BlackRock traded using nonpublic data, New York probe finds

Unit’s Performance

Some of the unit’s active funds underperformed peers in the aftermath of the financial crisis. The unit has seen improved performance over the past several years after making changes such as adding portfolio members and analysts, which were referenced by BlackRock Chief Executive Officer Laurence D. Fink during a conference call in July 2012 and a presentation in May. About 87% of the scientific equity unit’s funds outperformed their benchmarks in the five years ending Sept. 30, up from 47% two years earlier, according to the firm’s earnings releases.

The scientific active equity division relies on quantitative models to make investments. It focuses on consistent and reliable absolute returns through a diversified blend of investment insights that are implemented in a systemic way, according to a marketing document from April. Its hedge funds include European Diversified Equity Absolute Return, 32 Capital Ltd, Global Alpha Opportunities, Emerging Markets Alpha And Pan Asia opportunities, the document said.

Schneiderman’s Investigation

Schneiderman’s investigation relied on internal BlackRock and SAE documents to determine that the survey program was also designed to collect advance revisions to analysts’ published views about the companies they covered.

BlackRock said in one document cited by the attorney general that the purpose of the survey is to “get ahead of analysts’ actions (upgrades/downgrades), get a direct measure of their internal probability distribution around their forecasts and get some more nuanced information about what they really think.”

SAE said in an internal document that the program’s success depended in part on an “analyst’s willingness to really give us advance information,” according to the settlement. Another SAE document cited by the attorney general included the statement, “We’re agnostic as to whether the recommendations themselves are useful investment info. We are trying to front-run” the recommendations.

Survey Program

The survey program, begun in 2003, solicited from stock analysts at “dozens” of prominent brokerage firms worldwide information about the management, competitive position, earnings and views of the companies they covered, according to the agreement.

SAE could use information from its surveys of brokerage analysts to get ahead of future analyst reports on companies, according to the attorney general.

While BlackRock said it only used publicly available information in its surveys, the attorney general said the timing of the surveys and questions included gave it access to nonpublic analyst sentiment.

Schneiderman’s investigation concluded that brokerage firms responded to SAE’s requests while they might have been reluctant to assist retail or other small investors.

One employee said the “obvious and unsaid incentive for most brokers is that BGI is a huge chunk of your paycheck and the analysts better fill out their surveys for such a large client,” according to the settlement.

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