OKLAHOMA CITY – Attorneys General from 17 states, including Oklahoma, want answers from the world’s top asset managers to determine if they are misrepresenting and omitting essential disclosures regarding Chinese investments.
Their concerns are outlined in a letter sent last week to BlackRock, State Street, Invesco, JPMorgan, Goldman Sachs, and Morgan Stanley.
The coalition contends asset managers appear to be misrepresenting and concealing the risks of Chinese investments to their investors. They believe the firms are hiding their financial connections with Chinese firms. 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 coalition contends.
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.
“There is a disturbing pattern among these firms of whitewashing the very real threats posed by Communist China,” Oklahoma Attorney General Gentner Drummond said. “I intend to get answers from these asset managers and to hold them accountable to the law.”
BlackRock denies the claims, saying it has made full disclosure, offered warnings, and told customers “there are issues.”
The world’s largest asset management firm, BlackRock Inc., has been under pressure for several years in Oklahoma, Texas and other Republican- controlled states over its environmental, social, and governance (ESG) policy.
The Chinese Communist Party is actively suppressing accurate information and has manipulated stocks, the AGs claim. 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 AGs’ 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, the attorneys general demand 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, Oklahoma, South Carolina, South Dakota, Texas, Virginia, West Virginia, and Wyoming signed the letter.
BlackRock contends it was not misleading and provided ample information and a warning in its public documents, and said the assertions of the attorneys general are inaccurate.
Documents publicly provided to investors by BlackRock state that despite a 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 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 target of enforcement of Oklahoma’s Energy Discrimination Elimination Act, which attempted to prevent energy firms from using ESG policies to discriminate against oil and gas companies.
The act banned state agencies from doing business with BlackRock and other financial firms that had discriminatory ESG policies.
Adopted and signed into law in 2022, the EDEA was suspended last year by order of an Oklahoma County district judge. Drummond’s office challenged the ruling in the state Supreme Court, where the case remains.