By Karen Freifeld
Jan 9 BlackRock Inc, the world's largest
asset manager, agreed to end its analyst survey program
worldwide, as part of an agreement reached Wednesday with the
New York Attorney General's office.
The agreement stems from an investigation by New York
Attorney General Eric Schneiderman into the early release of
Wall Street analyst sentiment to "front-run" the market.
BlackRock agreed to pay $400,000 for the cost of the
investigation, but no fine or penalty, and to cooperate in
Schneiderman's ongoing industry-wide probe.
At a press conference on Thursday, Schneiderman said the
continuing investigation includes looking at the analysts and
brokerage firms that participated in the surveys.
He said BlackRock's agreement was a "major step forward" in
ensuring a level playing field for all investors.
"We're going to continue to crackdown," Schneiderman said.
"This is a growing area of concern because ... sophisticated
market participants can gain early access to market-moving
information that provides them an unfair advantage over the rest
The Analyst Survey Program operated by BlackRock was
believed to be the largest analyst survey in the world,
The program asked many of the most prominent analysts at
dozens of brokerage firms a series of questions related to the
companies they were covering, according to the agreement.
Although the survey was supposedly to quantify the analysts'
publicly available insights, Schneiderman found evidence that
the program's design allowed it to capture "non-public analyst
sentiment that could be used to trade ahead of the market
reaction to upcoming analyst reports," the agreements said.
Participating analysts were rewarded with higher ratings in
financial industry magazine rankings, Schneiderman found, which
helped analysts' name recognition and careers and may have led
to monetary gain for the analysts and their firms.
"When analysts would provide answers to questions regarding
their views on possible future earnings scenarios, possible M&A
activity and other matters, BlackRock was ... trying to learn
the sentiment to be expressed in upcoming reports," Schneiderman
Analysts and their firms are prohibited from providing
select clients with early disclosure of research reports, which
can move markets, he said.
The analysts were surveyed on a quarterly or monthly basis,
depending on where they were located geographically, and
included hundreds of thousands of responses.
The U.S. surveys would ask analysts to answer questions on a
scale of 1 through 9, and the responses were averaged,
aggregated and converted into quantitative return forecasts.
The program was developed in 2003 by Barclays Global
Investors, which BlackRock acquired in 2009.
When it was started, Scientific Active Equities, the
quantitative investment group within BGI and now BlackRock,
believed it could use the responses to "forecast" analysts'
"next estimate revision," the agreement said.
An internal SAE document also revealed the program's success
depended in part on a "willingness to really give us advance
"We're trying to front-run" recommendations, another
internal document said.
The timing of the questionnaires also made them susceptible
to obtaining advance information, the agreement said, including
"targeted survey waves" just before covered companies' "heavy
Brian Beades, a BlackRock spokesman, told Reuters that the
language in the internal memos is "totally inconsistent with the
standards by which BlackRock does business."
He said the firm discontinued use of the survey "to avoid
even the appearance of any impropriety."
BlackRock neither admitted nor denied the attorney general's
findings in the agreement.
The attorney general's office said the conduct violated the
Martin Act, the state's securities fraud statute, and other
In July, Thomson Reuters Corp said it would suspend
its early release of the widely watched Thomson
Reuters/University of Michigan consumer sentiment data to a
small group of clients in response to a probe by Schneiderman.
The news and information company had an arrangement with the
University of Michigan to allow some of its clients to receive
the data 2 seconds before its other clients who get the survey
five minutes ahead of a wider public release.