A BlackRock subsidiary agreed to pay a $2.5 million penalty to settle Securities and Exchange Commission charges that it inaccurately described one of its entertainment industry investments in public filings, according to an Oct. 24 order.
BlackRock, which did not admit to or deny the SEC's findings, was charged with violating the Investment Advisers Act of 1940 and the Investment Company Act of 1940, and agreed to a cease-and-desist order and a censure in addition to the $2.5 million penalty.
The charges against BlackRock Advisors stem from errors in reports filed with the SEC between October 2015 to October 2019 concerning BlackRock Multi-Sector Income Trust's investment in Aviron Group, a company in the film distribution business, according to the SEC.
"Retail and institutional investors rely on accurate disclosures of the companies that make up a closed-end or mutual fund's portfolio to evaluate a current or prospective investment in the fund," said Andrew Dean, co-chief of the SEC's enforcement division's asset management unit, in a news release. "Investment advisers have a responsibility to provide this vital information, and BlackRock failed to do so with the Aviron investment."
In many of the BlackRock Multi-Sector Income Trust's annual and semiannual reports, BlackRock inaccurately described Aviron, which was at one point was the trust's largest single investment, as a "Diversified Financial Services" company, the SEC found. "Aviron, however, was neither diversified nor a financial services firm; instead, it was in the business of developing print and advertising plans for one to two films a year and funding these distribution expenses in exchange for an agreed-upon rate of return from the proceeds of the films," the SEC stated in its order.
Moreover, in six reports from 2015-2019, BlackRock inaccurately reflected the coupon rate to be paid by Aviron to the trust, making it appear that the nominal yield derived from the Aviron Investment would be larger than it in fact was in four reports, smaller in one report, and provided conflicting information in another report, the SEC found.
Following a larger review of the Aviron Investment in 2019, BlackRock identified its reporting errors and accurately reported the Aviron Investment going forward, the SEC said.
A BlackRock spokesperson said in an email that the firm is pleased the fully resolve the SEC's investigation of this matter. "BlackRock discovered these inadvertent reporting errors in connection with an internal review it undertook after uncovering a fraud perpetrated by Aviron and its principal against the BlackRock Multi-Sector Income Trust," the spokesperson added. "As soon as BlackRock discovered the reporting errors, we acted promptly to correct them and enhance our procedures to prevent a reoccurrence."
As of Aug. 8, BIT's net asset value was $547 million.
