SEC Charges BlackRock with Failing to Properly Disclose Investments by Publicly Traded Fund it Advised

In a move that highlights the importance of accurate disclosures in the financial industry, the U.S. Securities and Exchange Commission (SEC) has charged BlackRock Advisors, LLC, an investment adviser, with failing to provide precise information regarding investments in the entertainment industry within a publicly traded fund under its guidance. To settle these charges, BlackRock has agreed to pay a substantial $2.5 million penalty.

The SEC's investigation reveals that from 2015 to 2019, the BlackRock Multi-Sector Income Trust (BIT) significantly invested in Aviron Group, LLC, through a lending facility. Aviron Group was involved in developing print and advertising strategies for one to two films annually. However, despite the nature of Aviron's business, the SEC's order states that BlackRock inaccurately categorized Aviron as a "Diversified Financial Services" company in many of BIT's annual and semi-annual reports. These reports were publicly accessible to investors and filed with the SEC. The order also notes that BlackRock falsely claimed that Aviron paid a higher interest rate than was actually the case. In 2019, BlackRock acknowledged these inaccuracies, and BIT subsequently began accurately reporting the Aviron investment in its reports.

Commenting on this issue, Andrew Dean, Co-Chief of the Enforcement Division's Asset Management Unit, emphasized the vital role that accurate disclosures play for retail and institutional investors when evaluating investments in closed-end or mutual funds. He stated, "Investment advisers have a responsibility to provide this vital information, and BlackRock failed to do so with the Aviron investment."

As part of the settlement, BlackRock has consented to the SEC's order, acknowledging that it violated the Investment Advisers Act of 1940 and the Investment Company Act of 1940. While not admitting to the SEC's findings, BlackRock has agreed to a cease-and-desist order and a censure, in addition to the financial penalty.

It's worth noting that the SEC had previously charged and resolved its action against William Sadleir, the founder of Aviron, for misappropriating BIT funds that were invested in Aviron. This case serves as a reminder of the SEC's continued efforts to ensure transparency and accurate reporting within the financial industry.