U.S officials investigating allegations of insider trading recently discovered that BlackRock may have coerced investment analysts to provide advance analysis on stocks. The investigation led by the New York’s Attorney General’s office revealed that many of these analysts felt pressured to give early advice in order to retain the giant fund group as a customer.
BlackRock’s expansive program is infamous throughout the investment and finance industry. Many fund groups were left to wonder if they would lose BlackRock’s business had they chose not to participate in the program. However, there are major investment firms that have barred analysts from participating in the program. Representatives from BlackRock have not commented on the ongoing investigation.
An unnamed asset management consultant believes that the only reason large fund groups would be able to access information ahead of time is if they had an established agreement with a broker. Analysts at major European brokerage houses concur—there is certainly pressure to circumvent rules in order to appease top-tier clients like BlackRock. Although BlackRock has yet to deny or admit any fault, the large fund group did agree to cooperate, and cover the $400,000 cost of the investigation.
There are several other funds in the United States and abroad that are being targeted in the investigation as well. The attorney-general believes these groups may have also procured early insight before the information was released to the public. According to New York’s Attorney-General, the focus of the investigation extends overseas because many Americans choose to invest internationally.
The scope of the “Insider Trading 2.0” investigation is worldwide. Blackrock claims to have dissolved its own analyst program to mitigate any perception of unethical or illegal behavior. The fund also claims that in order to participate in the now-defunct program, analysts would have had to comply with a prompt rule that confirms they were only divulging information that was already available to the public. As legislators work to level the playing field in the investment banking and finance industry, more opportunities may become available for the majority of small and mid-size funds across the globe.