KPMG warned Guggenheim unit over deficiencies in internal controls

Auditing firm KPMG issued warnings to Guggenheim Private Investments (GPI), a unit of Guggenheim Partners, regarding weaknesses in its internal controls. These deficiencies specifically pertained to GPI's valuation of certain investments and its risk management processes, according to people familiar with the matter. The warnings from KPMG are significant because federal prosecutors in the U.S. Attorney's office in Manhattan and investigators from the U.S. Securities and Exchange Commission (SEC) are currently probing GPI's accounting practices.

The investigation into GPI was initiated following a whistleblower report early last year. This report drew attention to the accounting at GPI, leading to the ongoing federal criminal investigation. Anne Walsh, chief investment officer of Guggenheim Partners Investment Management, stated that the firm believes its accounting treatment was "appropriate" and that they have been cooperative with regulators. However, the previously unreported warnings from KPMG indicate concerns from an independent auditor.

The broader context of scrutiny around Guggenheim involves its insurance businesses. For instance, two of its insurers, Delaware Life and Clear Spring Life, received grand jury subpoenas in connection with an investigation into whether certain private credit investments were properly disclosed as related-party transactions. After these subpoenas, Delaware Life restated its affiliated investments from 3% to 42% of its invested assets, a figure reaching $13.3 billion, and Clear Spring Life also restated its figures significantly, indicating a much higher concentration of affiliated paper than initially reported. These reclassifications highlight potential issues with how Guggenheim-linked entities managed and reported their inter-company transactions and investments. Guggenheim has previously faced a class-action lawsuit alleging conflicts of interest related to its insurance companies funding the acquisition of the LA Dodgers, which was spearheaded by Guggenheim's CEO Mark Walter.