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Financial Fraud Law

‘Insider Trading 2.0’ Investigation Leads BlackRock to Agree to End Its ‘Analyst Survey Program’

 BlackRock – the world’s largest asset manager – has reached an agreement with New York Attorney General Eric T. Schneiderman under which it will permanently discontinue the practice of systematically surveying Wall Street analysts for their opinions on firms they cover. BlackRock is ending this practice worldwide, not just in the United States. BlackRock also has agreed to continue cooperating with Shneiderman’s broader investigation into what the attorney general has called “Insider Trading 2.0.”

“Our agreement with BlackRock to end its global analyst survey program and cooperate with my office’s Wall Street-wide investigation into the early release of analyst sentiment is a major step forward in ensuring fairness to our financial markets and ensuring a level playing field for all investors,” said Schneiderman. “The concept that there should be one set of rules for everyone is critical to protecting the integrity of our markets, which is why my office will continue to take action against those who provide unfair advantages to elite traders at the expense of the rest of us.”

Prior to this agreement, BlackRock operated what is believed to be the largest analyst survey program in the world, soliciting answers from analysts that could reveal the direction of their next published report. Analyst reports are understood to be market-moving information because their recommendations have broad impact on clients’ decisions and the direction of the market.  

According to Schneiderman, the BlackRock survey contained a number of questions worded to capture analysts’ views regarding management, competitive position, earnings, and other important aspects of covered companies. The New York Attorney General’s Office determined that the design, timing, and structure of the surveys allowed BlackRock to obtain information from analysts that could be used to get ahead of, or, as a BlackRock document put it, “front-run” future analyst revisions.  

Schneiderman said that a key component of the settlement with BlackRock is its continued cooperation in the attorney general’s broader investigation into the early release of analyst opinions to investors who use the data in complex trading programs. 

In a speech delivered at the Bloomberg Markets 50 Summit in September 2013, Schneiderman outlined his concern about the early release of market-moving data to preferred investors in a practice he dubbed “Insider Trading 2.0.” In the speech, he highlighted his interim agreement with Thomson Reuters to end the company’s practice of selling early access to consumer confidence data to high-frequency traders. He also expressed concern regarding brokerage firm analysts who answer surveys that provide traders with a sneak peek into forthcoming analyst reports.  

The attorney general said that the investigation into BlackRock’s analyst survey program was based in part on information provided by confidential whistleblowers who came forward to express grave concerns about BlackRock’s survey program and about similar practices industry-wide. In the course of investigating Wall Street analyst surveys, the Attorney General’s Office obtained hundreds of thousands of pages of documentary evidence related to BlackRock’s analyst survey program and took testimony from BlackRock employees and others. 

The attorney general’s investigation into the early release of Wall Street analyst sentiment is being led by Chad Johnson, Chief of the Investor Protection Bureau; Nicholas Suplina, Senior Advisor and Special Counsel; and Assistant Attorneys General Kenneth Haim and Jordan Salberg, under the supervision of Karla G. Sanchez, Executive Deputy Attorney General for Economic Justice, and Janet Sabel, First Deputy Attorney General of Affirmative Litigation.

A copy of the agreement with BlackRock can be found on the OAG website here

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