Securities Litigation Update: Week of October 30, 2023
Last week, the Securities and Exchange Commission (SEC) initiated two significant enforcement actions. The first pertains to inaccurate disclosures, while the second focuses on asset misappropriation by an investment adviser. Additionally, Gurbir Grewal, the Director of the Division of Enforcement, addressed attendees at the New York Bar Association Compliance Institute.
Director Grewal's Remarks: On October 24, 2023, Gurbir Grewal, Director of the Division of Enforcement, delivered a speech at the New York Bar Association Compliance Institute. The speech began with the theme of trust, pivoting later to matters of compliance.
Enforcement Actions: Filed and Resolved
In the past week, the SEC initiated one civil injunctive action and one administrative proceeding. This excludes tag-along actions and those posing a conflict for this author.
In the Matter of BlackRock Advisors, LLC, Administrative File No. 3-21786 (October 24, 2023)
This case centers around BlackRock Advisors, LLC and its client, BlackRock Multi-Sector Income Trust (BTI). BlackRock is a highly recognized registered investment adviser. BTI is a closed-end management investment company required to file periodic investment reports. Between October 2015 and October 2019, BlackRock inaccurately described BTI’s investment in Aviron Group LLC in eight filings. Aviron was erroneously labeled as a diversified financial services firm when, in reality, it specialized in developing marketing and advertising plans for a limited number of films annually. The filings also contained incorrect information regarding the investment's nominal yield. BlackRock corrected these inaccuracies in 2019 and cooperated fully with the SEC, resulting in a cease-and-desist order and a $2.5 million penalty.
SEC v. Darrah, Civil Action No. 2:23-cv-08843 (C.D. Cal., filed October 20, 2023)
Defendants in this case are Julie Anne Darrah and her firm Vivid Financial Management, Inc. (VFM). Darrah was charged with misappropriating approximately $2.25 million from nine clients, primarily targeting elderly female advisory clients. The case also involves violations of the custody rule and inaccurate statements in Form ADV. Darrah consented to a preliminary injunction and asset freeze, which also requires an accounting.
By staying informed on these developments, market participants can better navigate the regulatory landscape.