According to a release dated August 22, 2024, Indiana Secretary of State Diego Morales issued a Summary Cease and Desist Order (the "Order") against BlackRock, Inc. ("Blackrock") seeking to stop BlackRock's alleged fraudulent actions related to its environmental, social and governance ("ESG") funds and allocation focus. While the Order is styled as a cease and desist order, it is in effect a complaint initiating an administrative proceeding in the Indiana Securities Division (the "Securities Divisions").
The Securities Division alleges that BlackRock has repeatedly made false and misleading statements to Indiana investors through its assertions relating to ESG products and offerings. The Securities Division takes issue with the BlackRock's assertion to clients that they would experience better long-term financial outcomes by investing in ESG-backed funds.
The Securities Division has also called out BlackRock's commitment to using its assets under management to incorporate ESG considerations despite the fact that it markets certain funds as non-ESG funds.
We do not anticipate that the Order will have any immediate effect on BlackRock's operations or offerings, although BlackRock will have to add the Securities Divisions' administrative proceeding to the growing list of ESG-related lawsuits against which BlackRock is currently defending.
BlackRock is understood to be defending itself against a similar complaint received from the Mississippi Securities Division in March 2024 alleging, in part, that BlackRock made untrue statements that certain of its funds do not incorporate ESG considerations while simultaneously overstating the extent to which its ESG aims bear on companies, financial positioning and performance.
BlackRock is similarly defending itself in a civil enforcement lawsuit initiated by the State of Tennessee (through its attorney general), alleging that BlackRock violated the Tennessee Consumer Protection Act1 with purportedly deceptive statements and omissions based on what Tennessee considers to be contradictions between public ESG-statements and BlackRock's actual commitments and statutes.
Because it is relatively easy for state officials to mimic these filings by making the same loose allegations that ESG-related statements on managers' websites and product disclosures are untruthful, we may see an uptick in these types of lawsuits. Some state officials may be motivated to secure settlements against large firms, often resulting in modest-dollar settlements and crowing press releases. Assuming BlackRock is unable to have the administrative proceeding dropped, a modest settlement seems to be the most likely downside for BlackRock here as well.
Footnote
1 Tenn. Code § 47-18-104.
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