Risk & Compliance

Guggenheim Settles Disclosure Case for $20M

The SEC alleges the investment firm failed to disclose a conflict of interest arising out of a client's loan to a Guggenheim executive.
Matthew HellerAugust 10, 2015

A unit of Guggenheim Partners has agreed to pay $20 million to settle charges it failed to disclose that a senior executive borrowed $50 million from a client so he could participate in a Guggenheim deal.

The U.S. Securities and Exchange Commission said Monday that after the executive obtained the loan in July 2010, Guggenheim Partners Investment Management invested the client in two transactions, but on different terms from other investors.

The firm breached its fiduciary duty, the SEC said in an administrative order, by failing to disclose the loan to the other investors.

“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,” Andrew J. Ceresney, director of the SEC Division of Enforcement, said in a news release.

The SEC also alleged that Guggenheim incorrectly categorized certain investments of a client as managed assets and charged the client approximately $6.5 million in asset management fees it did not earn.

Without admitting or denying the findings, Guggenheim agreed to pay a $20 million penalty, to be censured and to engage an independent compliance consultant.

“Since the occurrence of the events described in the SEC order … 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 spokesman for the firm said in a news release.

According to the SEC, the GPIM executive obtained the loan from his client to participate personally in an acquisition led by Guggenheim Partners. “The loan created a potential conflict of interest whereby GPIM might then place that client’s interests over those of GPIM’s other clients,” the agency said.

One of the transactions in which the executive’s client invested was a corporate restructuring. The effect of the deal, the SEC said, was to give the client less potential upside gain on its investments in the company and greater protection against losses on those investments. The other investors “received the converse position.”