BlackRock Gets SEC Wells Notice on Ex-Employee Rice

Jun 27, 2014 5:57 pm ET

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June 27 (Bloomberg) -- BlackRock Inc. said regulators are considering filing action against the firm over a former money manager who used BlackRock funds to invest in a company with which he had financial ties.

BlackRock received a Wells notice from the U.S. Securities and Exchange Commission on June 17 indicating the regulator’s staff is recommending action against a unit at the world’s biggest asset manager, it said today in a filing.

The SEC “has taken the preliminary view” that disclosures around Daniel J. Rice III, who retired from BlackRock Advisors in 2012 as a portfolio manager, were “inadequate,” the company said. BlackRock said it doesn’t believe it violated provisions mentioned by the SEC and it doesn’t expect any resolution of the matter to have a material impact on its financial results.

Rice, who helped manage five energy and natural resource mutual funds for the $4.3 trillion money manager, retired to avoid the appearance of a conflict of interest. He is one of the founders of Rice Energy Inc., a natural gas company with a subsidiary that had a joint venture with one of his mutual fund’s top holdings at the time, Alpha Natural Resources Inc. He became a billionaire in January when his company sold shares in an initial public offering.

The SEC sends a Wells notice to a company or an individual after its staff has determined that sufficient wrongdoing has occurred to warrant civil claims being filed.

Further Enhanced

“BlackRock has extensive policies and procedures in place to manage any potential conflicts, both perceived and real, and as a fiduciary for our clients, we take these safeguards extremely seriously,” BlackRock spokesman Brian Beades said in an e-mail. The company put in place additional measures to manage any potential conflicts of interest concerning Rice and hasn’t found any improper trading, he said.

Rice didn’t immediately respond to an e-mail seeking comment.

Rice, who lives in the Boston area, owns about 42.7 million shares of the company directly and through Rice Holdings. The shares have risen 45 percent since the offering, valuing his stake at $1.3 billion, according to the Bloomberg Billionaires Index. Rice Energy closed at $30.48 today.

Rice controls a portion of the shares with two sons, Rice Energy Chief Executive Officer Daniel Rice IV and Chief Operating Officer Toby Rice, according to filings. A third son, Derek Rice, is vice president of exploration and geology.

He founded the Canonsburg, Pennsylvania-based shale gas producer in 2007, when he was managing more than $1 billion for BlackRock funds and institutional clients.