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Guggenheim Unit to Pay SEC $20M Over Compliance Failures

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The SEC said Monday that it had reached a $20 million settlement with Guggenheim Partners Investment Management for its failure to disclose a $50 million loan that one of its senior executives received from an advisory client and for other violations.   

According to the SEC, a senior Guggenheim executive obtained the loan in July 2010 to fund a personal investment in a corporate acquisition led by Guggenheim’s parent company. 

In August 2010, Guggenheim helped some clients invests in two transactions “in which the client who made the loan also had invested, but on different terms.” In its order on the matter, the SEC says it “finds that multiple senior officials at Guggenheim and its parent company knew of the loan, but none of them informed the firm’s compliance staff.”

Plus, Guggenheim “did not disclose the loan or the potential conflict of interest created by the executive’s receipt of it to its other clients” who were involved in the two transactions.

Furthermore, the SEC order concludes that Guggenheim’s compliance program “was not reasonably designed to prevent violations of the federal securities laws … [and] that Guggenheim failed to enforce its code of ethics, including with respect to Guggenheim employees taking dozens of unreported trips on clients’ private airplanes.”

“As fiduciaries, investment advisors must be vigilant about disclosing all material facts to their clients, including actual and potential conflicts of interest,” said Andrew J. Ceresney, director of the SEC Division of Enforcement, in a statement.  “Guggenheim unlawfully failed to disclose the conflict of interest created by the outside business activity of one of its senior executives, and the $20 million penalty reflects the significance of this and other regulatory failures.” 

(Last Monday, FINRA suspended Aegis Capital President & CEO Robert Eide for 15 days and fined him $15,000 for his failure to disclose more than $640,000 in outstanding liens.)

In addition, regulators say Guggenheim “inadvertently categorized certain investments of an institutional advisory client as managed assets when they were not and charged the client approximately $6.5 million in asset management fees it did not earn.”

After Guggenheim identified the error, they add, it “did not issue a credit to the client until November 2014, nearly two years later.” 

“Guggenheim’s violations spanned multiple areas of its operations,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office, in a press release. “Guggenheim fell short in preventing these violations in numerous core areas of its investment advisory business.”

Though it did not admit or deny the findings, Guggenheim agreed to pay a $20 million penalty, to be censured and to engage an independent compliance consultant, the SEC says.  “It also agreed to cease and desist from committing or causing any further violations of certain provisions of the Investment Advisers Act of 1940 and related SEC rules that the SEC found it had willfully violated,” regulators explained in the release.

“Since the occurrence of the events described in the SEC Order—which primarily occurred five years ago—Guggenheim has implemented new, comprehensive, best practice compliance policies, procedures and controls, including those that address the issues set forth in the SEC settlement,” a Guggenheim spokesman said in a statement.

“There is no allegation by the SEC that any Guggenheim client was financially harmed. No individual was charged by the SEC,” the company added. “GPIM … [is] fully mindful of—and deeply committed to—our fiduciary responsibilities to our clients.  Any failure to perform to the highest level is not acceptable.”

Guggenheim Partners, the parent company of GPIM, has about $240 billion in assets under management.

– Related: FINRA Fines Aegis; Suspends Top Execs


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