The U.S. Securities and Exchange Commission (SEC) could take action against the global asset and investment firm BlackRock Inc. after an investigation into a former employee, Daniel J. Rice III, revealed a potential conflict of interest between the portfolios he managed and his family business, Rice Energy Inc., according to an 8-K filed by the firm Friday.
Earlier this month, one of the firm's subsidiaries received a Wells Notice from the SEC, "indicating the staff's preliminary determination to recommend to the commission that the SEC file an action against BlackRock Advisors," according to the filing.
Although the notice does not serve as a formal charge of wrongdoing or violation of the law, it gives BlackRock an opportunity to respond to the SEC's preliminary determination, made after an investigation that began in 2012 when Rice left the firm to avoid such an issue.
Rice Energy went public in January, raising $594.5 million (see Shale Daily, Jan. 31). Its shares have increased by nearly 40% since then. Rice formerly managed the energy and resources portfolio at Blackrock, where he worked from 2005 until 2012 before stepping down. During that time, Alpha Natural Resources Inc. was allegedly a top performer for one of the firm's mutual funds and the company had a 50/50 joint venture with Rice Energy in the Marcellus Shale, which later purchased Alpha's interest in that acreage for $100 million in cash and another $200 million in stock (see Shale Daily, Dec. 10, 2013).
"The company concluded that there was no improper trading with the portfolios managed by Mr. Rice and that no clients were harmed," BlackRock said in its filing. "BlackRock Advisors further announced that Mr. Rice would retire from BlackRock Advisors, which he did in December 2012."
Founded in 2007 by Rice and his sons, the family, through Rice Energy Holdings LLC, still owns and controls a sizeable fraction of the company's common stock under a majority agreement with Alpha Natural Resources and an affiliate of Rice Energy's former private equity-backer Natural Gas Partners, according to documents filed with the SEC (see Shale Daily, Dec. 17, 2013). Currently, Rice serves as a member of Rice Energy's board of directors.
According to BlackRock, the SEC has indicated that the firm's disclosures related to Rice's former position and his involvement with Rice Energy's financial actions were inadequate. The firm plans to respond to the notice and fight any action against it. Rice Energy could not be reached to comment Monday.