A federal judge has ruled that risk management giants BlackRock Inc. and Owl Rock Capital Corp. must face racial bias allegations from a small Black-owned investment firm Blueprint Capital Advisors LLC. The firm claims that New Jersey state officials stole its plan to lower public pension plan costs.

U.S. District Judge Julien Xavier Neals in Newark largely denied a motion to dismiss the suit from Blueprint, originally filed in 2020. It suggests it handed over private information about its plan to New Jersey’s Division of Investment and an outside consultant — Cliffwater LLC — to score an investment from the government.

However, Blueprint claims state officials stole the idea and partnered with BlackRock and Owl Rock instead, according to BNNBloomberg.

The state then chose Blueprint to manage part of N.J.’s investments. Still, according to the lawsuit, “the terms were punitive and retaliatory” compared to the contracts other money managers granted, and the company made far less money than it had anticipated.

Neals said Blueprint reasonably pleaded its case for civil rights and racketeering violations, saying it dealt with “disparate terms and treatment” from state officials after years of negotiations. However, he dismissed several claims against Murphy and the state because they were immune from suits as government officials.

Black investment professionals Jacob Walthour and Carrie Pickett founded Newark-based Blueprint in 2015. The founders named BlackRock, Owl Rock, several state officials, including Gov. Phil Murphy, the Division of Investment (DOI) in New Jersey, and an outside consultant, Cliffwater LLC, in its lawsuit.

No country for Black men and minority women

Blueprint claims in its lawsuit that BlackRock and Owl Rock benefitted from an “old-boy” network inside DOI to obtain hundreds of millions of dollars in investments from the state utilizing Blueprint’s plan.

The dispute began in 2015 when then-Gov. Chris Christie’s administration met with Blueprint to discuss its proposal — FAIR (Fund Alignment and Incentive Reform) — for a new investment strategy that would save the state money on high fees charged by hedge funds to invest.

The suit claims Blueprint sent over 1,000 pages of information about their money management proposal to the state. It also says executives from the company participated in more than 50 conference calls with state officials during negotiations, according to NJ.com.

In 2018, Murphy took the helm as governor in N.J after Christie announced his candidacy for the Republican nomination in the 2016 presidential election. Negotiations continued.

After years of negotiations, Blueprint’s proposal was never recommended to N.J’s State Investment Council, which is a group that oversees state investments.

Instead, the lawsuit alleges that state officials and Cliffwater, a New York advisory firm, gave the information to BlackRock, one of the world’s largest money management firms, which was ultimately chosen to implement a version of the strategy.

The suit also alleges wrongdoing based on one key fact: the state kept the same program name, FAIR.

“The conspirators did not even bother to change the purloined program’s name,” the lawsuit said, according to NJ.com.

The lawsuit alleges that the then-director of the state’s DOI, Christopher McDonough, said that the State Investment Council was “not a fan of investing with women and minority-owned firms” when asked why Blueprint wasn’t hired.

While it's not clear if McDonough said those words specifically, a recent report from the Knight Foundation backs his alleged train of thought. A Knight Foundation report suggests there hasn’t been much progress over the past 10 years, with minority- or woman-owned firms managing just 1.4 per cent of all assets under management in the U.S. as of September 2021.

McDonough resigned from his post in 2018 to work for a consulting firm. He hasn’t responded to the allegations in the suit, according to NJ.com.

State, BlackRock, Owl Rock, and others deny all wrongdoing and allegations

In the summer of 2020, the lawsuit was filed as nationwide protests over the murder of George Floyd and inaction on police brutality reached a tipping point.

BlackRock immediately denied the claims from Blueprint. Cliffwater also said the claims against the company “have no merit.”

New Jersey’s state Department of the Treasury said in a statement: “The department maintains that there is no factual basis for Blueprint’s allegations and the claims of racial discrimination, retaliation, and misappropriation of proprietary information are without merit,” the statement said. “The division firmly and unequivocally condemns hatred, bigotry, and racism in any form and is committed to providing opportunities for minority and women-owned business enterprises to do business with the state.”

At the time, former state Sen. Ron Rice, D-Essex, strongly urged the Murphy administration to launch a formal investigation of Blueprint’s claims of racial discrimination. Rice was the longest-serving Black senator in state history, according to his colleagues in the U.S. legislature.

“What happened to Blueprint and Mr. Walthour over the last four years appears to be a modern-day lynching and is a stain and a black eye on the state of New Jersey,” Rice said, who was longest-serving Black senator in state history, according to his colleagues in the U.S. legislature. Rice retired in August 2022 after being elected in 1986.

The latest court hearing saw Neals argue that Blueprint's assertion that BlackRock and Owl Rock collaborated with Cliffwater and government representatives sufficiently alleged a racketeering conspiracy.

“Sadly, the treatment of Blueprint is indicative of how things really go down when no one is looking,” said Walthour, the company’s co-founder, told NJ.com in 2020. “There is an entrenched ‘good old boys’ network in Trenton and the DOI that has never worked to the benefit of minorities or women.”

The case is Blueprint Capital Advisors LLC v. State of New Jersey, 20-cv-07663, U.S. District Court, District of New Jersey (Newark). Proceedings are ongoing.