Guggenheim Partners Investment Management agreed to pay $20 million to settle the charges filed by the Securities and Exchange Commission (SEC) related to its disclosure failure and other violations.
SEC allegations against Guggenheim Partners
The SEC alleged that Guggenheim Partners failed to disclose a $50 million loan received by one of its executives an advisory client. The Commission said the firm violated its fiduciary duty.
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According yo the SEC, a senior executive at Guggenheim Partners obtained the loan to fund his personal investment in a corporate acquisition led by the parent company of Guggenheim Partners in July 2010.
Guggenheim Partners invested some of its advisory clients in two transactions in August 2010. The advisory client that provided the loan to the senior executive also invested, but on different terms. The Guggenheim Partners senior executive and the advisory client discussed the two transactions. He played a role in structuring the transactions.
The SEC found that many senior officials at Guggenheim Partners and its parent company were aware of the loan, but no one informed the firm’s compliance officer about it.
Guggenheim Partners failed to disclose potential conflicts of interest
The Commission emphasized that Guggenheim Partners did not reveal the senior executives loan or its potential conflict of interest to other clients involved in the transaction.
Andrew J. Ceresney, Director, Division of Enforcement at the SEC commented, “As fiduciaries, investment advisors must be vigilant about disclosing all material facts to their clients, including actual and potential conflicts of interest. 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.”
Furthermore, the SEC found that Guggenheim Partners “inadvertently categorized certain investments of an institutional client as managed assets” and charged approximately $6.5 million in asset management fees to the client. The firm identified the error but did not issue a credit to the client until November 2014.
Moreover, the Commission found that the compliance program of Guggenheim Partners was not reasonably designed to prevent violations of federal securities laws, and it failed to enforce its code of ethics.