traded its own CLOs as well as CLOs managed by third parties.

Through this work, the firm sometimes came into possession of MNPI about the companies whose loans were held in the CLOs that Sound Point traded.

While Sound Point began conducting pre-trade compliance reviews to address the potential impact of MNPI related to loans in its own CLOs in 2019, the firm did not adopt formal written policies and procedures to handle MNPI from third-party CLOs until much later, in June 2022.

The SEC emphasized that investment advisors with multiple business lines must have reasonable policies and procedures in place to address the risks of accessing MNPI, including through their roles as lenders that may expose them to sensitive information.

As a result of these violations, Sound Point has agreed to pay a $1.8 million penalty and will be subject to a cease-and-desist order and censure by the SEC.

The investigation was conducted by the SEC’s Division of Enforcement and Division of Examinations.

“Fund managers – including those with multiple business lines or strategies – must consider how they may come into possession of material nonpublic information and then adopt and implement reasonable policies and procedures around those risks,” said Andrew Dean, Co-Chief of the Enforcement Division’s Asset Management Unit.

“Among other things, advisers must evaluate how their roles as lenders could expose them to MNPI that may relate to their CLO trading positions.”

A spokesperson for Sound Point told FrankNez:

“We are pleased to enter into the settlement with the SEC on a “no admit or deny” basis.

We cooperated with the SEC in this matter, which relates to certain compliance policies and procedures, the majority of which were modified in 2019.

We have enhanced our controls since then.

This matter does not include any findings of insider trading or misuse of material nonpublic information by Sound Point or its employees.

Sound Point takes its fiduciary responsibilities very seriously and remains committed to operating with the highest standards of governance and compliance.

As an organization, we continue to seek ways to further enhance our policies, procedures and practices and to adapt to changes in regulation, our business and the market.”

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Also Read: The US Treasury Direct is Now Freezing Customer Accounts

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