The Wall Street Journal: The SEC examines a Guggenheim-related bond swap algorithm for insurance companies


The US securities regulators are currently studying a series of bond trades carried out by three insurance companies related to Guggenheim Partners LLC, according to people close to the case.

The Securities and Exchange Commission has sought information on transactions recommended by Strategy 11, a trading algorithm developed by Guggenheim to help insurers select corporate bonds, officials said. At one point, insurers had used the recommendations generated by the Strat 11 program to invest nearly $ 13 billion, according to an independent audit of the algorithm's performance.

The three insurance companies that used the Strat 11 program were Guggenheim Life & Annuity Co., a unit of Guggenheim Partners; Delaware Life Insurance Co., controlled by Guggenheim Chief Executive Mark Walter; and EquiTrust Life Insurance Co., majority owned by basketball legend Earvin "Magic" Johnson. Walter and Johnson are investor friends of the Los Angeles Dodgers baseball team.

The data reviewed to date by the SEC has shown that more than half of the bond transactions recommended by Strat 11 were transactions between the three insurers themselves, officials said. In August 2017, several members of Guggenheim's management and insurers expressed concerns about what is called "cross-trades" and ordered a freeze on these transactions until They can study their goal, said people. By the beginning of 2018, at least one of these leaders had told the SEC that some transactions appeared to be priced higher than what these bonds could have yielded to Wall Street, some of these people said. It would be impossible to know if the regulator is trying to determine whether insurers have been overpaid for cross-traded bonds.

A developed version of this report appears on Good Assurance.

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