Guggenheim Fined $20M for Conflict of Interest Charges

The firm’s subsidiary, Guggenheim Partners Investment Management, failed to report a $50 million loan from a client to a senior executive in 2010, the SEC said.

Guggenheim Partners has agreed to pay $20 million to settle federal charges of breach of fiduciary duty by failing to disclose potential conflicts of interest.

According to the US Securities and Exchange Commission (SEC), Guggenheim Partners Investment Management did not reveal a $50 million loan by a client to a senior executive.

The executive took the loan in July 2010 for a personal investment in a corporate acquisition led by Guggenheim, the SEC said. However, the Santa Monica, California-based firm and those who knew about the loan did not notify its compliance team or other clients involved in the acquisition deal.

Guggenheim neither admitted nor denied the SEC’s claims.

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“As fiduciaries, investment advisors must be vigilant about disclosing all material facts to their clients, including actual and potential conflicts of interest,” Andrew Ceresney, the SEC’s director of the enforcement division, said.

Furthermore, the regulators said Guggenheim charged an institutional advisory client $6.5 million in fees by incorrectly categorizing its investments as managed assets.

“As fiduciaries, investment advisors must be vigilant about disclosing all
material facts to their clients, including actual and potential conflicts of interest.”The firm returned the fees in credit nearly two years after the error, in November 2014.

The SEC also found fault in Guggenheim’s compliance program and said it “was not reasonably designed to prevent violations of the federal securities laws.”

Guggenheim failed to enforce its code of ethics, the SEC added, with employees taking unreported trips on client’s private planes.

“Guggenheim fell short in preventing these violations in numerous core areas of its investment advisory business,” said Michele Wein Layne, director of the SEC’s Los Angeles office.

A spokesperson for the firm emphasized that the firm has implemented a “new, comprehensive, best practice compliance policies, procedures, and controls” since the events described by the SEC.

“There is no allegation by the SEC that any Guggenheim client was financially harmed,” the spokesperson said in a statement. “We are fully mindful of—and deeply committed to—our fiduciary responsibilities to our clients.”