Guggenheim Partners Sanctioned for Failure to Disclose Conflict to Clients

Guggenheim Partners Investment Management LLC agreed to pay a $20 million penalty to settle charges brought by the  Securities and Exchange Commission (SEC)  that it breached its fiduciary duty by failing to disclose a $50 million loan that one of its senior executives received from an advisory client.

According to the SEC’s order instituting a settled administrative proceeding, a senior Guggenheim executive obtained the loan in July 2010 so he could fund his personal investment in a corporate acquisition led by Guggenheim’s parent company.  In August 2010, Guggenheim invested certain of its advisory clients in two transactions in which the client who made the loan also had invested, but on different terms.  The Guggenheim executive and the client who made the loan discussed the two transactions and the Guggenheim executive played a role in structuring them.

“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.  “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.”

In addition, the order finds that Guggenheim’s compliance program was not reasonably designed to prevent violations of the federal securities laws.  The order further finds that Guggenheim failed to enforce its code of ethics, including with respect to Guggenheim employees taking dozens of unreported trips on clients’ private airplanes.

In addition to the $20 million dollar penalty, Guggenheim also agreed to be censured, to engage an independent compliance consultant. and 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.