By Kirsten Grind and Jason Zweig
Giant money manager BlackRock Inc. agreed to pay the Securities and Exchange Commission $12 million to settle claims that it failed to tell clients about a conflict between a fund manager's private holdings and portfolios he supervised for BlackRock clients.
Daniel Rice III handled investments in energy companies for certain BlackRock funds when he founded oil and natural gas producer Rice Energy L.P. in 2007, according to the SEC. Rice Energy later formed a joint venture with publicly traded coal firm Alpha Natural Resources Inc., and by 2011 Alpha was the largest holding in Mr. Rice's BlackRock Energy & Resources Portfolio.
The SEC said Monday that BlackRock knew and approved of Mr. Rice's involvement with Rice Energy as well as the joint venture. He committed $50 million to the new firm between 2007 and mid-2010 and became its managing partner while his three sons held high-level positions as chief executive, chief financial officer and vice president of geology, the SEC said.
While BlackRock took some steps to mitigate the conflicts of interest, it failed to disclose them to either the boards of the BlackRock registered funds or its advisory clients, as required by law. The SEC said then-chief compliance officer Bartholomew Battista didn't recommend written policies and procedures to monitor BlackRock employees' outside activities and disclose conflicts of interest to fund boards and advisory clients. Mr. Battista agreed to pay a $60,000 penalty, the SEC said.
The potential conflicts of interest involving Mr. Rice, who didn't return a request for comment Monday, were first reported by The Wall Street Journal in 2012.
As part of the settlement, BlackRock must bring on an independent compliance consultant to do an internal review. "This has been a learning experience for our firm," a BlackRock spokesman said in a statement. New York-based BlackRock is the world's largest asset manager with about $4.8 trillion in assets under management.
BlackRock said it has taken steps to enhance its policies and procedures related to employees' outside business activities. "As a fiduciary for our clients, we take even the appearance of conflicts of interest extremely seriously," the spokesman added.
Mr. Rice left BlackRock in December 2012, and Mr. Battista currently is an adviser to BlackRock's legal and compliance department and will depart at the end of the year.
Mr. Battista declined to comment through a spoeksman.
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