BlackRock Inc., the world’s biggest money manager, said regulators are considering filing action against the firm over a former money manager who used BlackRock funds to invest in a company with which he had financial ties.
BlackRock said yesterday in a filing it received a Wells notice from the U.S. Securities and Exchange Commission on June 17 indicating the regulator’s staff is recommending action against a unit at the firm, which manages about $4.3 trillion.
The SEC “has taken the preliminary view” that disclosures related to Daniel J. Rice III, who retired from BlackRock Advisors in 2012 as a portfolio manager, were “inadequate,” the company said. BlackRock, which is based in New York, said it doesn’t believe it violated provisions mentioned by the SEC and it doesn’t expect any resolution of the matter to have a material impact on its financial results.
The SEC notice is the latest instance of regulatory scrutiny faced by BlackRock this year. In January, the firm disclosed that one of its employees, Nigel Bolton, was named in a civil proceeding by an Italian securities regulator alleging he used nonpublic information to avoid client losses. That same month, BlackRock agreed to end an analyst survey program that New York’s Attorney General concluded could be used to execute trades based in part on nonpublic information.
Rice, who helped manage five energy and natural resource mutual funds for the money manager, retired to avoid the appearance of a conflict of interest. He is one of the founders of Rice Energy Inc., a natural gas company with a subsidiary that had a joint venture with one of his mutual fund’s top holdings at the time, Alpha Natural Resources Inc. He became a billionaire in January when his company sold shares in an initial public offering.
The SEC sends a Wells notice to a company or an individual after its staff has determined that sufficient wrongdoing has occurred to warrant civil claims being filed.
“BlackRock has extensive policies and procedures in place to manage any potential conflicts, both perceived and real, and as a fiduciary for our clients, we take these safeguards extremely seriously,” BlackRock spokesman Brian Beades said in an e-mail. The company put in place additional measures to manage any potential conflicts of interest concerning Rice and hasn’t found any improper trading, he said.
Rice didn’t respond to an e-mail seeking comment.
Rice, who lives in the Boston area, owns about 42.7 million shares of the company directly and through Rice Holdings. The shares have risen 45 percent since the offering, valuing his stake at $1.3 billion, according to the Bloomberg Billionaires Index. Rice Energy closed at $30.48 yesterday.
Rice controls a portion of the shares with two sons, Rice Energy Chief Executive Officer Daniel Rice IV and Chief Operating Officer Toby Rice, according to filings. A third son, Derek Rice, is vice president of exploration and geology.
Rice founded the Canonsburg, Pennsylvania-based shale gas producer in 2007, when he was managing more than $1 billion for BlackRock funds and institutional clients.