The world’s largest asset managing firm, BlackRock Inc., already under pressure in Oklahoma over its ESG policy of a few years ago, now is the target of demands from Oklahoma Attorney General Gentner Drummond and at least 16 other attorneys general.
They’ve sent a letter to BlackRock and a number of other large financial firms demanding to know if they are misrepresenting and omitting essential disclosures about Chinese investments. They believe the firms are hiding their financial connections with Chinese firms. Some of the others include StateStreet, Invesco, JPMorgan, Goldman Sachs and Morgan Stanley.
But BlackRock denies the claims made by them, saying it has made full disclosure, offered warnings and told customers “there are issues.”
Drummond and the coalition contend asset managers appear to be misrepresenting and concealing the risks of Chinese investments to their investors. Even though China is a foreign adversary of the United States, BlackRock and other asset managers imply investing in China has similar risks to investing in other countries.
The misstatements and omissions about investments in China may violate components of asset managers’ fiduciary duty of care to investigate the facts underlying an investment and implicate state laws on securities and on unfair and deceptive acts and practices.
“It is deeply troubling that BlackRock and similar asset managers are concealing information from their investors about Chinese market risks,” Drummond said. “There is a disturbing pattern among these firms of whitewashing the very real threats posed by Communist China. I intend to get answers from these asset managers and to hold them accountable to the law.”
In addition to concealing the risks associated with investing in a foreign adversary of the U.S., BlackRock fails to disclose China’s intention to invade Taiwan and when its funds rely on investments that could be ruled illegal at any time by the Chinese Communist Party (CCP). Additionally, BlackRock refers to China’s Uyghur forced labor and genocide as “religious and nationalist disputes” rather than calling it what it is.
The CCP is actively suppressing accurate information and has manipulated stocks. Instead of disclosing that information to shareholders, BlackRock implies that the quality of Chinese audits are simply not up to U.S. standards.
It appears the asset managers’ involvement with Chinese investments may conflict with their duty of loyalty to their clients, given the CCP’s interference with its markets and companies. For example, BlackRock began aggressively pushing Chinese investments to the world shortly after given permission from the CCP despite the fact China had been designated a foreign adversary by the U.S. only months before. BlackRock’s recommendations have since caused losses for investors and “may have breached BlackRock’s fiduciary duty of loyalty,” according to the letter.
The coalition asserts that either the asset manager misstatements and omissions are a result from a conflict of interest from the intense pressure China places on firms seeking access to Chinese investors or stem from an inability to investigate the facts accurately, given interference and distortion from the CCP.
To aid in potential ongoing investigations, Drummond and his colleagues are demanding the asset managers answer questions regarding their Chinese investments by March 10.
Attorneys general from Alabama, Idaho, Indiana, Iowa, Kansas, Mississippi, Missouri, Montana, North Dakota, Ohio, South Carolina, South Dakota, Texas, Virginia, West Virginia and Wyoming also signed the letter.
BlackRock contends it was not misleading and provided ample information and a warning in its public documents, adding the assertions of the Attorneys General are inaccurate.
The documents publicly provided to investors by BlackRock state that despite the complex territorial dispute “Taiwan-based companies and individuals are significant investors in China.” The documents went on to warn that “Military conflict between China and Taiwan may adversely affect securities of Chinese issuers.”
It continued, ” Actual and threatened responses to such activity and strained international relations, including purchasing restrictions, sanctions, tariffs or cyberattacks on the Chinese government or Chinese companies, may impact China’s economy
and Chinese issuers of securities in which a Fund invests.”
Further, BlackRock contends it informed investors of other issues about the dangers of investing in China, such as “forced labor.”
” The United States also bans imports of goods produced in certain regions of China or by certain Chinese companies due to
concerns about forced labor. Such restrictions may have unanticipated and adverse effects on the Chinese economy.
Any such action that targets Chinese financial markets or securities exchanges could interfere with orderly trading,
delay settlement or cause market disruptions. So long as these restrictions do not include restrictions on investments, the Fund may invest in such companies.”
Previously, BlackRock was a big target of enforcement of Oklahoma’s Energy Discrimination Elimination Act, which attempted to prevent energy firms from using Environmental, Social and Govrnment policies to discriminate against oil and gas companies. Adopted and signed into law in 2022, it was suspended last year by order of an Oklahoma County District Judge.
The act banned the state agencies from doing business with BlackRock and other financial firms that had discriminatory ESG policies.
Drummond’s office challenged the ruling in the state supreme court where the case remains.
