US Financial Industry Regulatory Authority (FINRA) has imposed a penalty of $800,000 against New York’s Guggenheim Securities, for failing to control two collateralized debt obligation (CDO) traders who tried to hide a loss in 2008.
The supervisory body claimed that Guggenheim CDO Desk’s €5,000,000 junk-rated tranche of a collateralized loan obligation (CLO), acquired due to a failed trade, was falsely presented to a hedge fund customer at a higher price.
FINRA vice president and chief of enforcement Brad Bennett said, "The traders deceived their customer and supported their scheme through the use of inaccurate books and records, all of which went undetected by the firm."
The US watchdog accused the firm for failing to conduct adequate review of the CDO Desk’s trades, documentation concerning transactions by traders on the desk, and their email communications.
The regulatory body has suspended Alexander Rekeda, former head of Guggenheim’s CDO Desk, for one year and fined $50,000, while Timothy Day, a trader on the desk, has been imposed with a four month suspension and $20,000 in fine.
Without admitting or denying charges, Guggenheim has agreed to hire an independent consultant to review and make recommendations concerning its supervising procedures.