The Sheriff Who Took on BlackRock and JP Morgan

Eric Schneiderman, the 65th attorney general of the state of New York, has established that there are not many arenas and industries that he is not willing and competent enough to engage. He has already launched a number of investigations into companies functioning in a number of industries, including the three largest energy drink manufacturers, the smart phone industry, the statewide mortgage industry and Airbnb – a rapidly growing room rental website. All of these investigations have been launched since Schneiderman took office a little more than three years ago.

The investigation that Schneiderman launched concerning the mortgage industry is widely considered his boldest move yet. The investigation resulted in financial giant, JP Morgan, agreeing to a landmark $13 billion settlement for the role in played in the failure of the residential mortgage-backed securities that further exacerbated the financial crisis. Schneiderman does not rest on past victories. He has already centered his focus on the next matter at hand, launching a high-scale investigation – dubbed Insider Trading 2.0 — into the asset management industry a little over a year ago.

Schneiderman, who lives blocks from the high school he attended as a youth, turned his focus to BlackRock earlier this month. BlackRock is the largest fund management company in the world. Schneiderman applied significant enough pressure to the company that it closed down a controversial program that was designed to provide its funding group with analyst sentiments ahead of other investors. This program allowed BlackRock to gain an early advantage, according to Schneiderman. Not only did Schneiderman force the $4 trillion dollar company to close down the program, but he also force them to pay $400,000 to cover the cost of the investigation.

The 59-year-old attorney general said, “We realized that while BlackRock had disclaimers on their surveys saying they only wanted public information, they asked a lot of questions clearly designed to find out what analysts would publish in their next reports. Although BlackRock closed down the program and agreed to pay for the cost for the investigation, they are saying that they don’t agree with the language used by the attorney general. They insist that the accusations made by Schneiderman point to behavior that is diametrically opposed to the standards by which they function and do business.

When asked about the actions that he has taken in this investigation, Schneiderman said that he is simply attempting to help the good guys so that they will not be at a disadvantage. BlackRock is not the first company to be named in this insider trading investigation. In July of last year, Thomson Reuters was pressured into abandoning its practice of releasing consumer survey data, obtained from the University of Michigan, two seconds early for an additional fee.

According to Schneiderman, the investigation has not yet gained full stride. He says that his office is continuing to examine other surveys to look for possible insider activity that gives certain investors an unfair edge over others. Because of the depth of the probe, Schneider says that it is not effective to investigate individual analysts, but rather they are focusing on the firms that supervise these analysts and forcing them to take action.

All of this is being done to provide a level playing field and to clean up the image of the financial industry. Surprisingly, Schneider’s tough guy approach has not ruffled too many feathers on Wall Street, only those that fail to play by the rules.

 

Eric Schneiderman Fact Sheet

New York State attorney-general’s office

Number of employees 2,350

Budget per fiscal year $215m

Offices Headquartered in New York City, with 13 regional offices around the state

 

Born 1954

Education

1977 Amherst College, Massachusetts

1982 Harvard Law School, Massachusetts

Career

1977 Deputy sheriff, Berkshire County, Massachusetts

1982 Clerk, US District Court for the Southern District of New York

1994 Partner, Kirkpatrick and Lockhart

1999 Member of the New York Senate from the 30th district

2003 Member of the New York Senate from the 31st district

2011 Attorney-general, New York State

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