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Why BlackRock's (BLK) Gold Fund May Face Penalties

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According to a regulatory filing on Monday, BlackRock, Inc. 's BLK exchange-traded gold product may be hit with penalties from regulators as it sold more shares than it had registered.

In the filing with the U.S. Securities and Exchange Commission (SEC), the leading money manager of the world stated that its product - iShares Gold Trust (IAU) - issued and sold $24.9 million shares between Feb19, 2016 and Mar 3, 2016, which is more than the total shares registered with the authorities.

BlackRock mentioned that the failure to register the new shares "was inadvertent." However, on being aware of the matter, the company suspended further issuance of shares on Mar 3, 2016. As the excess shares were not registered at the time of sale, IAU may have to repurchase those shares at the price initially paid plus the interest owed to investors. Also, investors "may have the right to collect damages."

Further, the trust "may become subject to penalties imposed by the SEC and state securities agencies." The trust may have to sell gold to fund the repurchase of those excess shares.

Notably, on Monday, the California-based asset manager declared that it has registered new IAU shares with the SEC and resumed their issuance following the temporary suspension on Friday.

As an exchange-traded commodity, the 7.8 billion IAU holds gold as a physical asset. In Friday's release, the company mentioned that since the beginning of 2016, due to global macro-economic uncertainties, there has been a surge in demand for gold and for IAU among global investors. Such a spike in demand resulted in the temporary exhaustion of authorized IAU shares.

BlackRock currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the finance space include GAMCO Investors, Inc. GBL , Banc of California, Inc. BANC and Piper Jaffray Companies PJC , each sporting a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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