The Financial Industry Regulatory Authority (FINRA) has recommended disciplinary action be taken against two CLO professionals affiliated with Guggenheim Capital Markets.

The FINRA — an independent, nongovernmental regulatory body — said in an Oct. 14 Wells Notice that Alexander Rekeda and Timothy Day should be held accountable for “alleged misrepresentations in connection with the sale” of an unnamed CLO.

According to a Brokercheck report available on FINRA's Web site, the recommendation is preliminary and an investigation is ongoing. No civil or criminal charges have been filed.

However, ProPublica reported Tuesday that the CLO in question is likely Nine Grade Funding II, a vehicle arranged by Guggenheim in 2008 that was comprised of other CLOs backed by corporate loans.

Rekeda worked at Guggenheim, a significant player in the CLO market, from March 2008 to November 2011, and Day, who joined the firm in 2007, continues to work there, according to the FINRA Web site. 

A representative for Guggenheim — a New York-based firm with roughly $125 billion in assets under management — declined to comment. Rekeda’s whereabouts are unclear.  

According to the BrokerCheck report, Rekeda, a well-known CDO architect during the securitization boom, is also being investigated by the Securities and Exchange Commission (SEC) for a CDO he helped structure while employed by the Japanese bank Mizuho, where he worked prior to joining Guggenheim.

Rekeda was involved in the creation of several CDOs with Magnetar, the infamous hedge fund accused of lobbying for riskier assets to be put into CDOs, then placing bets against many of the investments, reaping huge profits when the deals soured.

In addition, the SEC could be pursuing charges against Mizuho and other involved parties. This would be the second time Mizuho has been faced with legal issues related to Rekeda. The bank was once sued by Crédit Agricole for “covertly poaching” Rekeda and his team. That lawsuit was settled for an undisclosed amount.

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