Securities Law—Potential Expansion of Liability Theories Under the Martin Act: New York State Attorney General and BlackRock Settle Investigation into BlackRock’s Analyst Survey Program, Signaling Potential Expansion of Martin Act Liability Under “Insider Trading 2.0” Theory

Sullivan & Cromwell LLP - January 21, 2014

On January 8, 2014, the New York State Attorney General and BlackRock, Inc. entered into a settlement agreement by which BlackRock agreed to end its Wall Street research analyst survey program. The Attorney General alleged that BlackRock’s practice of systematically surveying and aggregating information from analysts gave BlackRock an unfair advantage in predicting future analyst opinions, in violation of the Martin Act and the New York Executive Law. Because the Attorney General did not contend that BlackRock obtained any material non-public information, or that the information was provided by analysts in breach of any duty to their employers, the allegations by the Attorney General signal a potential expansion of liability under New York State law.

The BlackRock settlement comes on the heels of an industry-wide probe into the alleged procurement by sophisticated investors of early access to potentially market-moving information, a practice that the Attorney General dubbed “Insider Trading 2.0.” BlackRock neither admitted nor denied the Attorney General’s findings but consented to remedial measures including permanent, worldwide discontinuance of the survey program and continued cooperation with ongoing related investigations. The agreement did not impose a fine or penalty.