This week everyone is talking about the recent case against BlackRock Advisors and its former CCO. The allegations were clear violations of Rule 206(4)-7 but not so clear violations of Rule 38a-1. Both the firm and the advisory CCO were named in the proceeding, charged with violations and fined. The firm was fined $12 million while the CCO got off with just a $60,000 fine. This seems like a huge disparity, but there may be a good reason for it. The CCO in this case was not the primary person responsible for the fund’s violation of Rule 38a-1.
What was unspoken in the order is that it’s the fund CCO that has primary responsibility for compliance with Rule 38a-1. So, why was the advisory CCO the one charged and not the fund CCO? Only BlackRock and the Commission know the answer to that one.
Clearly, the advisory CCO was set up to be the fall-guy. A fall-guy is someone that erroneously takes the blame for others and in some cases, does it willingly with the hope of receiving some future reward.
So, did he do it willingly? Perhaps.
Based upon a review of the associated SEC No-Action letter for the case (In the Matter of BlackRock Advisors, LLC Waiver of Disqualification under Rule 506(d)(2)(ii) of Regulation D), the CCO seems to have negotiated a deal that benefitted both the firm and himself- a smart move.
As part of the fallout from this case, the CCO was removed from his position as CCO and will become a senior advisor to the firm’s parent entity for the remainder of 2015 until he officially retires from BlackRock at year end. Was this a purposeful negotiation for a nice promotion and generous retirement package as payment for being the fall-guy? Let’s hope so.
