Securities Cases: BlackRock Fund Advisers To Pay $1.5M Over ETF Violation, Wilson-Davis Resolves Market Structure Rule Violation Allegations, & CFTC Adds 71 Foreign Entities to RED List

Asset Manager Accused of Operating ETF Without Necessary Exemption
The US Securities and Exchange Commission said that BlackRock Fund Advisors (BLK) will pay $1.5M to resolve charges accusing the asset manager of advising an exchange-traded fund to violate the Investment Company Act. BlackRock ran the Russia Fund ETF with out the necessary exemptive order from 12/2010 to 1/2015. The exemptive order is necessary because there are some ETF traits that would cause the fund and dealers to violate the Act were it not for having an order.

According to the Commission, BlackRock was notified in 2011 that the exemptive relief that had been issued to other investment companies that it advised could not be applied to funds that were organized separately. Despite knowing this, BlackRock is said to have kept running the ETF without the necessary exemption. It wasn’t until 2015 when, after more talks with the SEC, that the asset manager merged the Russia Fund ETF with another investment company that it advised. It could then apply another acquired exemptive relief to the Russia Fund ETF.

BlackRock Fund Advisers consented to the SEC’s order but did not deny or admit to the findings.

Utah Brokerage Firm Settles Reg SHO Violation Allegations
Wilson-Davis & Company (WDCO) has settled charges brought by the SEC accusing the Utah-based broker dealer of violating the Commission’s market structure rules. The firm will pay more than $35K in disgorgement and prejudgment interest plus a $75K penalty.

The SEC’s order said that from at least 11/2011 through 5/2013, the firm depended on the “bona-fide market making exemption” to either the locate or borrow requirement when engaging in proprietary trading and that this was “improper” because most of the proprietary trading activity was not actually “bona-fide market making.” As a result, Wilson-Davis took part in a number of short-sales involving equity securities that led to trading profits that were substantial and “improper.” The Commission said that Wilson-Davis violated Regulation SHO, as well as the Securities Exchange Act of 1934’s Section 15(C) (3) and Rule 15c3-5 for not having in place supervisory procedures and protocols designed in a manner reasonable enough to manage market access-related risks.

Registration Deficient List Identifies 71 More Foreign Entities
The US Commodity Futures Trading Commission has 71 new names on its Registration Deficient List. The RED list names foreign entities that have been identified for having illegally solicited US residents to try to persuade them to trade in foreign currency or binary options.

These entities are supposed to register with the CFTC to engage in such activities. The new names added to the list ups the total of names on the RED List to more than 110. You can view the list by clicking on the link below.

Our securities fraud law firm works with high net worth individual investors and institutional investors. Please contact The SSEK Partners Group today and ask for you free, no obligation consultation.

BlackRock to pay $1.5 million to settle SEC charges over Russian ETF, Reuters, April 26, 2017

Investment Company Act of 1940 (PDF)

The SEC’s Administrative Proceeding in the Wilson-Davis Case (PDF)

The RED List