BlackRock Inc., the world’s biggest money manager, agreed to end an analyst survey program that New York Attorney General Eric Schneiderman concluded was relied on to execute trades using nonpublic information.
BlackRock agreed to discontinue use of the analyst survey program worldwide. It was developed by Scientific Active Equities, or SAE, an investment group within Barclays Global Investors, which BlackRock acquired in 2009, according to the agreement reached yesterday with Schneiderman.
The agreement comes as money managers are facing heightened scrutiny from regulators following insider-trading probes and assessments of whether their size poses systemic risk to financial markets. Large money managers such as BlackRock, with $4.1 trillion in assets, are among nonbank financial companies that the U.S. Financial Stability Oversight Council is evaluating to determine whether they require Federal Reserve oversight. BlackRock leveraged its size to ensure analysts would respond to the surveys, according to the agreement.
Schneiderman’s investigation found that the design of the survey program “allowed it to capture more than previously published analyst views, including nonpublic analyst sentiment that could be used to trade ahead of the market reaction to upcoming analyst reports,” according to the agreement.
BlackRock’s conduct, according to the agreement, violated New York’s Martin Act, an almost century-old law that gives the state’s attorney general broad powers to target financial fraud.
New York-based BlackRock agreed to pay the state $400,000 to cover the cost of the investigation, according to the settlement. BlackRock didn’t admit or deny the attorney general’s findings, according to a copy of the agreement provided by Schneiderman’s office.
The firm has agreed to cooperate with the attorney general’s ongoing investigation related to the subject matter of the settlement, according to the settlement.
“BlackRock is committed to operating with the highest ethical standards,” Brian Beades, a BlackRock spokesman, said in an e-mailed statement. “This survey was initiated by Barclays Global Investors prior to its acquisition by BlackRock. We have discontinued its use to avoid even the appearance of any impropriety.”
The Scientific Active Equity unit has more than $80 billion in assets globally and offerings include separately managed accounts, hedge funds and mutual funds. Its head and chief investment officer is Ken Kroner, who was an associate professor of economics and finance at the University of Arizona before joining BGI in 1994.